EU Tax Package – VAT measures
- Jul 15, 2020 | Richard Asquith
On 15 July 2020, the European Commission (EC) adopted an ambitious range of tax reforms – Tax Package - designed to bring fairness, efficiency and sustainability to the EU’s VAT and direct tax regimes. This contains a range of VAT measures with an ‘Action Plan’ to be developed, including: a single EU VAT registration to replace non-resident registrations (2022); reforms of VAT on financial services (2020/21); live transaction reporting and e-invoicing; and a review of the VAT treatment and marketplace VAT collections for the gig and sharing economies (2022).
These proposals will be debated by Member States via the European Council and EU Parliament. There will also be rounds of stakeholder consultations.
3 elements to EU’s Tax Package
The Tax Package includes three groups of reforms:
- Action plan for fair and simple taxation to support Member States’ economies, including 25 initiatives to be adopted through to 2024 (see below). This includes: simplified tax bureaucracy; help to enforce existing tax rules for improved revenues; improved use of data technology to combat fraud; promote awareness of taxpayers’ rights.
- Directive on Administrative Cooperation (DAC7) revision, to extend and harmonise the automative exchange of marketplaces’ third-party seller data to fight fraud and simplify the inconsistent reporting burden on marketplaces.
- Tax Good Governance reform, improving the best practices by EU and international tax jurisdictions towards tax cooperation. A reform of the Code of Conduct for business taxation, and a review of the EU list of non-cooperative jurisdictions
VAT measures within the Tax Package’s Action Plan
The Action Plan – part of the Tax Package - for fair and simple taxation contains a number of VAT initiatives. These build on the VAT e-commerce package, due to be implemented on 1 July 2021. Also, on the improved VAT administrative cooperation introduced in 2020.
- Recommendations for the improvement of recovery of VAT (and other taxes), including mutual assistance between member states. Q4
- Reforms of the VAT Committee, which provides expert consultation on various issues. This could include making it a ‘comitology committee’. This would enable the passing of certain implementing powers to the EC under the supervision of the VAT Committee. This is scheduled for the end of 2020. Q4
- Proposals to simplify and harmonise the existing special VAT scheme for travel agents (Tour Operators Margin Scheme TOMS). Q4
- Conference on data analytics and digital solutions.Q2
- Extension of automatic exchange of information to crypto- assets / e-money Q3
- Reform proposals of the VAT exemption for financial services. This will include measures for ‘fintech’ and financial and insurance outsourcing input VAT. Planned for Q4.
- Implementation of Standing Committee for dispute resolution. Q4
- A single EU VAT registration and return for goods and services not already covered by the 2021 e-commerce package. This would eliminate/reduce the need for most non-resident VAT registrations.
- EC will bring forward recommendations for the digitisation of VAT reporting, including possible real-time submissions for intra-EU transactions and streamlining domestic transactions. This may include e-invoice reporting.
- Legislative reforms for the platform economy and the VAT treatment of individuals providing their time, services or assets to customers. This means the gig and sharing platforms, including crowfunding platforms. The EC will look to standarise the VAT due diligence and annual reporting to tax authorities of sellers / indiviudals' taxable activities. This information will be automatically exchanged between tax authorities to improve cross-border compliance. Also, the VAT status of the marketplaces providing introductions, payment or similar facilitating support. The EC will also review the role of marketplaces in collecting VAT on behalf of individuals on their platforms.
- The EC will look to further extend the One Stop Shop (OSS) single VAT return to all B2C sales across the EU – beyond the plans for July 2021 extension to distance selling. This would bring into the OSS return all B2C VAT registrations open to report the movement of goods between EU states to warehouses and similar stock storage facilities by ecommerce sellers.
- In addition, the mandatory use of the Import One Stop Shop, being introduced from 1 July 2021.Digital solutions to levy taxes at source to facilitate tax payment / collection.
- Clarity around the rules to determine tax residence status to reduce no or double taxation. This will include a more consistent determination of tax residence.
- Update VAT special scheme for travel agents to ensure the international competitiveness of EU travel industry.
- Review of the VAT exemption on international passenger air and sea transport. The review would include the simplification of VAT rules regarding the place of taxation of passenger transport services.
- A legislative proposal for the dispute prevention and resolution mechanism concerning the implementation of the VAT Directive.
- Improvements to e-payment facilities for VAT (and other taxes), particularly for small and medium sized businesses.
- Simplifications of the e-commerce distance selling of excise goods.
- Extension of the role of Eurofisc to fight cross-border VAT fraud. This builds on the 2018 initiatives to give this group of Member State tax officers a new legal mandate to analyse EU level data.
- The EC will explore options to move to automated VAT data sharing to prevent fraud, following the model of customs data sharing.
- Data analytics methodologies will be encouraged across Member States in the drive to more risk-based VAT assessments and audits to reduce the administrative burden on honest businesses. In addition, development of a modern tax governance framework for all tax authorities.
- More administrative cooperation agreements with third-countries, adding to the one struck with Norway.