The European Commission on July 13 released a study exploring policy options designed to make the EU VAT system fairer to business engaged in cross-border trade.
The EC-commissioned study, prepared by EY, finds that under the current VAT system businesses engaged in cross-border trade bear 11 percent higher compliance costs than businesses that only trade domestically.
The paper presents and analyzes five policy options designed to address this disparity in a destination based VAT system. The options are also assessed in terms of whether they prevent the occurrence of VAT fraud.
According to the paper, an option that aligns the rules governing the place of supply of services with the reverse charge mechanism offers the greatest compliance cost savings for all businesses. The method increases the likelihood for fraud, though.
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