What you should know about the VAT package of 2022

in Tax, 15.05.2019

“VAT is a major source of tax revenue for EU Member States. Yet, we face a staggering fiscal gap: the VAT revenues collected are EUR 170 billion short of what they should be. This is a huge waste of money…”[1]

Pierre Moscovici’s statement feels quite clear. The VAT rules, as they currently exist, do not seem suitable for a constantly evolving tax environment. They need to be upgraded and to take into consideration the changes wrought by a globalized economy. On top of this, they must harness the latest technological developments and be fit enough to fight a persistently inventive type of VAT fraudster.

This article will describe the various measures foreseen by the European Commission to modernize VAT in the EU. We will address their potential implications as well.

But to start from the beginning… how did the idea of a new definitive VAT system emerge?

Old transitional VAT rules in need of an update

In 1985,[2] the European Commission decided to remove all tax controls on the internal borders of the EU. The idea was to launch a Single Market with free movement of goods, where traders were no longer liable for the payment of VAT when their goods crossed internal borders. By 1993, however, considering the state of technological developments, this system could not be implemented. It therefore remained transitional (leading sometimes to a huge VAT gap, as Mr. Moscovici underlined).

Action needed to be taken, which came in the form of an Action Plan on VAT[3] in which the EU Commission underlined the necessity to revise the VAT system and to pave the way towards a single European VAT area.

Thus, the foundation for a “new definitive VAT system” was laid.

Legislative proposals and timeframe

To create this single European VAT area, the European Commission defined a “package” to be implemented by 2022. The package introduces new concepts (e.g. the notion of a certified taxable person), foresees short-term quick fixes (to help the transition phase), and encourages administrative cooperation. On top of this, the Commission also started modernizing the rules on VAT rates through a reform,[4] and also prepared a SME VAT simplification package.[5] Five years after its implementation (2027), an evaluation should be made.


The setting up of this new VAT system implies compliance with what the Commission calls “cornerstones,” or the fundamental principles standing behind its proposals.

The most important idea is that VAT fraud has to be prevented more efficiently.[6] In order to achieve this goal, the destination principle should be put forward, meaning that the final amount of VAT should be paid to the Member State of the final consumer and the rate of that Member State should be charged.

The general rule, in cases of an intra-EU supply of goods, thus becomes one where the vendor is liable for the payment of the VAT. The introduction of the notion of a certified taxable person (CTP) will furthermore allow for the designation of a trusted business which can benefit from simpler and more time-saving rules. Provided that the acquiring businesses at hand meets a set of criteria, they would be considered “reliable VAT taxpayers” and would pay the VAT directly to the tax authorities of the relevant Member State.

Additionally, the use of the One-Stop-Shop will be extended, simplifying the administrative obligations of traders by creating a single online portal, in their own language, with the same rules applicable as in their home country.

In short, these rules aim at making it more difficult to commit fraud, creating a robust single European VAT area with a uniform treatment of transactions (whether cross-border or domestic).

You might, however, argue that 2022 seems quite far away! Doesn’t this time lapse leave plenty of time for a VAT fraudster to commit mischief and disappear? Keep an eye out for our next article about short-term fixes.

This article was written together with Laurence Lhote.

[1] Press Conference of Commissioner Pierre Moscovici, held on 7 April 2016

[2] See the whitepaper on the completion of the internal market, 14 June 1985

[3] The communications of 7 April 2016 were followed by another communication on 4 October 2017

[4] Specifically, the proposal for a council directive amending 2006/112/EC on VAT rates for books, newspapers, and periodicals

[5] This resulted in a proposal for new simplification rules to help reduce VAT compliance cost for small businesses (18 January 2018)

[6] Carousel fraud or missing trader fraud happens when the traders do not remit the VAT they receive from their customers to the tax authorities. In the meantime, the customers ask for a tax deduction on the valid invoices they hold for the services rendered by the traders. In such a case, the supplies are purchased and then resold without the payment of any VAT. This scheme often happens as regards intra-EU supplies, but can also occur when services are rendered.

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