Plan to modernise EU VAT announced

14th April 2016

The EU Commission has this month adopted a plan to modernise and simplify VAT as it applies across the EU member states.

The stated objectives are to better tackle VAT fraud, support digital and e commerce, reduce the administrative burden of VAT for intra EU trade especially for SMEs, reduce differences in the various VAT rules and consider more flexibility on EU VAT rates.      

The 1993 Single Market VAT rules were always supposed to be transitional and for years we were told to expect a move away from VAT being collected in the EU state of the customer (Destination principle) towards VAT being charged in the EU state of the supplier (Origin principle) but the new plan confirms that intra EU trade will still be taxed at the VAT rate at the destination member state. However, the plan is that there will be an EU wide web portal to simplify VAT collection for businesses and anti-fraud measures to collect revenue more effectively.

The EU Commission believes that it can cut intra EU VAT fraud by 80% with yet to be announced measures that will be included in the new VAT system. This year measures to better tackle fraud within the current EU VAT system will also be announced and these appear to be based around improved exchange of information between the EU VAT authorities.

It looks like the minimum 15% standard VAT rate will remain in place across the member states but there may be a change to allow more flexibility on what each member state can include in their reduced and zero VAT rates.

By the end of this year the Commission promises to publish a legislative proposal to both modernise and simplify the VAT rules relating to digital business and e commerce, possibly including parity of VAT treatment for digitised and printed publications and in 2017 the Commission states that it will also issue details of a simplified VAT package for SMEs to help them grow and encourage their intra EU trade.

I’m sure we will be commenting further on these proposed changes as details materialise. 

To read more on this plan please see:  EU press release on Action Plan

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