On January 18, 2018, the European Commission proposed an overhaul of the European VAT System, building on the 2016 VAT Action Plan. The main goal of the proposed changes is to create a European VAT area that operates more efficiently in a globalized world and aids in preventing VAT fraud. The changes will also enhance Member States’ ability to collect revenues. The two-fold proposal demands more flexibility for Member States in setting VAT rates and extends VAT exemptions for small businesses that already exist for domestic companies to small businesses engaged in cross-border trading.
The expanded exemptions should cut VAT compliance costs for small businesses. The new rules around the setting of rates is aimed at helping ensure that similar products get equal treatment across borders. Under the proposal, Member States have the option to maintain their current VAT rates and systems. The Commission is set to submit the proposal to the European Council, the European Parliament and the Economic and Social Committee in hopes of gaining official approval.