EU: Action plan on VAT; single VAT area

EU: Action plan on VAT; single VAT area

The executive body of the European Union is committed to deliver on its 1993 promise of a single value added tax (VAT) area—a final proposal is to be agreed and published for 2017. In addition the EC wants to close the “VAT gap”—the difference between tax due and tax collected. Lastly, a “modernized rates policy” would be intended to reflect recent trends of digitization and to address unfair tax rate competition.

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The EC on 7 April 2016 approved an action plan. A final proposal, due by 2017, will aim to improve the collaboration among EU and non-EU tax administrations. There will be a focus on the exchange of information (real time, across national borders), the network of Eurofisc (including joint risk management), the deployment of state-of-the-art technology and cross-border tax claim enforcement (debt collection). Other measures will aim at easing voluntary disclosures, tax collection (including a review of the roles of marketplaces and intermediaries). Measures taken on a country-by-country basis are to be endorsed by the EU.

Other actions

  • Extending the “one-stop-shop” mechanism to EU and non-EU businesses that sell online to EU-based private individuals (legislative proposal due by the end of 2016)
  • Introduction of a common registration threshold for non-domestic small and medium size enterprises (SMEs) to prevent SMEs for having to operate multiple registrations
  • Home-country checks, including a single audit of cross-border businesses
  • Removing the import VAT exemption of low value products (at a current €22 threshold)
  • Simplification package for SMEs (2017) to drive down the cost of compliance

Tax rate modernization

Endeavors for tax rate modernization appears to be at a crossroads. The EC proposes two basic options—either the extension and regular review of the list of products eligible for a reduced rate, or the abolition of this list.

Timeline

2016

  • Proposal for removing VAT obstacles to cross-border e-commerce (Digital Single Market – REFIT*) – e-publications
  • Measures to improve cooperation between tax administrations and with customs and law enforcement bodies and to strengthen tax administrations’ capacity
  • Evaluation report of an EU directive on the mutual assistance for recovery of tax debts

2017

  • SME VAT package
  • Proposal to enhance VAT administrative cooperation and Eurofisc
  • Proposal for the definitive VAT system for cross-border trade (single European VAT area, first step – REFIT)
  • Reform of VAT rates (REFIT)

 

*REFIT is the EC’s Regulatory Fitness and Performance program

 

Read a May 2016 blog item prepared by the KPMG member firm in Switzerland

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