EU plans overhaul of cross-border VAT rules

The EU is set to tighten VAT rules to improve fraud detection in cross-border e-commerce transactions and simplify requirements for SMEs

The economic and financial affairs council has reached agreement on the two proposals, which will now go on to be formally adopted.

The first reform concerns the detection of tax fraud in cross-border e-commerce transactions. The new rules will enable member states to collect, in a harmonised way, the records made electronically available by payment service providers, such as banks.

In addition, a new central electronic system will be set up for the storage of the payment information and for the further processing of this information by national anti-fraud officials.

Mika Lintilä, Finnish minister for finance, said: ‘Payment service providers are a key link in the chain of online purchases. Thanks to the information they hold, they have a vital role to play in helping national tax authorities identify and fight VAT fraud.

‘By harmonising the way to collect and access this information, member states will have a powerful tool to control whether VAT rules are correctly applied, especially in the area of cross-border e-commerce.’

The reform includes amendments to the VAT directive putting in place requirements on payment service providers to keep records of cross-border payments related to e-commerce. This data will then be made available to national tax authorities under strict conditions, including those related to data protection.

There are also amendments to a regulation on administrative cooperation in the area of VAT. These amendments set out the details of how national tax authorities will cooperate in this area to detect VAT fraud and control compliance with VAT obligations.

The second reform concerns VAT rules applicable to small businesses. The new rules will reduce administrative burdens and compliance costs for small enterprises and help create a fiscal environment which will help SMEs grow and trade cross-border.

Lintilä said: ‘Starting a new business is a challenging task. Rules should be there to help entrepreneurs and start-ups, not to put additional obstacles on their way. This reform is introducing much needed simplification in the current VAT system for small businesses and a VAT exemption across the EU, thus creating a level-playing field.’

The existing VAT system only provides a VAT exemption for small enterprises to domestic companies, whereas this reform will enable small enterprises established in other member states to claim an exemption.

To qualify for simplified VAT compliance rules, SMEs must have an annual turnover that remains below a threshold set by a member state, but this cannot be higher than €85,000. Under certain conditions, small enterprises from other member states, which do not exceed this threshold, will also be able to benefit from the simplified scheme, if their total annual turnover in the whole of the EU will not exceed €100,000.

The two main legislative changes are amendments to the VAT directive which aim at revising and simplifying rules on VAT exemption for small enterprises so that they can use the VAT exemption across the EU, and amendments to the regulation on administrative cooperation in the field of VAT to improve administrative cooperation between tax authorities concerning the application of the updated VAT rules for small enterprises.

VAT payment data agreement 

VAT scheme for small businesses

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