The European Commission (EC) has published its action plan on VAT. This draws together and sets out what the EC is doing on VAT, and ends with a section on VAT rates, which was linked to the recent sanitary products and energy saving materials debates in the UK.
The case for a single EU VAT area – This is an introductory page stating that the VAT system is unable to ‘keep pace with the challenge of today’s global economy and urgently needs reform in terms of reducing complexity for Small and Medium-Sized Enterprises (SMEs), combatting fraud, exploiting digital technology and greater trust between business and tax administrations as well as between tax administrations.’
Recent and ongoing policy initiatives:
This notes the recentwork on the quick reaction mechanism to help combat fraud, the 2015 place of supply rules and a more transparent governance system. Specific mention is given to extending the One Stop Shop (OSS) system to Business-to-Consumer (B2C) supplies of goods, a VAT threshold for e-commerce start-ups and the removal of Low Value Consignment Relief (LVCR). There is a specific section 2.2 that refers to the Commission preparing a comprehensive simplification package for SMEs.
Urgent measures to tackle the VAT gap:
This breaks down into the following subsections:
Medium term measures to tackle the VAT gap - towards a robust, single European VAT area:
This is an interesting section on the extension of the OSS i.e. the supplier charges VAT based on the rate of the customer’s Member State, with VAT being passed to the customer’s tax authority through the OSS. The first step suggests that the extension for intra EU B2B supplies would not apply to compliant businesses, certified by their tax administrations, including SMEs. This is described as helping businesses adapt. The second step would see the new rules applied to all intra EU B2B supplies of goods.
Towards a modernised rates policy:
Firstly, this notes the well-known issue regarding the different treatment between physical books and e-books and that this specific issue will be addressed in the context of the Digital Single Market strategy. Noting the advantages and disadvantages of flexibility and a divergence in VAT rates, the note puts forward two options which are:
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