Posted on Jan 29, 2019
A new VAT system for taxing trade between Member States must tap its full potential and limit any possible negative effects for the single market, says the European Economic and Social Committee in its recently adopted opinion a proposal presented by the European Commission.
Greater collaboration between national authorities and extensive communication by the Commission will be key to its successful implementation. Clarifications are needed on some proposed concepts and criteria and a common system for goods and services must follow as soon as possible.
The current transitional VAT system does not meet the needs of the current trade situation.
Since it was put in place 25 years ago, there has been a considerable increase in cross-border trade between EU Member States. The outdated regime leaves room for tax fraud and abuses and leads to considerable revenue losses across the European Union. The new VAT system should change this and promote a much-needed enhancement of the single market.
The EESC considers the proposed reform to be a crucial step to completing the move to the definitive VAT system for taxing goods in B2B trade, based on the destination principle. It believes that the new framework could deliver tangible advantages for businesses, including reduced compliance costs and red tape.
"The reform can have a positive impact on businesses and their growth, but its success cannot be taken for granted", said Krister Andersson, rapporteur for the EESC opinion.
"Rules must be properly implemented, everyone needs to understand the reform, and national tax authorities must intensify their day-to-day collaboration while also engaging in a communication campaign," he explained.
While the reform will change the taxation of cross-border B2B trade in goods, services will continue to be taxed under a different regime. As the co-existence of two systems is likely to cause problems, the EESC urges the Commission to explore how a common system can be rolled out as quickly as possible.
"A common way of taxing goods and services would be more conducive to growth and more effective against fraud," said Giuseppe Guerini, co-rapporteur for the opinion. Continuing work towards a common system is thus of the utmost importance.
Besides the call for a common system, the EESC sets out practical recommendations in its opinion on implementing the reform and asks the Commission to clarify the provisions for the One-Stop Shop (OSS) and the certified taxable person (CTP).
The EESC is of the view that businesses should have the broadest possible access to CTP status. The Member States should process CTP applications promptly in order to ensure that businesses can continue their operations without unnecessary interruptions, delays and administrative burdens due to uncertainty.
"To be successful, the VAT system must not hinder businesses from expanding cross-border," said Krister Andersson.
Given the Commission proposal's expected impact on cash flow and cost of capital, the Committee is also concerned about the creation of new obstacles for SMEs and startups.
In this regard, Giuseppe Guerini said: "The system of reverse charge should be granted to all cross-border supplies of goods between businesses, until the definitive system is fully in place and reimbursement of VAT is done in a timely manner."
Finally, the EESC recommends adequate investment in IT hardware and software assets to properly develop a solid and reliable OSS. The OSS is intended to manage a considerable amount of sensitive information. The secure and swift functioning of the system must be guaranteed for the benefit of companies and tax administrations.
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