EC proposes business-friendly VAT

The three main aspects of the new VAT system is a standardised VAT declaration, removing certain reduced rates in member states, and a new campaign to clamp down on VAT fraud.

"Value Added Tax (VAT) is paid for by citizens, collected by businesses and accounts for over 20% of national revenues. It therefore has a significant impact on every single EU citizen. However, it is now 40 years since the EU VAT system was first set up, and the regime no longer fits with our service-driven, technology-based economy. The time has come for an ambitious VAT reform," said Algirdas Šemeta, Commissioner for Taxation, Customs, Anti-fraud and Audit.

The EC is proposing a simpler VAT system to relieve businesses of considerable administrative burdens and encourage greater cross-border trade.

Among the measures envisaged are expanding 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.

Secondly, the EC is proposing broadening tax bases and limiting the use of reduced rates to generate new revenue for member states without the need for rate increases.

The standard VAT rate could even be reduced in some member states, without any impact on revenue, if exemptions and reductions were removed.

The Commission will also be analysing member states' use of reduced rates and exemptions when reviewing their fiscal policies.

The EC also said around 12% of the total VAT which should be collected, is not. In 2012 the Commission will propose a quick reaction mechanism to ensure member states can respond better to suspected fraud schemes.

The Commission will also see whether current anti-fraud mechanisms, such as Eurofisc, need to be strengthened and will explore the possibility of a cross-border audit team to facilitate multilateral controls.