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European Commission’s plan for more VAT flexibility

Verantwortlicher Autor: Carlo Marino Rome, 15.10.2018, 15:07 Uhr
Presse-Ressort von: Dr. Carlo Marino Bericht 5473x gelesen

Rome [ENA] The European Commission has on 18 January 2018 planned new rules to give Member States more flexibility to set Value Added Tax (VAT) rates and to create a better tax environment to help SMEs flourish. These proposals were the concluding steps of the Commission's renovation of VAT rules, with the creation of a single EU VAT area to drastically reduce the €50 billion lost to VAT fraud each year in the European Union,

while encouraging business and securing government revenues. The EU's common VAT rules, agreed by all Member States in 1992, are out of date and too limiting. They allow Member States to apply reduced VAT rates to only a minority of sectors and products. All at once, EU countries consider VAT rates as a convenient instrument to work at some of their political objectives. The Commission is attempting to give Member States more autonomy on rates. Countries will be on a more uniform position when it comes to some current exceptions to the rules, known as VAT derogations.

The Commission is today also tackling the problem of smaller companies suffering from unequal VAT compliance costs. Businesses trading cross-border face 11% higher compliance costs compared to those trading only domestically, with smaller players hit toughest. This is proving to be a real impediment to growth, as small businesses make up 98% of companies in the EU. So, the EU Commission is proposing to permit more companies to enjoy the benefits of simpler VAT rules which are at the moment available to only the smallest firms. In general, VAT-related compliance costs will be cut by as much as 18% per year. The creation of a vigorous single European VAT area was one of the key actions announced by the EU Commission in its Action Plan.

On 7 April 2016 the Commission adopted the Action Plan on VAT for a single EU VAT area. Following the adoption of this Action Plan, up till now the European Commission has made a series of proposals to work towards its achievement. It will require the setting up of the definitive VAT system for intra-EU business-to-business (B2B) cross-border trade in order to replace the current system which was intended to be provisional. This definitive VAT system should be based on the principle of taxation in the country of destination of the goods (the so called “destination principle”) whereas the current system is based on exemption of supplies of goods in the Member State of departure.

Because of its derogation from the fundamental principle of the fractioned payments, a specific legal basis for such a temporary application of a generalized reverse charge mechanism to goods and services above a certain threshold is the best way forward and is in line with the VAT Action Plan. According to the principle of subsidiarity, as set out in Article 5(3) of the Treaty on European Union (TEU), action at EU level may only be taken if the foreseen aims cannot be achieved adequately by the Member States alone and can therefore, by reason of the scale or effects of the proposed actions, be better achieved by the EU.

Member States could not act individually since the application by individual Member States of a generalized reverse charge mechanism cannot be considered as a 'normal derogation' within the meaning of Article 395 of the VAT Directive as it requires a fundamental change to the VAT system. In order to assess whether the introduction of the generalized reverse charge mechanism (GRCM) in one Member State results in fraud shifting towards other Member States and to be able to assess the degree of possible disturbances to the functioning of the internal market, it is appropriate to provide for a specific obligation to exchange information between Member States that apply the GRCM and other Member States.

All such exchanges of information should be subject to applicable personal data protection and confidentiality provisions. Those provisions offer exemptions and restrictions for preserving the interests of Member States and of the Union in the area of taxation. Member States applying the GRCM should submit in electronic format to all Member States: the names of those persons who, in the twelve months preceding the date of application of the GRCM, have been subject to proceedings, whether criminal or administrative, for VAT fraud; the names of those persons, including in the case of legal persons the names of their directors, whose VAT registration in their Member State was terminated upon the introduction of the GRCM;

and the names of those persons, including in the case of legal persons the names of their directors, who have failed to submit a VAT return for two consecutive tax periods after the introduction of the GRCM. Member States applying the generalized reverse charge mechanism (GRCM) should submit an interim report to the Commission no later than one year after the start of application of the GRCM. This report should provide a detailed assessment of the efficiency of the GRCM. Member States not applying the mechanism should submit an interim report to the Commission as regards the impact in its territory of other Member States applying the generalized reverse charge mechanism GRCM.

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