EU VAT regime reforms 2019 to 2025

This series of blogs summarises the many modernising reforms being launched for the EU VAT regime between 2019 and 2025. It includes: the Action Plan on VAT; Definitive VAT System and E-commerce Package measures.

Detailed measures include:

2025 VAT registration thresholds equivalence for foreign businesses

2024 Payment providers VAT reporting obligations

2022 EU definitive VAT system

2022 EU VAT rate setting freedoms

2021 One-Stop-Shop (OSS) single EU VAT return

2021 Ending €22 import VAT exemption; new IOSS return

2021 Marketplace deemed supplier EU VAT reforms

2020 EU Four Quick Fixes VAT reforms

2020 tax authorities anti-VAT fraud cooperation

2018 Simplifications of e-services EU VAT compliance

2018 Harmonised e-publications VAT rates

2018 EU Generalised Reverse Charge VAT Mechanism

Fraud and e-commerce explosion

The current EU VAT regime, contained within the Council Directive 2006/112/EC (the 'EU VAT Directive'), has remained largely unchanged since the inception of the EU Single Market in 1993. Since then, two major forces have exposed the need for a radical update:

VAT fraud perpetrated by criminal gangs exploiting the current zero VAT rating of intra-community supplies between businesses. This 'missing trader' or 'carousel' fraud is estimated to cost EU member states €50billion per annum.

E-commerce which has exploded to reach over ‚Ǩ550 billion per annum in sales, of which almost ‚Ǩ100 billion is cross-border. Challenges in tracking online sellers' taxable supplies, both from within and imported into EU, has resulted in an estimated ‚Ǩ5 billion p.a. in evaded VAT. In addition, the cost, complexity and variations in VAT compliance across the different states has held back the growth in the pan-EU digital market. 

Fundamental reforms to be completed by 2025

To tackle these challenges, since 2016, the EU Commission has proposed a range of reforms to the EU VAT Directive. These seek to close the VAT fraud loopholes, and make e-commerce VAT simpler. They are detailed within this guide, and come under two sets of legislative proposals over the next five years:

• EU VAT Action Plan on fraud - firstly included an range of short-term measures, the 'Four Quick Fixes', which passed into effect at the start of 2020. The second and highly ambitious element of the Plan is a proposal to move from the current origin-based B2B VAT regime to a destination-based system. This 'Definitive VAT System' has yet to be confirmed for its 2022 planned launch, and likely faces immovable objections. The third element of the Action Plan, the 'Certified Taxable Person', is now almost certainly dead. Also, from the Action Plan and covered in this guide, are: 2020 enhanced data exchange rules between tax authorities; 2020 general reverse charge mechanism; 2022 reduced VAT rate setting freedoms; 2024 payment providers data reporting obligations; and the 2025 non-resident VAT registration threshold enhancements.

• VAT e-Commerce Package - originally part of the Action Plan, this includes many simplifications for online cross-border VAT compliance. The major transformation is the 2021 extension of the single EU VAT return, Mini One-Stop-Shop, to certain B2C goods and services transactions. Also ratified under the Package for 2021: marketplaces to be co-opted into VAT collections to reduce fraud; and the low-value VAT import exemption is to be scrapped to level the tax playing field for EU-based online and offline retailers.