In the EU, overarching VAT legislation exists in the form of the European VAT Directive (EVD). However, flexibility on some areas of its implementation and interpretation, coupled with member states’ lack of appetite for more than piecemeal reforms mean that the EU’s VAT system is only semi-harmonised.
But the European Commission, always pursuing ‘ever closer union’, has full harmonisation in its sights. It intends to introduce a data-driven MOSS for distance sales by 2021, and following this, to introduce a One-Stop Shop for intra-EU B2B supplies of goods in July 2022. The Commission points to an annual EU ‘VAT Gap’ (the gap between VAT due and VAT collected) of €150 Billion. It argues that only increased VAT harmonisation can prevent fraud from worsening this position.
But the course of true VAT harmonisation never did run smooth.
There are serious obstacles to the Commission’s plans. Member states, staunchly protecting their individual tax sovereignty, have overruled previous attempts to consolidate the system. They also dispute whether centralisation is the best way to tackle fraud. Even as the proposed dates for the deepening coordination of VAT processes draw nearer, individual nations are implementing their own, varied electronic systems for VAT reporting. Far from unifying processes, these systems are intensifying the differences between them.
From RTR in the UK to polish SAF/T to Spanish SII, nations are implementing their own approaches, regulations, and rules for companies to follow. On the one hand, technology is vital to the future of VAT. On the other, without a coordinated approach, these systems threaten to undermine the EU’s plans.
While potentially problematic, member states feel they need these systems in place. And of course, digitisation is key to the EU’s future. As the pace of technological development increases, tax collection becomes increasingly difficult. Money is moving, faster and easier than ever before. And as all the while collection challenges increase, calls for public spending grow louder. Technological progress is also revolutionising our demographics, as life expectancy rises around the world. But with population changes come strains on public services.
Meeting the challenge
Western liberal democracies have in the most part grown used to a comprehensive level of public infrastructure and state support. The European social project has consistently offered partially or fully funded health services and state supported welfare. At the heart of the functioning for this collective social project is VAT.
This is unlikely to change. Sales and consumption taxes, chief among these VAT, are they key areas of revenue growth for OECD nations. European politics is currently
fraught with conflict between nationalist populists and globalist technocrats, and there is a a markedly antagonistic approach to taxation, with income and corporate taxation policies becoming frontlines in broader ‘culture wars’. Nevertheless, as many levies find themselves in the firing line, VAT, less conspicuously controversial, remains protected and the preferred choice of governments across the world..
The future is digital
With VAT likely to stay as a key player on the tax stage, the future of tax collection and enforcement is digital. Technology offers an unprecedented opportunity to simplify and structure VAT reporting and collection. For nations and supranational structures, it offers the chance to dam the significant annual leakage of VAT For companies, it offers an unparalleled opportunity. Digitisation of processes is a key moment for the analysis and improvement of structuring. It removes some of the human burden and, if done properly, can remove a significant chunk of risk.
But digitisation isn’t just about removing risk. It should make compliance easier, thus simplifying VAT responsibilities. With VAT so crucial to the future of the services we rely on (and will need even more from as demographics shift), being a good tax citizen means contributing to a shared future. It means upholding the European social project, and helping build the resources we need to meet the challenges we face in our societies. Businesses paying VAT are playing their part in this future.