COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT Accompanying the documents Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC as regards VAT rules for the digital age Proposal for a COUNCIL REGULATION amending Regulation (EU) No 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital age Proposal for a COUNCIL IMPLEMENTING REGULATION amending Implementing Regulation (EU) No 282/2011 as regards information requirements for certain VAT schemes

EN EN
EUROPEAN
COMMISSION
Brussels, 8.12.2022
SWD(2022) 393 final
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT REPORT
Accompanying the documents
Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC as regards
VAT rules for the digital age
Proposal for a COUNCIL REGULATION amending Regulation (EU) No 904/2010 as
regards the VAT administrative cooperation arrangements needed for the digital age
Proposal for a COUNCIL IMPLEMENTING REGULATION amending Implementing
Regulation (EU) No 282/2011 as regards information requirements for certain VAT
schemes
{COM(2022) 701 final} - {COM(2022) 703 final} - {COM(2022) 704 final} -
{SEC(2022) 433 final} - {SWD(2022) 394 final}
Offentligt
KOM (2022) 0701 - SWD-dokument
Europaudvalget 2022
1
Table of contents
1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT .............................................................................................9
2. PROBLEM DEFINITION......................................................................................................................................13
2.1. WHAT ARE THE PROBLEMS?..................................................................................................................................14
2.2. WHAT ARE THE PROBLEM DRIVERS? .......................................................................................................................25
2.3. HOW LIKELY IS THE PROBLEM TO PERSIST? ...............................................................................................................31
3. WHY SHOULD THE EU ACT?..............................................................................................................................32
3.1. LEGAL BASIS.......................................................................................................................................................32
3.2. SUBSIDIARITY: NECESSITY OF EU ACTION.................................................................................................................32
3.3. SUBSIDIARITY: ADDED VALUE OF EU ACTION............................................................................................................32
4. OBJECTIVES: WHAT IS TO BE ACHIEVED?..........................................................................................................34
4.1. GENERAL OBJECTIVES ..........................................................................................................................................34
4.2. SPECIFIC OBJECTIVES............................................................................................................................................34
5. WHAT ARE THE AVAILABLE POLICY OPTIONS? .................................................................................................36
5.1. WHAT IS THE BASELINE FROM WHICH OPTIONS ARE ASSESSED?....................................................................................36
5.2. DESCRIPTION OF THE POLICY OPTIONS.....................................................................................................................42
5.3. OPTIONS DISCARDED AT AN EARLY STAGE.................................................................................................................48
6. WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ........................................................................................52
6.1. DESCRIPTION OF IMPACTS.....................................................................................................................................52
6.2. IMPACTS BY VAT AREA ........................................................................................................................................54
6.2.1. Impacts on SMEs of the digital reporting (SME test) ................................................................................60
6.2.2. Impacts on SMEs of the platform economy ..............................................................................................64
6.2.3. Impacts on SMEs of the VAT registration..................................................................................................67
6.3. STAKEHOLDERS’ VIEWS ON THE OPTIONS .................................................................................................................67
6.4. POLICY INTERVENTION – GRADUAL APPROACH..........................................................................................................71
7. HOW DO THE OPTIONS COMPARE? .................................................................................................................75
7.1. EVALUATION CRITERIA AND THE GRADUAL APPROACH ................................................................................................75
7.2. POLICY COMPARISON...........................................................................................................................................76
8. PREFERRED OPTION(S).....................................................................................................................................81
8.1. REFIT (SIMPLIFICATION AND IMPROVED EFFICIENCY).................................................................................................83
9. HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?....................................................................85
9.1. MONITORING STRUCTURES...................................................................................................................................86
9.2. EVALUATION......................................................................................................................................................86
10. FIGURES AND TABLES OVERVIEW ....................................................................................................................88
11. ANNEX 1: PROCEDURAL INFORMATION...........................................................................................................90
11.1. LEAD DG, DECIDE PLANNING/CWP REFERENCES .....................................................................................................90
11.1.1. Organisation and timing ......................................................................................................................90
11.1.2. Consultation of the RSB........................................................................................................................90
11.1.3. Evidence, sources and quality ..............................................................................................................93
12. ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT)........................................................................94
