On the 2nd October 2018 the Economic and Financial Affairs Council (ECOFIN) met in Luxembourg. The meeting saw agreement reached on a number of reforms including:
- equalisation of VAT rates between physical printed matter and digital equivalents;
- improvements (quick fixes) to the current VAT rules for cross-border transactions; and,
- strengthened administrative cooperation between Member States to combat VAT fraud.
The adoption of this package of measures is expected to combat VAT fraud and improve the daily running of the existing VAT regime, pending implementation of the new modernised VAT system.
Lowered VAT rates for digital publications
Under the current VAT rules, an inequality exists in the VAT treatment of printed versus digital media. Printed publications are characterised as goods for VAT purposes, which allows them to benefit in some EU Member States from reduced, super-reduced or even zero VAT rates. Digital publications, on the other hand, are classified as electronically supplied services and must be taxed at the standard VAT rate.
Going forward, Member States will have the discretion to apply the reduced or zero VAT rates to digital publications and therefore align their VAT treatment with that of traditional publications. This change will be welcomed by many businesses as the difference in VAT treatment between the supplies has been questioned many times. In fact, some Member States had disregarded the rules and applied the reduced rates to digital publications anyhow. Under the new rules, it should be simpler and easier to manage the VAT position of these supplies
Generalised reverse charge
As of 1st January 2020, any Member States severely affected by VAT fraud may, subject to certain strict conditions and requirements, apply the generalised reverse charge mechanism to certain domestic transactions. Under the procedure, the recipient doesn’t pay the VAT to the supplier but bears the responsibility of accounting for the VAT itself, thereby effectively removing the flow of VAT cash from the transaction.
To apply this scheme the relevant Member State will have to demonstrate that up to 25% of its VAT gap is the result of carousel fraud. Then, the reverse charge will only apply to identified domestic supplies of goods and services with a value above €17,500. Use of the scheme will also be limited to until 30th June 2022.
Four quick fixes
As of 1st January 2020, new short-term VAT simplification rules (quick-fixes) for EU cross-border transactions will come into effect. The aim of these is to provide businesses with legal certainty and reduce their compliance costs.
The improvements relate to the following:
- simplified and uniform treatment for call-off stock;
- enhanced legal certainty when chain transaction arrangements are in place;
- the evidence required to prove the transport of goods in intra-community supplies; and
- an increased use of VIES and VAT numbers to benefit from a cross-border VAT exemption.
ECOFIN ministers withdrew the highly contentious proviso that to benefit from these quick fixes, a taxable person will be required to have “certified taxable person” status.
The fifth quick fix introduced on 20th June this year, proposing the use of the cost-sharing exemption for financial services was removed and is currently subject to a separate review by the European Commission.
Strengthening administrative cooperation
As of 1st January 2020, new rules to exchange more information and encourage cooperation on criminal VAT fraud between national tax administrations and law enforcement authorities will apply. VAT information and intelligence on serious VAT fraud gang activity will be shared consistently with EU enforcement bodies. Enhanced investigative coordination between Member States and with EU bodies will make sure that fast-moving criminal activity is tracked and tackled more quickly and effectively.