The European Commission has made the report ”VAT after ViDA – Reflections on the future of VAT” public. The report was discussed during the VEG meeting dd. December 13, 2024:
Summary
- Executive Summary: Overview of the future sustainable growth and competitiveness of the EU, emphasizing the need for a well-functioning EU VAT system to support cross-border business operations.
- Future VAT System: Proposes a fundamentally restructured VAT system by 2050, focusing on simplifying compliance, fostering neutrality, and enhancing administrative efficiency.
- Current VAT System: Recommendations for improving the current VAT system by building on the ViDA package, addressing existing weaknesses, and aligning with contemporary business models and sustainability goals.
- Suggested Deliverables for the EU Commission: Outlines a series of deliverables for the EU Commission to consider, including a roadmap from 2025 to 2050 and steps to transition towards a future VAT system.
- Background: Details the purpose and working process of the report, highlighting the need for a strategic initiative on the future of VAT in the EU.
- Introduction: Discusses the current state of the EU VAT system, the impact of digitalization and globalization on business models, and the challenges posed by sustainability goals.
- Design of the Future VAT System: Emphasizes core design principles such as neutrality, broadening the taxable base, aligning VAT rules for goods and services, simplifying VAT rate structures, and leveraging technology for VAT collection.
- Fitting the Future VAT System into the EU Context: Recommends transitioning from VAT Directives to EU Regulations, revisiting the decision-making process within the EU Council, and creating an EU VAT agency.
- Qualification of Transactions for VAT: Addresses challenges in qualifying transactions under existing VAT law due to digitalization and new business models, proposing updated definitions and clearer rules.
- Improvements on the Right to Deduct: Suggests updates to ensure VAT neutrality, including harmonizing bad debt relief, rectifications, OSS interaction, corporate structures, exclusions from the right to deduct, and adjustments for destruction or loss.
- Modernization of VAT Exemptions and Special Regimes: Proposes reforms to improve sectors covered by VAT exemptions, such as financial services, travel sector taxation, public interest exemptions, public sector engagement, and VAT groups.
- VAT Measures Supporting Sustainability Policies: Highlights the need to align VAT measures with sustainability goals, addressing issues like donations, second-hand goods schemes, and real estate regimes.
- Bridging the Gap from Today to Tomorrow: Provides a phased approach for implementing suggested deliverables, prioritizing aspects according to their importance and feasibility.
- Concluding Remarks: Emphasizes the importance of ongoing collaboration between the EU Commission, Member States, businesses, and other stakeholders to modernize the EU VAT system.
- Annex on ViDA Implementation: Discusses key impacts of ViDA on the current VAT system and provides recommendations for successful implementation through collaborative efforts and clear guidance.
- Rules of Engagement between Business and Tax Authorities on Transactional Real-Time Reporting: Advocates for developing guiding principles on data collection, use, security, and privacy to ensure fair treatment of businesses.
- Ensuring Taxpayer’s Rights and Facilitating Compliance: Stresses the need for tools to support taxpayers in achieving accurate reporting and maintaining their right to deduct VAT without undue burdens.
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