12.1. TARGETED CONSULTATION....................................................................................................................................94
12.2. CALL FOR EVIDENCE ............................................................................................................................................96
2
12.3. PUBLIC CONSULTATION ........................................................................................................................................97
12.3.1. Overview ..............................................................................................................................................97
12.3.2. About the respondents.........................................................................................................................98
12.3.3. VAT reporting (Digital Reporting Requirements) .................................................................................99
12.3.4. VAT treatment of the Platform economy.......................................................................................... 102
12.3.5. VAT registration ................................................................................................................................ 106
13. ANNEX 3: WHO IS AFFECTED AND HOW?.......................................................................................................111
13.1. PRACTICAL IMPLICATIONS OF THE INITIATIVE.......................................................................................................... 111
13.1.1. Businesses (taxpayers) ...................................................................................................................... 111
13.1.2. Member States.................................................................................................................................. 111
13.1.3. Citizens .............................................................................................................................................. 111
13.2. SUMMARY OF COSTS AND BENEFITS..................................................................................................................... 111
13.3. RELEVANT SUSTAINABLE DEVELOPMENT GOALS...................................................................................................... 118
14. ANNEX 4: ANALYTICAL METHODS..................................................................................................................119
14.1. ECONOMETRIC MODEL (ESTIMATE THE DRR IMPACT ON VAT COMPLIANCE)............................................................... 119
14.2. NET IMPACTS ON BUSINESSES’ ADMINISTRATIVE BURDENS BY CATEGORY AND TYPE OF FIRM (TABLE 12) ........................... 129
14.3. VAT LIABILITY SIMULATION MODEL ..................................................................................................................... 130
14.4. STANDARD COST MODEL (SCM)........................................................................................................................ 131
14.5. COMPARATIVE ANALYSIS ................................................................................................................................... 131
14.6. QUALITATIVE ASSESSMENT OF LEGAL CERTAINTY AND OTHER REGULATORY COSTS ......................................................... 131
14.7. METHODOLOGY TO ASSESS THE REVENUE SHIFT IN PLATFORM ECONOMY .................................................................... 131
14.8. PARAMETERS, ASSUMPTIONS AND CALCULATIONS .................................................................................................. 132
15. ANNEX 5: OTHER INITIATIVES ........................................................................................................................142
16. ANNEX 6: E-COMMERCE EVALUATION...........................................................................................................147
16.1. INTRODUCTION ............................................................................................................................................... 147
16.2. WHAT WAS THE EXPECTED OUTCOME OF THE INTERVENTION?.................................................................................. 148
16.2.1. Description of the intervention and its objectives............................................................................. 148
16.2.2. Point(s) of comparison ...................................................................................................................... 150
16.3. HOW HAS THE SITUATION EVOLVED OVER THE EVALUATION PERIOD? ......................................................................... 153
16.3.1. Implementation................................................................................................................................. 153
16.3.2. Growth and evolution of e-commerce............................................................................................... 155
16.3.3. Actions taken..................................................................................................................................... 158
16.3.4. Identified issues................................................................................................................................. 160
16.4. EVALUATION FINDINGS (ANALYTICAL PART)........................................................................................................... 162
16.4.1. To what extent was the intervention successful and why?............................................................... 162
16.4.2. How did the EU intervention make a difference?.............................................................................. 172
16.4.3. Is the intervention still relevant?....................................................................................................... 173
16.5. WHAT ARE THE CONCLUSIONS? .......................................................................................................................... 175
3
Glossary of acronyms
Term or acronym Meaning or definition
B2B Business-to-Business
B2C Business-to-Consumer
B2G Business-to-Government
B&B Bed and Breakfast
CBA Cost-benefit analysis
CTC Continuous Transaction Control
DAC7 Council Directive 2011/16/EU
DRR Digital Reporting Requirement
EU European Union
EU27 European Union without the United Kingdom
ESS Electronically Supplied Service
GDP Gross domestic product
IOSS Import-One-Stop Shop
IT Information technology
MNCs Multinational Companies
MS Member States
MTIC fraud Missing Trader Intra-Community fraud
OSS One Stop Shop
PTC Periodic Transaction Control
SAF-T Standard Audit File for Tax
SME Small and Medium-sized Enterprise(s)
STR Short-term accommodation rental services
TA Tax Authorities
TBE Telecommunications, Broadcasting and Electronic
VAT Value-Added Tax
VIES VAT Information Exchange System
4
5
Glossary of Terms
Chain transactions
This is the situation in which successive supplies of the same goods are made between different
businesses, with the goods being transported from the first supplier to the final customer.
