Proposed VAT changes with respect to intra-community supplies

03 November 2017

The EU Commission has published the first of two proposals, entitled “Follow-up to the Action Plan on VAT towards a single EU VAT Area – Time to Act” (COM (2017) 566 final). The two proposals (second one expected in the second quarter of 2018) must still go through the European Parliament and the European Economic and Social Committee for consultation, and eventually to the Council where they would require unanimous agreement from all Member States before they can enter into force. The two proposals are meant to counter the missing trader (carousel fraud) black hole in the intra EU VAT ecosystem. 

The current proposal represents a radical revolution of the VAT principles currently applied to intra-community transactions of goods. At the moment, intra community supplies of goods are exempt from VAT in the Member State of origin and VAT is accounted for by the recipient taxable person in the Member State of destination. The Proposal introduces a regime whereby cross-border transactions of goods would be taxable exclusively in the Member State of destination.

The implementation of the Proposal in its current format would lead to the following fundamental changes:

  1. All intra EU supplies of goods would be taxable in the Member State of destination leading to the removal of the current exemption on intra community supplies of goods.
  2. However the seller would still be the party responsible to account for, charge and collect the VAT rate applicable in the Member State of destination. In order for this to be administered as smoothly as possible, the Proposal requires the introduction of an obligatory One Stop Shop (OSS) system to account for the VAT on the cross border supply of goods. The OSS would be similar to the one stop shop applicable at the moment for electronically supplied services, whereby the supplier would file only one return and effect a singular payment (for the intra-EU supplies of goods) and then it is up to the national tax authorities to transfer the VAT to the appertaining EU Member State. The Proposal also suggests the introduction of the possibility for the deduction of input VAT incurred outside the Member State of establishment, directly through the proposed OSS. Moreover, the elimination of the intra community supply exemption would lead to the removal of the requirement to submit EC Sales Lists (Recapitulative Statements).
  3. The Proposal introduces a new concept – “Certified Taxable Persons” (CTP). Taxable persons would be able to apply with the national tax authorities for a CTP status (mutually recognised by all Member States). CTPs would be able to carry out intra community supplies of goods between themselves utilising the “old” principles whereby the reverse charge mechanism would remain applicable, thereby avoiding the need for the supplier to impose the VAT rate applicable in the Member State of Destination, on the supply.
  4. In the intermediate stage, until the final provisions are agreed and implemented, the Commission proposed a number of measures dealing with chain transactions, call off stock, and the requirements to have a proof of transport and to verify the customer’s VAT number through the VIES system in order to apply the exemption for intra community supplies, all meant to simplify the current operation of the VAT system applicable to cross-border supplies of goods.


Whilst the Commission is aiming to introduce the changes in the Proposal by 2022, one would expect a long debate at both the EU Parliament and Council levels. In particular the change to the destination principle will lead to a significant shift of revenue between EU Member States which would probably lead to an increase in VAT turnover for the smaller Member States (usually net importers) at the expense of the larger Member States. Whatever the ultimate text of the implementing directive, businesses should start considering what impact the shift to the destination principle will have on their current setup, in particular what the changes in the VAT element will have on the price chargeable to the customers.