The Commission has launched a VAT Action Plan to tackle fraud, support business and help the digital economy and ecommerce. This includes proposals to give Member States more autonomy to choose their own VAT rates.

Under the current rules, Member States need to adhere to a pre-defined list of goods and services when it comes to applying zero or reduced VAT rates. The Commission plans to modernise the framework for rates and to give Member States more flexibility.

It proposes two options: one option would be to maintain the minimum standard rate of 15% and to review the list of goods and services which can benefit from reduced rates regularly, based on Member States’ input. The second option would abolish the list of goods and services that can benefit from reduced rates. This would, however, require safeguards to prevent fraud, avoid unfair tax competition within the Single Market and it could also increase compliance costs for businesses. Under both options, the currently applicable zero and reduced rates would be maintained.

The Action Plan also sets out plans to modernise the current EU VAT rules, including:

• key principles for a future single European VAT system;
• short term measures to tackle VAT fraud;
• plans to simplify VAT rules for e-commerce in the context of the Digital Single Market Strategy and for a comprehensive VAT package to make life easier for SMEs.