The European Commission has published a series of proposals on reforming the EU VAT system. This includes setting out a series of fundamental principles to create a simplified, definitive Single EU VAT area, as well as aiming to combat VAT fraud.

As it is still unclear how changes to VAT at a European level will affect the UK following Brexit, it is important that we continue to monitor developments.

The proposals consist of three fundamental principles:

• Taxation at destination for intra-EU cross-border supplies of goods – meaning that supplies are charged at the rate of the Member State where the buyer is located (State of destination)
• The vendor is liable in the case of an intra-EU supply of goods – meaning that the seller is responsible for charging and collecting VAT, unless the buyer is a “certified taxable person”. In this case, the buyer is liable for the payment of VAT due directly to the treasury of the Member State of destination
• The Mini One-Stop Shop (MOSS) will be extended – meaning that businesses will be able to make declarations, payments and deductions for cross-border supplies of goods through a single online portal, as is already the case for the supply of e-services

The European Commission has introduced a new concept of ‘certified taxable person’. A business can apply to its national tax authority and become a Certified Taxable Person (CTP) by proving compliance with pre-defined criteria. Once certified, the company will be considered a reliable tax-payer.

The European Commission has also presented four ‘quick fixes’ to improve the day-to-day functioning of the current VAT system, until the definitive regime has been fully agreed and implemented The following simplifications are limited only to certified taxable persons:

• Simplification of VAT rules for companies moving goods from one Member State to another, where they are to be stored before being supplied to a customer known in advance
• Simplification provided for chain transaction situations identifying the supply with which the intra-Community transport of goods should be linked
• Simplification of the proof of transport of goods between two Member States needed for the application of the exemption to intra-Community supplies
• Clarification that, in addition to the proof of transport, the VAT number of the commercial partners recorded in the electronic EU VAT-number verification system (VIES) be required in order to apply the cross-border VAT exemption under the current rules

The proposals will now be sent to the European Parliament and the European Economic and Social Committee for consultation and to the Council for their agreement. Unanimous agreement from all Member States in the Council will be needed before proposals can enter into force.

The European Commission has also announced the following publications and actions:

November 2017 – *NOW DELAYED UNTIL 2018*

• Proposal for a modernised system of setting VAT rates, which will aim to give greater flexibility to Member States. The European Commission’s intent is to ‘modernise the rules by removing outdated legal restrictions for Member States, while preventing the erosion of VAT revenues and a shrinking of the tax base’. CTG’s response to the European Commission consultation on VAT rate reform can be read here.
• Separate package of two reports to reinforce administrative cooperation between Member States, enabling them to share information more quickly and to improve cooperation
• Proposal to simplify VAT for SMEs by updating special VAT rules for smaller companies

Spring 2018

• Full technical adaptation of the VAT directive to reflect the changes needed to practically implement the VAT definitive regime as proposed by the European Commission

In 2022

• Entry into force of the Single EU VAT area once agreed

The European Commission’s full VAT Action Plan can be read here.