31 October 2017
During October, the European Commission (EC) published details of the fundamental VAT reforms that it plans to implement by 2022.
The main proposal is to shift the EU VAT regime from an origin-based system to a destination-based system for sellers that are not Certified Taxable Persons (“CTP”).
If implemented, this would mean that the taxing of cross-border sales between businesses (B2B) may no longer be zero-rated if the seller is not a CTP. Instead, the seller would be expected to charge the VAT of the destination country of the goods. In a mirror image of the Mini One Stop Shop (MOSS), which is currently used for reporting and paying VAT on electronic service sales to consumers, the seller would report and pay the foreign VAT to all member states through their own EU member states’ VAT online portal.
To become a CTP a seller must hold a clean tax history and will need to make an application to achieve this status. Once achieved it will allow them to benefit from simplified rules including permission to carry on using the reverse charge for the above-mentioned transactions.
Some of the other proposals include the harmonisation across all member states on the:
• VAT treatment of call-off stock - call-off stocks are goods held in a country by a non-resident seller that are under the full control of one of their customers, these goods can then only be used by that customer and cannot be accessed or sold to any other businesses
• Evidence required to prove the transport of zero rated sales of goods across borders (EC Sales)
• Clarifications on rules for determining treatment of transport in chain supplies with an intermediary party (Triangulation) – Triangulation is the term used to describe a chain of intra-EC supplies of goods involving three companies. However, instead of the goods physically passing from one business to the other, they are delivered directly from the first to the last party in the chain
• Requirement to verify VIES-status of VAT numbers of foreign customers - The VIES register is an online database of EU VAT numbers on which companies can cross check the authenticity of a VAT number in order to make intra-community supplies. Many EU countries do not automatically list VAT registered companies on this database.
Again, the first three proposals will only be available to CTP’s and only the fourth will apply to all VAT registered businesses.
These proposals will likely face opposition from a number of EU member states who will not be comfortable in passing control of their VAT collection and compliance to fellow member states.