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European VAT system awaiting a major reform

The VAT system in the European Union will soon see a new reform, described by the European Commission as the most important reform in the last 25 years.

It aims to modernise the current VAT system and to create a single European VAT area.

PROPOSED CHANGES

The proposed reform will completely change the VAT system that we know today, here are the main changes :

VAT charged on cross-border B2B trade : the main change proposed concerns the VAT charged on the cross-border trade between companies. Today, the transactions of this type are exempt from VAT, the fact that, coupled with a lack of declarative obligations, opens the door to the VAT fraud. The reform suggests that the VAT is charged on B2B transactions destined at another EU member country and charged at the rate applicable in the destination country.

One stop shop : a unique online portal will be introduced where traders from all EU member countries will be able to make declarations and payments in their own language and according to the law of their own country.

Destination principle : the VAT will be paid to the fiscal authorities in the member state of the final consumer and charged at the rate of the destination country.

Simplification of administrative formalities : companies will no longer be required to file a recapitulative statement  and sellers will be allowed to prepare invoices according to the rules of their own country even when doing cross-border transactions.

Certified Taxable Person : a new notion of « Certified Taxable Person » has been introduced. Companies corresponding to a list of predefined criteria will be able to apply for a status of a Certified Taxable Person. Having this certificat will mean that the company is trustworthy which in turn will enable it to benefit from simplified rules.

TEMPORARY SOLUTIONS PUT IN PLACE

Four quick solutions will come into force by the end of 2019 in order to improve the functioning of the current VAT system while waiting the arrival of the new one. The new system should come into force in 2022, unanimously approved by all EU member states.

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