Tax & Accounting Blog

EU VAT Compliance: How Many Boxes does a VAT Return Need?

Blog, Indirect Tax, ONESOURCE May 20, 2016

In 2013 the European Commission (the Commission) announced a plan to standardize and simplify the VAT returns amongst the Member States in order to diminish the administrative burden faced by the businesses in the European Union (EU) by establishing a uniform set of rules for filling VAT returns. However, after years of discussion, the Commission has finally decided to withdraw its proposal.

The Commission announced on October 2013 that it would adopt a proposal for a standard VAT return amongst Member States, amending the Directive 2006/112/EC on the common system of VAT. The aim of this proposal was to allow businesses within the EU to provide standardized information to each member states in a common format. As explained by the Commission, the purposes of the standard VAT return were mainly related to reduce cross-border trade obstacles that business face by having to comply with different compliance rules in the EU Member States.

Under the proposal of the Commission, the standardized VAT return to be presented by taxpayer in all the Member States would have had only five compulsory boxes to be filled in. Member States would have also been able to request the incorporation of additional standardized elements, up to a maximum of 26 information boxes.

The above proposal would have represented an important improvement for businesses carrying activities within the EU, as currently the administrative burden related to VAT returns varies greatly amongst the Member States. As an example, currently the VAT return of the UK requires taxpayers to fill 9 boxes of information while Italy requires businesses to fill around 580 boxes. The difference between the information required by Member States is mainly driven by the necessity of some countries to capture more information in order to fight tax avoidance and other crimes.

Notwithstanding the benefits that a standardized VAT return would have represented, negotiations between Member States have proven to be difficult on this regard and no agreement has been reached. As said by the European Commission, the debate has showed “strong and diverging positions” regarding the main elements of the proposed new system, such as which should be the compulsory and optional boxes, which would be the filing periods and other elements.

The above has led to a current proposal draft that is far away from the initial aim of the Commission, and given the lack of compromise of some the Member States the objectives of burden reduction, simplification and harmonization would not be achieved. Under this scenario, countries such as UK and Ireland would have to increase the number of boxes and add new requirements, which is far from the objective of the initial proposal. The Commission has recognized this and has decided to withdraw the proposal for a standardized VAT return.

Under the current scenario, and given the diverging realities and needs of the Member States, it is unlikely that in the near future we will see another proposal to standardize the VAT return at European level.

Notwithstanding the above, other ideas to reduce compliance at EU level may come in the future. In this sense, the European Commission has recently released an Action Plan on VAT, which contains a series of measures intended to modernize the VAT system. The referred document acknowledges the need to reduce compliance costs within the single market, especially for small and medium size companies. For now, we need to wait for the Commission to release the specific measures to be adopted in order to simplify and reduce VAT compliance within the single market.