COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE On the follow-up to the Action Plan on VAT Towards a single EU VAT area - Time to act
Date: 2017-10-04
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: VAT, action programme, administrative cooperation, digital technology, electronic commerce, single market, small and medium-sized enterprises, tax collection, tax offence, tax reform

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 4.10.2017  COM(2017) 566 final   COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE On the follow-up to the Action Plan on VAT Towards a single EU VAT area - Time to act  
 
 
TABLE OF CONTENTS 

1.  INTRODUCTION – THE WAY TOWARDS A SINGLE EUROPEAN VAT AREA 

2.  ACHIEVEMENTS SINCE THE ADOPTION OF THE VAT ACTION PLAN 

3 

4 

2.1   Adapting the VAT system to the digital economy and preparing for a modernised rates 
policy ................................................................................................................................ 4 

2.1.1.   VAT e-commerce proposals ........................................................................................ 4 

2.1.2.   VAT e-publications proposal ....................................................................................... 5 

2.2   Targeted measures to address fraud .................................................................................. 5 

2.2.1  

Improving tax collection and administrative cooperation ............................................ 5 

2.2.2   Temporary derogation .................................................................................................. 6 

3.  IMPLEMENTATION OF UPCOMING PROPOSALS 

7 

3.1   Towards a robust single European VAT area ................................................................... 7 

3.1.1  

Implementing the first step of the definitive VAT system ........................................... 7 

3.1.2.   Fighting VAT fraud today: better administrative cooperation for faster results ........ 10 

3.1.3.   Towards more efficient tax administrations ............................................................... 11 

3.2   Towards a modernised rates policy ................................................................................ 11 

3.3   Towards an SME VAT Package ..................................................................................... 12 

4.  CONCLUSION ................................................................................................................... 12 

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1.  INTRODUCTION – THE WAY TOWARDS A SINGLE EUROPEAN VAT AREA 

The  EU  VAT  system  is  an  asset  of  the  Single  Market;  by  removing  obstacles  that  distorted 
competition and prevented the free movement of goods it has greatly facilitated trade in the EU. 
As a broad-based consumption tax, the Value Added Tax (VAT) is considered to be one of 
the most growth-friendly forms of taxation. VAT is also a major and growing source of tax 
revenue in the European Union1. However, in recent years, the VAT system has been unable 
to keep pace with the globalisation and digitalisation of the economy. In particular, the current 
system  for  the  taxation  of  trade  between  Member  States  is  still  based  on  25  year  old 
"transitional  arrangements"2.  Under  these  arrangements,  domestic  transactions  and  cross-
border  transactions  are  subject  to  two  completely  different  VAT  regimes.  As  a  result 
businesses  trading  cross-border  bear  an  extra  compliance  cost  of  11%  in  comparison  to 
businesses trading  only domestically. In  addition, by allowing goods to be purchased cross-
border free of VAT, these arrangements are particularly prone to fraud.   In 2015, EUR 151 
billion,  representing  12.8%  of  the  VAT  liability  were  lost  due  to  fraud  and  other 
shortcomings3. In this regard, it has been estimated that EUR 50 billion is due to cross-border 
VAT fraud, a fraud committed in large part by criminal organisations and which, according to 
recent press reports, has also been used to finance terrorism.  

Today, the EU VAT system is too fragmented and too prone to fraud. As part of its agenda for 
a fair and efficient tax system in the EU, the Commission aims at rebooting the VAT system 
to ensure it remains an asset for the future. It has been estimated that putting in place a unified 
VAT regime in the single market would reduce cross-border VAT fraud by EUR 41 billion4 
and compliance costs for businesses by EUR 1 billion5. 

