VAT Action Plan of the European Commission

On 23 March 2016, the European Commission published its VAT Action Plan for the coming years. The overall objective is to modernise the current VAT framework. As one of the main points, the Action Plan provides a review of the current rules for VAT rates. The Commission explicitly regrets that e-books and e-newspapers cannot benefit from reduced rates under the current regime. It also states that it would be "slow and difficult" for the Member States to extend reduced rates to new areas, because such decisions always require unanimity among the 28 member states.

The intention of the Commission goes towards a decentralised and more flexible system. It therefore proposes two options:

  • Option 1: The minimum standard VAT rate of 15% would be maintained and the list of the reduced rates would be reviewed
  • Option 2: The Member States generally obtain more powers in setting their VAT rates. The obligatory minimum standard VAT rate of 15% and the list of reduced rates would both be removed. The Member States would be free to decide about the number and the level of their reduced rates.

A legislative proposal concerning this policy is announced only for 2017.

The Commission also announces to present, by the end of 2016, a legislative proposal to modernise and simplify VAT for cross-border e-commerce. It plans to extend the One-Stop Shop to online sales of goods, both in EU and non-EU countries, and to introduce common EU-wide simplifications, e.g. a VAT threshold in order to help small start-up e-commerce services. Companies who stay under this threshold would not be required to register in other Member States or to the One-Stop Shop.

In the long run, the best solution – according to the Commission – would be to tax B2B supplies of goods within the EU in the same way as domestic supplies. The current system, which splits every cross-border transaction into an exempted cross-border supply and a taxable cross-border acquisition, shall be abandoned in the medium-term. The Commission sees advantages in re-establishing the basic structure and features of VAT across the EU (with its “self-policing” character) and thus for a more efficient combat against cross-border VAT fraud. As accompanying measures, the principle of taxation of cross-border supplies shall be re-established and the One-Stop Shop extended to cover cross-border B2B supplies of goods. Later, in a second step, the One-Stop Shop shall also be extended to services. Concrete measures are announced for 2017.