18 January 2018

ACCA: The European Commission’s work on VAT rates

ACCA commends the EC’s work on VAT rates, acknowledging the sensitivity of the issue. According to ACCA there is a need of flexibility around VAT rate setting, to take into account lower revenues in periods of recession, and to benefit small businesses.

ACCA acknowledges the publication of the Directive amending Directive 2006/112/EC as regards rates of value added tax, and commends the work of the European Commission in this difficult and complex area.

The new rules unveiled by the EC, would allow member states, in addition to a standard VAT rate of minimum 15%, to put in place two separate reduced rates of between 5% and the standard rate chosen by the Member State; one exemption from VAT- or 'zero rate'; and one reduced rate set at between 0% and the reduced rates, while ensuring that Member States do apply a weighted average VAT that exceeds 12%.The current list of goods and services to which reduced rates can be applied would be abolished, and replaced by a new negative list to which no exemption to the standard 15% rate could be applied, thus giving more flexibility to Member States.

Chas Roy-Chowdhury Head of Taxation at ACCA says: “This may look at first sight as though the Commission has somewhat rowed back on earlier proposals for full freedom to set local rates. However, in the context of the wider changes to the system, it is perhaps more sensible not to create an environment in which too much additional complexity around rates for cross-border traders is allowed to creep in, at least before the other mechanisms in the Definitive Regime package have been given time to bed in and been shown to work effectively. In a dynamic tax environment there needs to be flexibility around the 12% rate, to take into account lower revenues in periods of recession. “

Regarding creating a better tax environment for SMEs, ACCA also welcomes the new proposals, which, while maintaining the current VAT exemption thresholds, would introduce additional element to ensure a better level playing field between small business trading domestically and across border.

Full press release

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