Deemed supplier
Whereas in most transactions it is the supplier of the goods or services who accounts for the VAT
due on the transaction, in certain cases another person can be deemed to have received and supplied
those goods or services themselves, and they would therefore be liable to account for the VAT on
the sales. Under the deemed supplier regime option proposed in the ‘VAT Treatment of the
Platform Economy’ element of the initiative, where the underlying supplier using a platform does
not charge VAT (because they are a natural person, for example, or a taxable person using the SME
scheme) the platform would account for the VAT in their place. This means that the underlying
supplier would not be required to register and account for the VAT themselves.
Digital platform
For the purposes of this exercise, the definition of a digital platform is taken from the ‘VAT in the
Digital Age’ supporting study1
and is as follows:
‘Platform economy’ is the term used to describe a multi-sided model of transactions, where there
are three or more parties involved. In these transactions, the role of the ‘online/digital platform’ is
to facilitate the connection between two or more distinct but interdependent sets of users (whether
firms or individuals, whether carrying out an economic activity or not) who interact via electronic
means. In these interactions, one of the parties to the platform offers access to or transfers assets,
resources, time and/or skills, goods and/or services to the other party, in return for monetary
consideration or, in certain cases, by barter/non-monetary exchanges. In most of these cases, these
users could be named as ‘providers’ and ‘consumers’, respectively. A platform usually charges a
fee for the facilitation of the transaction.’2
It should be noted that the ‘VAT treatment of the platform economy’ element of this package only
relates to the supply of services via a platform. Supplies of goods via platforms have their own set
of e-commerce rules.
E-invoicing
‘Electronic invoice’ means an invoice that has been issued, transmitted and received in a
structured electronic format which allows for its automatic and electronic processing.
1
VAT in the Digital Age. Final Report (vol. I – IV). Specific Contract No 07 implementing Framework Contract No
TAXUD/2019/CC/150 (hereafter ‘supporting study’).
2
Supporting study, vol. II, Box 1, p. 21.
6
Union One-Stop-Shop (Union OSS) and Import-One-Stop-Shop (IOSS)
The Union One Stop-Shop (OSS) is an optional simplification measure that traders established in
the EU can use to declare and pay the VAT due on all their cross-border supplies of services to
non-taxable persons taking place in the EU, as well as all their intra-Community distance sales of
goods3
. Exceptionally, Electronic Interfaces (EIs) who become the ‘deemed’ supplier for certain
supplies of goods within the EU can also declare certain domestic supplies of goods in the Union
OSS. Traders that opt to use this simplification do not need to register for VAT in each Member
State in which their eligible supplies of goods and services to consumers take place. Instead, the
VAT due on those supplies is declared via a single quarterly electronic VAT OSS return, followed
by a single quarterly payment, which are submitted to their Member State of identification.
The Import One Stop-Shop (IOSS) is an optional simplification used for the declaration and
payment of VAT due on distance sales of low value goods imported into the EU with an intrinsic
value not exceeding EUR 150, excluding excisable goods. Where a trader registers to use IOSS,
their supplies of eligible goods are effectively taxed at the time of purchase. Consequently, these
low value goods are exempt from import VAT upon importation into the EU. The VAT due on
eligible supplies of low value imported goods can be declared via a single monthly electronic IOSS
VAT return, accompanied by a single payment to the Member State of identification. Suppliers and
electronic interfaces who are not established in the EU need to appoint an intermediary to be able to
use the import scheme, unless they are established in a third country with which the EU has
concluded a VAT mutual assistance agreement which is similar in scope to EU legal acts in that
area.
