VAT system in the EU – why the talk of the need change VAT system in the EU – why the talk of the need change? - What needs to change and how?

Structure Principle of VAT in EU Key facts on current VAT system Disadvantages of current VAT system Proposed changes in VAT legislation Critical review of changes

Current situation on VAT All EU countries.. must apply a standard VAT rate of minimum 15% to all taxable supplies of goods and services may apply reduced rates of minimum 5% to a limited list of goods and services in few cases, some Member States are allowed to apply derogations which allow some goods or services to be taxed at levels lower than the 5 % limit or even to be exempted (0%)

Key facts on current VAT system

Disadvantages of current VAT system Cross border VAT fraud is responsible for around €50 billion revenue loss a year in the EU Current VAT system fragmented in the EU, creates administrative burdens especially for smaller companies System is too complicated and should be modernised to promote innovative ideas and technological progress Under current rules, Member States need to stick to a pre-defined list of goods and services when it comes to applying reduced VAT rates Application of ‘destination principle’: VAT on goods and services will be paid to the Member State which has imported them and where they are consumed, not where they are sold.

Proposed changes in VAT legislation Closing „VAT gap“ Improving cooperation within the EU and with non-EU countries Towards more efficient tax administrations Improving voluntary compliance Improved tax collection single European VAT area Principle that the supplier of goods collects VAT from his customer is extended to cross- border transactions. No more VAT free cross-country transactions Implementation e.g. through an online registration and collection system

Proposed changes in VAT legislation Recent and ongoing policy initiatives Removing VAT obstacles to e- commerce in the single Market SMEs VAT package More freedom for Member States on rates policies prevent complexity and distortion of competition ensure operation of the Single Market

Summary Proposed improvements as result of and taking account digitalization/e-commerce Measures aiming at reducing bureaucracy for businesses and facilitating cross-border trade More autonomy of EU member states in creation of tax extemptions

Critical review of changes No plan to lower VAT tax burden - even though higher tax revenue is expected. Additional VAT revenue created through close of VAT gap could be given back to businesses and consumers. Implementation of new VAT system can be difficult, since every EU country has to agree. No change of obligatory minimum VAT tax rates. VAT rates still significantly higher than in many non-EU countries (e.g. Switzerland 8 %, USA 0-10 %) – putting consumers in EU at disadvantage and making tax fraud more attractive

Sources

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