On January 18^th 2018, the European Commission proposed new rules with the aim of stablishing more flexible VAT rates and simplifying VAT procedures for small and medium entities, which need to promote their development.

This proposal is included within the framework of creating a single VAT area, with the main aim of reducing fraud, which represents a loss to the Member States of around EUR 50 billion. The Member States also intend to adapt the common VAT rules (1992) to the current situation.

 More flexibility in the application of reduced VAT rates.

At present, the Member States are allowed to apply a reduced rate of no less than 5% to two categories of products. Furthermore, some Member States also apply super-reduced rates on specific products and services, as an exception.

The Commission's proposal seeks, in addition to a standard VAT rate (minimum of 15%), the following measures:

• Two reduced rates ranging from 5% to the standard VAT rate.
• A VAT exemption ("zero rate").
• A reduced rate between 0% and reduced rates.

The current list of reduced-rate goods and services would be replaced by a list of those goods and services which would obligatorily be subject to the standard VAT rate of 15% or more.

With this set of rates, Member States must ensure that the weighted average VAT rate is at least 12%.

Lower VAT costs for small and medium entities.

Although sales of some companies may be exempt from VAT, if certain thresholds established by the Member States are not exceeded, small and medium entities in the process of growth and expansion are not eligible for this exemption because they exceed this threshold. There is also different treatment depending on whether small domestic or foreign companies are involved.

The proposals of the European Commission try to remedy this situation as follows:

• Simplification measures for those entities which, despite exceeding the exemption limit, do not exceed their income by more than EUR 2 million.
• Possibility of simplifying identification, invoicing, etc. obligations for small and medium entities.
• To allow companies with a maximum of EUR 100.000 of trading volume and operating in more than one State to be exempt from VAT.

These proposals must have their own legal proceeding within the European Union and will only take effect when the definitive regime has been changed.

 

B LAW & TAX
Alfonso Garrido Picon

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