Firms face big bill to deal with major EU shake-up on cross-border VAT
The European Commission last week proposed "the biggest reform of EU VAT rules in a quarter of a century".
The proposed reform seeks to make significant changes to the current EU VAT rules and will have a profound effect on Irish businesses who dispatch and acquire goods to and from other countries within the EU.
It is intended that this reform will tackle EU VAT fraud, which accounts for €150bn of VAT lost every year. In particular the proposal tackles cross-border VAT fraud, such as carousel fraud, which alone accounts for a VAT loss of approximately €50bn per year.
To tackle cross-border VAT fraud the European Commission proposes a change that will see VAT charged on cross-border trade between businesses.
As these types of transactions are currently exempt from VAT, Irish businesses need to be aware of the cost and administrative implications associated with the implementation of such a significant change.
As part of the European Commission's proposal, businesses will be able to avail of a "one-stop-shop" to account for and to pay the VAT it will now have to charge on its cross-border trade between businesses, which will ease the cost and administrative burden.
However, there will be administrative costs for Irish businesses to ensure complete compliance with the proposed European reform.
Internal company systems will have to be modified, companies will need to educate their workforce on these changes, organisations will need to restructure contracts, and this all results in a significant cost.
The proposed changes to EU VAT rules means Irish businesses must now consider the cash flow implications of charging and reporting VAT on their cross-border trade with businesses.
Irish businesses should also be aware that the European Commission has proposed a further simplification to this change in the form of a 'Certified Taxable Person'.
Firms should ensure that they and their customers can meet the criteria to avail of this certification, which will allow them to be considered throughout the EU as a reliable VAT taxpayer.
The Certified Taxable Person can avail of a number of simplified procedures for the declaration and payment of cross-border VAT to help further reduce the cost and administrative burden.
This proposal announced is scheduled to be adopted in 2018 and the definitive regime should enter into application in 2022.
Lisa Dowling is a VAT manager at Taxback International.