VAT reform in the EU: 5 major changes prepared by European authorities

The current European rules on value added tax (VAT) could undergo substantial changes in the near future, according to official reform proposals announced by European authorities.

In fact, the European Commission is planning to charge cross-border trade between EU firms, simplify VAT obligations and billing for cross-border trade, collect final VAT in the Member State of the consumer and introduce the generally valid status of certified taxable person.

Here are five changes that will occur in the cross-border trade of companies in the European Union, Avocat.net reports:

Taxing cross-border trade between EU firms

VAT will be charged for cross-border trade between companies within the Union, as it is currently exempt from toll. Practically, this exemption provides an ideal gateway for bad faith firms to collect VAT and then disappear without giving the money to the government.

Simplification of VAT obligations on cross-border trade

The legislative proposal will go to the European Parliament for consultation and the Council of the European Union to get the agreement of all EU Member States.

A unique online portal will appear to help merchants make statements and payments in their own language "in accordance with the same rules and administrative models as in their home country" when it comes to VAT for cross-border trade. Practically, EU Member States will pay their VAT directly, as is currently the case for electronic sales (VAT collected by the state of sale, which is transferred to the state where the goods reach consumers). In this way, retailers will no longer have to register for VAT purposes and make payments in every European country in which they operate.

Collection of final VAT in the Member State of the consumer

Another important Commission proposal is the move to the destination principle, which implies that final VAT is always paid to the Member State where the consumer of the purchased goods is. At the same time, this would mean applying the VAT rate to the receiving state. Also, the rule already applies to the sale of electronic services.

Simplify billing rules

Simplifying billing rules is another important point on the agenda of European authorities, which would allow traders to prepare invoices in accordance with their own law, even in cases where cross-border transactions are concerned. Thus, in EC information, it is pointed out that the obligation of the companies to draw up and submit the recapitulative statements to the Tax Office would be eliminated.

Introduction of certified taxable person status

The fifth novelty involves introducing the status of a certified taxable person, which will allow officially recognized traders to apply simplified VAT declaration and payment procedures. In particular, if companies meet certain criteria, they will obtain a certificate under which they will be considered as VAT payers across the EU. In other words, the status of certified taxable person will be recognized by all countries of the Union.

The Commission's legislative proposal will be forwarded to Member States in the Council to give their consent to the European Parliament for consultation.