On April 7, 2016 the European Commission presented its long awaited Action Plan on VAT.
The Action Plan identifies the following 4 main key actions:
· Recent and ongoing policy initiatives
· Urgent measures to tackle the VAT Gap
· Towards a robust single European VAT area
· Towards a modernised VAT rates policy
In its Action Plan the European Commission provides a high-level overview of the ideas it has with respect to the different key actions mentioned above. The Action Plan also provides insight in when the Commission expects to present legislative proposals with respect to each of the key actions.
Towards a robust single European VAT area
Since we find this main key action the most interesting one, we will start by discussing it as first.
To this end, the Commission expects to present a legislative proposal for a definitive VAT system for cross-border trade in 2017.
According to the Action Plan this definitive VAT system will be based on the principle of taxation in the country of destination of the goods, as agreed by the European Parliament and the Council.
In the Action Plan it is stated that the Commission considers that in the definitive VAT system, the taxation rules according to which the supplier of goods collects VAT from his customer should be extended to cross-border transactions. This will ensure consistent treatment of domestic and cross-border supplies along the entire chain of a production and distribution, and re-establish the basic features of the VAT in cross-border trade i.e. the fractionated payments system with its self-policing character.
In an infographics the European Commission makes a comparison between the old and the new system. From these infographics we understand the following:
Recent and ongoing policy initiatives
This key action is divided in 2 sub-actions:
· Removing VAT obstacles to e-commerce in the single Market
· SMEs VAT package
Removing VAT obstacles to e-commerce in the single Market
According to the Action Plan the Commission expects to present a legislative proposal by the end of 2016 to modernise and simplify VAT for cross-border e-commerce.
SMEs VAT package
According to the Action Plan, further to the new , the Commission is preparing a comprehensive simplification package for SMEs that will seek to create an environment that is conducive to their growth and favourable to cross-border trade. The Action Plan furthermore states that in particular, the special scheme for small enterprises will be subject to review. The Commission expects that its proposal will be presented by the end of 2017.
Urgent measures to tackle the VAT Gap
According to the Action Plan in this respect:
· In 2016, the Commission expects to present:
o Measures to improve cooperation between tax administrations including from non-EU countries and with customs and law enforcement bodies and to strengthen tax administrations' capacity for a more efficient fight against fraud.
o Evaluation report of the Directive on the mutual assistance for the recovery of tax debts
· In 2017, the Commission expects to present a proposal to enhance VAT administrative cooperation and Eurofisc.
Towards a modernised VAT rates policy
In this respect the Commission states that he decision to implement a definitive VAT system based on the destination principle requires a reflection about the consequences to be drawn for the rules governing VAT rates. In line with the subsidiarity principle, 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 (Option 1: Extension and Regular Review of the List of goods and services that can benefit from reduced rates; and Option 2: Abolition of the List of goods and services that can benefit from reduced rates). However, the degree of autonomy on rates to be granted to Member States is not purely a technical matter, but requires political discussion. 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.
Next to the Action Plan the European Commission also published a Q & A in its Action Plan on VAT.
Click here to be forwarded to the European Commission’s Action Plan on VAT as published on April 7, 2016.
Click here to be forwarded to the Q & A on the European Commission’s Action Plan on VAT as published on April 7, 2016.
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