It is clear that there will be considerable changes to how businesses account for VAT in the EU in the coming years. Andy Spencer, of Sovos Accordance, discusses the proposed VAT measures in the Package for Fair and Simple Taxation.
We live in challenging times. COVID-19 continues to cause disruption to economies around the world. It is not clear when there will be a return to the pre-COVID norm, if ever. Alone, it would be a significant barrier for governments, businesses and individuals to overcome. But it joins an already long list of challenges that must be faced; the climate emergency, a digital revolution, growing inequality and a geopolitical shift.
It is against this background that the European Commission has set out its Package for Fair and Simple Taxation which has three elements:
- Action Plan for fair and simple taxation supporting the recovery;
- Revision of the Directive on Administrative Cooperation (DAC 7); in addition to
- Communication on Tax Good Governance in the EU and beyond.
Tax Action Plan
The Tax Action Plan covers a number of taxes but there are a several measures that particularly focus on value-added tax (VAT). This is unsurprising given that the EU VAT Gap, which is the difference between the expected revenues and the amount of VAT actually collected, was 137 billion euros ($161 billion) in 2017. Crucially, this included an amount of 50 billion euros in respect of cross-border fraud. Higher than the estimated 36 billion euros lost to corporate tax evasion and evasion of 46 billion euros by individuals in respect of their personal taxes.
The COVID-19 crisis means that governments will receive reduced tax revenues; at a time when their expenditure on public health and supporting the economy and citizens has reached unprecedented levels. The need to increase revenue is therefore paramount. Collecting amounts lost to fraud is clearly a priority; this reduces the need to increase the burden on compliant businesses and individuals by increasing taxes…