Michaela Merz

EU – public consultation on reform of VAT rates policy, small enterprise and definitive VAT System for B2B intra-EU transactions in goods

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539368_web_r_by_wandersmann_pixelio-deAs you know the European Commission published three VAT-related consultations at the end of last year to prepare its work for the upcoming year. Each of the three consultations relates to a specific set of reforms already announced in the European Commission’s VAT Action Plan earlier this year. The three consultations relate to:

 

 

  1. Reform of EU VAT rates policy
  2. Definitive VAT system for B2B intra-EU transactions in goods
  3. Special scheme for small enterprises under the VAT Directive

The publication of the consultations as such is no surprise. The Commission is committed to systematically gather stakeholder feedback ahead of policy change proposals, with the dual-purpose of informing its own policy-making process, as well as legitimising its action.

1.) Consultation on the reform of the EU’s VAT rates policy:

With the intended move to a definitive EU VAT regime based on the destination principle, the Commission has assessed it appropriate to grant EU Member States greater freedom in the determination of their VAT rates policies. In this regard, the consultation asks for stakeholders’ views notably on the following:

  • How to best balance granting Member States greater flexibility whilst not rendering the VAT system more complex
  • Standard rate: as announced in its VAT Action Plan, the Commission considers two options

1. Keep the standard VAT rate of 15% and update regularly the list of goods and services eligible for reduced rates, on the basis of Member States’ suggestions

2. Remove the minimum rate of 15% and abolish the list, thus granting Member States greater discretion to fix their VAT rates

  • Number of rates: whether or not Member States should receive more flexibility regarding the number of rates they can apply
  • Super-reduced rates:
    • Extend the scope of super-reduced rates to all Member States (but risk rendering the VAT system more complicated and erode VAT Revenue)
    • Remove the super-reduced rates from the VAT system, thereby simplifying the VAT system (but will be difficult for Member States that currently use super-reduced rates to approve)

2.) Consultation on the definitive VAT system for B2B intra-EU transactions on goods:

In its VAT Action Plan, the Commission announced that it would move towards the definitive regime through a step-by-step approach. Introducing the definitive VAT system for B2B intra-EU transactions in goods would be the first step. With this regard, the consultation asks the stakeholders’ views notably on the following:

  • Short-term improvements to the current transitional VAT system:
    • According to the Commission, while working on the definitive VAT, improvements can be envisaged in selected areas to the current transitional system in order to address most pressing problems within existing legislation
    • eg on VAT ID numbers, chain transactions, call-off stock, application of an optional domestic reverse charge to fight fraud, etc.
  • Moving towards a definitive VAT regime based on the destination principle:
    • Identify the best solutions for ensuring taxation in the Member State of destination and who should be responsible for the payment of VAT
    • The two transactions (intra-EU supply and intra-EU acquisition) of the transitional VAT arrangements will be replaced by one single supply
    • Concerning taxation at the Member State of destination, two approaches are considered in the questionnaire – whereas only one is considered in the Action Plan:
      • Taxation at the place where the goods arrive
      • Taxation at the place where the customer is located
    • Who should be obliged to account for VAT: the supplier or the customer
    • The extension of the One Stop Shop (OSS) to B2B intra-EU transactions of goods and the introduction of a Certified Taxable Person (CTP)

3.) Consultation on the Special scheme for small enterprises:

In its VAT Action Plan, the Commission committed itself to a comprehensive simplification package for SMEs, which will in particular entail reviewing the special scheme for SMEs. Issues with the current scheme include:

  • Lack of a level playing field: suppliers from other EU Member States are treated differently from domestic ones
  • The system must be adapted to comply with the destination principle
  • Even within the scheme, the VAT rules are still complex and cause high compliance costs on SMEs, stemming in particular from the fragmented nature of national VAT rules
  • The Commission will also reflect on how to reduce compliance costs for SMEs with regard to a standard VAT return

In this regard, the consultation asks the stakeholders’ views notably on the following:

  • Whether there is still need for a separate SME VAT scheme
  • Whether (the currently optional) scheme should be mandatory for Member States or even SMEs
  • Whether the SME exemption schemes (e.g. applicable thresholds) applied in different Member States with slightly different rules should be harmonised
  • The scope of availability of the scheme for companies within the EU
  • Under which conditions SMEs should register for VAT purposes and the frequency of submitting VAT returns

Please provide your opinion HERE.

 

Bildquelle: Wandersmann / pixelio.de

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