The European Commission has been working on an amendment to the current VAT Directive, primarily seeking to combat VAT fraud but also cutting down on red tape burden for the benefit of small and medium enterprises as they enter the common market.
In the near future, the member states of the European Union will be faced with a far-reaching revision of the VAT Directive. At the „VAT fórum“ conference in Prague in January, the European Commission presented its strategy for a uniform application of VAT, known as the „definitive VAT system“, within the context of an action plan. It is primarily motivated by the fight against VAT fraud, but also by the wish to reduce the administrative burden for SMEs.
The EU has calculated that enterprises which engage in intra-community trading shoulder an administrative burden which is 11% bigger than that of those which trade solely domestically, within their respective member state. The ‚definitive VAT system‘ entails that the supplier pays the VAT on delivered goods at the rate which applies in the state of destination, but through a One Stop Shop in the country in which it is established. In practice, a Czech supplier delivering goods to France would have to enquire the proper applicable French tax rate and report the same to the Czech finance office to which they then make payment. The Czech finance office would transfer the „French“ tax to the French finance office.
There are many pitfalls for the supplier to get it wrong – e.g., it may apply the wrong tax rate from among those in place in the target state, or it may report performances rendered to the wrong member state. The European Commission intends to streamline the administrative process for suppliers in the new Directive by creating a new institution: the „certified taxable person“. Persons may attain this status by fulfilling certain reliability requirements (such as a clean criminal record or having an accounting system with a certain degree of sophistication). From a Czech point of view, the certified taxable person is probably best described as the opposite of the Czech concept of the „unreliable taxpayer“.
Certification would lie in the hands of the European Union, and once certified, the relevant persons would register almost no change in the area of VAT reporting and payment and would be able to use the system in the same manner as previously. More details of the proposal for a definitive VAT system should become known in the course of 2018. The individual member states are not too happy about the planned changes in the realm of VAT, but the European Commission has made it clear that it is the one making proposals, while the Council of the EU is the body who calls the shots. If the new Directive were to be written into law as planned, it would cause headaches for the tax offices, given that the plan is to abolish the recapitulative statement. This would mean that the financial administration all but loses its insight into individual intra-community transactions.
Source: „VAT Forum 2018“ conference in Prague