Dutch government raises concerns about the definitive VAT system proposed

Recently, the Dutch Minister of Foreign Affairs, Halbe Zijlstra, sent a leaflet about the proposals to the Parliament, describing the Dutch position on the European Commission’s proposals on the definitive VAT regime.

21 November 2017

In our Indirect Tax Alert of 5 October 2017 we gave an outline of these proposals. The content of the leaflet shows that the Netherlands endorse the objectives of simplification and the fight against fraud in the VAT area. However, it has doubts whether the proposals for the definitive VAT regime will achieve these objectives. The fundamental principles or cornerstones for the future construction of the definitive VAT regime in particular are a cause of concern for the Netherlands. The substantial change that is necessary for the realisation of the proposals is hereby considered.

Fraud robust system?

The Netherlands has doubts about whether or not the new system is robust against fraud. It points to the rapid adaptability of fraudsters. Moreover, fraud may still occur under the envisaged regime due to the differences in tariffs between Member States. The Netherlands also states that under the proposed destination based-regime the goods that leave a Member State will still have to be monitored, so that reporting and evidence obligations will not be redundant. Furthermore, the degree of reliability of the CTP, who is allowed to apply the reverse charge mechanism, depends on the degree of research before assigning the status and on the continuous monitoring. All in all, the Netherlands wonders whether certification in this respect is desirable.

Financial risks
Another concern, according to the Netherlands, are the large flows of money that will arise between both businesses and governments. Whether these amounts will be received by all entrepreneurs and governments depends on the financial solvency of the suppliers and customers and the supervision regarding the correct and complete payment of these amounts by the tax authorities of the various Member States.

Two different VAT regimes
In the new proposals the principle of taxation in the country of destination is applicable to the intra-EU cross-border supplies of goods. However, when the customer is a CTP, the reverse charge mechanism can be applied. The Netherlands does not consider the coexistence of two different VAT regimes as a simplification. It is also uncertain what the consequences are of the proposals for the Dutch Tax Authorities’ practice.

The Government’s assessment of the proportionality of the proposals is partly positive. However, in view of the abovementioned points of concern, the Netherlands is of the opinion that the proposals are not in proportion to the intended objectives and are also not considered suitable for achieving these objectives. Furthermore, the Netherlands considers the proposed implementation period as very tight. This mainly concerns the connection with the arrangements for CTPs.

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