On October 4, 2017, the European Commission published a set of proposals aimed at simplifying and modernizing the current VAT system. The “cornerstone” principles of the Commission’s approach are:
- Combating VAT fraud and reducing the €150 billion VAT Gap
- Establishing a “One Stop Shop” for cross-border trade
- Consistently applying the “destination principle” for VAT
- Simplifying invoicing rules for businesses making cross-border supplies
In the short-term, the Commission has proposed four "Quick Fixes" aimed at shoring up the current system which would take effect January 1, 2019 if approved by the European Parliament and Council of Ministers:
conditioning the zero-rating of intra-Community supplies on receipt of an acquirer's VAT Identification number and correct filing of the recapitulative statement. (In the long-term, recapitulative statements will become less critical and will eventually be phased out, simplifying the compliance burden on businesses).
a simplified arrangement for call-off stock, available only to CTPs;
a simplified arrangement for chain transactions, available only to CTPs; and
new formal conditions for proof of cross-border delivery of goods for transactions involving CTPs.
In the long-term, the Commission also proposes a system where all cross-border trade will be taxed at the rate of the Member State of destination, but where VAT will be remitted to a single online portal (the "One Stop Shop") available in the language and format of any supplier's home country. The current treatment of cross-border trade, involving the zero-rating of intra-Community supplies with self-assessment by the purchaser, will only be allowed if the supplier or acquirer is a "certified taxable person" (CTP) who can verify reliability and solvency. The Commission intends to release detailed implementation regulations for this proposal in 2018, with the ultimate intent of establishing a robust single VAT area by 2022.
About the Author
Charles Riordan is a member of the Tax Research team at Sovos Compliance specializing in international taxation, with a focus on Value Added Tax systems in the European Union. Charles received his J.D. from Boston College Law School in 2013 and is an active member of the Massachusetts Bar.More Content by Charles Riordan