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VAT Alert


On 2 October 2018, the Member States of the European Union (EU) adopted four of the proposed reforms which comprise the European Commission action plan to modernise and consolidate the VAT system.

1. Quick fixes

The main amendment contains four adjustments to the VAT rules whose aim is to consolidate the system pending the adoption of the definitive regime for intra-Community transactions.

► The first quick fix (Art. 138 Paragraph 1) strengthens the conditions required to benefit from the VAT exemption, in the Member State of origin, for intra-Community supply of goods.

Valid identification of the acquirer and submission of a recapitulative statement containing the required information will become substantive conditions to benefit from the exemption. Thus, companies will no longer have the ability to substantiate by other means the acquirer's taxable status. If a mistake is made in completing this statement, the directive provides for the possibility to prove to the tax authorities that the error was committed, but we find the scope of this exclusionary clause to be quite poorly defined. In practice, these two measures will deprive operators of any room for error and will render certain transactions complex, especially those undertaken by companies just starting operations.

► The second quick fix aims to consolidate the legal certainty of operators by harmonising the evidence needed to presume the effective dispatch or transport of goods between Member States in order to benefit from the exemption for intra-Community supply of goods (Art. 45a of Regulation 282/2011).

► The third quick fix aims at harmonising and simplifying the call-off stock rules across the EU (Art. 17a).

► Finally, the fourth quick fix consists in establishing a harmonised rule for ascribing the dispatch of goods in chain transactions. This adjustment targets cases in which the same goods are subject to successive sales and in which dispatch or transport occur directly between the first seller and the last acquirer in the chain (Art. 36a). In such transactions, the directive now determines explicitly to which of the successive transactions the dispatch or transport is ascribed when the dispatch or transport is carried out by the intermediary operator or on its behalf. As a general rule, the dispatch or transport is to be ascribed to the intermediary operator, unless it communicates to its supplier, the identification number issued to it in the country from which the merchandise was dispatched, in which case the dispatch is ascribed to the dispatch made by the intermediary operator.

The four quick fixes shall enter into force on 1 January 2020.

Several measures that had been included in previous versions were not agreed to by the Member States, but should nevertheless be mentioned.

The directive no longer contains the provisions by which the Commission intended to have the system take a first step toward the definitive scheme laid out in its 2022 action plan. Although the establishment of a definitive system founded on the principle of taxation at the point of departure was deleted from the VAT directive (Art. 402), the principle of taxation at the destination, which is now the foundation of the planned changes to the system, did not replace it. Similarly, the directive no longer provides for the creation of a certified taxable person status which the Commission wanted to see implemented ahead of the definitive scheme it is proposing for the future.

As a result, all the measures necessary to set up a definitive system founded on the principle of taxation at the destination are now contained in a new draft presented on 25 May 2018, about which negotiations between the Member States have hardly begun.
Moreover, the adopted text only includes four quick fixes to the system for the intra-Community supply of goods whereas as an additional adjustment had been proposed by certain Member States to extend the scope of the exemption for services provided  by independent groups of non taxable or exempt persons to their members (Art. 132 Paragraph 1, f) of the directive). According to a Council statement appended to the draft directive adopted by ECOFIN, the Commission will eventually propose a draft directive at the conclusion of a study addressing this question.
IP 532/118, 02 oct. 2018 - Text of agreed VAT "quick fix" package

2. Generalised, temporary reverse charge mechanism

Until 30 June 2022, the Member States that are most severely affected by carousel fraud will be able to apply the reverse charge mechanism  to the customer for all domestic B2B transactions in excess of 17,500 Euro. This directive shall enter into force on the twentieth day following that of its publication in the OJEU. But in practice, it will be several months before it is implemented by the States because they must first present a request to the Commission to demonstrate that they meet the criteria defined by the directive, namely: 

  • first, that their benchmark VAT gap (2014, as determined in a 2016 report) exceeds by at least 5 points the average VAT gap of Member States;
  • second, that at least 25% of this gap is due to carousel fraud as determined by the assessment method proposed by the Commission; and, finally,
  • that the estimated gains from applying the measure to compensate for the inefficacy of other control measures outweigh the expected overall additional burdens on businesses and tax administrations by at least 25%.

After the request has been studied and after any discussions between the Member State and the Commission, the application of the measure must be authorised by a unanimous decision of the Council of the EU acting on a proposal from the Commission which shall subsequently retain the right to press an 'emergency button' enabling it to end the practice of generalised reversal of liability if it is shown to have considerable negative impact on the internal market.
IP 534/18, 02 Oct. 2018 - Text of the agreement

3. Rates applicable to online books, newspapers and periodicals

The Member States may now apply a reduced rate, including a rate below the general threshold of 5% to books, newspapers and periodicals supplied electronically. As a reminder, France already applies the reduced rate of 2.1% to electronic media just as it does to print media.
IP 563/18, 02 Oct. 2018 - Text of the directive as agreed
Finally, the Council of the EU adopted various amendments to Regulation 904/2010 on administrative cooperation between the Member States in the field of value added tax.
IP 535/18, 02 oct. 2018 - Text of the regulation on strengthening VAT administrative cooperation