Why We’re Waiting for the EU’s VAT\GST Reforms

June 4, 2019

VAT\GST affairs are rarely simple. When your employees travel, they get charged foreign and local VAT\GST on their business travel expenses. It’s up to your organization to prepare a VAT\GST return so that your business can claim a VAT\GST refund on the goods and services your employee purchased on his or her trip.

Your business also has to keep track of your cross-border transactions so that you can submit a list of them (the “recapitulative statement”) to your government body each year. VAT\GST reclaim involves a lot of paperwork, sometimes just for small amounts each time.

The Drawbacks of the Current EU VAT\GST System

As you know already, making a VAT\GST reclaim can be time-consuming, complicated, and confusing, especially when you’re dealing with a foreign VAT\GST refund.

Your organization needs to gather valid VAT\GST invoices that are written in a language, currency, and format that’s not familiar to you. Then, the business needs to complete a VAT\GST return according to the rules of the country where these purchases were made, but each country has different rules and regulations for VAT\GST refunds. What’s more, each member state charges different rates of VAT\GST, so you have to check the foreign VAT\GST rate before you start on your VAT\GST return.

It’s little wonder that over £15 billion of VAT\GST goes unclaimed every year.

The Scourge of VAT\GST Fraud

But that’s not the worst of it. The current, complex system for foreign VAT\GST reclaim in the EU also makes it easy for fraudsters to flourish. Unscrupulous businesses buy goods across EU borders to take advantage of the foreign VAT\GST exemption on cross-border transactions. Then they charge full local VAT\GST when they sell the same goods within their member state, pocket the difference, and disappear too fast to be audited.

The same goods keep getting passed across borders between different fraudulent businesses set up by the same shady characters. It’s called Carousel Fraud.

As much as €150 billion in unpaid VAT\GST is lost every year, much of it to carousel and other VAT\GST fraud. The money should be spent on resources for each country’s citizens. Instead, it is often used to finance crime and terrorism. Honest businesses which are just trying to complete their foreign VAT\GST reclaim and claim their VAT\GST refund end up losing out through government attempts to crack down on foreign and local VAT\GST fraud.

Overview of EU VAT\GST Reforms

That’s why we’re eager to see the EU introduce their local and foreign VAT\GST reforms. Under the new rules, there will be:

  • No more foreign VAT\GST exemptions for cross-border transactions – instead, there will be a single VAT\GST area for all EU member states
  • A ‘one stop shop’ portal so that businesses can pay foreign VAT\GST online, in their own language
  • Simplified foreign VAT\GST reclaim system that allows businesses to prepare a VAT\GST return according to the rules of their own member state
  • You’ll pay foreign VAT\GST at the same rate as local VAT\GST
  • Simpler VAT\GST invoices


The Benefits of EU VAT\GST Reforms

The EU’s proposed VAT\GST reforms will bring many improvements for businesses and citizens of the EU.

1. Foreign VAT\GST Returns will be Easier to Handle

With a simpler streamlined VAT\GST process, foreign VAT\GST reclaim will become as easy as local VAT\GST returns. Your business will pay all your VAT\GST at the same local VAT\GST rate, complete your VAT\GST return according to the same local VAT\GST rules, and your staff won’t have to prepare a ‘recapitulative statement’ that lists all your cross-border transactions.

2. VAT\GST Fraud will Drop

With better information sharing between EU member states and a more streamlined system for paying foreign VAT\GST, it will be harder for VAT\GST fraudsters to get away with their crimes. A less complicated system offers fewer places for shady businesses to hide their foreign and local VAT\GST obligations.

3. More VAT\GST Revenue for EU Citizens

The new EU VAT\GST reforms could reduce VAT\GST fraud by up to 80%. That means more tax revenue for EU member states, and more capital for them to spend on building hospitals, sports centers, roads, and other resources for their citizens. That’s good for everybody.

For the moment, preparing your foreign VAT\GST refund request is still a challenge, but all that could be changing very soon! For all the details about filing successful VAT\GST returns in the EU and other countries around the world, both before and after the EU VAT\GST reforms, download our eBook.

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