The European Commission proposes a significant reform of the VAT system in the EU

Fundamental principles of the definitive EU VAT system

The draft amendment to the EU VAT Directive of 4 October 2017 is the first legislative step introducing the fundamental principles of the definitive VAT system for cross-border B2B trade with the following objectives:

• Tackling fraud

  In the new definitive single EU VAT area, VAT should be charged not only to domestic but also to cross-border trade between businesses. Currently, cross-border supplies of goods are exempt from VAT. The proposed change came in reply to the weak points of the current VAT system, such as the susceptibility to fraud.

• One Stop Shop

  The proposed One Stop Shop should bring simplification to companies in dealing with their VAT obligations. The aim is to enable traders to declare VAT using a single online portal and thus preclude the obligation to register for VAT in all the EU member states where they perform taxable transactions. The EU member states will then pay the VAT to each other, as is already the case for supplies of digital services to final consumers.

• Greater consistency

  The definitive VAT system in the EU should be based on the principle of 'destination', applying the VAT rate of the respective EU member state of 'destination'.

• Less administrative burdens

  Simplification of invoicing rules should allow suppliers to issue invoices according to the rules of their “home” country even when trading across borders.

  After implementing the new VAT system, companies will no longer have to file so called EU Sales Lists – lists of cross-border transactions with their tax authority.

The next legislative step should follow in 2018, when the European Commission plans to introduce detailed technical provisions for the actual implementation of the definitive VAT regime. The definitive EU VAT system should enter into application in 2022.

Quick fixes

The recent proposal contains also so called 'quick fixes' with the aim to improve the current VAT system. These provisions, expected to enter into force until 2019, bring changes in the following areas:

VAT identification number: Requirement of a valid VAT identification assigned in another EU member state should represent additional substantive condition for the application of the VAT exemption in respect of an intra-EU supply of goods. This condition is already contained in the Slovak VAT Act.

Chain transactions: Uniform criteria and appropriate legislative improvements focused on increasing legal certainty and harmonisation of application of VAT rules when determining the VAT treatment of chain transactions should be introduced.

Call-off-stock: Application of so called call-off-stock simplification should be made possible only if the transaction is taking place between two certified taxable persons.

The draft amendment to the EU VAT Directive introduces also a new concept of a Certified Taxable Person – a category of trusted businesses that should benefit from much simpler and time-saving rules. Similar criteria to those applied regarding the Authorised Economic Operator (AEO) according to customs legislation should be used for granting the certified taxable person status.

A modification of the VAT Implementing Regulation is also anticipated with regards to the documentary evidence required to claim an exemption for intra-EU supplies of goods.

The proposed amendments to the EU VAT Directive introduce significant changes in the application of the VAT rules in the EU. Therefore, attention should be paid to these changes already at this stage, at the beginning of the process of forming the definitive VAT system.