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EU VAT reforms June 2021 update

The European group of finance ministers, Economic and Financial Affairs Council (ECOFIN), reported to the European Council on progress of various EU VAT reforms. This came on 3 June 2021.

Follow all the European Union’s completed and planned reforms via VAT Calc’s EU VAT reform tracker. The EU’s VAT in the Digital Age proposals for 2022 release will look to reform: transaction-based reporting(including e-invoices); VAT treatment of platform economy; and single VAT return which covers extension of OSS and IOSS to all B2C transactions and to B2B for the first time. The EC plans to launch a VAT Gap Initiative in the third quarter of 2022 to share best practises on VAT administration and collections.

Below is a summary of the progress of the various Value Added Tax reforms aimed at making the indirect tax system easier to operate, simpler for businesses and better at detecting or preventing tax fraud. The EU’s VAT Gap, an estimate of missing VAT revenues amongst the 27 member states, is estimated to expand to €167billion in the next two years.

Many of these reforms originated from the EU’s VAT Action Plan from 2016, including the e-commerce VAT package coming into force on 1 July 2021

Definitive VAT system – bogged down

This proposal seeks to switch all cross-border goods B2B transactions from the origin to the destination principle. This was a plan to move from the ‘temporary’ origin principle in 2022. The 2020 Quick Fixes passed as a set of four reforms in the run-in to the Definitive VAT system.

In 2020, many states raised misgivings about the EC’s proposed solution – VAT becoming cash chargeable on cross-border transactions via an extension of the OSS or MOSS single returns. The latest update is looking at shared liabilities, so restricted the customer’s right to deduct if the supplier does not pay the VAT charged.

To limit the risks for the customer, a split payments system could be introduced with live transaction reporting on the payments

In short, limited progress, and more analysis needed by member states for this to progress.

Increased VAT rate setting freedoms – 18th June discussions

Also originally set for 2022, was the right for member states to take more control on reduced rate setting. The current Portuguese presidency has proposed a review of a three-stage introduction of this to be discussed by ECOFIN on 18 June 2021.

VAT Committee increased powers – blocked

In December 2020, the EC proposed granting more compliance rule setting powers for its VAT Committee. It was part of the EU Tax Package announced in 2020. This would enable better and more consistent interpretation of the VAT Directive. However, member states have so far been reluctant to accept this proposal. They have concerns on shifting powers from the European Council to the European Commission.

EU VAT reforms

Reform (click for details) Update
2025 VAT registration thresholds equivalence foreign businesses On track
Virtual events VAT rule changes Agreed
2024 Payment providers' seller transaction reporting and bookkeeping obligations On track
Digital Reporting Requirements (DRR), e-invoicing and live transaction reporting Implementation of VAT in the Digital Age?
2023 DAC 7 - marketplace reporting obligations on sellers' activities On track
Financial Services VAT exemption reform proposals Consultation complete; proposal 2023
Tour operator margin scheme VAT reforms EC undertaking fresh review
2022 EU definitive VAT system Member states not agreed on format
EU reduced VAT rate freedoms Enter into force 6 April 2022
IOSS reforms to prevent double taxation Proposals early 2022
VAT in the Digital Age proposals On track for Q3 2022 detailed proposal
Single EU VAT registration - extension of OSS for B2B and B2C On track for Q3 2022 detailed proposal
Proposal for VAT treatment of the platform economy On track for Q3 2022 detailed proposal
VAT Gap Initiative Q3 2022
2021 One-Stop-Shop (OSS) single EU VAT return In effect
Ending €22 import VAT exemption; new IOSS return In effect
Marketplace deemed supplier EU VAT reforms In effect
2020 EU four Quick Fixes for VAT In effect
Tax authorities anti-VAT fraud cooperation In effect
Tax Action Plan - 25 VAT and other tax reforms roadmap See 'VAT in the Digital Age' and others
2019 Simplification of e-services VAT compliance and thresholds In effect
Single and multi-use vouchers In effect
2018 Lower e-book and publications VAT rates In effect, although not all EU states have adopted the option
EU Generalised Domestic Reverse Charge VAT Mechanism In effect, although no country has adopted this voluntary option
2015 B2C electronic services VAT reforms - MOSS return In effect

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