On October 4th of 2017, the European Commission has proposed a series of fundamental principles and key reforms for the EU's VAT area.
This proposal aims at improving and modernising the current VAT system to…
The Commission proposes:
The cornerstones presented today will be followed in 2018 by another proposal that will lay down detailed technical provisions needed to operate the definitive VAT system.
The October proposal contains several fundamental principles or cornerstones for a definitive VAT regime.
However, if the buyer is a reliable taxpayer, a so called "certified taxable person" it is he who is liable for payment of the VAT due directly to the treasury of the Member State of destination.
Member States will then pay the VAT to each other directly, as is already the case for the supply of e-services.
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More information on the One Stop Shop in the factsheet.
The Commission also presented four quick fixes to improve the day-to-day functioning of the current VAT system, until the definitive regime will have been fully agreed and implemented.
A NEW CONCEPT: "CERTIFIED TAXABLE PERSON"
A business can apply to its national tax authority and become a Certified Taxable Person (CTP) by proving compliance with pre-defined criteria such as:
Once certified, the company will be considered a reliable tax-payer.
Both the CTP and the companies that do business with it will enjoy a number of simplified procedures for the declaration and payment of cross-border VAT.
The status of Certified Taxable Person will be mutually recognised by all EU Member States.
The proposals will be forwarded to the European Parliament and the European Economic and Social Committee for consultation, and to the Council for their agreement. They will require unanimous agreement from all Member States in the Council before they can enter into force.
The proposals are the first step in a long term plan to modernise the VAT area. The next planned steps are…
How does VAT fraud operate?
VAT fraud can occur when a company that has collected the VAT from its buyer and should pay this amount to the tax authority does not pay, but is liquidated instead and its owner or manager walks away with the money.
Nevertheless, if the company purchased the goods in its own Member State it paid VAT on the purchase. Therefore the fraud is limited to the difference between the VAT paid when buying the goods and the VAT collected when selling them.
More money is at stake when the company buys goods from another Member State, because purchasing the goods is VAT free, and when selling the goods the company receives VAT, and therefore has the entire VAT.
Proportionally more money can be stolen.
Because the company disappears, this type of fraud is also called missing trader fraud.
Carousel fraud goes even further. In this case the same goods are bought and resold by the fraudster via middlemen several times.
Each time the amount of collected VAT increases and the company goes into liquidation before the tax authority can collect the accumulated VAT.
The name carousel fraud reminds of the way the same product goes around several times before the fraudsters disappear.
For a more detailed explanation about how VAT Fraud works and how the new proposal will make the system more fraud-proof – please consult the MEMO.