On May 25, 2018 the European Commission released a proposal for detailed technical amendments to EU rules on value added tax (VAT) that supplement its recent proposal to overhaul of the system to make it more fraud-resilient. The package of measures substantially modifies the rules relating to VAT and according to the European Commission should make life easier for companies across the EU, putting an end to 25 years of a 'transitional' VAT regime in the Single Market.
In October 2017, the Commission proposed the main principles for the creation of a single EU VAT area which aims at shutting down the estimated €50 billion in fraud currently affecting national budgets annually in EU Member States. The European Commission hopes that with these technical measures Member States will kick-start discussions on the broader principles or 'cornerstones' of a simpler and resilient definitive EU VAT system for the trade in goods within the EU.
Putting the cornerstones of the definitive VAT system into operation gives rise to important changes to the VAT Directive. According to the European Commission of the 408 articles in the VAT Directive, around 200 will need to be adapted in order to bring about the following benefits for businesses and national budgets:
· Simplifying how goods are taxed
· A single online portal ('One Stop Shop') for traders
· Less red tape
· The seller is usually responsible for VAT collection
Simplifying how goods are taxed
In the current VAT system, trade in goods between businesses is split into two transactions: a VAT-exempt sale in the Member State of origin and a taxed acquisition in the Member State of destination. The European Commission’s proposal puts an end to this artificial split of a single commercial transaction. Once agreed, the amendments contained in the VAT rules will define the cross-border trade of goods as a 'single taxable supply' which will ensure that goods are taxed in the Member State where the transport of the goods ends – as it should be. VAT fraud should be dramatically reduced.
A single online portal ('One Stop Shop') for traders
In order to make the change to VAT rules as seamless as possible for businesses, the amendments proposed by the European Commission would introduce the necessary provisions to put in place an online portal or 'One Stop Shop' for all business-to-business (B2B) EU traders to sort out their VAT, as announced by the Commission's October 2017 reform proposals. This system will also be available to companies outside the EU who want to sell to other businesses within the Union and who would otherwise have to register for VAT in every Member State. Once in force, these businesses will simply have to appoint one intermediary in the EU to take care of VAT for them.
Less red tape
The changes reboot the self-policing character of VAT and will reduce the amount of administrative steps that need to be taken by businesses when they sell to other companies in other Member States. Specific reporting obligations linked to the transitional VAT regime will no longer be needed for trade in goods. Further invoicing regarding EU trade will be governed by the rules of the Member State of the seller, which should make it less burdensome for them.
Seller is usually responsible for VAT collection
The Commission’s announcement of May 25, 2018 clarifies that it is the seller that should charge the VAT due on an sale of goods to his customer in another EU country, at the rate of the Member State of destination. Only where the customer is a Certified Taxable Person (i.e., a reliable taxpayer, recognized as such by the tax administration) will the acquirer of the goods be liable for VAT.
Click here to be forwarded to the Proposal for a Council Directive amending Directive 2006/112/EC as regards the introduction of the detailed technical measures for the operation of the definitive VAT system for the taxation of trade between Member States, as released by the European Commission on May 25, 2018.
Click here to be forwarded to the Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards the period of application of the optional reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud and of the Quick Reaction Mechanism against VAT fraud as released by the European Commission on May 25, 2018.
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