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Cutting red tape on VAT - 29/01/2009

Woman pushing away pile of documents to make room for one file illustrated with the EU logo ©EC

Business to get a break under streamlined EU VAT rules.

The EU is revising its rules on VAT invoicing, saying the changes could save businesses up to €18bn a year. The proposals are aimed at reducing red tape and fraud and expanding the use of electronic invoicing.

Countries have the right to tailor EU rules on value-added tax to their own laws. But companies complain national procedures are too complicated and disparate, making it hard to do business in more than one country. The new rules offer governments fewer options in an effort to standardise practice.

They also give companies that do business in other EU countries less time to report transactions, which could help national governments fight fraud. And restrictions on the use of electronic invoices have been removed, with the result that e-invoices would be treated just like paper.

To help small businesses, the proposal widens the use of a simplified form of invoicing, notably for invoices of €200 or less, and gives countries more flexibility on when to collect taxes on the invoice.

“Today’s important initiative will put forward much simpler, more modern and comprehensive rules for invoicing,” said Lázlo Kovács, commissioner for taxation and customs.

VAT is a tax on the consumer, not a charge on businesses. Rates differ widely across the EU. Businesses collect VAT when they sell goods and are required to turn the tax money over to the treasury. They must use invoices that show the VAT charged to customers.

The proposed changes are a key element in ongoing efforts to cut red tape. Four years ago, the commission launched a drive to reduce the administrative burden on EU businesses by simplifying and codifying its legislation. Since then about 7 800 pages have been proposed for removal from the EU law book.

In 2007 the commission decided that further action was required, including technical measures to make rules easier to implement, especially in the area of taxation and company law. The commission estimates its efforts in this area have saved businesses about €30bn.

Inspired by the EU effort, 21 member countries have set up similar programmes to streamline their own regulations.

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