On 8 May 2019, the Opinion of the European Economic and Social Committee (EESC) was published on the definitive Value Added Tax (VAT) system proposed by the European Commission as part of its action plan for a single European VAT area. The conclusions and recommendation provided in the opinion document are as follows:
1. Conclusions and recommendations
1.1 The EESC welcomes the Commission's proposal to replace the transitional VAT system for the taxation of trade between Member States put in place more than 25 years ago and still in force. 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 B2B relations and it is an important achievement proving the continuous consolidation of the EU internal market.
1.2 The EESC urges the Commission, once again, 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. However, the Commission has repeatedly advocated a gradual two-step shift to the new regime, involving goods as a first step and services as a future second step.
1.3 The EESC 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.
1.4 The EESC highlights that, although the Commission proposal is extensive and well drafted, some outstanding questions still remain open. The proposed system would indeed benefit from clear provisions or clarity laying down the rules for bad debt and refunds management within the One-Stop Shop (OSS). Moreover, additional definitions regarding concepts such as "marketplace" and "platforms" could be provided and elaborated.
1.5 The EESC notes that the proposed system will trigger cash flow effects due to VAT on crossborder 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. Moreover, through the OSS system, a differentiated return period will arise from the Member States' reporting periods, payment time to their local tax authority and the tax authority's efficiency in returning VAT to the country of the buyer.
1.6 The EESC calls for these aspects to be further investigated in order to prevent negative effects on the Single Market and to ensure the certainty and predictability of the new VAT system under construction, thereby reducing compliance costs and administrative burden.
1.7 The EESC 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. In order to achieve the purpose of the new destination-based regime, it would be beneficial to harmonise the timeframe during which Member States must handle an application to receive the status of CTP. 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. At the same time, the functioning of CTP status should be carefully monitored by the European Commission to avoid possible abuses and lack of regulatory uniformity, especially during the first months of application.
1.8 The EESC underlines that a functioning OSS is crucial in order to implement the new destination-based system. Without a fully developed OSS, based on home-country audits, scalable simplifications and the ability to offset incurred input VAT from all Member States, any destination-based system will dramatically increase the administrative burden, especially for SMEs.
1.9 The EESC is concerned that the current proposal may turn out to be a prohibitive obstacle for both SMEs and start-ups. The EESC 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.
1.10 The EESC 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. Such investments are strategic in order to avoid adverse outcomes during the transition period from the old system to the new one, which will entail significant adaptation costs that should be minimised as far as possible through adequate digitalisation.
1.11 The EESC stresses the need for further cooperation between Member States to fight fraud and continuous analysis on the matter to ensure that the proposed system will not lead to new kinds of fraud and collection losses. A taxation of B2B cross-border transactions will increase the total amount of VAT in the system. This may increase the possibility for other kinds of fraud, leakage and collection losses. A taxable person in a Member State with a high VAT GAP will act as a collector for Member States with a lower VAT GAP.
1.12 The EESC 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. Such a collaboration should include, inter alia, an automated exchange of information and data, as well as periodic reports and analytics regarding the functioning of the new regime, especially during the first years of its implementation.
1.13 Finally, the EESC 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.
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