EU proposes VAT tax exemptions for large-scale transactions by firms

[BRUSSELS] Firms in European Union countries could be exempted from paying the value-added tax (VAT) for large sales to other companies under a proposal unveiled on Wednesday by the European Commission.

The move comes after strong pressure from some capitals, in particular the Czech Republic, to change to VAT rules to tackle widespread fraud causing losses for national treasuries estimated at 160 billion euros (S$240.29 billion) a year.

The EU executive's proposal would allow sales between businesses of more than 10,000 euros to be VAT-free, with only the final consumer being liable for the full VAT costs.

It is similar to a system in the United States, although that applies to sales tax.

VAT is currently charged on all business transactions in the EU until a good or service is sold to the final consumer.

The Commission said the measure would be applied only temporarily and in countries willing to do so.

"It is very important that the European Commission's desire to accommodate the Czech Republic does not result in the end of VAT within the European Union," said Chas Roy Chowdhury, head of taxation at Acca, a global accounting body.

He warned the new mechanism would decrease revenues for states because VAT would be applied only at the final sale, and not for intermediary transactions.

The move could however be targetted at reducing fraud. Nearly a third of lost revenues results from scams in sales between EU countries, known as carousel or missing trader frauds.

Companies usually pay the tax only on the added value they produce and get a reimbursement from the state for the remaining levy.

As with all EU proposals on tax issues, the backing of all 28 EU states is necessary.

The EU executive, meanwhile, wants a wider overhaul of the VAT system that would reduce fraud by collecting the tax in the country of origin of a good or service.

The proceeds would then be transferred to the state where the final sale occurs, under plans which have not been finalised yet.

REUTERS