Standard EU VAT return would cut costs for cross-border businesses, says European Commission

Its proposal would reduce the amount of information that businesses are required to submit to tax authorities and encourage electronic filing, it said. Businesses would be expected to file the standard VAT return on a monthly basis, while micro-enterprises would only have to submit on a quarterly basis, according to the proposal; and the obligation to submit a yearly VAT return containing the same information would be abolished.

"The standard VAT return presents a win-win situation," said Taxation Commissioner Algirdas Šemeta. "Businesses will enjoy simpler procedures, reduced costs and less red tape. Governments will have a new tool to facilitate VAT compliance, which should increase the revenues they collect. Today's proposal therefore supports both our commitment to a business-friendly Single Market and our drive to improve tax compliance in the EU."

The proposal comes as part of the Commission's programme of work to simplify the common system of VAT and make it more robust against fraud. The High Level Group on Administrative Burdens, set up by the Commission to advise it on reducing the administrative impact of EU legislation on businesses, has also backed the introduction of a standard VAT return.

EU businesses submit around 150 million VAT returns to national tax authorities each year, and almost 130 million of those come from micro-enterprises. These documents summarise the taxpayer's activities, including sales and purchases, over the reporting period. This information allows tax authorities to charge or reimburse VAT as required.

Under the current system the format of national forms, information requested and reporting deadlines vary between member states, which can make compliance costly and cumbersome for the estimated 13% of businesses that operate in more than one member state. Cross-border businesses have also complained that the complexity of the current regime makes it difficult for them to remain VAT compliant, according to the Commission.

The standard VAT return proposed by the Commission (17-page / 88KB PDF) would contain five mandatory information boxes for businesses to supply chargeable VAT, deductible VAT, net VAT amount payable or receivable, total value of input transactions and total value of output transactions. Member states will be allowed to request a number of additional standardised elements depending on their needs, up to a maximum of 26 information boxes. Currently some member states request as many as 100 types of information.

Frequency of returns, submission deadlines, the procedure to submit corrections and the format of electronically-submitted returns would also be standardised. According to the European Commission, these simpler procedural requirements will also help to improve compliance and make it easier to enforce and reduce the 'VAT gap', which stood at €193bn in 2011.

The Commission expects the new regime to come into force in 2017, subject to the agreement of the European Parliament and member states.

VAT and indirect taxes expert Darren Mellor-Clark of Pinsent Masons, the law firm behind Out-Law.com, said that the Commission's drive to simplify VAT reporting requirements would be welcomed. However, he questioned whether the move to monthly reporting would in fact ease administrative burdens for companies operating in states such as the UK, where VAT returns are currently submitted quarterly.

"Any measures to simplify the compliance burden on businesses will be almost universally welcomed," he said. "However, whether or not such simplification is achieved will be questioned, especially in light of the apparent requirement to submit monthly VAT returns for all businesses with turnover in excess of €2m – a move from four to 12 returns to be completed is unlikely to be welcomed by many."