TOWARDS A DEFINITIVE VAT SYSTEM AND FIGHTING VAT FRAUD IN THE EUROPEAN UNION

VAT is a major and growing source of tax revenue in the EU. The current VAT system is, however, too burdensome and complex for businesses that wish to expand beyond the Member State in which they are established. The current VAT system is also too vulnerable to fraud when it comes to cross-border trade. On 7 April 2016 the Commission adopted an Action Plan on VAT, and in July 2016 the amendments to the own-initiative report “Towards a defintive VAT system and fighting VAT fraud” (made by rapporteur Werner Langen) were discussed.

The short-term action plan is the first step towards a more tightly coordinated tax strategy within the EU. It aims to implement three main types of measure providing for improved exchange of information between Member States and the strengthening of administrative cooperation between Member States with regard to action to combat fraud and in terms of invoicing. The aim of the action plan is to establish a single European VAT area to buttress a deeper and more equitable single market and in order to help promote employment, growth, investment and competitiveness. Through the necessary reform, the high administrative costs incurred under the present VAT system, especially with regard to cross-border transactions, could be significantly reduced for small and medium-sized enterprises. Given the above, the VAT needs to be modernised and rebooted in the EU. Therefore, the Commission now plans to present a legislative proposal to put in place a definitive VAT system.