VAT aspects of the Management Plan 2021 DG TAXATION AND CUSTOMS UNION
A tax environment that supports recovery and growth
Following the July 2020 Tax Action Plan, DG TAXUD will work on a series of legislative and non-legislative actions to improve the tax landscape for businesses – and in particular SMEs.
- DG TAXUD will review the VAT rules for specific sectors, to bring them in line with modern realities. Following an impact assessment and public consultation in the first half of the year, DG TAXUD will propose revised VAT rules for financial and insurance services by the end of 2021. We will also work on an impact assessment for a possible proposal to review the VAT scheme for travel agents, building on the ongoing evaluation.
- Important preparations for the new simplified VAT rules for SMEs (Council Directive (EU) 2020/285), which will apply from 2025, will continue over the coming year. DG TAXUD will propose a Commission implementing Regulation to enable the IT preparation to begin, with a view to simplified compliance system (including a single window) for small and medium companies.
- Double Taxation disputes are a particular problem for businesses in the Single Market, and DG TAXUD will continue its work to ensure that these are resolved as quickly and as efficiently as possible. Building on the 2017 Dispute Resolution Mechanism Directive, we will establish a standing committee to further strengthen taxpayers’ rights and ensure disputes are definitively and swiftly resolved in the area of direct taxation. Unresolved VAT disputes are also a recognised problem for businesses, often leading to double taxation. DG TAXUD will launch a study on the nature and impact of these disputes in 2021, with a view to a possible proposal the following year to mitigate this problem. The relationship between tax administrations and taxpayers is an important element in facilitating a higher level of tax compliance amongst honest usinesses. DG TAXUD will work with Member States and taxpayers to establish pilot projects on cooperative compliance for multinational companies and SMEs and will establish EU guidance in this field. DG TAXUD will also bring forward a Communication and Recommendation on Taxpayers’ Rights in 2021. This will seek to strengthen the rights of compliant taxpayers and create more legal certainty for them, based on existing guidance and court judgements.
- The use of data and technology is critical in finding ways to overcome the challenges that both taxpayers’ and tax administrations face. Digital solutions and data analytics will be instrumental in cutting compliance costs. In this respect, DG TAXUD will launch a study on VAT in a digital age, to consider what further initiatives may be needed at EU level. Amongst other things, this will look at how to modernize and streamline VAT reporting
obligations, with a view to reducing disparities across the EU and thus reducing burdens for businesses. The study will also consider the possibility of a single place of registration for cross-border businesses in the EU, and will examine the VAT treatment of the platform economy.
- Digitalisation also creates an opportunity to improve the efficiency of tax administrations in facilitating tax compliance and in fighting against tax abuse and evasion. Both are essential to safeguard the revenues needed for long-term growth and stability. In an inter-connected Single Market, it is crucial that Member States cooperate on the recovery of tax claims, to enable them to collect the revenues due. In 2021, DG TAXUD will work to further improve the cooperation and capacity of Member States in the area of tax recovery, including through the possible automated collection of statistical data.
Fair taxation for sustainable revenues and a level playing field
- Fair taxation will continue to be the guiding principle for all EU tax policy initiatives in 2021, given its importance for taxpayer morale, a level playing field and long-term, sustainable revenues. Combatting tax fraud, evasion and avoidance will be all the more important in the months and years ahead, as the EU and the global community seek to recover from the fallout of the covid-19 crisis, including its impact on public finances.
- Tax transparency is essential in preventing and detecting tax abuse and allowing tax administrations to collect the revenues that are due. In 2021, DG TAXUD will propose a further revision of the Directive on administrative cooperation that will bring our transparency framework in line with modern businesses. This will include an extension ofthe automatic exchange of information to cover crypto-currencies (DAC8), building on work done by the OECD and taking into account other Commission initiatives in this field. The scope of this work will also be influenced by the DAC evaluation, concluded in 2019, and a report issued by the European Court of Auditors.
- The VAT Gap is an area of major concern, given the cost to public budgets. Latest figures showed the VAT Gap in Europe to be around EUR 140 billion a year, and this is likely to increase due to the covid-19 crisis. DG TAXUD will therefore give high priority to measures that can reduce this gap in a long-lasting way. In early 2021, we will present a Communication on best practice to reduce the VAT Gap, and issue it together with a report on national administrative procedures for VAT, assessing how they can be improved.
- DG TAXUD will also support Member States, in sharing best practices in this area, including through Fiscalis-funded events. Speed and data analytics can help authorities and antifraud experts to stay one step ahead of fraudsters and to crack down on VAT fraud before the losses get too large. In 2021, the tool for Transaction Network Analysis will be extended to cover different fields of VAT fraud and will incorporate new functionalities to improve its effectiveness.
- E-commerce has been identified as a particularly vulnerable area when it comes to VAT compliance and fraud. New rules on VAT e-commerce will enter into force in mid-2021, which should help recoup the estimated EUR 5bn of VAT lost through online sales each year. DG TAXUD will launch a worldwide communication campaign in early 2021, to inform businesses, traders and platforms of their obligations under these new rules. DG TAXUD will also continue the preparations for the new Central Electronic System of Payment information (CESOP), which will become operational in 2024 to tackle e-Commerce VAT fraud. This will include working with payment service providers on a robust system to collect the payment data.
- Cooperation with the countries where the online sellers are established is also vital to enforce EU VAT rules. In 2021, DG TAXUD will open administrative cooperation negotiations with third countries to fight against VAT fraud. Aggressive tax planning and tax evasion have reached new levels of speed and sophistication. DG TAXUD will therefore together with experts in the Member States determine how e-commerce platforms can be integrated into the customs import processes, for better VAT collection.