European Commission Eyes VAT Overhaul

April 8, 2016 Taxation in EU

European CommissionBRUSSELS – The European Commission is looking to overhaul the VAT system in the EU, handing greater tax-setting power back to Members States, and easing the tax burdens on small and digital businesses.

On April 7th the European Commission issued a statement saying that it has prepared a new Action Plan detailing the steps needed to overhaul the VAT system in the in the EU, in order to reduce the instance of cross-border fraud, while also aiding businesses.

According to the European Commission, the current VAT system is vulnerable to fraud, and in 2013 alone an estimated EUR 50 billion of potential tax revenues was lost solely to cross-border tax dodging.

It was also noted that the current VAT system is onerous and difficult to administer for small businesses and digital businesses, potentially leading to additional fraud or legislative oversights.

The new Action Plan sets out a long-term path to the implementation of a Digital Single Market Strategy for taxation of digital goods, while also easing requirements for small and medium sized businesses, and delegating greater powers to set VAT rates to individual EU member states.

Alongside the long-term strategies, the Action Plan sets out several technical changes which could be implemented in the interim to help reduce the instances of VAT fraud.

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