Members of the European Committee of the Regions (CoR) have signalled their broad support for the European Commission's Action Plan on VAT.
The CoR has 350 members and is comprised of regionally and locally elected representatives from the EU's 28 member states. It expresses an opinion on all major issues of local and regional relevance.
The Action Plan was published in April and is intended to tackle the VAT gap and adapt the VAT system to the digital economy and the needs of SMEs. It is intended to modernize EU VAT policy, including by giving member states greater freedom on VAT rates and allowing for technology neutral VAT treatment for electronic versions of traditional media, such as e-books.
The CoR endorsed the Action Plan during its October plenary, adopting a resolution prepared by rapporteur Dainis Turlais.
Turlais said: "The 'VAT gap' between expected revenue and revenue actually collected is estimated at EUR170bn (USD187.3bn). The huge levels of fraud lead to significant losses of revenue for member states every year. This has a negative impact on public sector budgets, particularly those of local and regional authorities, and their ability to provide quality services."
"The increasing risk of fraud has not only an economic, but also a political impact. Fraudulent schemes, able to operate for years, create distrust of European citizens towards national and EU institutions. It is therefore essential that banks should also fully cooperate with tax authorities in cases of suspected VAT fraud, certainly within the limits of the applicable data protection legislation."
In an effort to close the VAT gap, the Commission will by the end of this year present measures to improve cooperation between tax administrations, and publish an evaluation report of the Directive on the mutual assistance for the recovery of tax debts.
In addition, the Commission will, by the end of 2016 present a legislative proposal to: extend the current One Stop Shop concept to all cross-border e-commerce; introduce common EU-wide simplification measures to help small start-up e-commerce businesses; streamline audits in this sector, and remove the VAT exemption for the importation of small consignments from suppliers in third countries. By the end of 2017, it will publish a comprehensive simplification package for SMEs.
The CoR recommended that the relevant national institutions should be responsible for monitoring the activities of enterprises operating legally. Committee members encouraged the use of IT tools, such as voluntary electronic payment systems, "which transfer the VAT on people's purchases to the state budget and the amount minus VAT to the vendor's account."
The CoR did however express concern over the Commission's proposal to give member states more freedom to set VAT rates. CoR members voted in favor of extending and reviewing the list of goods and services eligible for reduced rates, rather than the wholesale abolition of the restricted list. "Giving member states more leeway would lead to greater differences in rates, distort the single market, and impose burdens on businesses and particularly SMEs, which are the basis for employment at regional level," Turlais cautioned.
Finally, the CoR called for representatives of local and regional authorities to be included in consultations on any changes to the VAT system. In particular, they stressed the need for a territorial impact analysis of any proposal to offer member states greater flexibility in setting VAT rates.