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Brussels works to close EU VAT loopholes

  • Sep 30, 2012 | Richard Asquith

Brussels works to close EU VAT loopholes

The UK’s plans to fight the European Commission’s (‘EC’) decision to force a rise in VAT on UK energy efficient products is just the latest round in a growing trend by the EU to take control on national EU VAT compliance policies. It is now extending into ebooks, food (e.g. pasties) and children’s clothing. This is set to create major tensions between Brussels and EU member countries.

Countries losing right to set own VAT rules

Members of the European Union are obliged to follow the general rules of VAT compliance set in Brussels – they must implement much of the EU VAT Directive into their own legislation. In terms of details of which products should be taxed, and at what rates, this was often left to the member states.

However, this is now changing as the EC looks to harmonise the tax regime across the entire region as part of the drive to create a single European market for goods and services. In December 2011, the EC issued a White Paper on this, but is already moving ahead.

Examples of the EC forcing recent VAT changes

  • The UK has announced plans to fight the EC’s June ruling that it must charge full VAT at 20% on energy-related goods instead of the current reduced rate of 5%.
  • The UK’s attempt to raise VAT in May 2012 on pasties at the budget was a requirement of the EU
  • The EC issued a statement in July that it wants to stop France and Luxembourg selling ebooks at 7% and 3%, respectively. It is insisting that the rates rise to 19.6% and 15%. This will hit buyers of Amazon Kindle books as the sales are channelled through Luxembourg.
  • Poland was forced by the EU to raise VAT on children’s clothing from 8% to 23% in December 2011

The EU has been frustrated by the competitive tax differences of many member states, which it believes undermines the free market. It is now actively targeting countries who have not been towing the line. This will mean rises on taxes from energy products, to kids clothing to potentially food.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara