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EU Drafts Directive To Overhaul VAT Law

by Ulrika Lomas,, Brussels

28 May 2018

In a new proposal for a Council Directive, the European Commission has set out the value-added tax law amendments necessary to bring about massive changes to how VAT functions in the European Union, in particular to simplify compliance obligations for businesses and to make the system less prone to fraud.

The Commission has said that about 200 articles of the EU VAT Directive must be amended to bring about what the Commission is terming a "definitive" VAT regime, which is focused on taxation under the destination principle – that supplies of goods and services should be taxable in the location in which they are effectively consumed under that state's tax rules.

The Commission's "Proposal for a Council Directive amending Directive 2006/112/EC as regards the introduction of the detailed technical measures for the operation of the definitive VAT system for the taxation of trade between Member States" sets out over 58 pages how each article would need to be amended.

As previously announced, the EU's plans are far-reaching, involving changes to:

  • Define the cross-border trade of goods as a "single taxable supply," to ensure that goods are taxed in the member state where the transport of the goods ends. Under the current system, trade in goods between businesses is split into two transactions: a VAT-exempt sale in the member state of origin and a taxed acquisition in the member state of destination.
  • Put in place an online portal, or "One Stop Shop," for all business-to-business EU traders to administer their VAT. The system will also be available to companies outside the EU that want to sell to other businesses within the EU and who would otherwise have to register for VAT in every member state.
  • Ensure that specific reporting obligations linked to the current VAT regime will no longer be needed for trade in goods, with further invoicing regarding EU trade to be governed by the rules of the member state of the seller.
  • Clarify that it is the seller that should charge the VAT due on a sale of goods to their customer in another EU country, at the rate of the member state of destination.

EU Tax Commissioner Pierre Moscovici said: "The proposals we are presenting today represent the final building blocks in the overhaul of the EU's VAT system. They will open the way to simpler rules, less red tape, and a more user-friendly system, thanks to the online one-stop shop for traders."

"It is time for our member states to trust each other when it comes to VAT collection on intra-EU transactions. We estimate that our proposed reform could reduce by 80 percent the EUR50bn lost each year in cross-border VAT fraud. I hope that member states will now seize this opportunity to put in place a quality VAT system for the EU."

TAGS: compliance | VAT special schemes | VAT registration / deregistration | tax | business | European Commission | value added tax (VAT) | VAT legislation | VAT cross-border transactions | legislation | trade | European Union (EU) | VAT compliance matters | Europe

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