The EU Commission has this week proposed to introduce a standard VAT return to be used by all 28 EU Member States. The objective of the Commission is to simplify and reduce the cost of compliance for businesses. It is thought that the standard return would also reduce the ‘VAT gap’ in the EU – calculated at EUR 193bn in 2011.
The standard VAT return would replace national VAT returns and consist of five mandatory information boxes: chargeable VAT, deductible VAT, net VAT amount (payable/receivable), total value of input transactions and total value of output transactions. Member States will be permitted to have up to 21 additional information boxes to meet the specific reporting requirements in that country.
The Commission has also proposed to harmonise the periodicity of the returns, the filing deadlines, the procedures for correcting returns and the format of electronic submission of returns. Returns would have to be completed in the language of the country of submission. However, since the content of the information boxes will be the same for each country, and with translated versions available, it should be easier to file returns in other countries.
The Commission’s proposal will need to be adopted by Member States after consultation in the European Parliament. If successful, the Directive could enter into force as early as 1 January 2017.
Despite the intentions of the Commission to ease the compliance burden for businesses, it is likely that many countries will have issues with certain aspects of the proposal.
For example, some countries require a greater level of information (and boxes) in their current VAT return. The average EU VAT return consists of 57 boxes, including the Italian VAT return which has 586 boxes. Having a standard return consisting of 5+ up to 21 additional boxes will present many tax authorities with a shortfall of information. This could result in some countries introducing further supplementary reports as a way of maintaining the current level of information they require.
Although part of the idea is to reduce the average number of information boxes on a return, the move to a standard return may also present an opportunity for some countries such as Ireland (6 boxes) and the UK (9 boxes) to increase the boxes they currently have to improve the level of data captured.
Apart from the overall cost of implementing the proposal, EU countries may also have issue with how the switch could impact the collection of VAT and the availability of funds for governments.
Should agreement be reached by all EU countries the impact on businesses could be substantial. Most notable would be the required changes to ERP systems and accounting software. Implementation of new processes and systems can be very costly, and smaller businesses that trade cross-border could be most severely affected.
For UK businesses one of the main impacts could be the increase in the filing periodicity, since under the new rules, all businesses except ‘microbusinesses’ (those with an annual turnover of less than EUR 2m) would be required to declare monthly returns instead of quarterly. It should be noted, however, that the proposal may allow Member States to have longer periods not exceeding one year.
There is still a long way to go before the a standard VAT return could be introduced and as highlighted above, many countries may want changes to be made before agreeing on a final version.
We will of course be providing further updates as and when the proposal progresses. If you have any questions or would like to discuss this in more detail please get in touch.