So, bearing in mind that the European Commission is not going to entertain a recommendation to eliminate VAT in favor of a more progressive tax, what sort of a VAT regime do we want to recommend?

Besides, naturally, being less susceptible to carousel fraud. Which would mean levying VAT on international transactions, and also international VAT offsetting and reimbursements in some form or another?

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

This is a highly technical and specialised area and I'm not sure we're equipped to make a significant contribution. To make a meaningful contribution we need to know:

1. The various VAT rates applied to different goods and services in each member state

2. The various exemptions and offsets available in each member states - e.g. for small traders, public services, subsistence goods - e.g. fresh foods

3. The tax collection mechanisms, costs, and compliance costs in each member state - time lapses for settlement, penalties for late settlement etc.

4. The economic and opportunity costs created by trade distortions caused by variable VAT rates

I suppose our starting position should be an end goal of common rates on common goods and services, common definitions of those goods and services, common collection, compliance and enforcement mechanisms so that basically a company can operate the same VAT compliance systems regardless of where it trades within the EU.

The fraud, avoidance, administration and compliance cost reductions of a common system combined with the economic benefits could probably fund a significant overall reduction in rates or perhaps transition subsidies for those Members where greater difficulties might be experienced during the transition.

Other principles we might want to apply include:

i) Zero rates on basic subsistence foods and services, and fresh produce produced by smaller producers

ii) moderates rates - e.g. 10% on labour intensive services - hotels, restaurants, construction

iii) A higher rate on luxury, carbon energy intensive, discretionary goods and services.

Should we also set a target for the % of the total tax base which should be achieved by VAT, income taxes, capital and property taxes etc.? I.e what degree of progression should be built into the overall system? What about VAT on financial transactions - in the absence of a Tobin tax?

Index of Frank's Diaries

Junk it and go with a sales tax.

It's still regressive but at least the final consumer doesn't end-up paying for all the "Value" (sic) "Added" (ibid) along the way.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

Looking into the present situation.

Basics:
Value added tax - Wikipedia, the free encyclopedia

The European Union Value Added Tax (EU VAT) is a value added tax encompassing member states in the European Union Value Added Tax Area. Joining in this is compulsory for member states of the European Union. As a consumption tax, the EU VAT taxes the consumption of goods and services in the EU VAT area. The EU VAT's key issue asks where the supply and consumption occurs thereby determining which member state will collect the VAT and which VAT rate will be charged.

Each Member State's national VAT legislation must comply with the provisions of EU VAT law as set out in Directive 2006/112/EC. This Directive sets out the basic framework for EU VAT, but does allow Member States some degree of flexibility in implementation of VAT legislation. For example different rates of VAT are allowed in different EU member states. However Directive 2006/112 requires Member states to have a minimum standard rate of VAT of 15% and one or two reduced rates not to be below 5%. Some Member States have a 0% VAT rate on certain supplies- these Member States would have agreed this as part of their EU Accession Treaty (for example, newspapers and certain magazines in Belgium). The current maximum rate in operation in the EU is 25%, though member states are free to set higher rates.

Some rules:
European Union Value Added Tax Area - Wikipedia, the free encyclopedia

When goods or services are sold to a company across a border within the area, either the buyer pays the sales country's VAT to the seller, or it is possible to register the transaction as an inter-company sale with no VAT being collected. If VAT has been paid the buyer can include it in their VAT accounts just like VAT paid locally.

When goods or services are sold to a private person across a border within the area, the buyer usually pays the sales country's VAT to the seller, and does not pay any local VAT. But if the seller's annual sales of goods to the buyer's country exceed a threshold (which varies by country), the seller must instead charge VAT in the buyer's country. These are known as the distance selling rules.^[1]

EU sellers may validate the VAT number of a buyer residing within the EU Value Added Tax Area using VIES.

So far it looks fairly well thought out considering there is a mix of national systems with a federal patching.

I also note:

European Union Value Added Tax Area - Wikipedia, the free encyclopedia

Areas with special rules

• Sweden does not want to accept the VAT union regarding alcohol (see Systembolaget) and tobacco shipped to private persons.

There might be other things we would like see taxed for social or environmental reasons. Maybe something about countries having that possibility should be included.

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