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New VAT regime for intra-Community trade

Recently the European commission published a study entitled "Implementing the 'destination principle' to intra-EU business to business supplies of goods" on its website. It describes alternatives for the current system of intra-Community supplies and acquisitions. This study describes the feasibility and economic consequences of five alternatives to change/replace the current system. In this article we explain the reason and the scope of this study.

In 1993 all customs borders within the EU were abolished, which had an impact on for “intra-Community trade”. Since the EU member states did not yet agree on the final VAT system for intra-Community trade, a provisional system was put in place to follow

cross-(EU-)border transactions, which results in taxation at the destination for most goods transactions. In 1997 a final system would be implemented, but to this date there is no agreement over a final system. So the provisional system is still in place: it is the system as we know it today, with intra-Community supplies (and EC Sales listings) and intra-Community acquisitions.

However, there are two important issues with the current system: the additional compliance costs for businesses and the level of VAT fraud that is possible due to the current system. Because of these issues and since no final system is implemented yet, five alternatives for the current system were put forward.

Now the European commission has studied the impact of the five alternatives on the mentioned issues. The study describes the consequences of each alternative for compliance costs, the impact on cash flow and VAT fraud, the administrative costs (for tax authorities), the reporting requirements for taxable persons and the economic impact (as result of fraud reduction). This study is another step in the process that is started in the early 90’s towards the implementation of a (new) definitive VAT regime for intra-Community trade.

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