EU publishes VAT after ViDA report
24 January 2025| CATEGORIES: EU VAT, VAT after ViDA| TAGS: EU, Strategic report, VAT
The EU Commission has published VAT after VIDA: Reflections on the Future of VAT. The report was prepared by the VAT Expert Group (VEG) at the request of the Commission. It is a strategic report that examines both long-term and immediate strategies for modernising the VAT system. The aim is to provide the Commission with ideas for the VAT system of the future (2050 and beyond) to be explored and researched further.
The report builds on past initiatives and aims to simplify, broaden, and ensure neutrality in VAT application across the EU, reducing burdens and supporting sustainable development goals.
Core design principles for the future VAT system
In the opinion of the VEG, the VAT system of the future should be based on the following core design principles:
- all persons carrying out economic activities should be taxable;
- there should be no (or very few) exemptions;
- the rules applicable to the supply of goods and services should be aligned (i.e. a full destination-based system);
- the system should have a very simple VAT rate structure;
- derogations, standstill clauses and special schemes should be progressively removed;
- all measures proposed for the future VAT system must fully take into account the principle of sustainability; and
- when designing the way in which the VAT system of the future will be operated, advantage must be taken of the immense possibilities offered by technology, taking full advantage of digital reporting requirements (DRR).
Proposed short- and medium-term priorities
In the Report the VEG identifies specific areas where potential reform or implementing rules in the short to medium term could ease burdens for businesses and tax administrations, helping to achieve a simpler VAT system. These are:
- definition of taxpayer status;
- composite supplies;
- electricity and e-mobility;
- repairs;
- crypto-assets;
- vouchers;
- chain supplies;
- transfer pricing adjustments;
- discounts;
- fixed establishments;
- free of charge supplies; and
- data as consideration.
Long term recommendations
In the long term the VEG recommends:
- moving from VAT Directives, which require national transposition, to EU Regulations, which are directly applicable, thereby reducing differences in interpretation between Member States;
- reviewing the decision-making process within the EU Council to streamline VAT-related decisions, which currently require unanimity; and
- in order to support the uniform application and interpretation of VAT rules, the VEG suggests the creation of an EU VAT Agency.
The report will no doubt form the basis of much debate and discussion between the EU Commission and interested stakeholders over the coming years.
The full report is available here.