The European Commission has proposed new rules to give Member States more flexibility to set Value Added Tax (VAT) rates and to create a better tax environment to help smaller organisations to flourish.

 

These proposals are the final steps of the Commission's overhaul of VAT rules, with the creation of a single EU VAT area intended to dramatically reduce the EUR 50 billion lost to VAT fraud each year, while supporting business and securing government revenues. 

 

Having consulted on two main options for the reform of the VAT rate system, the Commission elected to remove the minimum rate of 15% and abolish the list of reduced and zero rates, giving member states the flexibility to introduce their own reduced rate bandings. With 98% of businesses in the EU classified as SMEs, the proposals extend the simpler VAT rules so that they apply not only to the very smallest firms, but to a larger proportion of small businesses.

 

The European charity sector was represented with a formal consultation response from ECCVAT, submitted with input from member bodies, which include EFA. In its response, the sector had called for a more flexible approach to VAT at a national level, while also highlighting the importance of having protections in place over exemptions that are currently applied to items of social benefit. 

 

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, said: 

"These proposals will give EU countries greater freedom to apply reduced VAT rates to specific products or services. At the same time they will reduce red tape for small businesses operating across borders, helping them to grow and create jobs. In short: common rules where necessary for the functioning of the internal market; and greater flexibility for governments to reflect their policy preferences through their VAT rates."

 

These legislative proposals will now be submitted to the European Parliament and the European Economic and Social Committee for consultation and to the Council for adoption. The amendments will become effective only when the switch to the definitive regime effectively takes place.

 

The European Commission’s proposals are open for consultation until 15 March 2018. The Commission’s impact assessment for the proposals has also been published here.