On 13 July 2015, the European Commission released a study conducted on the implementation of the destination principle to intra-EU B2B supplies of goods for value added tax (VAT) purposes, including five policy options to resolve issues in the current VAT system. The two main issues include:

• The additional obligations and costs associated with VAT compliance for businesses engaging in cross-border trade; and
• The existing levels of VAT fraud within the EU through fraudulent transactions such as MTIC (‘Missing Trader Intra-Community’) fraud (also known as carousel fraud).

The five policy options are designed to enable the implementation of a destination based VAT system across the EU, and include:

1. Limited improvement of current rules - making improvements in the current rules without modifying them fundamentally;
2. Taxation following the flow of the goods - adapting current rules while still following the flow of the goods with the supplier charging the VAT of the Member State of destination;
3. Reverse charge following the flow of goods - adapting current rules while still following the flow of goods with the customer applying the reverse charge mechanism in the Member State of destination;
4. Alignment with the place of supply of services - reducing compliance obligations and costs for businesses engaged in cross-border trade by harmonizing the place of supply for services and goods, with the customer applying the reverse charge in its Member State of establishment; and
5. Taxation following the contractual flow - aligning with the contractual flow, with the supplier charging VAT of the Member State where the customer is established

According to the report, options 2 and 5 would have the biggest impact for reducing both costs and fraud.

Click the following link for the full VAT Destination Principle Study.