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The foundations of the tax world are beginning to shake, with seismic changes ahead in 2018 |
These extreme phenomena could range from emergency relief for UK importers/exporters from potential VAT liabilities due to Brexit, through to the European Commission deciding to up-end the entire EU VAT system in a bid to combat the €50 billion ($59 billion) VAT fraud problem.
Brexit – the VAT uncertainty to lift?
Meanwhile, businesses in the UK are crying out for some clarity on the type of trading model and VAT regime that might be in place post-Brexit. This won't begin to become clear until the second half of the year when the Free Trade Agreement is in motion. A two-year transition agreement, or a temporary revocation of the Article 50 exit is likely, which would keep the UK within the EU VAT Directive and the Court of Justice of the European Union's reach.
Death of austerity
Having exhausted the potential to raise headline VAT rates in the face of continuing austerity, European governments will look at more reduced VAT rate rises. Romania, the Netherlands and Norway have already announced such rises for next year.
Gulf VAT limps out of starting blocks
The excitement around the six Gulf states' 2018 VAT launch has been tempered as four of the countries look likely to delay their roll outs until 2019. In Saudi Arabia and UAE, it is 'panic stations' for many companies as they realise they are ill-prepared for even basic requirements, such as completing a compliant VAT invoice.
Live transactions reporting stumbles
The drift towards live transaction reporting to the tax authorities will continue but may be made more difficult by some overly ambitious launch dates. Norway and Hungary look likely to delay their respective 2018 SAF-T and live invoice reporting proposals.
The major debate for 2018 will be the taxing of digital services for consumers. The OECD and EU are under pressure to accelerate their own proposals on taxing electronic services provided by large marketplace firms. There may well be a conflict between the two, which may force the EU to back down under US protection of its internet giants.
EU VAT reforms face make-or-break year
Regardless, 2018 will be a major test for the European Commission's radical plans to create a single VAT area for business-to-business transactions. There will be a lot of political pressure from member states to water down some of the EC reforms – especially from Germany. As a result of this aggressive timetable, the target 2022 implementation of a destination-based VAT system will almost inevitably slip. But progress towards a one-stop-shop on EU business-to-consumer e-commerce should see better fortunes.
