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EU policymakers challenged to simplify VAT

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3rd Nov 2015
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Following the publication of the EU Commission's newly released internal market strategy, the chartered institute of taxation (CIOT) has set policymakers six challenges to create a simpler VAT system that will benefit UK small businesses in Europe.

Published last week, the European Commission’s latest strategy document aims, among other things, to balance business opportunities across Europe, equalise access and prices of products and services around the 28-country bloc, and address key difficulties that SMEs and start-ups face trading within the EU single market.

Responding to the strategy Peter Dylewski, Chairman of CIOT’s Indirect Taxes Sub-Committee, welcomed the commitment to assist small and medium size businesses (SMEs) to operate across Europe, and the focus on easing burdens to SMEs to boost innovation and create jobs.

Dylewski highlighted VAT as a “particular burden”, as although it is supposed to be fully harmonised across Europe, the reality is that this is far from the case. These disparities create “headaches” for many British SMEs trading in Europe.

The CIOT has therefore set out six challenges that VAT policymakers in the EU need to overcome in order for their ambitious goals to be achieved. “We hope when proposals are drawn up to meet them”, said Dylewski, “national governments will rise to the challenge of working together to deliver an accessible single market for all small and medium business.”

The six challenges outlined by the CIOT are:

To end the disparity in registration rules

To support a healthy SME sector, and minimise compliance burdens, a high registration threshold is preferred. Different countries have very different VAT registration thresholds. A business established in the UK with a turnover of less than £82,000 does not have to register for UK VAT. But if the same business had a turnover of £72,000 and turnover of £1,000 in each of 10 other EU member states, it has to register for VAT in each of those member states. 

Simplify getting VAT back from other member states

If a small business incurs VAT in another member state for its taxable business, it is usually entitled to get it refunded but the rules are complex and our experience suggests not adhered to consistently by some countries.

Reduce the complexity of rules

All EU countries operate by the same rules in theory but in practice some things are left to each member state to define and in some instances countries have been permitted to apply derogations (an exemption from or relaxation of the VAT rules). Exceptions to a rule always complicate tax and undermine the aim of simplicity and we believe the need for derogations should therefore be rigorously challenged.

Address inconsistent interpretation of common definitions

EU member states can have totally different views on how the same words in European VAT legislation should be interpreted. The EU must address how small or micro business can deal with such inconsistencies and where they can find better information on what they need to do to comply with member states’ rules.

Tackle the complexity in compliance

Administration of VAT is complicated because member states determine their own compliance rules such as the form of the VAT return, deadlines for submission and tax payment, record-keeping requirements.

More effective dispute resolution

Dispute resolution in the UK can be costly at the best of times despite laudable efforts to increase the use of alternative dispute resolution and other approaches to avoid litigation in the tax tribunals. Cross-border disputes are more costly and this is likely to be a particular barrier to small businesses which may then discourage them from doing business elsewhere within the single market.

Do you agree that these are the most pressing issues for VAT policymakers? Are there other, more urgent topics to tackle? Let us know below the line.

Replies (2)

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By The VAT Doctor
03rd Nov 2015 15:56

Turkeys voting for Christmas

No self respecting tax advisors body should have the temerity to suggest simplifying the rules!

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By abaco
04th Nov 2015 12:12

Leopards and Spots

Dylewski says: “....national governments will rise to the challenge of working together to deliver an accessible single market for all small and medium business.” That would be a first!

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