VAT was the first tax to be broadly harmonised at EU level, so back in 1970 it was logical to introduce a VAT-based EU budget own resource as a source of revenue alongside customs duties on imports and agricultural levies.
Until recently, the VAT base upon which each Member State applied the call rate to calculate its VAT-based contribution to the EU budget was harmonised. To calculate the VAT resource base for a given calendar year, a Member State had to divide the total net VAT revenue collected by that Member State during that year, by the rate at which the VAT was levied in that Member State during that same year. However, if more than one VAT rate was applied in a Member State, the harmonised VAT base was calculated by dividing the total net VAT revenue collected, by the weighted average rate of that country’s VAT. This methodology to calculate the harmonised VAT base was determined in the Council Regulation 1553/89 on the definitive uniform arrangements for the collection of own resources accruing from VAT.
The harmonisation of the VAT base required numerous corrections and compensations as well as the calculation of a weighted average rate.
The VAT-based own resource today
Under the long-term budget 2021-2027, the VAT-based own resource has been simplified to reduce the administrative burden on the side of both the EU and Member States’ administrations.
The simplification entails:
- Correcting the VAT base only for territorial scope in the few cases foreseen in the Treaty and for infringements to the VAT directive;
- Applying in each Member State the weighted average VAT rate of 2016, throughout the 2021-27 period.
The VAT bases of each country are then capped at 50% of each country’s Gross National Income (GNI) base, in order to limit the regressive aspects of the VAT-based resource. Finally, for the period 2021-2027, a uniform call rate of 0.3% is being applied on each Member State’s VAT base.
How does it work in detail?
The overall purpose of the inspection of the VAT-based own resource is to ensure that each Member State is in a position to contribute the correct amount of the VAT-based resource to the EU budget. This is done through analysis of documentation, through on-the-spot inspections in the present and future Member States, and through development of the appropriate methodology. The Commission’s Directorate-General for Budget is responsible for the inspection of Member States’ VAT base statements.