EU simplifies VAT after five-year stall

Gavin Lipsith

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The new system will allow companies to pay VAT centrally, with revenue authorities distributing tax to the countries where it was incurred

European Union finance ministers have unanimously agreed to simplify VAT regulations after five years of stalemate. The reforms, to be phased in from January 2010, seek to minimise the regulatory burden for companies engaged in cross-border operations.

The package of reforms includes charging VAT based on the consumer’s location rather than that of the service provider, so that all customers are charged the same VAT rate regardless of the service provider's country of establishment. And a one-stop shop payment system will mean that companies will pay VAT in their country of origin, with tax authorities responsible for distributing the tax to the countries where it was incurred.

The reforms were proposed several years ago, but were hindered by the EU requirement that all tax and Customs reforms require unanimity among member states.