On 29 October 2014, the European Commission issued a paper outlining five options to reform the European Union's VAT regime for intra-EU trade. The current system was originally put in place in 1993, and was initially meant to be a transitional regime that would last just four years. In general, the EU VAT regime is applied consistently across EU Member States, although individual State apply varying rates of VAT and have certain specific rules. Although the current regime has been maintained for over twenty years, it is seen as cumbersome and susceptible to fraud, and in need of replacement with a definitive VAT regime.

According to the paper, the two main issues to be resolved are:

1. The definition of the place of taxation: the Member State to which the VAT on a given transaction is due, and
2. The person liable for payment of VAT to the tax authorities: the supplier or the customer

The five options covered in the paper include:

Option 1: Taxation of intra-EU supplies where the goods are delivered

Under this option, the supplier would charge and pay the VAT of the Member State to which the goods are delivered by declaring them in its own Member State. This option would require a one-stop-shop to make it easier for suppliers in their Member State of establishment to comply with their obligations in other Member States.

Option 2: Taxation of intra-EU supplies where the customer is established regardless of the place of delivery of the goods

As in option 1, the supplier would charge and pay the tax by declaring them in its own Member State, but it would be the VAT of the country in which the customer is established, regardless of the country to which the goods are delivered.

Option 3: Reverse charge where the customer is established

Under this option, the goods would be taxed in the Member State of establishment of the customer, with the customer being liable to pay the VAT. This reflects the rules already in place for B2B supplies of services.

Option 4: Reverse charge where the goods are delivered

In this case, a possible variant suggested by Member States, as in option 3 the recipient would be liable to pay the tax, but the place of taxation would be the place to which the goods are delivered, as in option 1. There is no significant difference between this system and the current treatment of cross-border supplies of goods. In both situations, the place of taxation is where the goods are delivered and it is the customer that pays the VAT.

Option 5: Status quo with some simplification of the procedures

A final option is to improve the current rules without amending them fundamentally. This solution would keep the system as it is, while addressing some of its weaknesses. Simpler procedures could be devised for consignment stocks, for chain transactions and for providing proof that the goods have moved from one Member State to another.

The Commission has already launched a study to evaluate each option and identify any potential issues. A final report should be completed in the spring of 2015.