Communication on an action plan on VAT. Towards a single EU VAT area – Time to decide

Author (Corporate)
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Series Details (2016) 148 final (7.4.16)
Publication Date 07/04/2016
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The common VAT system is a core element of Europe's single market. By removing obstacles that distorted competition and prevented the free movement of goods, it has facilitated trade within the single market. It is a major and growing source of revenue in the EU, raising almost €1 trillion in 2014, which corresponds to 7% of EU GDP. One of the EU’s own resources is also based on VAT. As a broad-based consumption tax, it is one of the most growth-friendly forms of taxation.

But the VAT system has been unable to keep pace with the challenges of today's global, digital and mobile economy. The current VAT system, which was intended to be a transitional system, is fragmented, complex for the growing number of businesses operating cross-border and leaves the door open to fraud: domestic and cross-border transactions are treated differently and goods or services can be bought free of VAT within the single market. It now urgently needs reform.

To sum up, VAT needs to be modernised and rebooted. Reaching this goal will not be easy. The current system has proved difficult to reform and the requirement for unanimity between all Member States to change anything presents a serious challenge. Yet increasingly business as usual is not an option. Simply adding new layers of obligations and checks in order to tackle fraud will add even more compliance costs and legal uncertainty for all businesses, including the trusted ones, and further hamper the functioning of the single market. Piecemeal simplification is also unlikely to work.

To this end, the Commission now plans to present a legislative proposal to put in place a definitive VAT system. This definitive system will rest upon the agreement of EU legislators that the VAT system should be based on the principle of taxation in the country of destination of the goods. This means that the taxation rules according to which the supplier of goods collects VAT from his customer will be extended to cross-border transactions. This change alone should help reduce cross-border VAT fraud by €40 billion per year.

This action plan sets out the pathway to the creation of a single EU VAT area. A VAT area that can support a deeper and fairer single market, and help to boost jobs, growth, investment and competitiveness. A VAT area that is fit for purpose in the 21st century.

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ESO: VAT Action Plan: Commission presents measures to modernise VAT in the EU

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