The European Economic and Social Committee (EESC) has published its Opinion on the European Commission's (EC) proposal for a Council Directive introducing the detailed technical measures for the operation of the definitive VAT system, in which it has urged the EC to explore how a common system for both services and goods can be rolled out as quickly as possible.


Of the €150 billion VAT lost every year (the so-called VAT Gap), €50 billion is estimated to be as a result of cross-border VAT fraud.

The current VAT system for the taxation of trade between Member States was only ever intended to be transitional, however it has now been in place for more than 25 years.

In October 2017, the EC launched its plan for a definitive EU VAT regime, fundamentally overhauling the current system. [See our earlier blog articles on the proposed definitive VAT system and the interim 'quick fixes' solution]. The new, more robust system is intended to be less susceptible to cross-border VAT fraud.

The EESC's Opinion

The EESC welcomes the EC's proposal to replace the transitional VAT system and recognises that going beyond the transitional regime is a crucial step to completing the move to the definitive destination principle-based VAT system for taxing goods in business-to-business (B2B) transactions.

In its conclusions and recommendations, the EESC:

  • urges the Commission to explore how a common system for both services and goods can be rolled out as quickly as possible, thereby reducing the foreseeable problems triggered by the existence of two different systems for goods and services. The Commission has, however, repeatedly advocated a gradual two-step shift to the new regime, involving goods as a first step and services as a future second step;
  • stresses the importance of continuing the work towards the second step, since treating goods and services in the same way for VAT purposes would be more conducive to growth and more effective against fraud;
  • highlights that the proposed system would benefit from clear provisions or clarity laying down the rules for bad debt and refunds management within the One-Stop Shop (OSS);
  • notes that the proposed system will trigger cash flow effects due to VAT on cross-border B2B supplies of goods, resulting in a cash flow income for the seller and a cash flow cost for the buyer. However, the cost of capital will in general be greater, since the time for recovering VAT will always be longer than the time the VAT is held by the seller;
  • asks for clear and proportionate criteria regarding the concept of "certified taxable person" (CTP) to be implemented across Member States, in order to facilitate the broadest possible access to CTP status. The Member States should process a CTP application promptly in order to enable businesses to continue operating without unnecessary interruptions, delays and administrative burdens due to uncertainty;
  • is concerned that the current proposal may turn out to be a prohibitive obstacle for both SMEs and start-ups. The Committee believes that the system of reverse charge should be granted to all cross-border supplies of goods B2B, until the definitive system is fully in place and reimbursement of VAT is done in a timely manner;
  • recommends an adequate investment in IT hardware/software assets to properly develop a solid and reliable OSS able to efficiently manage a considerable amount of sensible information, guaranteeing a swift and secure functioning of the system to the benefit of both European companies and fiscal administrations;
  • recommends greater collaboration between national fiscal and enforcement authorities in order to make the new destination-based VAT system more effective in terms of both effectiveness against fraud and reliability in favour of European enterprises;
  • deems that European enterprises would benefit from an extensive communication action carried out by the Commission in order to adequately explain, in clear and practical terms, the main features of the new VAT system, as well as the concrete advantages the VAT reform is expected to deliver in favour of European businesses and their growth.

The EESC's full Opinion is available here.

23 May 2019

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