Definitive VAT system and fighting VAT fraud. Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

This briefing is one in a series of 'Implementation Appraisals' on the operation of existing EU legislation in practice. Each such briefing focuses on a specific EU law which is likely to be amended or reviewed, as foreseen in the European Commission's Annual Work Programme.

Implementation Appraisals aim to provide a succinct overview of material publicly available on the implementation, application and effectiveness of an EU law to date – drawing on available input from the EU institutions and external organisations. They are provided to assist parliamentary committees in their consideration of the new proposals, once tabled.Council Directive 2006/112/EC lays down the rules applicable to the common system of value added tax (VAT). Among other issues, the Council Directive establishes a temporary VAT system based on 'the origin principle', which requires that a VAT rate applicable to transactions is determined by the Member State of the seller's location. The temporary VAT system, established by the directive was supposed to be replaced by a definitive system. This however has not happened yet despite the latest VAT system having been set up approximately two decades ago. The temporary nature of the current VAT system brings several challenges, including the fact that it is more susceptible to VAT fraud.

The European Parliament has called on the European Commission to update Council Directive 2006/112/EC to establish a definitive VAT system. Similarly, the Council and the European Economic and Social Committee have recommended updating the legislation.

Representatives of various stakeholder groups have also meanwhile voiced concerns regarding this piece of legislation.

It was expected that the European Commission will submit a legislative proposal amending this directive in October 2017.

• Primary Source

EP: EPRS: Briefing: Implementation Appraisal: Ex-ante Impact Assessment http://www.europarl.europa.eu/thinktank/en/search.html?policyAreas=EXIMAS

ESO: Background information: Taxation: Commission presents options for simpler and more robust future VAT regime, October 2014 http://www.europeansources.info/record/press-release-taxation-commission-presents-options-for-simpler-and-more-robust-future-vat-regime/

European Commission > Taxation and Customs Union > Business > VAT https://ec.europa.eu/taxation_customs/business/vat_en

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