EU finance ministers back 'simpler' Europe-wide VAT system

The EU's economic and financial affairs council (Ecofin) expressed its support for an EU VAT system which "should be simpler, more efficient and neutral, robust and fraud-proof." It also called for a VAT system tailored to the European single market.

The council emphasised that the current financial and economic situation is difficult and complex and demands a strong fiscal consolidation of national budgets.

The statement noted that the European Council invited "Member States, where appropriate, to review their tax systems with the aim of making them more effective and efficient, removing unjustified exemptions, broadening the tax base, shifting taxes away from labour, improving the efficiency of tax collection and tackling tax evasion".

It explained that the harmonised VAT system "should aim at making it more effective and efficient, removing unjustified exemptions and broadening the tax base, in order to contribute to fiscal consolidation and growth."

The council called on all stakeholders to set-up a simpler VAT system in order to reduce VAT compliance costs and administrative burdens for small and large businesses, and in particular for businesses working in more than one member state.

It also backed efforts to create a standardised VAT declaration, and called on the Commission to ensure a broad based dialogue and a thorough cost-benefit analysis beforehand.

The council added that initiatives designed to arrive at a simpler VAT system for businesses should not impose additional burdens on national authorities. "The strategic objective of simplicity should be seen as a two-way concept that applies to businesses and national authorities alike."

Ecofin also urged to continue its work on the setting up of an EU VAT forum for member states and stakeholders, facilitated by the Commission.

The council explained that it considers "revenue generating capacity and the ability to sustain economic growth to be inherent features of a more efficient VAT system." It also agreed with the need to examine in further detail the present EU rules on the application of VAT to the public sector, in so far as there is competition between the public and private sectors.

Ecofin added that it stood by the conclusions reached in 2009, in which it had agreed to "the possibility, for the Member States that so wish, of applying reduced VAT rates in certain sectors" and "at the same time acknowledged that reduced VAT rates may, depending on the circumstances, have positive and negative economic effects, so that more efficient alternative solutions should always be considered before a Member State decides to use the option to apply reduced VAT rates".

It also noted that the Commission favours a restricted use of reduced rates in order to increase the efficiency of the VAT system, and that it intends to launch in 2012 an assessment of the current VAT rates structure in the light of the various guiding principles set out in its Communication.

Another aspect which the council highlighted was the need for a more robust and fraud-proof VAT system, including taking into account new technological developments.