New plans European VAT regime in 2022
On the 4th of October 2017, the European Commission has published proposals for a new VAT system for intra-Community trade. The new VAT regime for cross-border trade is expected to enter into force in 2022. In the current ‘temporary’ system, which is already in place for 24 years, no VAT is charged on EU cross-border trade of goods between businesses, with a self-assessment on the EU business customer.
The new proposal introduces the ‘destination’-principle. Based on this principle, transactions will be taxed with VAT in the Member State of destination, rather than in the Member State of the supplier or ‘ship from’ Member State. This means the supplier has to charge VAT at the applicable VAT rate in the Member State of destination. This VAT can subsequently be reported through the VAT Return as submitted in the Member State of establishment of the supplier (one-stop-shop system), after which this Member State will have to transfer the VAT to the destination Member State. The supplier does not need to register in every Member State.
As mentioned, this new rule is aimed to be in place by 2022, after which the same regime should be introduced for services.
Certified Taxable Person
The concept of a Certified Taxable Person is a new initiative that is being proposed to facilitate trade and make life easier for companies operating cross-border in the EU. Provided that companies, small or big, meet a set of criteria, they can get a certificate allowing them to be considered throughout the EU as a reliable VAT taxpayer. A business can become a Certified Taxable Person (CTP) by applying to their national tax authorities and proving compliance with a set of sufficiently harmonized and standardized pre-defined criteria including: regular payment of taxes, reliable internal control systems and proof of solvency. The ‘CTP status’ will be mutually recognized by all EU Member States.
In case the customer qualifies as a CTP, no VAT should be paid by the supplier on cross-border supplies, but the CTP can apply a reverse charge mechanism for the VAT on goods or services purchased from abroad. Taxable persons can already obtain the status of CTP as of 2019. According to the plan, these statuses can be consulted through VIES. Once certified, both they and the companies that do business with them will enjoy a number of simplified procedures for the declaration and payment of cross-border VAT.
In this respect, the Commission has announced some ‘quick fixes’ to be applicable as of 2019. Some proposed short-term measures aim to improve the functioning of the current system. Certified Taxable Persons can benefit from the following “quick fixes” as of 2019:
- Simplification of VAT rules for companies in one Member State storing goods in another Member State to be sold directly to customers there; i.e. arrangements where companies move goods from one Member State to another where they are to be stored before being supplied to a customer known in advance. This simplification is limited to Certified Taxable Persons who will no longer need to register and pay VAT in another Member State when they store goods there;
- Simplification provided for chain transactions identifying the supply with which the intra-Community transport of goods should be linked;
- Simplification of the proof of transport of goods between two Member States, as required for the application of the exemption/zero rate for intra-Community supplies;
- Clarification that, in addition to the proof of transport, the VAT number of the commercial partners recorded in the electronic EU VAT-number verification system (VIES) is required for the cross-border VAT exemption/zero rate to be applied under the current rules.
What are the next steps for this proposal?
The proposal will be forwarded to the European Parliament for consultation and to the Council of Ministers for their agreement. It requires unanimous agreement from all Member States in the Council before the new regime can enter into force. A second directive overhauling the entire VAT Directive will be proposed in which the cornerstones will be implemented and the current transitional articles will be replaced or deleted.
Further changes regarding the administrative cooperation rules and substantial IT developments will be needed in order to ensure the proper operation of the system. The adoption of this second proposal is currently scheduled for 2018, the definitive regime should enter into force in 2022.
The proposal will have serious implications for businesses, compliance costs will need to be taken into account and serious ERP modifications will be required.
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