In its Action Plan on VAT (the 'VAT Action Plan') of 7 April 20166, the Commission outlined 
the need to put in place a single European VAT area that could cater for the challenges of the 
21st  century.  A  set  of  key  measures  to  be  adopted  in  the  short  and  medium  term  were 
announced in order to modernise the EU VAT system and make it simpler, more fraud-proof 
and  business-friendly.  These  measures  respond  to  several  objectives:  adapting  the  VAT 
system to the global, digital and mobile economy, supporting the needs of  SMEs, providing 

1   VAT raised slightly more than EUR  1 trillion in 2015, which corresponds to 7% of EU GDP or 17.6% of 

total national tax revenues (source: Eurostat, Tax revenue statistics). 

2   Article 402 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added 

tax (OJ L 347, 11.12.2006, p. 1) and COM(2016) 148 final, 7.04.2016. 

3   Study and Reports on the VAT Gap in the EU-28 Member States, CASE 2017;  

See: https://ec.europa.eu/taxation_customs/sites/taxation/files/study_and_reports_on_the_vat_gap_2017.pdf  
4   As regards other modalities of VAT fraud, and in particular domestic VAT fraud, the Commission is engaged 
in a number of actions it intends to pursue together with the Member States and other interested parties. See, 
in this respect, point 3.1.3 of this Communication. See also the "20 measures to tackle the VAT gap" at the 
following link: 

   https://ec.europa.eu/taxation_customs/sites/taxation/files/docs/body/2016-03_20_measures_en.pdf 
5   See  Executive  summary  of  the  impact  assessment  accompanying  the  document  Proposal  for  a  Directive 
amending Directive 2006/112/EC as regards harmonising and simplifying certain rules in the value added tax 
system and introducing the definitive system for the taxation of trade between Member States (SWD(2017) 
326) 

6   Communication from the Commission to the European Parliament, the Council and the European Economic 
and  Social  Committee  on  an  action  plan  on  VAT  –  Towards  a  single  EU  VAT  area  –  Time  to  decide 
(COM(2016) 148 final). 
See: https://ec.europa.eu/taxation_customs/sites/taxation/files/com_2016_148_en.pdf 

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for an adequate rates policy, putting an end to cross-border fraud and helping Member States 
closing the VAT gap. 

The modernisation of the existing VAT system will be achieved through a series of gradual 
steps. This Communication reports on the actions that have already been taken (Section 2) and 
provides further details on the steps forward (Section 3), including the initiatives that will be 
adopted this year: 

  A  legislative  package  on  the  definitive  VAT  system  for  intra-Union  business-to-

business (B2B) trade (hereafter the 'definitive VAT system'); 

  A proposal on the reform of the VAT rates; 
  A proposal to reinforce the existing instruments for VAT Administrative Cooperation; 

and 

  A proposal to simplify the VAT rules for SMEs. 

2. 

2.1  

ACHIEVEMENTS SINCE THE ADOPTION OF THE VAT ACTION PLAN 

Adapting  the  VAT  system  to  the  digital  economy  and  preparing  for  a 
modernised rates policy 

On  1  December  2016,  the  Commission  adopted  several  proposals7  to  modernise  VAT  for 
cross-border e-commerce and a proposal on the VAT rate for e-publications. These proposals, 
which are an important part of the Digital Single Market strategy8, aim at adapting the VAT 
system to the digital economy. 

2.1.1.   VAT e-commerce proposals 

The  digitalisation  of  the  economy  has  created  increasingly  pressing  challenges  for  taxation 
policy. Some innovative and forward-looking solutions are necessary to keep track with these 
new business trends. Tax rules need to evolve to adapt to the fast-paced change in business 
models and consumer patterns. In parallel, taxation should be fair and effective for emerging 
businesses and should contribute positively to the development of the digital single market.  

As  a  consumption  tax,  VAT  has  an  important  role  in  the  strategy  to  meet  these  goals.  The 
proposals on e-commerce are intended to benefit businesses, citizens and Member States and 
have allowed the EU to be seen as a leader globally. 

