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EU Lauches Debate On VAT

by Ulrika Lomas,, Brussels

03 December 2010

The European Commission has launched a wide ranging consultation into the possibility of EU-wide reform of value-added tax with the aim of making VAT simpler, more efficient and less susceptible to fraud.

Launching the consultation, Taxation Commissioner Algirdas Šemeta said that the EU "needs a VAT system for the 21st century: simple, modern and effective."

"VAT is paid by citizens, collected by businesses and is a main source of revenue for member states, so everybody has an interest in this tax," he observed. "I would urge people to make their voices heard in this consultation, so that we can ensure that the future VAT system works better for everyone.”

VAT contributes up to 20% of total tax revenues in the EU. However, the Commission's intentions may be viewed by the more euro-sceptic governments in the bloc as another attack on national tax sovereignty, and it may be difficult for a consensus to emerge on the Commission's ideas from all 27 member states, especially if there are suggestions that the initiative may lead to more coordination on VAT rates.

The Green Paper sets out questions under a few broad headings, including:

  • Whether the fundamentals of the current VAT system should be overhauled, and whether goods and services should be taxed in the member state of origin or where they are sold;
  • Whether reduced VAT rates are still "relevant", and whether the rules on deductions are neutral enough;
  • Whether and how the system can be made more fraud-proof, and how red tape can be cut in VAT transactions; and
  • Whether and how the collection of VAT could be improved in order to close the EUR100bn 'VAT gap' that currently exists in the EU.

The public consultation will remain open until the end of May next year, and the Commission then intends to propose its priorities for the EU VAT system in a Communication towards the end of 2011.

TAGS: tax | business | European Commission | value added tax (VAT) | law | tax reform | Europe

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