Biggest change to VAT in nearly 25 years
As of January 1, 2020, businesses that trade across borders in the EU will need to comply with what are known as four Quick Fixes, each setting new rules for the way VAT is applied for cross-border movement of goods.
The changes are part of an EU-wide approach to addressing the so-called VAT Gap, which remains a challenge for Member States. For years, the gap, which is the difference between the expected VAT revenue and the amount actually collected, has remained stubbornly high, at about 11% across the EU.
However, many Individual Member States have a much higher gap in recovery, with countries losing substantial revenues due to fraud, tax evasion and maladministration.
The total gap in 2018 was estimated at about €130 billion — eroding the ability of Member States to use tax revenue for public purposes. About half that gap, or an estimated €50 billion annually, is believed to be deliberate VAT avoidance or fraud.
To stem the losses, the EU has proposed moving towards one Single EU VAT Area by July 2022: an enormous and complex proposition that might not proceed. While this remains under discussion, some immediate changes have been agreed, and will begin from January 1, 2020.
“Some time ago, the EU Commission proposed several reforms of the VAT system that are aimed at improving and modernizing the levy of VAT,” says Jayant Rakhan, VAT Partner for the Baker Tilly Netherlands office.
“The central element of the proposal consists of a new system for the levy of VAT on cross-border intra-Community supplies of goods.
“Businesses who rely on cross-border transport of goods between EU Member States will be affected by these new rules and will need to implement changes to their business systems as soon as possible to ensure they are ready for the measures to come into force on 1 January, 2020.”
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