7   Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC  and  Directive  2009/132/EC  as  regards 
certain  value  added  tax  obligations  for  supplies  of  services  and  distance  sales  of  goods  (COM(2016)  757 
final); 
See: https://ec.europa.eu/taxation_customs/sites/taxation/files/com_2016_757_en.pdf 
Proposal  for  a  Council  Implementing  Regulation  amending  Implementing  Regulation  (EU)  No  282/2011 
laying down implementing measures for Directive 2006/112/EC on the common system of value added tax 
(COM(2016)756); 
See https://ec.europa.eu/taxation_customs/sites/taxation/files/com_2016_756_en.pdf 
Proposal  for  a  Council  Regulation  amending  Regulation  (EU)  No  904/2010  on  administrative  cooperation 
and combating fraud in the field of value added tax (COM(2016)755); 
See: https://ec.europa.eu/taxation_customs/sites/taxation/files/com_2016_755_en.pdf 
Proposal  for  a  Council  Directive  amending  Directive  2006/112/EC,  as  regards  rates  of  value  added  tax 
applied to books, newspapers and periodicals (COM(2016)758);  
See:  https://ec.europa.eu/taxation_customs/sites/taxation/files/com_2016_758_en.pdf 

8   See: http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1447773803386&uri=CELEX:52015DC0192 

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The new rules would allow companies that sell goods online to deal easily with all their EU 
VAT  obligations  in  one  place  and  would  simplify  the  treatment  of  VAT  for  start-ups  and 
micro-businesses  selling  online  cross-border  sales  under  EUR  10 000.  SMEs  would  also 
benefit from simpler procedures for cross-border sales of up to EUR 100 000. The new rules 
would also remove the current VAT exemption for small consignments imported into the EU 
that are worth less than EUR 22 and ensure that EU business can benefit from a level-playing 
field. 

These proposals are currently being discussed in Council. 

Furthermore, in the framework of the EU VAT Forum9, the Commission is exploring how to 
establish structured public-private cooperation with tax administrations, logistics companies, 
internet  platforms,  payment  service  providers  and  business  associations  with  a  view  to 
improving VAT collection, reducing fraud in the field of e-commerce and delivering a level 
playing field for compliant business. The result of this consultation will provide evidence for 
a Commission initiative in 2018. 

2.1.2.   VAT e-publications proposal  

The Commission has also delivered on its pledge to enable Member States to apply the same 
VAT  rate  to  e-publications  such  as  e-books  and  online  newspapers,  as  for  their  printed 
equivalents,  removing  provisions  that  excluded  e-publications  from  the  favourable  tax 
treatment  allowed  for  traditional  printed  publications.  This  proposal  is  a  step  forward  in 
ensuring  technological  neutrality  and  removing  tax  obstacles  to  the  development  of  the  e-
publications market. This proposal is currently under discussion in Council. 

2.2  

Targeted measures to address fraud 

2.2.1  

Improving tax collection and administrative cooperation  

The Commission has launched the development of the Transaction Network Analysis for the 
exchange and joint processing of targeted VAT data by risk analysis officials of the Eurofisc 
network10. This new instrument will allow tax administrations to stop fraudulent networks in a 
simpler, quicker and more secured way.  

Furthermore,  in  the  area  of  criminal  law,  the  Directive  against  fraud  to  the  EU  financial 
interests by means of criminal law  11 was adopted last July and provides for minimum rules 
on  the  definition  of  criminal  offences  against  the  Union's  financial  interests,  sanctions  and 
limitation  periods.  The  Directive  defines  the  material  competence  of  the  future  European 
Public  Prosecutor's  Office  (EPPO)12.  The  EPPO  will,  in  particular,  be  competent  for  the 

9   Commission Decision 2012/C 198/05 of 3 July 2012 setting up the EU VAT Forum, OJ C198 of 6 July 2012; 

See: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012D0706%2802%29 

10   Eurofisc  is  a  network  for  the  swift  exchange  of  targeted  information  between  Member  States.  See 

information under following link EUROFISC. 

11   Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against 

fraud to the Union's financial interests by means of criminal law (OJ L 198, 28.7.2017, p. 29-41). 

