On December 20, 2016 the European Commission opened 3 public consultations in the area of VAT. The consultations regard:
1. the reform of VAT rates;
2. the Definitive VAT system for Business to Business (B2B) intra-EU transactions on goods; and
3. the special scheme for small enterprises under the VAT Directive.
The consultation period for all three of the consultations runs until March 20, 2017.
Context of the consultations
On April 7, 2016 the Commission adopted an Action Plan on VAT - Towards a single EU VAT area. The Action Plan provides clear orientations towards a robust single European VAT area in relation to the definitive VAT system for cross-border supplies. In view of such reform, other aspects of VAT will have to be examined, such as the existing special rules for small enterprises (SMEs) and the VAT rates which can be applied by Member States. Hence the Action Plan also sets out actions to adapt the VAT system to the needs of SMEs and proposes options for a modernised policy on EU rules governing VAT rates.
Some of the initiatives stemming from the Action Plan have already been presented by the Commission, while others are being prepared. As part of the ongoing work these public consultation procedures have been launched.
Public Consultation on the reform of VAT rates
The European Commission describes the scope of the Public Consultation on on the reform of VAT rates (proposal for a Council Directive amending Directive 2006/112/EC on the Common system of value added tax as regards the rules governing the application of VAT rates) as follows:
“The VAT Directive sets out general rules framing Member States' freedom to set VAT rates. These rules were intended to guarantee, above all, the neutrality, simplicity and workability of the VAT system.
This framework was originally established with the aim of arriving at a definitive VAT system based on the so-called 'origin principle', i.e. a system in which the location of the seller determines the tax treatment, including the rate. To avoid unfair competition, the origin system strictly requires Member States to tax the same goods at very similar rates (otherwise, sellers located in Member States with a higher VAT rate would suffer an unfair disadvantage compared with sellers located in low VAT countries). For this reason, the VAT directive set minimum taxation levels, in the hope that over time VAT rates would converge.
Nevertheless, given that over many years no progress was made on rate convergence, it was decided in 2011 to abandon the objective of introducing the origin-based VAT system in favour of a destination-based one, according to which the VAT applicable is the one where the buyer is located (so that the same tax rate is paid by all sellers).
By nature, the destination system allows greater rate differentiation between Member States with a lower risk for distortion of competition. The introduction of the destination system has opened up the possibility to reform rules on rates and make them less constraining for Member States. Consequently, the Commission intends to present a reform proposal in the autumn of 2017.
This Open Public consultation aims at obtaining stakeholders views' on the following aspects:
· The need for EU action in the field of VAT rates;
· The proper balance between harmonisation and Member States autonomy in setting VAT rates;
· The problems and risks linked to differentiation of VAT rates within the Single Market;
· The desirable direction for reform
· Stakeholders' views on the proposed policy options.
Its results will feed into the review of the current rules on VAT rates.”
Click here to be forwarded to the online questionnaire via which responses can be submitted for the Public Consultation on on the reform of VAT rates.
Public Consultation on the Definitive VAT system for B2B intra-EU transactions on goods
The European Commission describes the scope of the Public Consultation on the Definitive VAT system for Business to Business (B2B) intra-EU transactions on goods as follows:
· Under the current transitional VAT system, goods sold cross border between businesses established in different Member States are exempt from VAT in the Member State of departure of the goods (this constitutes an exempt intra-EU supply) and the customer has to self-assess and pay the VAT due in the Member State of arrival on his intra-EU acquisition. Such solution leads to complex and fragmented VAT rules. This results into high compliance costs for businesses trading across the EU and significant administrative burden for companies and tax administrations. It also generates important risks of cross-border fraud in the trade of goods and hampers the functioning of the Single Market.
· Therefore, the Commission is preparing a legislative proposal for a simpler and fraud-proof definitive VAT system as indicated in its 2016 Action Plan on VAT (COM(2016) 148 final).
· This consultation aims at obtaining the views of stakeholders on:
(i) The current VAT situation of B2B intra-EU supplies of goods,
(ii) Possible short term improvements of the current transitional VAT system,
(iii) The need to move towards the definitive VAT system based on the principle of taxation of the supply in the Member State of destination.
Its results will feed into the preparatory work on the definitive VAT system legislative initiative
Click here to be forwarded to the online questionnaire via which responses can be submitted for the Public Consultation on the Definitive VAT system for Business to Business (B2B) intra-EU transactions on goods.
Public Consultation on the special scheme for small enterprises under the VAT Directive
The European Commission describes the scope of the Public Consultation on the special scheme for small enterprises under the VAT Directive:
· Diverse and complex VAT rules across the EU can result in high administrative burdens on small businesses ("SMEs"), particularly when trading with other EU Member States. This does not only hamper their growth but may even prevent them from engaging in cross-border trade and reap the benefits from the Single Market.
· The current VAT legislation contains specific measures designed to alleviate the effects of small enterprises having to deal with VAT. Those are mainly laid down in a special scheme aimed at small enterprises ("SME scheme"). Under the scheme, Member States are allowed to exempt supplies of goods or services by SMEs with an annual turnover not exceeding a given threshold, or to apply simplified procedures to SMEs for charging and collecting VAT, among others. Member States may also release SMEs covered by this scheme from some or all of their VAT compliance obligations.
· However, the present rules suffer from several drawbacks. Those rules still make it excessively complex and costly for SMEs to comply with their VAT obligations and do also not take into account the Single Market perspective, since suppliers from other Member States do not get the same VAT treatment as domestic suppliers. As a result of this, SMEs bear proportionally higher VAT compliance costs than large enterprises.
· Therefore, the Commission is preparing a comprehensive simplification package for SMEs that will seek to create a more business-friendly environment, as indicated in its 2016 Action Plan on VAT (COM(2016) 148 final).
This consultation aims at obtaining the views of stakeholders on
(i) the current VAT provisions for SMEs and their application; and
(ii) possible changes as regards the VAT provisions for SMEs
Its results will feed into the review of the SME scheme.
Click here to be forwarded to the online questionnaire via which responses can be submitted for the Public Consultation Public Consultation on the special scheme for small enterprises under the VAT Directive.
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