When the Single Market was born in ’92, intra-EU trade and a real borderless union were supposed to sit at the heart of the VAT system. But politics and technology made it impossible to build a workable EU VAT system reflecting national tax practices for taxation at origin.

The temporary system put in place at the time has lingered for more than two decades, the bane of many a business. Thankfully the EU has just published a paper providing ideas about a definitive, simpler, more effective and fraud proof system for handling VAT, created especially to suit the single market. At last!

Making the EU VAT system work better

The future of the VAT regime has been hammered out by Member States and stakeholders and reveals five new ideas for improving things.

As Algirdas Šemeta, the EU Taxation Commissioner, said, “Over the past few years, the Commission has pushed forward many improvements to the VAT system. We have put forward measures to make it more business-friendly, and to better protect it against fraud. However, there comes a point when it is time to buy a new car, rather than tinkering with spare parts. We need to redesign the EU VAT system from scratch, and today we have presented first ideas on how this could be done.”

The current system exempts cross-border goods in the EU but taxes intra-EU purchases in the Member State where they were bought. But it’s both highly complicated and open to fraud. Any new system must match the needs of a contemporary economy and benefit intra-EU trade. Everyone agrees it would be best if VAT was payable at the destination. And it turns out there are all sort of ways to achieve this for B2B transactions.

Five bright ideas for sorting out the EU VAT regime

  1. The supplier pays VAT, with supplies taxed depending on their destination
  2. The supplier pays VAT, with supplies taxed depending on the customer’s location
  3. The customer pays VAT, with taxation taking place where they’re based (AKA a Reverse Charge)
  4. The customer pays VAT, with taxation taking place where the goods are delivered
  5. Things stay much the same, with some common sense changes

The Commission is busy doing an in-depth assessment to establish the impact of the choices on Member States, and will report back in the spring of 2015. Let’s hope the final decision makes cross corder VAT much simpler and easier to handle. When it happens, we’ll have a party!