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European Commission’s Future of VAT Proposals

European Commission’s Future of VAT Proposals
16 Dec 2011

Last year's Green Paper consultation on the future of VAT by the European Commission attracted over 1,700 responses including one from Taxand. As a follow up, the EC has just released a communication committing itself to no less than 26 concrete action points. Provided here is Taxand's Take on the most important implications of these actions for multinationals.

The EC view is clear: change is essential. The administrative burden for multinationals forced to deal with 27 different tax authorities and a variety of compliance obligations is colossal. Business efficiencies are often compromised by inflexible and fragmented VAT rules.

The reforms proposed are designed to develop a VAT system that is simple, efficient and neutral, "robust and fraud proof" and appropriate for a single trading market. Proposals include:

  • reverting the originally envisaged country of origin principle to a country of destination principle to ensure supplies of goods and services are treated in the same way, by the first semester of 2014
  • simplifying the VAT environment through expanding, over time, the One Stop Shop (OSS) principle beyond telecommunications, broadcasting and electronic services post 2015
  • providing better access to VAT information through a new online portal which aggregates key data from EU countries in several languages
  • achieving better governance by:
    • setting up a VAT Forum comprising the Commission, Member States and stakeholders;
    • providing more guidelines and
    • proposing common formats for VAT forms, returns, registrations, invoicing, reverse charge and exemption justifications
  • broadening the tax base by addressing public vs private competition issues, changing unfair passenger transport tax rules and reviewing VAT exemption cases per se
  • assessing current low VAT rates to propose some commonality through consultation with stakeholders by 2013 (eg foodstuffs are currently treated from a zero VAT rating up to a 25% level)
  • addressing the 12% VAT gap caused by fraud by introducing new approaches such as a quick reaction mechanism next year, EU cross border audit teams, as well as a host of measures already in play
  • reviewing the way VAT is collected and introducing uniform approaches


Taxand's Take

The European Commission is clearly keen to modernise the VAT system. While historical attempts to do this have wavered due to the difficulty of reaching agreement across 27 member states (eg VAT package 2010 and the proposals around VAT exemptions for financial services), we are hopeful that some of the actions proposed could deliver results in the short term. Particularly impactful for multinationals trading across borders if implemented would be the introduction of common reporting formats and the online portal.

To find out more about how the EC proposals around the future of VAT could impact you, please contact your Taxand Indirect Tax advisor.

Taxand's Take Author