Fraud leads European Commission to announce a new VAT regime for intra-Community trade in goods

The current EU VAT regime for intra-Community B2B (business-to-business) trade in goods has proven to be very susceptible to fraud. Cross-border VAT fraud is estimated to imply no less than € 50 billion of VAT revenue losses each year. With this in mind, the European Commission has very recently announced a new VAT regime for intra-Community B2B trade in goods. The Commission expects that the new regime, to be effective as per 2022, reduces the VAT revenue losses by 80%.

Different method of levy

The new VAT regime as announced by the Commission relies on a method of levy that is radically different from the current regime. The vendor can no longer apply an exemption to his intra-Community supply; instead, he is required to charge VAT to his customer in the Member State of arrival of the goods. In order to reduce his administrative burden, the vendor can make use of a One-Stop Shop (OSS). With the OSS, he would have to report and pay VAT for all of his intra-Community supplies in only one Member State.

Apply for Certification Status

A crucial aspect of the new VAT regime is that traders can apply for a ‘certification status’ if they are deemed to be trustworthy enough. In case the customer to an intra-Community supply of goods would indeed be certified, the vendor does not have to charge VAT. Instead, the certified purchaser would himself be liable to report and pay VAT on the transaction. Similar to the vendor, the purchaser can make use of a OSS for the reporting and payment of such VAT.

Simpler intra-Community trade

Finally, the European Commission has proposed new legislation that is intended to simplify or clarify various aspects relating to (current) intra-Community trade. In particular, the Commission has made proposals as regards the VAT treatment of supplies from a call-off stock, the role of the VAT identification number, required proof of intra-Community transport of goods, and the VAT treatment of chain supplies.

Substantial impact for international businesses

If ultimately adopted, the Commission’s proposals will drastically redefine intra-Community trade. Businesses will have to make the categorical choice whether or not to apply for the certified status. Further they will have to adjust their business processes in order to align their administration with the new regime. In this context, we expect that an eventual adoption of the proposals will compel businesses to revise their invoicing, customer and supplier acceptance procedures, ERP-configurations and VAT reporting. In case you would like to discuss the potential implications for your company, please contact your local Baker Tilly professional.