Planned EU Value Added Tax System Would Increase Administrative Burden

The European Commission has made a proposal based on which the European Union domestic and cross-border transactions of goods between entrepreneurs would be treated in the same manner. It would mean the seller’s liability principle: an entrepreneur in Member State A who sells goods to Member State B, adds the Value Added Tax to the invoice based on the tax rate of Member State B and pays it to Member State B either directly (if registered there) or via Member State A. The Chamber of Commerce does not support this proposal – the Value Added Tax System would become burdensome for entrepreneurs due to exceptions and increased administrative burden.

Amendment to separate services from goods

The proposal would only be applicable for goods and the old system would still apply for services. In the Chamber’s opinion, distinguishing between goods and services even more would not be reasonable or relevant. Entrepreneurs face an increased risk of calculating the Value Added Tax in situations where it is complicated to separate goods and services. Furthermore, accountants would have to have extensive knowledge on the differences in Value Added tax systems, which is already rather complicated as it is.

Different value added tax rates would cause confusion

Applying the seller’s liability would also become unnecessarily complicated. In most countries, goods have different Value Added Tax rates. However, this means that the seller must be informed of the Value Added Tax rates of different Member States. This would mean significant increase of administrative burden for companies, which in turn would mean increased labour costs.

Companies may also face problems with the fact that transactions between countries usually have a longer receipt period than domestic invoices. However, the Value Added Tax has to be paid to the Tax Board in due time, irrespective of if the Value Added Tax share of the buyer has been received. This means liquidity risks for entrepreneurs who sell goods to entrepreneurs of foreign countries. Many entrepreneurs might not have the possibility to change the contracts to shorter payment terms due to the fact that entrepreneurs of foreign countries could be more influential and in a highly competitive sector, another company who agrees with a longer payment term would be chosen.