Will a new European (EU) VAT be integrated in 2022 – a system for intra-European transactions? What will change? How will future changes affect the existing and new business? At European companies and companies registered outside the EU? How will this affect logistics companies operating in international markets as well as their customers? Which business sectors will be most susceptible to future changes and how?
These and many other questions appeared by European and not only companies and customs brokers after the European Commission presented a new VAT plan and step-by-step actions for its implementation.
A little background …
On May 7, 2019, a large-scale research project was announced, a project called GrandTheftEurope, launched by journalists from 30 countries, on fraud with a VAT carousel. The first part of GrandTheftEurope’s publications is mainly devoted to the history of VAT fraud and the possible reasons why fraud seems to have gone unchecked for a quarter century. During the investigation, it turned out that at least 50 million euros of unpaid VAT on intra-European transactions will never get into the European treasury.
VAT carousel fraud is possible due to deficiencies inherent in the VAT system introduced in 1993. To date, there was not enough political will to radically change the system. An ambitious VAT action plan – Towards a single EU VAT area, the European Commission is discussing in detail.
Despite the skepticism of some experts and the disagreement of representatives of individual EU countries with the effectiveness of the new system, a phased implementation plan is taking place. The final stage of the implementation of the system for commodity transactions is planned for 2022 and provides for the readiness of the legislative framework and information and computer systems for the exchange of data between the regulatory authorities of the EU member states. The second phase of the plan for transactions related to the provision of services is planned for 2027. If consensus is reached between EU countries (the question is when and whether it will be) and the new plan is still implemented, the impact on business will undoubtedly be great.
The Dutch secretary of state for finance, Menno Snell, is not quite positive about the new plan. In his opinion, the existing structure of organizations and methods to combat VAT fraud have brought many positive results. But the new system will on the contrary contribute to increased VAT fraud.
The collection of VAT on intra-European trade operations will be in the seller’s country at the tariff rate of the country where the buyer is registered. In other words, the seller charges the buyer VAT and transfers it to the local tax authorities. In turn, the local tax is obliged to transfer the withdrawn VAT to the tax authorities of the country of the buyer or end consumer.
One tool in the new system is a system called Transaction Network Analysis (TNA). A new tool, “helping EU countries crack down on criminals and recover billions.” The system will need to help Member States instantly exchange data and collectively process data. It also allows you to quickly identify fraud.
At the transitional stage, the role of “trusted taxpayers” is envisaged – the equivalent of authorized economic operators in customs. These certified taxpayers retain the ability to shift VAT.
By 2022, a single European VAT portal, the so-called “One Stop Shop – OSS”, is foreseen. By registering in the portal, European companies as well as companies outside the EU that are related to intra-European transactions will be able to register transactions online. Also, European companies that do not have VAT registration in the country where VAT is to be paid will be able to file a VAT declaration in their country. And local tax authorities are required to transfer VAT to the tax authorities of the country of the buyer (consumer). By 2027, an identical portal is planned to be introduced to register transactions related to the provision of services. And perhaps the status of a certified taxpayer, being a temporary tool, will no longer take place. In this case, there will be no opportunity to “shift the VAT.”
According to many skeptical experts, the system will not be functional. Indeed, practice shows that Member States are reluctant to enter all the necessary data into the common system. And also, given the history and recent European crisis, it seems politically unattainable for the EU countries to collect and transfer VAT to each other. There is too little trust between Member States to collect VAT. Indeed, in this way, an important part of national income is freed. But what if a country refuses to transfer VAT to another country? Professor Lamensch notes in this context that wars for less began.
Various experts, according to the research team, seem to agree that such a plan is politically impossible.