12   Twenty Member States reached political agreement on 8 June 2017. The European Parliament will now have 

to give its consent before the Regulation can be adopted. 
See: http://www.consilium.europa.eu/en/press/press-releases/2017/06/08-eppo/ 

5 

 
                                                 
criminal  investigation  and  prosecution  of  VAT  fraud  connected  with  the  territory  of  two  or 
more Member States that involves a total damage of at least EUR 10 000 000. 

As  regards  international  relations,  the  Commission  has  been  negotiating  an  EU-Norway 
Agreement  for  administrative  cooperation,  combating  fraud  and  recovery  of  claims  in  the 
field  of  VAT.  The  Agreement  will  enter into  force  after  the  adoption by  the  Council  of  the 
Decisions  for  its  signature  and  conclusion.  Furthermore  an  administrative  arrangement  for 
the  Intra-European 
cooperation  was  signed  between 
Organisation of Tax Administrations (IOTA) in order to exchange best practices between the 
Member States and the IOTA members. 

the  Commission  services  and 

Finally,  various  Member  States  have  requested  support  to  enhance  tax  administration 
capacity.  Support  actions  under  the  Structural  Reform  Support  Programme  are  closely 
coordinated under the FISCALIS programme13. 

 2.2.2   Temporary derogation  

On 21 December 2016, the Commission fulfilled its commitment to present a proposal for a 
Council  Directive14  as  regards  the  temporary  application  of  a  generalised  reverse  charge 
mechanism in relation to supplies of goods and services above a threshold of EUR 10 000 per 
invoice. Under such a system, VAT is ‘suspended’ along the whole economic chain (between 
businesses) and is charged only to final consumers. This measure is intended to help Member 
States particularly affected by fraud to fight against carousel fraud15 while a comprehensive 
and EU-wide solution is put in place. Negotiations are ongoing in Council.   

3. 

IMPLEMENTATION OF UPCOMING PROPOSALS 

3.1  

Towards a robust single European VAT area 

3.1.1  

Implementing the first step of the definitive VAT system 

As  announced  in  its  VAT  Action  Plan,  the  Commission  proposes  to  replace  the  current 
transitional  arrangements  for  the  taxation  of  trade  between  Member  States  by  definitive 
arrangements.  In  line  with  requests  of  the  European  Parliament16  and  the  Council17,  this 

13   Member  States  can  request  the  Commission  for  technical  assistance  in  tax  policy  and  tax  administration 
matters. These requests are coordinated, analysed and monitored by the Structural Reform Support Service 
(SRSS).  Such assistance can be financed under the Fiscalis Programme. 

14   Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax 
as  regards  the  temporary  application  of  a  generalised  reverse  charge  mechanism  in  relation  to  supplies  of 
goods and services above a certain threshold (COM(2016)811 of 21.12.2016)  
See: https://ec.europa.eu/taxation_customs/sites/taxation/files/com_2016_811_en.pdf 

15   Carousel fraud is a particular type of VAT fraud committed by organised crime gangs which exploit the fact 

that, under the transitional arrangements, trading between EU jurisdictions is VAT-free. 

16   European  Parliament  Resolution  of  13  October  2011  on  the  future  of  VAT  (P7_TA(2011)0436): 
http://www.europarl.europa.eu/sides/getDoc.do?type=TA&language=EN&reference=P7-TA-2011-0436 
17   Council  conclusions  on  the  future  of  VAT  -  3167th  Economic  and  Financial  affairs  Council  meeting, 

Brussels, 15 May 2012 (see in particular point B 4): 
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/130257.pdf 

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definitive  VAT  system  will  be  based  on  the  principle  of  taxation  in  the  Member  State  of 
destination18.  

In order to allow a soft transition for tax administrations and businesses, this change will be 
made through a gradual two-step approach19. 

