Is the proposal to reform the existing origin-based EU VAT regime for B2B cross-border sales now stalled? 

The aim of the reform is to tackle the stubborn, multi-billion VAT
fraud problem, particularly associated with ‘carousel’ and ‘missing
trader’ fraud. However, much opposition from EU member states has
emerged to the proposed destination-based ‘Definitive VAT System’
plan.  The scheduled January 2022 launch has already been delayed until
July 2022. Further deferment is almost certain as fundamental
disagreements remain between member states on the disproportionate
effect and unproven benefits of the plan.

Definitive VAT System

The proposal involves a switch to a destination-based VAT regime for
B2B goods cross-border transactions. This would replace the existing,
‘temporary’ origin basis. This was introduced in 1993 as a short-term
fix until a destination system could be agreed upon. 

The Definitive VAT System plan would require vendors to charge and
collect the VAT of their customer’s country of residence in the case of
cross-border B2B sales. The VAT would then be remitted by the vendor to
its national tax office. They in turn would distribute the VAT to the
appropriate member states of the vendor’s customers. 

The aim is to tackle the multi-billion euro VAT fraud problem by
closing the nil-rated intra-community supply loophole. This has been
exploited by criminal gangs in large scale frauds were an exempt
cross-border sale is reporting when in fact a domestic sale has
occurred. In this case, the fraudster pocket the charged VAT.

Majority of states sceptical of new VAT system

The most recent EU meeting group of member state Finance Ministers,
ECOFIN, has summarised for the European Council progress to date on the
Definitive VAT System. This highlighted many fundamental blockers:

• Member states are agreed that the reform should proceed only if
  it can be demonstrated that the significant upheaval, and burden on
  businesses and tax authorities, can be justified in terms of VAT fraud
  eliminated. 
• A majority of states are opposed to the Certified
  Taxable Person simplification. This would have seen reliable taxpayers
  being exempted from charging VAT to reduce their compliance and payments
  processing burden. States feel this would have problems of complexity
  and neutrality. 
• States are also against the withdrawal of the
  recapitulative statements (e.g. Intrastat and EC Sales Listings) in the
  event of an implementation.
• Most states believe the significant
  burden on the vendor charging and collecting taxes would be
  unacceptable. It would leave a major risk of VAT gap from fraud and
  insolvencies.

Member states have now agreed to undertake further examination of the
measure via the EU Commission. In particular, an investigation into
alternative technologies to solve the unresolved questions.