EC proposal for a standard VAT return

On the 23rd October 2013, EU Commissioner Semeta, announced the conclusion of a three year long exercise which culminated in a proposal to amend Council Directive 2006/112/EC as regards to an EU wide standard VAT return which Member States are required to enact in domestic legislation by the 31st December 2016.

At the moment, businesses operating in different EU countries have to face a complex medley of information requirements, procedures and deadlines imposed by each EU Member State on its own, just to declare the VAT that they owe. Some Member States require monthly declarations, others demand quarterly ones and some also require an additional annual summary return. The format and length of the return also varies considerably; for example the number of boxes to be completed in the return ranges from as few as six in Ireland, to 45 in Malta (excluding the signatory and payment details) – and even up to a monstrosity of 586 boxes in Italy.

Prior to the finalisation of the Proposal, the Commission carried out a public consultation and impact assessment (commenced in December 2010), during which the Commission considered a number of options to tackle the lack of harmonisation and the administrative burden which this brings with it. The five courses of action listed below were analysed in terms of their impact on both the businesses and the national VAT authorities:

  1. Benchmark (that is only assess the current situation).
  2. Compulsory standard EU VAT declaration.
  3. Standard VAT declaration optional for all business.
  4. Standard VAT declaration optional for those businesses submitting VAT returns in more than one Member State.
  5. Compulsory standard VAT declaration with limited flexibility for Member States to determine the information from a standardised list.

Option 5 was selected because in terms of the cost benefit analysis carried out, it maximises the burden reduction for businesses while limiting the cost and facilitating the control of VAT returns by the Member States. The standard VAT return being proposed aims to eliminate the lack of harmonisation problems, by replacing the 28 different national systems with a simple and uniform EU approach where the information reported in the VAT return and the timelines to do so will be standardised across the EU. This should lead to a situation where there will be little difference between filing a VAT return in the Member State of establishment and filing one in another EU country.

The Proposal requires that the standard VAT return should have a limited set of mandatory information (Table 1), whilst allowing Member States to require further information from taxable persons which is pre-established in a standardised list of additional information (Table 2). In order to provide transparency and to facilitate business compliance when a Member State requires such additional information, this should be notified to the VAT committee.

Table 1 – Mandatory information

Mandatory Information
  1. The tax that has become chargeable – Output VAT.
  2. The tax for which deduction is made – Input VAT.
  3. The net amount of VAT payable or refundable.
  4. The total value, exclusive of VAT, of the transactions for which the tax has become chargeable, including the value of any exempt transactions.
  5. The total value, exclusive of VAT, of the transactions for which deduction is made.
  6. The total value of ICSs and ICAs for tax periods but only up to 31 December 2019 (ICSs and ICAs of goods can be established through EU sales lists and thus do not need to be included in the standard VAT return). This extension is provided so as to allow Member States to adjust their systems for the compilation of statistics concerning supplies and acquisitions of goods within the EU.

Table 2 – Standardised list of additional information

Additional Information which MS may request [1]
Other information re Sales:

  1. Net amount + VAT on supplies of goods & services made for each rate.
  2. ICSs even for tax periods after 31/12/2019.
  3. The total (net) value, of supplies of services, (other than services that are exempt in the MS where the transaction is taxable), where the recipient is liable to pay the tax pursuant to Art 196 (B2B services).
  4. The total (net) value, of supplies of goods/services not covered in point (3) for which the recipient is liable to pay the tax.
  5. The total value of the exports of goods.
  6. The total value of any exempt without credit supplies.
  7. The tax on:
    1. Intra-Community acquisitions of goods and transactions treated as such.
    2. Supplies of goods/services received for which the recipient is liable to pay the VAT; (Reverse Charge Mechanism).
    3. The importation of goods where the Member State applies the Onward Supply Relief provisions.
Other information re Purchases:

  1. Net amount + VAT of supplies of goods & services received for each rate.
  2. ICAs even for tax periods after 31/12/2019.
  3. The tax on ICAs of goods, or transactions treated as such.
  4. The tax and the (net) value of supplies of goods/services received for which the recipient is liable to pay the tax pursuant to Art. 199 or 199a (Reverse Charge Mechanism).
  5. The tax and the (net) value of supplies of services received, (other than services that are exempted from VAT in the MS where the transaction is taxable), where the recipient is liable to pay the tax pursuant to Art. 196.
  6. The tax and the (net) value of supplies of goods/services not covered by points (c) and (d) for which the recipient is liable to pay the tax.
  7. The tax and the (net) value of the importation of goods.
  8. Any adjustment of deductions as covered by Art. 184 (Capital Goods Scheme).

In addition to the suggested contents in the standard VAT return, the Proposal will also require a standard cross-EU monthly VAT period for all businesses, except for micro enterprises (which have a turnover of less than €2 million), which should submit standard VAT returns on a quarterly basis. It should still be possible for Member States to extend this period for up to one year in order to reduce the administrative burden. In this respect, the proposed changes should have no impact on the VAT return periods currently used by operators in Malta. The Proposal also requires a common minimum deadline for submitting the standard VAT return, which is set at the end of the month following the tax period. However, Member States would still be provided the flexibility to extend the payment date by a further month to avoid increasing burdens on business. The payment deadlines will also be harmonised because the coexistence of different payment deadlines would (partially) remove the benefits of the proposed standard VAT return. Therefore any VAT due in a particular VAT period should be paid when submitting the standard VAT return or in any event at the expiry of the deadline by which the standard VAT return must be submitted. Member States are also encouraged to promote electronic filing of the VAT return.

Member States which at the moment require an annual summarising VAT return will have to dispense with such a requirement. The Proposal also suggests that common rules for the correction of VAT returns are necessary to achieve the desired level of standardisation, although Member States should be allowed to determine their own correction period as these periods are closely linked to national audit procedures.

Although the lack of agreement between the EU Member States will probably postpone the eventual implementation of the proposal, the concept itself indicates what the EU VAT fora could have in store in the not so distance future.

Table 3 – Summary of Impact of the Proposal on the Maltese VAT return

Proposed Change Effect on the Maltese VAT return and system
Standard VAT return The proposed standard return (with the permissible additional information requests) is very close to the Malta Article 10 VAT return, with the exception of the additional boxes which Malta has for capital goods and excess credits brought forward.

It is yet unknown whether Malta will be allowed to maintain a separate (electronic) return for persons registered in terms of Article 12, but it is not excluded that the standard VAT return would apply also for Article 12 registered persons (with inapplicable boxes being blocked).

At the moment persons registered in terms of Article 11 VAT Act submit a simplified VAT return. Article 272 of the Directive as amended will allow Member States to exempt enterprises from filing a VAT return if the exemption for small undertakings applies to them, but does not provide for the possibility of filing a different simplified version.

Reporting frequency The Proposal will require returns filing every month, extended to a quarterly filing basis for micro enterprises (turnover less than €2 million). This is in line with the current reporting frequency for Maltese enterprises but may require large (by Maltese standards) enterprises to switch to a monthly VAT return.
Filing and payment frequency The Proposal requires the standard VAT return to be submitted (with payment) by the end of the month following the period end, which Member States may extend by a further month. Thus the VAT return and payment are both due at a minimum of one month and a maximum of two months after the end of the VAT return period, which is in line with the current forty five days post period end deadline currently applicable in Malta.
Electronic filing The Proposal requires Member States to allow electronic filing of the VAT return (including the possibility to use electronic file transfers), which is already possible and encouraged by the Maltese VAT Department.
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