VAT: EU update including definitive VAT system and e.. | KPMG | UK

VAT: EU update including definitive VAT system and e-publications

VAT: EU update including definitive VAT system and e..

The Commission has published the technical details for the definitive VAT system for intra EU supplies of goods plus outcome from the latest ECOFIN meeting.

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The definitive VAT system for Business to Business (B2B) intra-EU transactions on goods is essentially an overhaul of the treatment of B2B intra community supplies of goods. Back in the EC’s Action Plan in April 2016, this was one of the medium term measures aimed at tackling the VAT gap. Under the new system, the cross-border trade of goods will be treated as a 'single taxable supply', which will ensure that goods are taxed in the Member State where the transport of the goods ends. The seller will charge VAT at the rate of VAT in the Member State of destination. In addition, a number of VAT items were debated at the latest Economic and Financial Affairs (ECOFIN) Council Meeting. The provisional minutes confirm that the Council failed to reach agreement on e-publications and domestic reverse charge.

Definitive VAT system for Business to Business (B2B) intra-EU transactions on goods
The current system, introduced in 1993, was a transitional system. The Commission has previously highlighted issues around the current two transactions approach (an exempt intra-EU supply and an intra-EU acquisition).

The Commission has now released its proposal which includes the technical changes to the VAT Directive. The Commission Press Release confirms that around 200 of the 408 Articles of the VAT Directive will need to be adapted. The new rules are currently envisaged to take affect from 1 July 2022.

Under the new system, the cross-border trade of goods will be treated as a 'single taxable supply', which will ensure that goods are taxed in the Member State where the transport of the goods ends. The seller will charge VAT at the rate of VAT in the Member State of destination. The changes will also see the introduction of an online Portal or 'One Stop Shop' for all businesses to avoid registering in every Member State. To access the corresponding Press Release click here.

ECOFIN Meeting on 25 May – failure to reach agreement on e-publications and domestic reverse charge
The provisional minutes confirm that the Council failed to reach agreement on:

  • Reduced rate for electronic books, newspapers and periodicals
    The VAT treatment of e-publications has been subject to much debate and most notably led to two CJEU court cases in Commission v France (C-479/13) & Luxembourg (C-502/13). As expected, the Court concluded that the application of a reduced rate to e-books was not compatible with the Directive, as Article 98(2) specifically excludes electronically supplied services from the reduced rate.

Following the 2016 Action Plan on VAT, in December 2016 the Commission put forward proposed amendments to the Directive to allow Member States the option of applying lower rates of VAT to e-books. There were some concerns around Member States that have a super reduced rate and zero rate (such as the UK). As a result, the only significant change from the original proposal, is that the lower rate can only be applied where a Member State had such a lower rate for physical publications as at 1 January 2017. The latest publicly available version of the changes dated April 2017 can be accessed here; and

  • Optional general reverse charge for domestic transactions for goods or services greater than €10 000.
    This proposal is one of the measures seeking to tackle fraud and the VAT gap. The mechanism has been under discussion since 2016 and is an optional temporary measure for Member States.To access the latest proposal click here. To access the Commission’s page on the reverse charge click here.

For further information please contact:

Karen Killington

Steve Powell

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