On February 24, 2016 the European Commission issued a press release announcing that on the same day the College of Commissioners held an orientation debate on the way forward for VAT in the European Union.


As reported earlier the European Commission plans to put forward an Action Plan against VAT fraud in March 2016.


The last few months we regularly reported on the fact that several EU Member States (a.o. Austria, the Czech Republic and Hungary) were urging for measures to combat VAT fraud. Several Member States suggested to run a pilot to research whether introducing a general applicable reverse charge mechanism for VAT would be an effective way to combat VAT fraud.


Commissioner Dombrovskis' College read-out regarding the meeting of February 24, 2016 states a.o. the following with respect to combating VAT fraud: 

The EU can address these challenges by modernising the way VAT is collected and we are focussing on cross-border transactions.


All the EU institutions have recognised that VAT will flow to the Member State of destination, as is the situation today.


We also intend to confirm that this will be a definitive VAT regime using the principle of country of destination; unlike it is currently being assumed that we are in a transitional period moving towards applying the principle of country of origin. One intention is to clearly state that the definite regime would be a regime of country of destination.


We also need to improve the way these taxes are collected and to reduce VAT fraud and make life simpler for businesses.


There is a serious challenge, in this context, how to address this. In todays' orientation debate we discussed two main options:

·        We discussed the option based on taxation of intra-EU supply, where the tax administration of the country where the goods originate also collect taxes in behalf of country of destination and then share this revenue with the country of destination.

·        And we discussed the option of a generalised reverse charge mechanism.


What emerged from the discussions is that the preferred option seemed to be the option based on the taxation of intra-EU supply. Of course, it would imply a high degree of trust and cooperation among tax administrations in the EU.



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