Tax & Accounting Blog

EU Releases Action Plan on VAT

Blog, Indirect Tax, ONESOURCE, VAT Tax Rates, VAT-GST Management April 9, 2016

The EU Commission published its Action Plan on VAT on 7 April 2016, which aims to modernize the VAT rules.

The Action Plan has four goals:

  • single European VAT Area
  • urgent measures to tackle the VAT Gap
  • e-commerce obstacles in a Single Market
  • more freedom for VAT rates

By the end of 2016, the Commission has to propose legislation to modernize and simplify VAT for cross-border e-commerce and these proposals will include the following:

  • extending the One Stop Shop mechanism to EU and non-EU countries online sales of tangible goods to final consumers;
  • introducing a common EU-wide simplification measure VAT threshold to help small start-up e-commerce businesses;
  • allowing for home country checks, including a single audit of cross-border businesses;
  • removing the VAT exemption for imports of small consignments from non-EU suppliers

The extension of the One Stop Shop mechanism to tangible goods will require businesses to have a deeper knowledge of the national VAT regimes because goods have more variability in treatments than telecommunications, broadcasting and electronic services. This connects to the idea of a single European VAT area treats all of the transactions within the EU as domestic VAT transactions and remove the concepts of intra-community acquisition and dispatch. This illustration from the EU shows how the system would change under a single VAT area.

Today, the chair manufacturer only has to know the domestic rate for the chair but in the future it makes a cross-border sale it would have to know the VAT rate for a chair in all of the other member states instead of being able to apply a 0% rate. When combined with the possibility of far more flexibility in setting of rates, this means businesses wanting to make the correct tax treatments will need to be aware of the possible VAT treatment.

More information on the changes will be coming over the next couple of months. More information about the changes can be found here:

EU Action Plan: Action Plan on VAT – European Commission

Press Release with Video: European Commission – PRESS RELEASES – Press release – VAT Action Plan: Commission presents measures to modernise VAT i…