The Action Plan sets out immediate and urgent actions to tackle the VAT gap and adapt the VAT system to the digital economy and the needs of SMEs. It also provides clear orientations towards a robust single European VAT area in relation to the definitive VAT system for cross-border supplies and proposes options for a modernised policy on EU rules governing VAT rates.
Key actionsRecent and ongoing policy initiatives
Removing VAT obstacles to e-commerce in the single Market
The current VAT system for cross-border e-commerce is complex and costly for Member States and business alike. The Commission will, as part of its Digital Single Market strategy, present a legislative proposal by the end of 2016 to modernise and simplify VAT for cross-border e-commerce by:
- Extending the current One Stop Shop concept to all cross-border e-commerce, including distance sales,
- Introducing common EU-wide simplifications measures to help small start-up e-commerce businesses,
- Streamlining audits in this sector (home country audits), and Removing the VAT exemption for the importation of small consignments from suppliers in third countries.
SMEs bear proportionally higher VAT compliance costs than large businesses due to the complexity and fragmentation of the EU VAT system.
Further to the new Single Market Strategy, 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. In particular, the special scheme for small enterprises will be subject to review. This proposal will be presented by the end of 2017.
Urgent measures to tackle the VAT Gap
The ’VAT gap’ between expected revenue and revenue actually collected by national authorities is estimated at around EUR 170 billion, which equates to 15.2% of revenue loss. This calls for urgent action on several fronts:
- Improving cooperation within the EU and with non-EU countries
- Towards more efficient tax administrations
- Improving voluntary compliance
- Tax collection
- 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.
- Evaluation report of the Directive on the mutual assistance for the recovery of tax debts
- Proposal to enhance VAT administrative cooperation and Eurofisc. Choose translations of the previous link
Definitive VAT regime for cross-border trade
The present VAT system, which has been in place since 1993 and was supposed to be transitional, splits every cross-border transaction into an exempted cross-border supply and a taxable cross-border acquisition. It is like a customs system, but lacks equivalent controls and is therefore the root of cross-border fraud. It is also complex for the growing number of businesses operating cross-border and leaves the door open to fraud: domestic and cross-border transactions are treated differently and goods or services can be bought free of VAT within the Single Market.
To this end, the Commission will present in 2017 a legislative proposal for a definitive VAT system for cross-border trade. 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.
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. See the infographics on pages 2 and 3. Choose translations of the previous link.
Source: Action Plan on VAT - European Commission