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EU: Effects of and considerations about VAT rate reductions (COVID-19)

EU: Effects of and considerations about VAT reductions

There are countries in Europe that changed their rates of value added tax (VAT) as a response to the economic impact of the coronavirus (COVID-19) pandemic.

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For instance, changes to the VAT rates were temporarily put into place in Germany, Austria, Belgium, Cyprus, and the Czech Republic.

Some countries applying a new VAT rate as of the second quarter of 2020 have decided to end the temporary VAT regime at the end of 2020 or in the first quarter of 2021. The temporary VAT regime is a phenomenon specific of these times (meaning that all changes could be reversed after a short period). A temporary reduction in VAT rates could be relevant in combination with operational changes in supply chains, modifications of go-to-market terms, and agreeing to new vendor conditions. These aspects need to be re-considered at the end of the temporary VAT regime period.

Whether a VAT rate change was an appropriate measure is not yet clear. In any event, there are ERP (enterprise resource planning) considerations that tax functions of a business need to examine. An ERP update, however, has several steps even for a “simple” VAT rate change, and these need to be planned properly.

Read an October 2020 report prepared by the KPMG member firm in Switzerland

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