As a first legislative step, the VAT treatment of intra-Union B2B supplies of goods would be 
settled. The implementation of this first legislative step would be further divided into two sub-
steps (see Sections 3.1.1.1 and 3.1.1.2 below), comprising a set of proposals to be adopted by 
the Commission this year (sub-step 1) and another one to be adopted next year (sub-step 2).   

As  a  second  legislative step, the  new  VAT  treatment  would  be  extended  to  all  cross-border 
supplies,  therefore  also  covering  supplies  of  services.  The  implementation  of  this  second 
legislative  step  would  be  proposed  by  the  Commission  after  due  monitoring  of  the 
implementation  of  the  first  step,  the  functioning  of  which  would  be  evaluated  by  the 
Commission  five  years  after  its  entry  into  force.  The  definitive  system  would  then  be  fully 
implemented. 

After  due  consultation  of  all  stakeholders  and  detailed  analysis  of  the  different  options  to 
implement  the  destination  principle,  the  Commission  opted  for  taxation  rules  according  to 
which, for intra-Union cross-border supplies of goods, the supplier would charge the VAT to 
his  customer  at  the  rate  of  the  Member  State  of  arrival  of  the  goods.  The  VAT  would  be 
declared and paid in the Member State where the supplier is established via a one-stop-shop 
mechanism. However, during the first step of the definitive VAT system and as an exception 
to  this  general  principle20,  if  the  customer  is  certified  as  a  compliant  business  by  its  tax 
administration (a possibility also opened to SMEs), this customer would continue to be liable 
for the VAT on goods purchased from other Member States as is currently the case21. 

Additionally,  Council  conclusions22  and  discussions  with  the  Member  States  and  other 
stakeholders  on  the  VAT  Action  Plan  showed  a  need  to  introduce  certain  short-term 
improvements to the current VAT system ("quick fixes"). Those four quick fixes are proposed 
this  year  together  with  the  legal  cornerstones  of  the  definitive  VAT  system  (sub-step  1 
below).  A  proposal  in  2018  (sub-step  2  below)  will  further  provide  detailed  technical 
provisions for the actual implementation of the first step of the definitive VAT system.  

18   A "destination-based" VAT system  means that goods traded across borders are taxed in the country where 
they are consumed (the destination country) and at the destination country’s tax rate, rather than where they 
are produced (the origin country). 
19   See Section 4 of the VAT Action Plan. 
20   See footnote 27. 
21   In the second legislative step of the definitive VAT system, taxation would cover all cross-border supplies of 
goods  and  services  (and  therefore  the  supplier,  and  not  the  customer,  would  be  liable  for  the  VAT  on  all 
goods and services purchased from other Member States) so that all supplies of goods and services within the 
single market, either domestic or cross-border, will be treated the same way. 

22   Council  conclusions  of  8 November  2016  on  Improvements  to  the  current  EU  VAT  rules  for  cross-border 

transactions (Doc. 14257/16 FISC 190 ECOFIN 1023);  
See: http://data.consilium.europa.eu/doc/document/ST-14257-2016-INIT/en/pdf 

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3.1.1.1. 

First sub-step: the October 2017 definitive VAT system package 

The  October  2017  definitive  VAT  system  package  consists of  the  following  three  pieces  of 
legislation: 

A] A proposal for a Directive amending the VAT Directive 

The proposal introduces the following: 

a)   The notion of certified taxable person, modelled on the existing concept of authorised 
economic  operator  in  the  field  of  customs.  The  concept  of  certified  taxable  person 
allows  for  an  attestation  that  a  particular  business  can  globally  be  considered  to  be  a 
reliable taxpayer. Certified taxable persons would benefit from certain simplifications23. 
The  proposal  lays  down  the  criteria  to  be  fulfilled  in  order  to  be  granted  the  certified 
taxable person status, the cases of exclusion, the Member State competent to grant and 
withdraw  the  certified  taxable  person  status,  the  right  of  taxable  persons  to  appeal 
against administrative decisions on this matter and the obligation of mutual recognition 
by Member States. 

b)   Three "quick fixes" requested by the Council, namely: 

-  

-  

- 

simplification and harmonisation of rules regarding call-off stock arrangements24; 

recognition of the VAT identification number of the customer as a substantive condition 
in order to exempt from VAT an intra-Community supply of goods25; 

simplification of rules in order to ensure legal certainty regarding chain transactions26.  

