EU: proposal for Single VAT System

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On October 4th 2017 the European Commission announced an overhaul of the current European VAT system. The long-term plan that could take effect on January 1st 2022 includes the introduction of a ‘single European VAT area’. A formal proposal is expected in 2018 but unanimous agreement from all Member States in the Council will be required before the proposal can enter into force. If embraced, this will have a very significant impact on businesses and governments in the European Union. In the short term, the European Commission have proposed ‘transitional measures’ and ‘quick fixes’, in preparation for the single European VAT area. If the proposals for transitional measures and quick fixes survive the European Parliament and the Council of Ministers, these measures should take effect on January 1, 2019.

That is the proposal. The reasoning behind what would be the biggest reform in EU VAT rules in a quarter of a century is the desire to crack down on an estimated €50 billion in tax revenue lost to cross-border VAT fraud.

Overall, over €150 billion of VAT is lost every year, of which around €50 billion - or €100 per EU citizen each year - is estimated to be due to cross-border VAT fraud. This money can be used to finance criminal organisations, says the Commission, including terrorism. It is estimated that this sum would be reduced by 80% thanks to the proposed reform.

The proposed VAT reform would also make the system more robust and simpler to use for companies. Businesses trading cross-border currently suffer from 11% higher compliance costs compared to those trading only domestically. Simplifying and modernising VAT should reduce these costs by an estimated €1 billion, says the Commission.

To find out in more detail exactly what the European Commission have in mind please see the official press release. You may also be interested to read a very informative Commission published Question & Answer document on VAT reform in the EU.

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