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ECOFIN: Progress achieved on the road to a reformed EU VAT system

carolineheath 11 October 2018 No comments

At this month’s ECOFIN meeting of EU finance ministers in Luxembourg agreement was reached on a number of measures designed to improve the day-to-day running of the EU VAT system, ahead of more far-reaching reform.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said:

“New figures released by the Commission just weeks ago show that Member States are still losing €150 billion in VAT each year. Today’s agreements are another step towards addressing that problem and changing VAT rules for the better. Now is the time to seize the momentum and agree on solutions for the more fundamental problems facing the system today.”

What was agreed?

The measures agreed include:

  • New rules to improve the day-to-day functioning of the current VAT systemuntil the definitive VAT system has been implemented. These so-called ‘quick fixes’ should reduce compliance costs and increase legal certainty for businesses
  • A new measureto allow Member States to align the VAT rates they set for e‑publications.  Currently digital publications are taxed at the standard rate in most Member States, whereas more favourable VAT treatment is currently in force for traditional printed publications. This decision will ensure that the unequal treatment of the two products – paper versus digital – becomes a thing of the past
  • Formal adoption of new rules to exchange more information and boost cooperation on criminal VAT fraud between national tax authorities and law enforcement authorities. VAT information and intelligence on organised gangs involved in the most serious cases of VAT fraud will now be shared systematically with EU enforcement bodies. Improved investigative coordination between Member States themselves and with EU bodies will ensure that fast-moving criminal activity is tracked and tackled more quickly and more effectively.

The four “quick fixes”

The four ‘quick fixes’ were initially proposed by the European Commission in October 2017 (see our earlier blog article).  These short-term measures to improve the day-to-day functioning of the current VAT system, until the definitive regime has been fully agreed and implemented, relate to:

  • call-off stock – to provide for a simplified and harmonised treatment for call-off stock arrangements, where a vendor transfers stock to a warehouse at the disposal of a known acquirer in another member state
  • VAT identification number – to benefit from a VAT exemption for the intra-EU supply of goods, the identification number of the customer will become an additional condition
  • chain transactions – to enhance legal certainty in determining the VAT treatment of chain transactions, the proposals establish uniform criteria
  • proof of intra-EU supply – a common framework is proposed for the documentary evidence required to claim a VAT exemption for intra-EU supplies.

These adjustments will apply from 1 January 2020, which is a year later than originally proposed by the Commission.  It should also be noted that proposals concerning the concept of a Certified Taxable Person (CTP) have been dropped in relation to these quick fixes.  Discussions regarding CTP status are ongoing and it is still expected to be introduced as a key feature of the definitive VAT system.

The European Council is expected to adopt the directive relating to the measures once the European Parliament has given its opinion.

Further information is available in the European Commission and European Council press releases.