23   Simplifications provided for by certain "quick fixes" - see point A], b) and point B], and the simplification 
regarding the liability rule for certified taxable person-customers under the new taxation system – see point 
A], c). 

24   Call-off  stock  refers  to  the  situation  where  a  supplier  moves  stock  to  a  Member  State  where  he  is  not 
established,  in  order  to  sell  it  at  a  later  stage  to  an  already  known  buyer.  Currently  this  gives  rise  to  the 
following  complex  treatment:  (i)  a  deemed  intra-Community  supply  made  by  the  transferor,  (ii)  a  deemed 
intra-Community acquisition in the Member State of arrival of the goods made by the transferor who has to 
register there and (iii) a domestic supply. 

25   Providing a valid VAT identification number of the purchaser would become a substantive condition for the 
supplier to apply the VAT exemption in case of intra-Community supplies of goods. This modification would 
allow  for  better  monitoring  of  the  flow  of  goods  through  improved  quality  of  exchanged  recapitulative 
statements (recapitulative statements to be submitted by the supplier and exchanged between Member States 
via the VIES system include the VAT identification number of the acquirer). 

26   Chain transactions are successive supplies of the same goods where the goods supplied are subject to a single 
intra-Community transport between two Member States. In this situation, the transport is to be attributed to 
only  one  supply  within  the  chain  so  as  to  determine  to  which  of  the  transactions  the  exemption  for  intra-
Community supplies should be applied in accordance with Article 138 of the VAT Directive. Member States 
have asked for legislative improvements in order to increase legal certainty for operators in determining the 
supply within the chain of transactions to which the intra-Community transport must be ascribed. 

8 

 
 
 
                                                 
Those  "quick  fixes"  would  only  be  available  to  certified  taxable  persons  (except  the 
"VAT number quick fix" which, by its own nature, cannot be so restricted). 

c)   The  legal  cornerstones  of  the  definitive  VAT  system.  They  include,  in  particular,  the 
introduction of the principle of taxation in the Member State of destination and of the 
liability  of  the  supplier  as  a  rule  (except  where  the  customer  is  a  certified  taxable 
person)27.  They  also  introduce  a  One  Stop  Shop  (OSS)  that  would  allow  suppliers  to 
account  for  the  VAT  due  on  their  supplies  of  goods  to  other  Member  States  in  their 
Member  State  of  establishment.  This  OSS  would  allow  offsetting  output  VAT  due  on 
supplies made against input VAT incurred on purchases made within the EU.  

B] A proposal amending Implementing Regulation (EU) No 282/2011 to introduce the fourth 
"quick fix" 

This  proposal  introduces  the  fourth  “quick  fix”  required  by  the  Council,  namely,  the 
harmonisation and simplification of rules on the proof of the intra-Community transport of the 
goods in order to exempt from VAT an intra-Community supply of goods. This simplification 
would only be available where a certified taxable person is involved. 

C] A proposal amending the VAT Regulation on Administrative Cooperation 

This  proposal  is  needed  to  ensure  the  inclusion  of  the  certified  taxable  person  status  in  the 
VIES  system28.  It  will  provide  the  legal  basis  for  an  efficient  technical  IT  tool  allowing 
Member  States  and  operators  to  immediately  check  electronically  whether  an  operator  has 
been granted that status. 

3.1.1.2.  

