After 30 years, the European VAT legislation will be updated. In fact, on 7 December 2021, EU finance ministers reached an agreement to renew the current legislation, which currently regulates value-added (VAT) rates for goods and services.
In particular, the new rules will give governments more flexibility in the application of rates but at the same time uphold the principle of equal treatment between EU member states. The main aim of the new legislation is to align VAT rules with the EU’s main common priorities, among which they are expressly mentioned: the fight against climate change, support for digitalization, and the protection of public health.
In practice, the announced agreement identifies three ways to achieve these common goals:
- The update of the list of goods and services to which all states can apply reduced VAT rates. The logic will be to supplement or modify the existing list with new products and services that protect public health, are positive for the environment, and support the digital transition. For the first time, this will allow member states to exempt from VAT certain goods and services to be used to cover what have now become basic requirements;
- The elimination, by 2030, of the power hitherto granted to the Member States to apply reduced rates and VAT exemptions on goods and services that are currently considered harmful to the environment and to the EU’s climate change objectives;
- The extension to all Member States of the possibility of adopting the specific VAT derogations and exemptions to be applied to certain goods and services, with the sole aim of equalizing the total VAT revenue and thus ensuring equal intra-Community treatment, as well as to avoid the exclusion of the tax of a single State determines distorting and free competition effects on the market.
A further change that will be made to the Community directives, based on previous agreements, provides for the transition to an EU VAT system, where the tax will have to be paid in the Member State in which the final consumer resides and no longer in the one where the supplier resides. This change in the territoriality of taxation, together with the introduction of a range of more versatile rates, aims to lower the likelihood that the tax impact will disrupt the functioning of the single market or create pollution of free competition.
In addition, in the post-COVID-19 pandemic context, the commitment to protect public revenues must be maintained firmly, as resources are fundamental to ensure sustainable development. The new legislation will avoid the proliferation of reduced rates for purposes not common to Community principles and directives. Member States aim to make unambiguous efforts to finance a sustainable economic recovery and also to invest in the green and digital transition.
To see these new regulations come into force it will be necessary to wait for the approval of the European Parliament, which will arrive according to schedule by March 2022. Member States will then be able to start transposing directives and legislating into their own legal systems, reasonably from the second half of 2022.
Source: https://ec.europa.eu/commission/presscorner/detail/it/ip_21_6608
