Action plan to simplify EU VAT regime

The VAT Action Plan announced recently by the EU Commission consists of four main threads

  • A single EU VAT system
  • Plans for dealing with VAT fraud
  • Intention for member states to choose their own rates
  • Support for e-commerce and SMEs

The first thing to note is that the plan is primarily a discussion document and as a result is quite thin on detail. There are no announcements of imminent action. This is disappointing given the extent of reform that the plan accepts is required.

The intention is to publish a legislative framework for EU VAT reform some time in 2017, with a view to creating a revised VAT system for cross-border trade. This system will be based on the principle of taxation in the country of destination of the goods. The current regime was implemented in the early 1990’s and was always intended to be a transitional one. The action plan acknowledges that it is not fit for purpose. The plan is to create a single EU VAT area. Businesses would need to register for VAT only in their home country. The EC estimates that this would save approximately €1bn in administrative costs every year.

The plan suggests that there should be a transition period where “trustworthy businesses” would be certified by their tax administrations to purchase goods free of VAT in other countries and pay VAT in their own system

Plans for tackling VAT fraud, which is at least partially responsible for the estimated €170bn  EU wide ‘VAT gap’, include increased sharing of information between tax administrations, customs and law enforcement, modernisation of tax systems, and increased cooperation between businesses and tax bodies.

The action plan also suggests options to revise current policy on EU rules governing VAT rates. Should a VAT system based on the destination principle be set up, a rewriting of the rules governing VAT rates flows from this. In line with the subsidiarity principle, member states could be allowed greater autonomy on setting VAT rates, subject to appropriate safeguards to prevent excessive complexity and distortion of competition, and to ensure that the operation of the single market is not affected.

Finally, the plan also states that the Commission is reviewing the current system for cross-border e-commerce as part of its digital single market strategy .A legislative proposal on digital VAT issues is to be published by the end of 2016. It will include plans to modernise and simplify VAT for cross-border e-commerce by:

  • extending the current Mini One Stop Shop (MOSS) concept to all cross-border e-commerce, including distance sales;
  • introducing common EU-wide simplifications measures to help small start-up e-commerce businesses;
  • simplifying VAT audits in this sector (home country audits); and
  • abolishing the VAT exemption for the importation of small consignments from suppliers in third countries.

Proposals will be published in 2017.

If you have any queries regarding any of the issues discussed above, or any other VAT matter, please contact  our head of VAT Services, Gill Yates  at or on 0845 177 5500.

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