Second  sub-step:  the  2018  detailed  technical  provisions  for  the  definitive  VAT 
system 

The  above  mentioned  legal  cornerstones  of  the  definitive  VAT  system  would  constitute  the 
agreement  of  principle  of  the  Member  States  to  move  from  the  current  VAT  transitional 
arrangements to a definitive VAT system based on the principle of taxation at destination. The 
Commission  will  adopt  in  2018  a  proposal  for  a  Directive,  accompanied  by  the  relevant 
implementing  measures,  laying  down  the  detailed  technical  provisions  needed  for  the 
operation of the definitive VAT system. 

The 2018 proposal will introduce the specific provisions for the implementation of the legal 
cornerstones.  Implementing  measures  will  also  be  proposed  to  form  the  basis  of  the  IT 
developments necessary for the functioning of the new system by 2022.  

27   Similar  to  domestic  transactions,  in  intra-Union  transactions  in  goods,  the  supplier  would  charge  the  VAT 
due (the one of the Member State of destination of the goods) to his customer. However, if his customer is a 
certified taxable person, he will not charge the VAT due to him. The customer will, as is currently the case, 
self-assess the VAT due in his domestic VAT return. For the purpose of these changes, the concept of "intra-
Union supply of goods" will be introduced and the notion of "intra-Community acquisition of goods" will be 
abolished. 

28   The  VAT  Information  Exchange  system  (VIES)  is  an  electronic  means  of  validating  VAT  identification 
numbers  of  economic  operators  registered  in  the  European  Union  for  cross-border  supplies  of  goods  or  of 
services. 
See more info on: http://ec.europa.eu/taxation_customs/vies/ 

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3.1.2.   Fighting VAT fraud today: better administrative cooperation for faster results 

Several  recent  press  reports  across  Europe  as  well  as  investigations  by  national  authorities 
have highlighted the decisive link between large-scale VAT fraud cases and organised crime. 
These  have  shown  that  the  proceeds  from  the  fraud  are  feeding  money  laundering  schemes 
before  being  invested  in  other  criminal  activities,  and  possibly  terrorism  financing.  In  this 
context,  and  as  recognised  by  the  European  Parliament29,  the  Member  States30  and  the 
European  Court  of  Auditors31,  the  instruments  for  administrative  cooperation  in  the  field  of 
VAT must be reinforced.  

By November 2017 the Commission will table a legislative proposal to reinforce the existing 
instruments  for  administrative  cooperation.  One  of  the  objectives  will  be  to  strengthen  the 
Member States' capacity to conduct faster joint risk analysis of available information within 
Eurofisc, launch follow-up actions and share VAT intelligence with law enforcement bodies 
at EU level, such as Europol OLAF and the EPPO. The proposal should also contain measures 
to  tackle  the  loopholes  in  the  importation  system  under  the  so-called  procedure  4232,  by 
facilitating the systematic access to the relevant information by tax and customs authorities. 

All  these  measures  would  help  to  build  a  greater  mutual  trust  between  tax  administrations 
which will be needed to fully implement the definitive VAT system. 

3.1.3.   Towards more efficient tax administrations 

By  the  end  of  2017,  the  Commission  will  submit  a  separate  package  of  two  reports  to  the 
European Parliament and Council:  

  a report under Article 12 of Council Regulation 1553/89 on the procedures applied in 
the  Member  States  for  registering  taxable  persons  and  determining  and  collecting 
VAT, as well as on the modalities and results of their VAT control systems33; 

  a  report  under  Article  27  of  Directive  2010/24/EU  on  the  use  of  mutual  assistance 
between Member States for the recovery of taxes  – in  particular VAT  – that  are not 
paid voluntarily by the taxable persons34. 

