European Commission proposes final technical measures for a definitive EU VAT system
On May 25, 2018, the European Commission released the detailed technical amendments to the EU VAT Directive that supplement their recent proposed overhaul of the EU VAT system for intra-EU trade of goods.
In October 2017, the European Commission presented a proposal towards a definitive VAT system for intra-EU trade of goods. The current VAT rules for this cross-border trade between businesses in EU Member States, introduced after the creation of a single EU market in 1992, were meant to be transition. These transitional rules – however – expose Member States to a high level of VAT fraud and the Member States identified VAT fraud as one of their top ten priorities. The definitive VAT system as proposed by the Commission should be more resilient to fraud. In addition, it should make it easier for companies to be engaged in intra-EU trade. In the October 2017 proposal, the EU Commission introduced the cornerstones of this definitive VAT system for intra-EU trade as well as a number of quick fixes to the current EU VAT system. The definitive VAT system should enter into application in 2022 whereas the quick fixes should enter into force on January 1, 2019.
Putting the cornerstones of the definitive VAT system in place gives rise to important changes to the current EU VAT Directive. In this new proposal, the EU Commission releases the detailed technical amendments to the EU VAT Directive. These amendments should have the following impact for companies and national budgets: • Simplifying how goods are taxed: under the current (transitional) EU VAT rules, a cross-border supply of goods is split into two transactions: a VAT-exempt intra-community supply in the Member State of origin and a VAT-taxable intra-community acquisition in the Member State of destination. With the introduction of the new concept of an Intra-Union Supply, the EU Commission is now proposing a single supply which will be VAT-taxable in the Member State of destination only. • A single online portal for traders: in its proposal the EU Commission introduces the necessary provisions to put in place an online portal or One Stop Shop. This online portal can be used by companies that trade in goods within the EU as one stop shop to sort out their VAT more simply and easily. • Less red tape: the changes proposed by the EU Commission should reduce the administrative burden for companies selling goods to companies in other Member States, for example in relation to applicable invoicing rules. • Seller is usually responsible for collection of VAT: in the proposal is further clarified that the seller of goods should charge local VAT due on a sales of goods to a company in another Member State, at the VAT rate of the Member State of arrival of the goods. Only if the purchaser is a Certified Taxable Person (CTP, see below), this CTP will be liable for VAT under the VAT reverse charge mechanism.
Certified Taxable Person
In its October 2017 proposal, the EU Commission also introduced the concept of CTP as one of the essential elements in the (definitive) VAT system. For example, the simplification rules introduced with the quick fixes of the current VAT system can be used only if companies involved in the transaction are CTP’s. In order to get CTP status from their national tax authorities, companies should prove their compliance on a number of harmonized criteria, including: regular payment of taxes, reliable internal control systems and proof of solvency. The criteria for CTP remain the same in this new proposal.
With the publication of this technical proposal, the EU Commission hopes to kick-start the discussion between EU Member States on a definitive VAT system for intra-EU trade of goods. Given the impact the changes proposed by the Commission will have on their business, it is our recommendation to clients to already start assessing this impact, for example, on their supply chain set-up and ERP systems. Please contact us if you would like to discuss such impact assessment.