The Commission of the European Union has set up plans concerning value-added tax (VAT) for the next two years in an attempt to modernize it.
The Commission aims, by the end of 2016, to put forward a legislation that would incorporate the concept of One Stop Shop that is currently in use. Their aim is to apply it to all cross border e-commerce, which would also include distance sales. This proposition will also aim to include simplification of some common VAT rules that apply within the EU to help smaller businesses start up, including e-commerce businesses.
The proposition of the European Commission would be considerate of the recommendations of the OECD (Organization for Economic Cooperation and Development) who released a report named Action 1, which covered the topic of tax challenges of the digital economy. The OECD’s recommendations included that VAT exemption should be removed for importing small shipments from third country suppliers.
Additionally, the Commission will seek to heighten the tax administration’s capacity to fight fraud by improving cooperation between tax administration bodies which would include in countries outside of the EU, and also improve cooperation with law enforcement bodies to be able to fight fraud more efficiently.
The European Commission will make sure that countries that are part of the EU will have more flexibility when choosing VAT rates. The commission stated that members of the EU should have greater independence when setting VAT rates, with appropriate guidelines to limit excessive complexity and manipulating competition. These guidelines will also include measure to ensure that the Single Market is not affected.
The rules of the VAT Directive (the EU’s common system of value-added tax) had been designed over 20 years ago in the context of a specific value-added tax system that was based on the origin principle of taxation. These rules were made to simplify the VAT system, while also making it neutral and workable. In a press release, Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue, said: “Today, we are starting a dialogue with the European Parliament and the Member States for a simpler and more fraud-proof VAT system in the EU. Every year, cross-border VAT fraud costs our Member States and taxpayers about 50bn euros (57bn USD). At the same time, the administrative burden for small businesses is high and technical innovation poses new challenges for VAT collection. This Commission has already proposed clear measures to address corporate tax avoidance, and we will be equally decisive in tackling VAT fraud.” This, if successful, will create a more efficient and safe VAT system for the European Union in the future.