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EU May Simplify VAT Rules For SMEs Earlier, Starting 2020

Friday, May 11, 2018

The EU's Committee on Economic and Monetary Affairs has recommended that the implementation of proposals to significantly simplify value-added tax compliance obligations for small and medium enterprises should be brought forward to the beginning of 2020.

The proposals were included in a package of VAT reform measures to establish a "definitive," more fraud-proof VAT regime in the EU by 2022. This package includes a plan to fundamentally change how business-to-business transactions are taxed, to prevent fraud; enhanced administrative cooperation between agencies responsible for tackling fraud; the relaxation of rules for member states on their right to set reduced rates of VAT; and the aforementioned SME simplification package.

Under the SME package, there would be a EUR2m (EUR2.5m) revenue threshold across the EU, under which SMEs would benefit from simplification measures, whether or not they have already been exempted from VAT (under existing member state-specific VAT registration thresholds); member states would be allowed to free all small businesses that qualify for a VAT exemption from obligations relating to identification, invoicing, accounting, or returns; and there will be a turnover threshold of EUR100,000 below which companies operating in more than one member state could benefit from the VAT exemption.

On May 3, 2018, the European Parliament published a statement explaining proposed amendments put forward by the Committee.

The Committee is proposing that there should be an upper and lower limit for member states' VAT registration threshold and that exempted enterprises should not be required to file a VAT return. In addition, the Committee has recommended that the Commission create an e-portal through which enterprises will be able to register their intention to claim access to a VAT exemption they are eligible for in another member state.

Under the proposed changes, says the report, a one-stop shop would be set up for VAT returns, to ease the compliance burden relating to the EU's multiple languages for businesses. The e-portal would bring about significant simplifications for small enterprises, it says.

The Committee has recommended that moving to an annual VAT filing obligation for small companies may not improve the environment in which they operate. The report says small enterprises would suffer cash flow issues as a result of filing annually and it was noted that smaller businesses typically want to more often track their current financial situation and tax position. The Committee has therefore proposed that the proposal to introduce annual filing be dropped.

Last, the Committee called for the SME package to be decoupled from the other VAT files, which are also being considered concurrently. It was said "VAT simplification measures for SMEs could be implemented more quickly than the definitive VAT regime. There should be no delay in fostering entrepreneurship. Therefore, the date of implementation of this proposal could be advanced [to January 1, 2020]."