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EU plans to modernize its VAT system

Xinhua, April 8, 2016 Adjust font size:

The European Union (EU) executive has presented an Action Plan on Thursday, setting out ways to reboot the current EU common Value Added Tax (VAT) system to make it simpler, more fraud-proof and business-friendly.

The bloc's current VAT rules urgently need to be updated so they can better support the Single Market, facilitate cross-border trade and keep pace with today's digital and mobile economy, the European Commission said in a statement.

In the Action Plan, the EU intends to put in place definitive rules for a single European VAT area in 2017. Under the new rules, cross-border transactions would continue to be taxed at the rates of the destination country as today, but the way taxes are collected would be gradually changed towards a more fraud-proof system. At the same time, an EU-wide web portal would be implemented to ensure a simple VAT collection.

The "VAT gap", which is the difference between the expected VAT revenue and VAT actually collected in member states, was almost 170 billion euros (193.44 billion U.S. dollars) in 2013. Cross-border fraud itself is estimated to be responsible for a VAT revenue loss of around 50 billion euros a year in the EU.

Later this year, the EU will propose measures to reinforce current tools used by its member states to exchange information related to VAT fraud, fraud schemes and good practices.

Estimates show that the future VAT system could reduce cross-border fraud by around 40 billion euros (or by 80 percent) a year.

The current VAT system for cross-border e-commerce is complex and costly for EU countries and businesses alike.

Therefore, the European Commission will propose by the end of 2016 a legislation to modernize and simplify VAT for cross-border e-commerce. This will include a proposal to ensure that e-publications can benefit from the same reduced rates as physical publications, the statement said.

As a second step, the EU executive will present in 2017 a VAT simplification package designed to support the growth of SMEs and to make it easier for them to trade across borders.

The VAT system is a consumption tax which plays an important role in Europe's Single Market. It was originally put in place to do away with turnover taxes which distorted competition and hindered the free movement of goods and to remove fiscal checks and formalities at internal borders. It is a major and growing source of revenue in the EU, raising almost 1 trillion euros in 2014, corresponding to 7 percent of EU GDP. Enditem