On 25th May 2018, the European Commission published its proposal on detailed technical amendments to the EU rules on VAT , supplementing the October 2017 definitive VAT system package, which outlined the need for a single EU VAT area and established certain principles (cornerstones) aiming to create a modern, fraud-proof VAT system for the EU. The proposed reforms could cut the EUR 50 billion lost annually through cross-border fraud by 80%.
The current proposal details the measures necessary to put these cornerstones into practice for business-to-business (B2B) supplies of goods within the EU. The Commission expects the proposal to trigger much discussion between Member States on how best to apply the cornerstones to achieve a simpler and robust definitive EU VAT system.
Out of the 408 articles in the VAT Directive, around 200 will need to be modified to achieve the required legislative overhaul.
Key Measures include:
Change to Place of Supply of Goods
Committing to the principle of destination-based taxation put forward in the October proposal, the Commission introduces a new place of supply rule relating to cross-border B2B supplies of goods, which will generally be deemed to be the place where the goods are located at the time when dispatch or transport of the goods to the customer ends, i.e. in the Member State of destination. At present, the place of supply for such supplies is the Member State of origin.
The current artificial split of cross-border B2B supplies of goods into two separate transactions for VAT purposes, (a VAT-exempt sale in the Member State of origin and a taxed acquisition in the Member State of destination) will be withdrawn. Instead, a cross-border supply of goods within the Union will be defined as a single transaction (an “intra-Union supply of goods), ensuring that goods will generally be taxed in the Member State where the transport of the goods ends.
The seller will generally be held responsible for the collection and payment of VAT at the rate of the Member State of destination. However, if the recipient holds the status of “Certified Taxable Person” (CTP), which is a category of reliable taxpayer, the transaction will be subject to the reverse charge mechanism. Under the current rules, intra-community supplies are taxed at the zero-rate. The CTP regime is intended only as a temporary measure.
Launch of the One Stop Shop for B2B Supplies
The scope of transactions covered by the One Stop Shop will be extended to apply to B2B transactions and be available to taxable persons established outside the EU provided they appoint an EU-established intermediary. What this means is that businesses will be able to make declarations, payments and deductions for cross-border supplies of goods through a single online portal and may not need to register in each Member State of destination. The Mini One Stop Shop is already in place for the supply of e-services (for payment only) and under enacted EU legislation, will extend to supplies of business-to-consumer distance sales from 1st January 2021.
If the current proposal is enacted, these substantial and controversial changes to the EU VAT rules are expected to come into effect from 1st July 2022.
Observing the responses from individual countries over the course of the next few months, is going to make for interesting viewing. We are monitoring the progress of this initiative and shall report updates as they occur.
A link to the European Commission’s press release may be found here.