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More flexible VAT rates

Briefing 26-09-2022

Value added tax (VAT) is an important source of revenue for national governments and the European Union (EU) budget and, from an economic point of view, a very efficient consumption tax. However, the rules governing value added tax as applied to intra-Community trade are almost 30 years old and the current common EU VAT system is both complicated and vulnerable to fraud. Businesses doing cross-border trade face high compliance costs and the administrative burden of national tax administrations is ...

This study analyses the gaps and challenges in the EU corporate income tax (CIT) legislation, and evaluate the European Added Value (EAV) of potential policy options to address these challenges. A thorough comparative economic analysis is made of the EAV of a series of scenarios, based upon the policy options identified. The results confirm that complexity remains by far the greatest factor behind both the CIT gap and the high level of compliance costs for businesses. Insufficient transparency, lack ...

Member States have agreed that the definitive VAT reform in the EU should proceed only if it can be demonstrated that its impact on reducing the VAT gap is substantial and if the burden on businesses is also reduced. This study analyses these issues in detail, with a view to identifying possible challenges for the EU and on evaluating the European Added Value (EAV) of potential policy options to address these challenges. The study also includes a thorough comparative economic analysis of the EAV ...

The Directive on administrative cooperation (DAC) in the field of taxation provides the basis for information exchange on direct taxation within the EU. This European Implementation Assessment evaluates the implementation of the initial directive and the first three amendments (DAC1-4). Building mainly on interviews with tax administrations and a survey among stakeholders, this publication provides additional evidence on the directive’s effectiveness and external coherence, looking at its interaction ...

There is an important ongoing debate on the direct and indirect taxation of the digital economy. Proposals on digital taxes, which are under negotiation in the OECD, are inter-linked with European Commission proposals on the same subject. As the Council did not reach an agreement on the Commission proposal for a digital services tax, national initiatives appeared in the interim until a global solution in the area of direct taxation could be found in the OECD. On 1 December 2020, the Council endorsed ...

The common European value added tax (VAT) system was set up in 1967, and reformed in 1993, to adapt it to the entry into force of the European Union (EU) internal market. The existing rules governing intra Community trade were therefore intended to be transitory. While VAT has become an important source of revenue for both national governments and the EU budget, the current system is ill-adapted to the challenges of a modern economy. A substantial review was initiated as from 2016, to update the ...

Value added tax (VAT) is a consumption tax borne by the final consumer. It is an important source of revenue for national governments and the European Union (EU) budget. However, the existing rules governing intra-Community trade are 25 years old and the current common EU VAT system is still ‘transitional’. This framework presents problems such as vulnerability to fraud, compliance costs for businesses and also a heavy administrative burden for national authorities. It is under review along the lines ...

The fact that print and digital publications have been subject to separate value added tax (VAT) rates essentially means that products that are considered to be comparable and substitutable have been treated differently to one another. This situation resulted from rules which, on the one hand, allowed Member States to apply reduced rates to printed publications, but on the other excluded this possibility for digital publications. In addition, the evolution in the VAT framework means that VAT on digital ...

Despite achieving unprecedented growth and profit rates, the digital economy seems to be relatively undertaxed when compared to more traditional 'bricks and mortar' companies. The current rules are based on the physical presence of taxpayers and assets, and there is a general understanding that they are not suited to taxing a digital economy characterised by reliance on intangible assets and ubiquitous services whose location is often hard to determine. International bodies are currently working ...

According to the European Commission the digital economy is relatively under-taxed when compared with traditional businesses. Certain inherent characteristics such as reliance on cross-border provision of services without physical presence, easy transfers of intangible assets, and novel ways to create value make it particularly easy for enterprises to limit their tax liabilities. In order to provide a solution to this problem, in March 2018 the Commission adopted the 'fair taxation of the digital ...