EU VAT Legislation Update

By Raluca Tutu, Mirus Consultanta Fiscala

"The complexity of the current EU VAT system is an obstacle to doing business the single market. The One Stop Shop will greatly facilitate cross border expansion of European start-ups. This turn will help to generate growth and jobs." – Algirdas Semeta, Commissioner for Taxation, Customs, Anti-Fraud and Audit said on the press release regarding developing the One Stop Shop for Cross border VAT compliance.

The European Commission proposes new amendments for the common VAT system after 19 years. The trigger:

  • Fragmentation of the common EU VAT system into 27 national VAT systems
  • Lack of harmonization translated into increment of prices paid by stakeholders
  • Refrain of taxpayers to engage in cross-border transactions
  • Alteration of VAT neutrality due to impact of the tax rules in commercial decisions ;

The purpose of the Communication:

  • Sets out the fundamental features of a future EU VAT system which can continue performing its function of raising revenues, while increasing competitiveness within EU;
  • It lists the priority areas for further action in the coming years moving into the direction of the above set objectives;
  • Fundamental features of a reshaped VAT system for the EU

A. EU VAT system based on the destination principle

The target is to achieve the fact that doing business across EU must be simple and safe as engaging in domestic activities – VAT compliance cost for doing business in EU must be reduced and cross-border trade not to generate additional costs;

B. Simpler, more efficient and robust VAT system

  • The target is to have a taxable person active across EU to be faced with clear rules and that is to have: one EU VAT Code.
  • The VAT to be efficient and neutral – equal rules governing deduction right and very limited restrictions on the exertion of that right;
  • The VAT to be robust and fraud proof – intensified, automated and rapid exchange of information between national tax administrations

Priority areas for further work

A. Towards a simpler VAT system:

The One-Stop-Shop concept

The target is: (i) to ensure a smooth introduction on the OSS in 2015 by relaying on Member States to make the necessary resources available; (ii) to envisage a broadening of the concept over time;

More accessible and better information at EU level

The target is to setup a an EU VAT system web portal by the Commission with the help of the Member States; the necessary information to be kept to date and accurate;

Improvement in the governance of VAT at EU level

The target is to publish in 2012 the guidelines agreed by the EU Commission and to set up a tripartite EU VAT forum

Standardizing VAT obligations:

The target is to propose in 2013 a standardized VAT declaration to be available in all languages and optional for businesses across EU. The same standardization to be followed for VAT registration and invoicing;

B. Toward a more efficient VAT system

Broadening the tax base:

The target is to have a proposal concentrating : (i) on activities with a greater degree of private sector involvement; (ii) in more neutral and simpler VAT framework;

Reviewing the rate structure:

The target is to have a restricted use of reduced rates, to tackle the legal uncertainty and compliance costs for 27 different rate structures

C. Towards a more robust and fraud-proof VAT system

Combating VAT fraud

The target is to ensure and monitor the full implementation of the Anti-fraud measures and to explore the possibility of setting up an EU cross border team to facilitate and improve multilateral controls;
The target is to strengthen cooperation with third countries with a view in exchanging information

D. A VAT system tailored to the single market

The target is to table in the first half of 2014 a legislative proposal laying down the definitive regime of taxation of intra-EU trade

Raluca Tutu, Tax Manager
Mirus Consultanta Fiscala, Bucharest, Romania; T: + 40 (31) 405 10 17; + 40 (21) 411 00 60
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