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Commissioner responsible for Taxation and Customs Union, Audit and Anti-fraud
Speaking Points on the Strategy for the future of VAT
Brussels, 6 December 2011
Ladies and gentlemen,
Today I present to you the Strategy for the future of VAT in the EU.
This sets out the principles and the actions that will guide an ambitious reform of our VAT system, and will help put the "added value" back into value added tax.
Our wide consultations in preparing this Strategy have shown that citizens, businesses and administrations want a complete overhaul of the current system.
It no longer responds to the needs of our modern economy. It poses obstacles to the Internal Market. It is not business friendly. And it is susceptible to fraud.
Fundamental changes are therefore not an option – they are a necessity.
My vision is for a future VAT system that delivers quality revenues to national budgets, while enabling businesses to operate as easily within the Internal Market as they do at home.
We need a simpler system.
We need a more effective system.
We need a more robust, fraud-proof system.
That is what today's Communication on the future of VAT sets out to achieve.
Let me turn first to the difference that a better VAT system could make to businesses.
There is no denying it: the current VAT system is a headache for companies across Europe.
I was shocked to see that some contributors to our public consultation felt that it was easier to engage in business with non-EU companies than with EU partners, due to frustrations with the VAT system.
This has to change.
Our figures show that just a 10% reduction in the mismatches between Member States' VAT procedures could result in an increase in intra-EU trade of up to 3.7%.
Today's Strategy highlights how we can simplify and harmonise the VAT regime, to the benefit of businesses and the Internal Market.
Among the ideas that I have put forward are the possible expansion of the "one-stop-shop" system for cross-border traders, and a standardized VAT declaration, available in all languages.
More transparency and dialogue with businesses will also help in overcoming current problems that they have. Therefore, today's Communication foresees a centralised VAT information portal and an EU VAT forum to involve all stakeholders in the establishment and interpretation of relevant EU laws.
Now let me turn to another crucial element linked to VAT: Revenue. VAT currently accounts for over 20% of Member States' income. There is no question that it has a vital role to play in their consolidation efforts, particularly at this time.
We therefore need to ensure the quality and stability of this revenue.
When presenting the taxation aspects of the Annual Growth Survey, two weeks ago, I suggested that Member States should examine how they can broaden their tax bases and close tax gaps. Today's Communication not only reinforces this message, but also provides the roadmap to do so.
Limiting the use of reduced VAT rates and exemptions could provide Member States with important new revenue, without burdening their citizens with further standard rate increases.
In fact, our studies show that if all reduced rates were removed, the standard rate could actually be reduced by up to 7.5 percentage points in some cases, without any impact on overall revenues.
Moreover, the fragmentation of the Internal Market caused by the different national approaches would be considerably reduced.
Let me be clear: today's Communication is not about eliminating reduced rates and exemptions.
But it is about going back to the drawing board and looking carefully to see which ones can be justified.
We set out the principles to guide such an assessment, and will take the work forward on this basis, starting next year. This will be done in close cooperation with Member States and other stakeholders.
Another important problem to tackle if we want stable revenues is fraud. It robs the public purse of billions of euros every year, and the current system is not sufficiently equipped to tackle this. Fraud is almost impossible to eliminate, but we can take stronger measures to deter, detect and react to it.
Member States must play their part by reinforcing their administrative capacity to stop fraud. The Commission will monitor the effectiveness of national measures, provide benchmarks and highlight areas for improvement.
At EU level, we will strengthen the instruments that have already been created, such as Eurofisc and the automated access to information. We will also create new anti-fraud tools such as a quick reaction mechanism for when fraud is suspected, and a platform for the better exchange of information on cross-border cases.
Finally, I will just mention that the long debate over whether to change the VAT system to one based on taxation at origin has led us to conclude that this will not be attainable. We will therefore focus our efforts on creating a properly-functioning destination-based system.
To conclude, the reform of our VAT system is not a 100 metre sprint, but a long-distance run. Changes will have to be gradual and steady, to avoid any risk to Member States' revenues or sudden adjustments for businesses. This is not to say, however, that we cannot see the finishing line. I have my sights firmly set on an EU VAT system which is easy to comply with, brings in quality revenue, and is well protected against fraud. Today's Communication is a major step in that direction, and the starting point for substantial improvements that lie ahead.