The Commission has proposed new rules to give Member States more flexibility to set Value Added Tax (VAT) rates and to create a better tax environment to help SMEs flourish. The proposals presented on 18 January are the final steps of the Commission's overhaul of VAT rules, which is intended to create a single EU VAT area that dramatically reduces the EUR 50 billion lost to VAT fraud each year in the EU, while supporting business and securing government revenues. The EU’s common VAT rules, agreed by all Member States in 1992, are out of date and too restrictive. They allow Member States to apply reduced VAT rates to only a handful of sectors and products. As a result of the changes, countries will be on a more equal footing when it comes to some existing exceptions to the rules, known as VAT derogations. Moreover, the new rules also address the problem of smaller companies suffering from disproportionate VAT compliance costs. Businesses trading cross-border face 11% higher compliance costs compared to those trading only domestically, with smaller players hit hardest. Under the new rules, VAT-related compliance costs will be cut by as much as 18% per year.