The EU Commission has adopted a Communication on the future of VAT which sets out what the Commission sees as the fundamental characteristics of a new VAT regime. The Communication confirms that the long-standing question of changing to a VAT system based on taxation at origin is no longer relevant. Therefore, VAT will continue to be collected in the country of destination (i.e. where the customer is located).

Three objectives for the new VAT system set out in the Communication are as follows:

First, VAT must be made more workable for businesses. Among the measures set out in the Communication is an expansion of the one-stop-shop approach for cross border transactions; standardizing VAT declarations; and providing clear and easy access to the details of all national VAT regimes through a central web-portal.

Second, VAT must be made more efficient in supporting Member States’ fiscal consolidation efforts and sustainable economic growth. Broadening tax bases and limiting the use of reduced rates could generate new revenue for Member States without the need for rate increases according to the Commission. The standard VAT rate could even be reduced in some Member States, without any impact on revenue, if exemptions and reductions were removed as per the Communication.

Third, the revenue losses that occur due to uncollected VAT and fraud need to be stopped. In 2012 the Commission will propose a quick reaction mechanism to ensure Member States can respond better to suspected fraud schemes. Current anti-fraud mechanisms, such as Eurofisc, will be strengthened and will explore the possibility of a cross-border audit team to facilitate multilateral controls.

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