On September 1st 2010, the European Commission adopted a Green Paper regarding the future of VAT within the European Union. The paper introduces the diverse and consultative process of the EU concerning the VAT system, its’ biggest flaws and possible ways to move towards a simpler, stronger and more efficient VAT system. In order to focus on the consultative process, the authors raised over thirty questions about various VAT aspects, encouraging all interested parties to submit their comments until May 31, 2011. The most important issues raised by the Commission are listed here below:
Cross-border transactions
Regarding the client, during cross-border transactions B2B, the provider is charged with quite a few obligations ranging from the justification of the exemption applied through VAT, until formalities related to fraud. Within this context, the Commission proposes taxing intra-Community goods into the country of destination as opposed to the original plan of taxation in the country of origin.
Neutrality of the system
VAT’s position regarding whether the individuals may be subject to tax, is not yet clear, according to various decisions by the European Court. The amended VAT Directive makes no mention of this issue.
Another problem is the final version of the legislation in regards to the reduction of tax inflows. Although the principle that a taxable company should be able to deduct the taxes generated, is indisputable, the current calculation of the share of the creditable input tax, the tax point of input tax credit refunds, and the regulations regarding companies based in different Member States still create problems.
Degree of alignment for an efficient, unified market
Additionally, the Commission raises the question of selection of the most appropriate statutory instrument, for the specific needs of VAT legislation within EU. The Commission invites the public to comment on different types of implementing measures, in order to ensure a more unified application of VAT rules, i.e. implementing decisions adopted by the Commission itself; or informal explanations of the Commission.
VAT rates
Regarding the VAT rates, the questions asked are concerning the decrease of the number of permitted reduced rates, and the issue of inconsistencies in VAT rates; applied in comparable goods or services when delivered via the Internet or in stores.
