The European Commission has presented an Action Plan setting out ways to reboot the current EU VAT system in order to tackle fraud, support business and help the digital economy and e-commerce. The aim is to make the system simpler, support the Single Market and facilitate cross-border trade.
The difference between the expected VAT revenue and VAT actually collected in Member States, was almost €170 billion in 2013. Cross-border fraud is estimated to be responsible for a VAT revenue loss of around €50 billion a year in the European Union. At the same time, the current VAT system remains fragmented and creates significant administrative burdens, especially for SMEs and online companies.
This is the reason why the European Commission has presented an Action Plan to modernize VAT in the EU. The plan includes key principles for a future single European VAT system and short term measures to tackle VAT fraud. An update of the framework for VAT rates and options to grant Member States greater flexibility in setting them are also foreseen. Moreover, the Commission presented plans to simplify VAT rules for e-commerce in the context of the Digital Single Market (DSM) Strategy and a comprehensive VAT package to make life easier for SMEs.
Estimates show that the future VAT system could reduce cross-border fraud by around EUR 40 billion (or by 80%) a year. Later this year, the Commission will propose measures to reinforce current tools used by Member States to exchange information related to VAT fraud, fraud schemes and good practices.
The Commission is determined to closely monitor the performance of tax administrations in collecting and controlling VAT.
Finally, the Commission intends to come forward in 2017 with a proposal to put in place definitive rules for a single European VAT area. Under the new rules, cross-border transactions would continue to be taxed at the rates of the Member State of destination ('destination principle') as today, but the way taxes are collected would be gradually changed towards a more fraud-proof system.