In a press release published on 7 April 2016 (COM(2016) 148 final)), the European Commission presented its strategy to the European Council for the modernisation of the VAT system.
These proposals are the result of several years of reflection and consultation with member States and all stakeholders, in particular carried out, since the launch in 2010 of the Green Paper on the future of VAT within the VAT Forum and the VAT Expert Group through several public consultations and various studies ordered by the Commission.
The action plan proposed by the Commission, the implementation of which should involve the presentation of several proposals for directives in a provisional timetable running from 2016 to 2018, is subject to an agreement in principle by the Council and then to legislative work by the member States, whose outcome from a tax standpoint is subject to the unanimous agreement of the member States.
The entry into force of some of the components of this action plan should accordingly not be expected for several more years.
The measures, whose details need to be specified in the draft texts which the Commission proposes to submit to the Council, shall relate to the following points.
1. A definitive taxation regime at the place of destination for intra-Community deliveries of goods between taxpayers
The timescale for this measure is the longest. Taxation at the place of destination for transactions on goods would replace the provisional regime, which is particularly subject to fraud, that has been applicable since 1993. VAT would be reported and paid by the supplier via a “one-stop-shop” mechanism, such as applicable since 1 January 2015 to electronic services in “B to C” relations. Nevertheless, compliant purchaser businesses (certified by Member States under conditions that are not detailed yet) would be liable (through the reverse charge mechanism) for VAT on those transactions instead of the supplier.
According to the action plan this regime could even be extended to cross-border services in the future
2. Measures appropriate to the development of e-commerce
This is the most immediate component of the programme. From 2016 onwards, the Commission will propose the extension to online sales of goods to private individuals (which are taxable at the place of consumption) of the mechanism for reporting and paying VAT from a single member State (mini-one-stop-shop, MOSS), the removing of the exemption for imports of small consignments from non-EU suppliers and harmonised measures targeted at small companies starting up, the consistency of which is not currently specified. The question of the VAT rate applicable to books and electronic media should be included in this first round of measures.
3. A revision in the setting procedures for reduced VAT rates
Proposals on this issue shall be formalised in 2017 based on two options being considered by the Commission. The first would involve introducing a periodic review procedure for the list of goods and services eligible for a reduced rate (current Annex II of the Directive). Under this option, the current list concerned goods and services would remain and extended to all those for which specific derogations exist, ensuring an equal treatment. Based on the second option, on the contrary, the list of eligible goods and services would be abolished. Member States would have a greater freedom although safeguards should apply to avoid unfair tax competition. The application of a reduced rate could therefore be excluded for some goods and services, which are particularly vulnerable to a risk of unfair competition between Member States.
4. Supervised and temporary application of the generalised reverse charge procedure for the States most exposed to fraud
The EU Commission does not oppose the application of a generalised reverse charge mechanism for VAT between taxpayers. Application of the solution would nevertheless be specific, temporary and decided unanimously by the European Council on a case-by-case basis for each Member State which requested it (as is currently the case for Hungary). The generalisation of reverse charge as a prospective definitive regime is consequently clearly ruled out by the European Commission.
5. A “VAT Package” for small companies
Several harmonisation and simplification measures targeted at small businesses should be presented in 2017. The exemption basis could be affected, as could the VAT reporting format, even if the Commission has recently been obliged to abandon the first harmonisation project which it presented, given the lack of a serious prospect of agreement between member States.
6. Other consolidation measures for the system
Several initiatives would be taken by the EU Commission with the principal objectives of:
- strengthening cooperation between member States and third party countries;
- promoting common quality standards for all tax authorities for the collection, management and monitoring of VAT;
- improving tax collection, in particular for new players in the collaborative economy;
- and promoting responsible tax.
The precise nature of the actions which shall be undertaken to achieve these objectives needs to be specified.
Please click here for a direct access to the EU Commission website information relating to the action plan (http://europa.eu/rapid/press-release_IP-16-1022_en.htm?locale=EN)