Big Changes to EC VAT Accounting

Big changes to the EC wide VAT accounting system are likely to be introduced by the EC with effect from 2017 with a view to combatting EC wide cross-border VAT frauds. The Commission estimates that a staggering 50 billion is lost across the EC due to VAT frauds, and the legislation in place does little to combat this.

The VAT law for cross board transactions was introduced in 1993, a long time before the rise and now dominance of e-commerce, and the rules were intended to be transitional. The plan is to revise and update the legislation with a view to combatting fraud, though worryingly mention is made to simplifying rules for e suppliers, as generally simplifications brought in to legislation tend to result in complications such as the VAT Moss system!  

The aim is to bring in a single accounting package for SME’s, and provide a new EC wide VAT accounting system with revised VAT rates, with greater control and policing by tax authorities communicating more swiftly with each other.  

The biggest change proposed would be for VAT to be charged on sales at the rate applicable to the country where the supplies are consumed, with the VAT being collected by the tax authority where the supplier is based and passed on to the tax authority in the country where the supply is consumed (in a similar way to how VATMOSS works for e service suppliers). Quite how this will work for the UK, where we have a minimum VAT registration threshold (unlike most other EC countries) remains to be seen.

The option for different rates of VAT for different supplies will remain but this will be based on specific lists of items set out by the Commission rather than necessities versus luxuries and a limited ability will be allowed for derogations (exceptions) to rules to be requested by member states. It is also proposed that the VATMoss system will be extended to goods sold over the internet to consumers in other EC member states, and not just e services, and there will be an equalising of VAT treatment of e publications compared to hard copy books and publications. This could mean either zero rating e-publications or making hard copy publications standard rated for VAT, which would cause a massive impact on the book industry.

These are massive and significant changes and the time table for introduction is over the next two years, it would be worth businesses that may be effected starting to think about the potential impact on their trade and accounting systems now, rather than once the changes are introduced.

If you wish to discuss the impact of the changes on your business, or are supplying goods and/or services to customers in other member states, it would be worth calling our VAT helpline for an initial free consultation.

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