Value added tax is common to every single member of the European Union. But the manner in which this ubiquitous tax is accounted for is subject to different national approaches.

This complicates the work of businesses which engage in cross-border trade within the EU and also makes the Union’s VAT system more vulnerable to fraud. As a major source of revenue for the national budgets of member states, having a foolproof and efficient VAT system is of critical importance. For this reason the Commission has published a Green Paper on the future of VAT, outlining its views on reforming the tax before it makes formal proposals at the end of this year.

As the rapporteur for the European Parliament on the future of VAT, I was responsible for drafting the Parliament’s position on VAT reform. The resulting report, adopted by parliament last Thursday by a strong majority, now stands as the formal position of Europe’s elected representatives on the future of VAT.

Apart from highlighting the many shortcomings of the current VAT system, the report’s central point is that the system we use is entirely unsuited to the proper functioning of the single European market. It is administratively cumbersome and vulnerable to fraud, and it has adverse effects on both public finances and businesses.

The changes we propose in the report on the future of VAT represent a confident step towards reforming the system. In general, through the proposed changes, we seek to make transactions simpler, more resilient to fraud and to make the process of accounting for VAT across the Union more uniform.

International enterprises operating in Europe have long attempted to spotlight the unacceptable reality of the current situation. In certain cases some even prefer conducting business with countries outside the EU rather than undertake intra-EU cross-border operations due to the complexity of the system for accounting for VAT currently in place in the EU. If we truly wish to create a properly functioning single market, then this would have to change.

The reduction of red tape is especially important for SMEs due to their proportionately more challenging task of dealing with the complex system that is now in place. There are a number of proposed changes that could be implemented swiftly and easily adopted without major changes to the current system. Such changes include: A reduction in the frequency of periodic VAT returns, simplified proof for periodic VAT exemptions, and increased use of e-government solutions. We have called on the Commission to propose a template for invoices that are linguistically neutral; a move that would harmonise input data and eliminate translation costs.

We can start with the low hanging fruit. But we should also aim high. One of our fundamental goals should be a shift towards the ‘destination principle’ when taxing intra-community cross-border trade. The destination principle will allow value added taxes to be retained by the country where the taxed product is being sold, rather than the country of origin of the product. The taxes will then be collected on imports and rebated on exports. This position has been supported by the majority of relevant stakeholders.

A system based on the destination principle must be accompanied by the establishment of one-stop-shops in order to be effective. A one-stop-shop approach would allow a cross-border trader to comply with only the VAT requirements of the member state in which the business is established, rather than in all the member states where business is conducted. This scheme was first introduced in 2004 and on 1 November 2008 the European Parliament approved a one-stop-shop design for VAT compliance within the EU – these one-stop-shops should be set up by 1 January 2015. I believe that this will bring significant reductions in administrative burdens and costs on businesses, as well as improve the efficiency of cross-border operations.

Another stumbling block is that the legal instruments treating VAT at the European level allow for far too much leeway in their implementation at the national level. In order for businesses to thrive, they need an atmosphere of regulatory stability and certainty. The Parliament has therefore called on the Commission to propose a regulation, rather than directive, so as to ensure the proper transposition and the uniform interpretation of VAT legislation.

We, as the European Parliament, have also declared our wish through this report to see the Commission set a maximum set of standardised VAT obligations for businesses. This will create a more harmonised system without making it necessary for those member states that already have an efficient VAT system in place to increase their VAT obligations on business.

I expect that given the European Parliament’s adoption of the Report on the Future of VAT with a strong majority and a lively debate in the presence of the responsible Commissioner, the Commission will incorporate many of these views in its proposals at the end of the year. The real winners from these changes won’t be the tax collectors – though they will certainly benefit from reduced fraud – but Europe’s business community.