In April 2016, the EU Commission announced proposals to modernise the EU’s VAT system, the VAT Action Plan. The existing VAT regime, the Commission argued, has a number of fundamental flaws: it is susceptible to fraud; places an unfair burden on smaller traders; unfairly restricts Member States’ ability to apply reduced VAT rates; and, has failed to keep pace with commercial and technological developments.
Since then, the Commission has released a number of legislative proposals to deal with each of these challenges. Each proposal requires the unanimous agreement of the EU’s Member States before it can be adopted. This is often a lengthy process with no guarantee of agreement.
Measures to update the VAT regime for transactions in the digital economy were already agreed in December 2017 and will come into effect in 2021. These measures were discussed in the January 2018 edition of TaxWatch. A further set of proposals aimed at countering cross-border VAT fraud is expected later this year.