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Chas Roy-Chowdhury, ACCA’s head of taxation says:
'No one can deny that the current VAT system needs to be reformed and improved to keep pace with the challenges of our evolving global, digital and mobile economy. We agree with the European Commission that the new definitive VAT regime needs to simpler to better exploit the opportunities of digital technology and to reduce the costs of revenue collection.'
The European Commission is proposing a new definitive system based on the principle of taxation at the destination of the goods, as opposed to the principle of origin. ACCA warns that this could create more complexity for businesses, as they will have to deal with different VAT rates when operating across borders.
Chas Roy-Chowdhury explains:
'Companies will have to make sure they understand the VAT rules in other jurisdictions. This is again likely to affect more small businesses, for which compliance costs are always more difficult to bear. We therefore hope that the planned simplification package for SMEs - and especially the revision of the SMEs special regime that the Commission announced for 2017 - will address this issue.'
The European Commission is also proposing two options to give Member States flexibility to set reduced rates of VAT: the extension and regular review of the list of eligible goods and services, and the more ambitious approach of abolishing that list.
Chas Roy-Chowdhury points out:
'I have heard some concerns regarding potential harm to countries already using reduced rates, such as the UK. However, at this stage, I do not think that either of these options entail any potential substantive adverse effect on the ability of member states to compete.. Reduced VAT rates are purely domestic matters, they have no impact on exports.
'For instance, if other member states were to decide to introduce reduced or zero rates on products which the UK already have, I do not see why Britain would face increased VAT competition. Member states would still be obliged to observe internal market and competition rules, as well as the rules stemming from the economic governance framework and the EU Semester. [...]