The European Commission has now adopted a Communication on the future of VAT that sets out the fundamental characteristics that must underlie the new VAT regime, and the priority actions needed to allow for VAT reform.

Three overriding objectives shape the Commission’s vision for the new VAT system.  First is the belief that VAT must be made more workable for businesses. A simpler, more transparent VAT system would relieve businesses of considerable administrative burdens and encourage greater cross-border trade.  Among the measures envisaged for a more business-friendly VAT are expanding the one-stop-shop approach for cross border transactions; standardising VAT declarations; and providing clear and easy access to the details of all national VAT regimes through a central web-portal.

Second, VAT must be made more efficient in supporting Member States’ fiscal consolidation efforts and sustainable economic growth. The Communication sets out the principles that should guide the review of exemptions and reduced rates.

The Commission’s third priority is to stop the huge revenue losses that occur today due to uncollected VAT and fraud.
Finally, the Commission has concluded that the long-standing aim of changing to a VAT system based on taxation at origin should be abandoned. This is on the basis that it remains politically unachievable and is recognised by stakeholders as not achievable in the foreseeable future. Therefore, VAT will continue to be collected in the country of destination (i.e. where the customer is located) and the Commission will work on creating a modern EU VAT system based on this principle.

This Communication is the start of a long process and the European Commission will set out further proposals in the future with the aim of bringing about the outcomes above.  Accordance will release more information when it becomes available.