The VAT Directive sets out general rules framing Member States' freedom to set VAT rates. These rules were intended to guarantee, above all, the neutrality, simplicity and workability of the VAT system.
This framework was originally established with the aim of arriving at a definitive VAT system based on the so-called 'origin principle', i.e. a system in which the location of the seller determines the tax treatment, including the rate. To avoid unfair competition, the origin system strictly requires Member States to tax the same goods at very similar rates (otherwise, sellers located in Member States with a higher VAT rate would suffer an unfair disadvantage compared with sellers located in low VAT countries). For this reason, the VAT directive set minimum taxation levels, in the hope that over time VAT rates would converge.
Nevertheless, given that over many years no progress was made on rate convergence, it was decided in 2011 to abandon the objective of introducing the origin-based VAT system in favour of a destination-based one, according to which the VAT applicable is the one where the buyer is located (so that the same tax rate is paid by all sellers).
By nature, the destination system allows greater rate differentiation between Member States with a lower risk for distortion of competition. The introduction of the destination system has opened up the possibility to reform rules on rates and make them less constraining for Member States. Consequently, the Commission intends to present a reform proposal in the autumn of 2017.
This Open Public consultation aims at obtaining stakeholders views' on the following aspects:
- The need for EU action in the field of VAT rates;
- The proper balance between harmonisation and Member States autonomy in setting VAT rates;
- The problems and risks linked to differentiation of VAT rates within the Single Market;
- The desirable direction for reform
- Stakeholders' views on the proposed policy options.
Its results will feed into the review of the current rules on VAT rates.