Brussels, 30/10/2014 (Agence Europe) - On 30 October, the European Commission unveiled five options for the European Union's new value-added tax (VAT) system in the future, to replace the current temporary system that has been used for the past two decades and that the Commission says is now out-of-date.
The aim of the future 'definitive VAT system' is to respond better to the needs of companies in the Single Market and be more fraud-proof than the current system. The most recent European Commission figures reveal that some €177 billion of VAT income was lost in 2012 in 26 EU member states (not including Cyprus and Croatia) (see EUROPE 11183).
When the Single Market was set up in 1992, the plan was to set up a VAT system for inter-European Community trade that would take account of the way goods were taxed at national level and ensure a genuine border-free union, explains the Commission. Back then, it was not possible either politically or technically to set up a European VAT system that reflected national fiscal practices (in other words, taxation on the basis of the place of origin). A transitional system was set up by means of which deliveries of goods processed within the EU are VAT-exempt, and purchases of goods bought in the EU are taxed in the member state of purchase.
The Commission explains that it has been decided that any definitive system would have to rely on taxation at destination (in other words, VAT would be due at the place where the goods are destined). The Commission has drawn up five options that it feels could be considered when designing and introducing the new system: - 1) the supplier would charge and pay the VAT of the member state to which the goods are delivered by declaring them in its own member state. This option would require a one-stop-shop, explains the Commission. 2) Taxation of intra-EU supplies where the customer is established regardless of the place of delivery of the goods. 3) Reverse charge option: the goods would be taxed in the member state of establishment of the customer, with the customer being liable to pay the VAT. 4) The recipient would be liable to pay the tax, but the place of taxation would be the place to which the goods are delivered. 5) This option would keep the system as it is, while addressing some of its weaknesses. Simpler procedures could be devised for consignment stocks, for chain transactions and for providing proof that the goods have moved from one member state to another.
The Commission is currently carrying out a root-and-branch assessment to determine how each of these options would affect companies and countries. Based on its conclusions, in the spring of next year, it will unveil potential pathways for the future. (EL)