VAT System

VAT Overhaul by EC: VAT has been introduced in Europe more than 40 years ago, and many believe that the European Union’s (EU) Vat system has become unfit for the modern economy. Much has to be changed for it to be able to suit the service-driven and technology-based economy of the world. This has been requested through consultative papers submitted to the European Commission (EC) and several amendments have already been implemented beginning the last quarter of 2012.

EC Overhauls VAT System to Simplify Formalities

Last October, the EC has enacted a harmonization of VAT systems in all its Member States. Under this, all Member States are to apply a standard VAT rate of 15% or greater on goods.

Although this move has been a bit controversial, since it does not allow the retention of zero rates, particularly on children’s clothing, the Member States have managed to list down the goods and services that would be allowed the reduced rate of no less than 5%, which is as follows:

“foodstuff, supply of water, pharmaceutical products, medical equipment and related goods, transportation items, educational supplies, entertainment and cultural events and facilities, television and broadcasting equipment, supplies of performing artists, goods related to social service, private household items for cleaning, agricultural goods except for machinery and buildings, holiday accommodations, sporting events and facilities, catering and restaurant services except for beverages, cremation materials, street and waste cleaning, minor repair of clothes and household linen, hairdressing, and domestic care services.”

In view with these amendments, the taxation of broadcasting, telecommunications, and electronic services will be charged at the location where the customer resides or the location where the business is established.

Nevertheless, it has strongly emphasized that the VAT rate that has to be applied will still be the same, no matter where the supplier is established.

This VAT reform has been implemented as the Commission sees it as an effective manner to gain better taxation, while considering the growth and development of e-commerce around the globe.

It will give a level playing field for everyone in these sectors regardless of its corporate structure or size. Moreover, suppliers will be given chance to submit a single VAT return to the Member State where they are already registered.

As this has been made public, the EU expects all its Member States to adopt the regulation and for them to make the necessary revisions in their existing VAT rules so it would be in compliance to the mandated VAT overhaul.