From January the Evasion of VAT Will Be More Difficult in the EU

With recently approved VAT regulations, the decision-makers of the EU intend to manage problems that have incurred in the course of different trading transactions with respect to recording and reporting VAT. Measures to be introduced in January may involve procedural alleviations or mitigate the risks of many enterprises.

The reform of the VAT system with the purpose to prevent money laundering and to reduce bureaucratic burdens on taxpayers has been ongoing for some time in the EU, and it may take further years. On the meeting of the Economic and Financial Committee on 2 October several measures were approved, that will be effective from 1 January of next year and these can be interpreted as the first steps of the long-term reform of the VAT system of the EU.

Among others, a package of temporary measures about value added tax was approved, which contains quick-fix solutions with the intention to rapidly and efficiently manage several specific problems concerning the taxpayers. 

One important item is related to call-off stock. However, in Hungary certain rules have already been introduced to regulate this area, this simplification is now extended to all member states. With this measure, VAT registration and charging VAT in outgoing invoices may be avoided. This will elevate the operation of several Hungarian enterprises, which place their inventory at foreign customers in advance. In some cases, standardised rules may be more restrictive than presently valid Hungarian legislation.

Another important clarification is this: It is possible to sell a certain product into another EU member state without VAT, if the tax number of the buyer is available and it can be verified in the online VAT number validation system of the EU (VIES). According to the tax advisor of Crowe FST, this measure basically confirms present Hungarian practice, but explicit legislation may cause interruptions in some countries (e.g. Spain), where companies are recorded after a lengthy procedure, if a certain company is not yet registered in the VIES system.

On the meeting of the Committee, changes in the regulation of chain transactions were also approved, which may minimise VAT risks involved in trading between member states in the future. It is possible to build the procedure on such simple conditions as the examination of the VAT number provided by the buyer. 

This new regulation is particularly important, because often sellers do not even know that they participate in chain transactions, e.g. if the first buyer requests that the goods are delivered not to its own address, but directly to the address of its customer. Formerly VAT deficit incurred at a high number of Hungarian companies, because in the course of transactions with several participants they wrongly classified the sales as domestic (including VAT) or export (excluding VAT. This new regulation may give relief to many domestic companies, because it provides standard guidelines to establish which of the sales within a chain transaction are qualified as international transport and which are not.

The fourth important measure about turnover taxes is related to the standardised regulation of the obtainment and acceptance of delivery certificates. In many cases, exporting companies were not able to provide authentic evidence to the Hungarian authorities to support that they have delivered the goods into another EU member state, thus the tax authority may have established tax deficits at these companies in the course of tax audits, e.g. when the copy of the delivery note, signed by the person who received the goods, was not returned to the seller. Standardised EU legislation means that it may be easier to persuade foreign partners to cooperate.