Brussels, 10/03/2016 (Agence Europe) - On 16 March, the European Commission is expected to call for a definitive VAT regime which is adapted to its time.
In a draft VAT action plan, of which EUROPE has had sight, the Commission states that the VAT system has not followed the pace of the challenges of the global, digital and mobile economy. The Commission is planning a “definitive regime based on the principle of taxation in the country of destination of the goods: the fiscal rules under which the supplier of the goods will collect the VAT from the client will be extended to cross-border transactions”. “This change alone should help reduce cross-border VAT fraud by €40 billion per year”, the Commission anticipates.
For the definitive VAT regime, the Commission will move forward in two stages. The first of these is anticipated for 2017 (see EUROPE 11508 for details). Every year, VAT revenue of around €168 billion is lost to 26 countries of the EU due to tax fraud, evasion and optimisation, bankruptcy, insolvency and calculation errors.
The draft action plan states that the current system for cross-border electronic trade is complex and expensive for member states and businesses. “Moreover, EU businesses are at a competitive disadvantage, as non-EU suppliers can supply VAT-free goods to consumers in the EU under the exemption for imports of small consignments”. The legislative proposal is expected before the end of 2016. The Commission already announced this in the framework of its strategy for the digital single market: amongst other things, the proposal will aim to extend the current electronic single registration and payment system to sales of material goods, to bring in a VAT threshold in order to help start-ups and small on-line companies, to authorise cross-border companies to be subjected, for the purposes of VAT, to controls carried out exclusively by their country of origin and to remove the VAT exemption for the imports of small consignments from suppliers located in third countries.
More generally, the Commission will also prepare a simplification package for SMEs in order to create an environment which is conducive to their growth and to cross-border trade. The special regime for small businesses will be revised. A proposal is anticipated in 2017.
In order to reduce the VAT gap, the Commission is, above all, aiming for in-depth cooperation between the member states. It argues that they will have to move towards a system of cooperation based on the exchange of information on new models for the joint sharing and analysis of this information. It will therefore look into how the role and impact of Eurofisc, the network of national officers responsible for detecting and fighting cases of cross-border VAT fraud, can be reinforced. It believes that Eurofisc should have direct access to the information held in the various member states. The proposal is also expected for 2017.
Without referring to the Czech Republic and its request to be authorised to carry out a pilot project for a generalised reverse-charge mechanism, the Commission said that it will look into requests for derogations issued by certain member states. The Czech Republic is seeking authorisation to apply this reverse-charge mechanism to goods and services beyond €10,000.
The Commission made no promises but nonetheless said that administrative measures are in place to contain fraud in the member states. It therefore stands available to states which need its help to improve tax collection and inspection capacity. “This could involve Commission financial support and the expertise of national tax administrations”, it explains in the draft action plan.
National leeway for reduced rates. As we announced earlier this week, the Commission is considering two options to give the states flexibility to set reduced rates of VAT (see EUROPE 11506). The Commission states that the choice will be a political one. The first option would see all existing reduced rates, including derogations, kept in place: they could be included on the list of optional reduced rates available to the member states to ensure equality of treatment. The second option would consist of simply abolishing the list of reduced rates and giving the states greater freedom as regards the number and level of reduced rates. The member states would still be obliged to observe the single market and competition rules, and those in the framework of economic governance. The number of reduced rates would be limited and certain specific rules set in place. Under this option, the minimum standard VAT rate would be removed. (Original in French by Elodie Lamer)