Priority actions for improving the VAT system in the EU

The Commission adopted a Communication on 6 December setting out the fundamental characteristics that must underlie the new regime and a series of needed priority actions.

Three overriding objectives shape the vision of the new VAT system.

This, in turn, will be good for growth. Among the measures envisaged for a more business-friendly VAT are expanding the one-stop-shop approach for cross-border transactions; standardising VAT declarations; and providing clear and easy access to the details of all national VAT regimes through a central web-portal.

Second, VAT must be made more efficient in supporting Member States' fiscal consolidation efforts and sustainable economic growth. Broadening tax bases and limiting the use of reduced rates could generate new revenue for Member States without the need for rate increases. The standard VAT rate could even be reduced in some Member States, without any impact on revenue, if exemptions and reductions were removed. The Communication sets out the principles that should guide the review of exemptions and reduced rates. The Commission will also be analysing Member States' use of reduced rates and exemptions when reviewing their fiscal policies in the context of the European Semester.

Third, huge revenue losses that occur today due to uncollected VAT and fraud must be stopped. It is estimated that around 12% of the total VAT which should be collected, is not (so-called VAT Gap). In 2012 the Commission will propose a quick reaction mechanism to ensure Member States can respond better to suspected fraud schemes. Furthermore, the Commission will see whether current anti-fraud mechanisms, such as Eurofisc, should be strengthened and will explore the possibility of a cross-border audit team to facilitate multilateral controls.

Finally, the Commission has concluded that the long-standing question of changing to a VAT system based on taxation at origin is no longer relevant. Therefore, VAT will continue to be collected in the country of destination (i.e. where the customer is located), and the Commission will seek to create a modern EU VAT system based on this principle.

Text of the Communication on the web site of Directorate-General Taxation and Customs Union

Report on a retrospective evaluation of elements of the EU VAT system