The EU Commissioner for Economic affair, Pierre Moscovici has revealed a new proposal for EU VAT to replace the current system which was introduced in 1993 with the birth of the single market. He noted that the current “anachronistic” set-up made it too easy for criminals and “possibly terrorists” and cost the EU member states more than €50 billion in each year. You can find the document here.
Muscovici said: “Today’s proposal is expected to reduce cross-border VAT fraud by around 80%. At the same time, it will make life easier for EU companies trading across borders, slashing red tape and simplifying VAT-related procedures. In short: good news for business, consumers and national budgets, bad news for fraudsters.”
The reforms proposed by the Commission are based around several ‘cornerstones.’
VAT will be charged on cross-border trade between businesses in the EU for the first time. This is one of the most obviously exploited loopholes. Currently it’s possible to import goods VAT-free and then charge VAT when reselling or pretending to transport goods to another member state and then old VAT-free locally.
VAT will be levied based on the ‘destination’ principle, which already applies to the sales of digital goods. You’ll be familiar with the VATMOSS system, and this will be the very similar approach for tangible goods.
And the Commission proposes to simplify the invoice rules. Retailers will be able to prepare invoices according to the rules of their own country even when trading across borders.
As it stands these proposals are at the very early stage and it will likely be many years before they come into force. They do, after all, require the agreement from every member state before they can proceed. Indeed, depending on what happens, it’s most likely that these will never affect British traders because they’ll come into force after Brexit.
This proposal has been forward a few times in the last 20 years.
It generally gets pushed back because some member states refuse to hand over their tax collection activities to other member states.
Whilst they won’t directly help the UK taxpayers – they will level the playing field post Brexit as VAT becomes due on all EU B2B transactions.
50billion – that’s a lot! I never knew VAT fraud was such big business.
There’s an interesting wikipedia explanation of ‘carousel fraud’/’missing trader’ fraud’ here: https://en.wikipedia.org/wiki/Missing_trader_fraud
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