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January 20, 2022 5 minute read

European Parliament Reports on How to Reduce EU VAT Gap – 17 January 2022




On 20 December 2021, the European Parliament published a report presenting the necessary steps to reduce the EU VAT gap between Member States with a view to exploring some ideas for improving the application of the VAT Directive (2006/112).

The report suggests that in order to meet the challenges of the globalized, digital and mobile economy, the European Union needs a simpler, more transparent, more efficient, improved and modernized VAT system that can maintain its competitiveness, can be adapted to the internal market and be fraud-proof.

The report highlights the importance of moving towards a definitive VAT system based on the principle of taxation in the country of destination. It also advocates working towards a uniform VAT rate and decreasing the number of exemptions and reduced rates in the European Union, since the diversification of VAT rates fragments the internal market and distorts competition among Member States, and the reduced rates only have a slight and temporary effect on prices, with a limited achievement of the social and environmental goals. The report points out the tax costs for businesses, particularly for small and medium-sized enterprises (SMEs), and considers the context of the economic recovery to curb the socio-economic crisis following the COVID-19 pandemic.

The report includes a Motion for a European Parliament Resolution on these topics. The text can be found here.

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