• European Commission launches a reform of the European VAT system

European Commission launches a reform of the European VAT system

Katrien Kegels, Senior Manager |

18 October 2017

On 4 October 2017, the European Commission proposed a substantial reform of the EU VAT system, introducing a new definitive single EU VAT area. The main purpose is to introduce a simplified and fraud-proof VAT system.

The proposal comprises a series of fundamental principles (cornerstones) and key reforms that will form the backbone of a definitive EU wide VAT system for cross-border trade. The Commission also introduces the concept of a ‘Certified Taxable Person’ and it is also proposing a number of short-term (2019) ‘Quick Fixes’.

Cornerstones

These are the cornerstones that will be sent to the EU  Member States for agreement.

Tackling fraud

One of the most important changes is that in a B2B-relation VAT from the country of destination will need to be charged on cross-border supplies within the EU. The VAT exemption for intra-Community supplies of goods will, therefore, be abolished.

One Stop Shop

A ‘One Stop Shop’ portal will lighten the administrative burden of businesses within the EU. Traders will be able to file their VAT return on a single portal site and make payment in their own languages according to the rules and administrative models of their country of establishment. Member States will directly pay the VAT due, as is already the case for electronic services (Mini One Stop Shop).

Greater consistency

Due to a move to the ‘principle of destination’, cross-border supplies will be taxable in the country of destination of the transport, rather than the country of departure.

Less red tape

Invoicing rules will be simplified. Invoices will be issued according to the rules of the country of origin, even when trading across borders. The obligation to file European Sales Listings will be abolished.

 

The concept of ‘Certified Taxable Person’

VAT taxable persons that meet certain requirements can apply for a certificate with their national tax authorities, allowing them to be considered throughout the EU to be a reliable VAT payer (‘Certified Taxable Person’). Once certified, they will be able to enjoy a number of simplified procedures for the filing of VAT returns and the payment of cross-border VAT.

 

Quick Fixes

While awaiting approval and implementation of the definitive VAT system, the Commission also proposes a number of short-term measures to improve the functioning of the current VAT system. These Quick Fixes address issues explicitly requested by businesses and Member States and are expected to be implemented by 2019.

Simplification of VAT rules

Member States will have to simplify their VAT rules for VAT taxable persons that store goods in another Member State to be sold directly to customers there (call-off stock). The application of this simplification measure is limited to Certified Taxable Persons.

Chain transactions in a cross-border situation

Member States are requested to take measures to simplify the allocation of transport in cross-border chain transactions. This simplification is also limited to Certified Taxable Persons.

Simplification proof of transport of goods

New harmonised and uniform rules are necessary to simplify the proof of transport of goods between two Member States in case of exempt intra-Community supplies of goods (limited to Certified Taxable Persons).

Clarification valid VAT identification number as a material condition for exempt intra-Community supplies

Member States will be asked to adopt measures to clarify that a valid VAT identification number, issued by another Member States and registered in the EU VIES verification system, is required to apply the cross border VAT exemption under the current rules.

 

To be continued…

The Commission’s proposition will be forwarded to the European Parliament for consultation and to the Council of Ministers for their agreement. The implementation requires the unanimous agreement from all Member States.

After the official approval, the Commission will develop a detailed proposition to modify the VAT directive at technical level. The adoption of this second proposal is scheduled for spring 2018 and the definitive VAT system should enter into force in 2022.

 

Effects of the new VAT system

The actual impact of the new VAT system can only be assessed after the detailed propositions will be announced.

However, some important remarks can already be made.

The Quick Fixes are an important step towards a uniform simplified VAT system. From a Belgian VAT perspective, the impact of the new measures will be rather limited though. In Belgium, simplification rules already exist for consignment and call-off stock. In 2016, the destination document was introduced as a simplification measure for the proof of intra-Community supplies. The application scope of this document will, under the proposal of the Commission, need to be restricted to Certified Taxable Persons only.

It is yet to be determined what needs to be done to obtain (and understood under) the status of Certified Taxable Person. However, as this concept is crucial in view of the application of some of the proposed Quick Fixes, this will hopefully be clarified soon.

This proposal is very ambitious and it can be questioned whether it is possible to align the different views of all EU Member States to reach an unanimous decision.

 

Contact

Questions regarding this subject can be addressed to one of our VAT specialists, or you can send an e-mail to [email protected] :