The European Commission has announced plans to review the future development of VAT across the EU 28 member states in light of continuing levels of poor compliance and criticisms of unnecessary red tape to meet current VAT compliance requirements
This follows an orientation debate on the future for VAT in the 28 EU member states initiated by the College of Commissioners.
The debate outlined the decision by the European Commission to put forward an action plan on VAT in March, stating that the system needs reform to tackle the growing VAT gap. This is currently estimated at a €170bn (£134bn) deficit in VAT compliance in 2013 across member states.
Cross border fraud itself is estimated to be responsible for a VAT revenue loss of about €50bn annually in the EU’s 28 member states.
At the same time, the current VAT system remains fragmented and creates significant administrative burdens, especially for SMEs and online companies, which has been made more complicated with the changes to digital VAT rates across Europe through the VAT MOSS system which forces even the small traders to charge VAT at local rates and register for VAT in country regardless of local VAT thresholds.
The Commission has also indicated that the system needs to be modernised to reflect innovative business models and technological progress in due to the growing importance of the digital economy and increasing importance of online sales.
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