29   European Parliament resolution of 24 November 2016; 

See:http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2016-
0453+0+DOC+XML+V0//EN 

30   Council Conclusions of 25 May 2016;  

See: http://www.consilium.europa.eu/press-releases-pdf/2016/5/47244641288_en.pdf 
31   Special Report No 24, Tackling intra-Community VAT fraud: More action needed, 2015; 

See: http://www.eca.europa.eu/Lists/ECADocuments/SR15_24/SR_VAT_FRAUD_EN.pdf 

32   The  procedure  42  is  a  customs  procedure  whereby  goods  are  imported  and  put  in  free  circulation  in  a 
Member  State  and  it  is  clear  at  that  time  that  the  goods  will  leave  the  territory  of  that  Member  State  to 
another Member State. As a result, the customs duties will be levied in the Member State of importation at 
the time of importation, but the VAT is exempted, since it will be paid later upon acquisition following the 
importation in the Member State of arrival of the goods. At the time of importation the person presenting the 
goods  to  customs  will  indicate  a  customs  procedure  code  4200  (for  importation)  or  code  6300  (for  re-
importation) in the customs import declaration.  

33   Council Regulation (EEC, Euratom) 1553/89 of 29 May 1989 on the definitive uniform arrangements for the 

collection of own resources accruing from VAT, OJ L 155/13 of 7.6.1989. 

34   Council  Directive  2010/24/EU  of  16  March  2010  concerning  mutual  assistance  for  the  recovery  of  claims 

relating to taxes, duties and other measures, OJ L 84/1 of 31.3.2010. 

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These  reports  will  shed  light  on  the  challenges  for  tax  administrations  to  collect  tax,  in  a 
changing  social,  economic  and  financial  environment.  Digitalisation,  globalisation,  new 
business models, tax fraud and avoidance and resource constraints urge tax administrations to 
review  their  practices  and  find  modern  or  alternative  ways  of  collecting  taxes  in  the  single 
market. This further provides an opportunity for the Commission to open a high level strategic 
dialogue  with the national authorities,  in  order to design solutions  that are consistent  across 
the EU and that are aligned with EU rules.  

3.2  

Towards a modernised rates policy 

As  announced  in  its  VAT  Action  Plan,  the  Commission  also  plans  to  modernise  the  rules 
currently framing Member States' freedom to set VAT rates. 

Further to the e-publications proposal, referred to in point 2.1.2 above, the Commission will 
by  November  2017  propose  a  reform  of  VAT  rates.  This  is  consistent  with  the  definitive 
arrangements  based  on  the  destination  principle  that  will  gradually  replace  the  current 
transitional arrangements for the taxation of trade between Member States.  

In  fact,  with  goods  and  services  being  taxed  in  the  Member  State  of  destination,  suppliers 
derive no significant benefit from being established in a lower-rate Member State. Diversity 
in VAT rates would therefore no longer disrupt the functioning of the single market, provided 
it  is  accompanied  by  safeguards  to  avoid  potential  risks  like  revenue  erosion,  distortion  of 
competition, complexity and legal uncertainty. 

3.3  

Towards an SME VAT Package 

SMEs  bear  proportionally  higher  VAT  compliance  costs  than  large  businesses  due  to 
complexity  and  fragmentation  of  the  EU  VAT  system.  In  an  effort  to  alleviate  those 
compliance  costs,  the  Commission  will  by  November  2017  prepare  a  comprehensive 
simplification package for SMEs to create an environment that is conducive to their growth 
and favourable to cross-border trade. 

The existing special scheme for small enterprises aims at reducing compliance costs for SMEs 
but  is  not  suited  for  a  destination-based  system.  It  should  be  adapted  so  as  to  ensure  equal 
treatment of SMEs regardless of where they are established in the EU and to encourage them 
to engage in cross-border activities and fully seize the opportunities of the single market.  

4. 

CONCLUSION 

Modernising  the  VAT  system  and  adapting  it  to  the  challenges  posed  by  the  fight  against 
fraud is key for the future of our single market. The reform of the current VAT system should 
contribute to the development of the digital single market and complement the agenda set by 
the Commission for a fairer and more efficient corporate tax system in the EU.  

In this context, it is both necessary and urgent to keep progressing on the path towards an EU-
wide VAT system that can boost jobs, growth, investment and competitiveness and is fit for 
an increasingly digitalised economy. The Commission remains committed to deliver on these 
promises.   

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