At present, businesses that take part in cross-border trade within the EU face a complex and daunting process, requiring them to pay VAT in the Member State where consumption of the goods they supply takes place.
The result is that many businesses have to pay VAT in a Member State where they have no permanent establishment, something that can be very difficult when the trader is not fully acquainted with the language and legislation of that other country. According to the Commission, this is a major obstacle to the smooth functioning of the Internal Market.
The Commission would prefer all companies to levy VAT at their place of origin (or establishment), with the revenues then being reallocated to the appropriate Member State. However, for political reasons, this is unlikely to happen in the near future.
The Commission is therefore taking steps to simplify and modernise the existing system, and the consultation launched on Tuesday seeks views on one aspect of this.
The consultation proposes an optional and fully electronic compliance scheme that would be open to every trader supplying goods or services that are subject to VAT to customers in Member States other than that in which it is established.
The Commission warns that the proposals are still very much in the conception stage, and invites comments from all interested parties before 31st July.
The scope of the scheme would be limited to supplies made by businesses to consumers (B2C). Business-to-business (B2B) supplies should, says the Commission, be dealt with separately – preferably by changing the VAT rules so that the customer (if he is a trader) rather than the supplier would be responsible for paying the VAT on services supplied to him.
The B2C scheme would allow a trader to register only once, in the Member State where it is established, and to use a single VAT number for all B2C supplies made within the scope of the scheme.
VAT declarations would be made to one single on-line portal and would then be submitted automatically to the different Member States to which the trader supplies goods or services. Member States would still have different VAT rates and regulations, but information on these would be made available to the trader when completing the relevant declarations.
Payments would be made directly to the Member State of consumption, possibly with the help of financial intermediaries, according to the proposals.