#VATActionPlan: Commission presents measures to modernize VAT in EU

The current VAT rules urgently need to be updated so they can better support the Single Market, facilitate cross-border trade and keep pace with today's digital and mobile economy.

The 'VAT gap', which is the difference between the expected VAT revenue and VAT actually collected in member states, was almost €170 billion in 2013. Cross-border fraud itself is estimated to be responsible for a VAT revenue loss of around €50 bn a year in the European Union. At the same time, the current VAT system remains fragmented and creates significant administrative burdens, especially for SMEs and online companies.

The Action Plan sets out a pathway to modernise the current EU VAT rules, including:

• key principles for a future single European VAT system;
• short term measures to tackle VAT fraud;
• update the framework for VAT rates and set out options to grant member states greater flexibility in setting them;
• plans to simplify VAT rules for e-commerce in the context of the Digital Single Market (DSM) Strategy and for a comprehensive VAT package to make life easier for SMEs.

Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue said: "Today, we are starting a dialogue with the European Parliament and the member states for a simpler and more fraud-proof VAT system in the EU. Every year, cross-border VAT fraud costs our member states and tax payers about €50 bn. At the same time, the administrative burden for small businesses is high and technical innovation poses new challenges for VAT collection. This Commission has already proposed clear measures to address corporate tax avoidance, and we will be equally decisive in tackling VAT fraud."

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "VAT is a major source of tax revenue for EU member states. Yet we face a staggering fiscal gap: the VAT revenues collected are €170 bn short of what they should be. This is a huge waste of money that could be invested on growth and jobs. It's time to have this money back. We are also keen to grant member states more autonomy on how to define their VAT reduced rates. Our Action Plan will deliver on each of these points."