The European Commission has released an Action Plan on VAT, setting out plans for the next two years to modernize European Union value-added tax (VAT) rules.
By the end of 2016, the Commission is to propose legislation that would extend the current One Stop Shop concept to all cross-border e-commerce, including distance sales. It will also introduce common EU-wide simplification measures to help small start-up e-commerce businesses, and streamline audits for companies engaged in the sector. In line with the OECD’s recommendations in its Action 1 report on the tax challenges of the digital economy, it will also remove the VAT exemption for the importation of small consignments from suppliers in third countries.
Further, the Commission will seek to improve cooperation between tax administrations including from non-EU countries and with customs and law enforcement bodies, to strengthen tax administrations’ capacity for a more efficient fight against fraud. A report evaluating the Directive on the mutual assistance for the recovery of tax debts will also be released. This work will be taken forward in 2017 also, alongside a proposal to enhance VAT administration cooperation and bolster Eurofisc, the anti-fraud agency.
The Commission will also ensure that member states have greater freedom on setting value-added tax rates, including providing for technology-neutral VAT treatment for digital economy supplies, by allowing the same VAT treatment for the digital equivalents of traditional supplies (for example, for e-books and tangible books).
The VAT Directive sets out general rules limiting member states’ freedom to set VAT rates. Rules on tax rates were designed over two decades ago in the context of a definitive VAT system based on the origin principle. They were intended to guarantee, above all, the neutrality, simplicity, and workability of the VAT system and featured, notably, lower limits on the levels of the VAT rates and a list of the goods and services which could benefit from reduced rates.
The Commission has proposed that member states could be granted greater autonomy on setting VAT rates, subject to appropriate safeguards to prevent excessive complexity and distortion of competition, and to ensure that the operation of the Single Market is not affected.
The Commission has put forward two options for giving member states more freedom. However, the degree of autonomy on rates to be granted to member states is not purely a technical matter, but requires political discussion, the Commission said. The Action Plan aims at initiating such political discussion with the member states in the Council, as well as in the European Parliament, to allow the Commission to submit, in 2017, detailed legislative proposals based on a mandate from the Council.
Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, said: “Today, we are starting a dialogue with the European Parliament and the Member States for a simpler and more fraud-proof VAT system in the EU. Every year, cross-border VAT fraud costs our Member States and taxpayers about EUR50bn (USD57bn). At the same time, the administrative burden for small businesses is high and technical innovation poses new challenges for VAT collection. This Commission has already proposed clear measures to address corporate tax avoidance, and we will be equally decisive in tackling VAT fraud.”
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “VAT is a major source of tax revenue for EU member states. Yet we face a staggering fiscal gap: the VAT revenues collected are EUR170bn (USD193.6bn) short of what they should be. This is a huge waste of money that could be invested on growth and jobs. It’s time to have this money back. We are also keen to grant member states more autonomy on how to define their VAT reduced rates. Our Action Plan will deliver on each of these points.”
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