1. 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?

2. 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

3. 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%)

6. Key facts on current VAT system

7. 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.

8. 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

9. 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

10. 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

11. 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 %) – putting consumers in EU at disadvantage and making tax fraud more attractive

12. Sources

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