VAT Changes Coming in 2010: Are You Ready?

  • by Kees van Westerop, Senior SAP Consultant, Kwest Consulting
  • April 16, 2009
Because of the continuous extension of the European Union (EU) and the lack of alignment of local Value Added Tax (VAT) rules, VAT-related fraud is increasing and has resulted in unequal competition among suppliers in different countries. To reduce fraud and give suppliers equal treatment regardless of their country, VAT rules for services between EU countries will change starting in 2010. Learn about the consequences for your SAP system.
Key Concept

Value Added Tax (VAT) is a common tax system in the European Union (EU). VAT is applicable for almost all sales and purchase transactions in the EU. It has been in use for more than 40 years. Each time a country joined the EU, it had to adjust its tax system to the basic rules of the VAT used within the EU. This led to a tax system with much localization and many inconsistencies. To develop more standardized and harmonized VAT regulations, the EU Council of Ministers approved a number of measures that become applicable from 2010 onward.

The Value Added Tax (VAT) is an indirect tax used within all European Union (EU) countries. Although the basic principles are the same within all EU countries, every individual country has its own rules, legislation, and rates. The European Commission has issued two directives to harmonize those rules to minimize the administrative burden for companies engaged in cross-border operations. It also wants to prevent distortions of competition between member states operating with different VAT rates and to diminish fraud.

At the Economic and Financial Affairs Council (ECOFIN) in 2007, a measure called the VAT package was approved. The package has two directives on VAT: one concerns the place of supply of services and one concerns VAT refunds. In February 2008, the directives were accepted by the EU Council of Ministers. They will become effective on January 1, 2010.

I’ll describe the new rules on a high level and show the consequences of the new rules for your SAP system. My intention is not to explain the new rules in all their detail because many local exceptions may remain. I also do not cover changes for specific services that become effective on January 1, 2011; January 1, 2013; and January 1, 2015. They apply mainly to large sports and cultural events, service for these events, rental of transportation, telecommunication services, and radio and television stations.

Kees van Westerop

Kees van Westerop has been working as an SAP consultant for more than 25 years. He has an MBA degree in mathematics and a degree in finance. Kees has been concentrating on the financial modules, especially in general ledger accounting, cost center accounting, and consolidation. He also has a great deal of experience with rollouts of kernel systems and integrating finance and logistics.

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