Place of supply
The place of supply is the Member State in which the VAT is due. Under that general rules, the
place of supply of goods is where those goods are located at the time of the supply, or if they are
transported, where the goods are located when the transport begins. For services, the place of
supply is the Member State of the customer for B2B supplies, and the supplier for B2C supplies.
However, there are a number of exceptions to these rules, for example relating to services
connected to immoveable property (where the place of supply is where the property is located), and
electronically supplied services (where the recipient is established in both B2B and B2C cases).
Recapitulative statement
When a business sells goods or services to a business in another Member State, it is obliged to
submit a recapitulative statement to its Member State detailing the business to whom it has made
the supply, and the total amount of supplies to that business. This information is submitted
monthly, although Member States may allow for quarterly submission where the value of supplies
does not exceed EUR 50,000 per quarter. The information is shared between Member States, and is
3
An intra-Community distance sale of goods occurs when goods are dispatched or transported by or on behalf of a
supplier in one Member State to certain customers in another Member State.
7
used to help ensure compliance (for example, Member States can check whether the business
acquiring the goods or services has made a domestic supply in their own Member State).
Reverse charge
When a business makes certain supplies of services or goods to a business in another Member State
and the place of supply is the Member State of the customer, that business would be required to
register in the Member State of the customer in order the account for the VAT. In order to avoid
this, the business can use the reverse charge. This is a system by which the supplier does not
account for the VAT on its invoice, and instead the customer accounts for the VAT in its VAT
return. The supplier should clearly indicate on its invoice that the reverse charge applies.
SAF-T
A SAF-T is a file containing reliable accounting data exportable from an original accounting
system, for a specific time period and easily readable by virtue of its standardisation of layout and
format that can be used by revenue authority staff for compliance checking purposes. One of its
possible uses is the reporting of transaction data.
SME scheme
VAT is, in essence, applied to every taxable transaction by a taxable person. This means that small
and micro enterprises should account for VAT on every transaction. However, due to the historical
difficulties of a) ensuring compliance on these small businesses, and b) the relatively high
administrative burdens VAT registration would impose on these businesses, the VAT Directive4
contains an optional SME scheme, where Member States allow for small businesses to eschew
some or all of the burdens imposed on a business. In practice, this means that, where the SME
scheme applies, businesses are not required to account for VAT on their sales, but neither can they
deduct VAT on their purchases. The eligibility of a business to use a SME scheme is based on their
annual turnover, with thresholds differing across Member States, ranging from EUR 5,000 to
EUR 88,5005
.
Value Added Tax (VAT) and VAT system
The Value Added Tax (VAT) is a general tax on consumption. The term ‘general’ refers to the
fact that the tax is paid on most goods and services, with relatively few exceptions (e.g. medical
treatment, teaching). Purchasers pay a percentage-based tax on what they buy, based on the value
and the nature of the product. VAT is collected fractionally by businesses who pay it on to the
government. The term ‘fractional’ refers to the fact that each business only pays for the added value
on its turnover, i.e. the difference between its sales (output) and purchases (inputs). In practice this
is done by charging VAT fully on each sale but granting businesses the right to recover (deduct) the
VAT they themselves paid on their purchases. An exception to that rule is that businesses whose
4
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 347,
11.12.2006, p. 1), as amended.
5
Currently the average SME exemption threshold is approximately EUR 35.000. The levels of thresholds vary across
Member States from EUR 0 (i.e. no exemption scheme currently available) in Spain, to EUR 88.500 in Romania.
8
sales are lower than a certain threshold are allowed to stay out the system and not pay VAT;
however, if they do so they are not entitled to any reimbursement of the VAT (SME scheme). This
exemption system has the advantage of sparing micro-enterprises from red tape but can create some
distortions.
The VAT Directive is the main piece of EU VAT legislation. Recitals 4 and 5 of this Directive
provide:
“A VAT system achieves the highest degree of simplicity and of neutrality when the tax is levied in
as general a manner as possible and when its scope covers all stages of production and
distribution, as well as the supply of services. (…) It is therefore necessary to achieve such
harmonisation of legislation on turnover taxes by means of a system of value added tax (VAT), such
as will eliminate, as far as possible, factors which may distort conditions of competition, whether at
national or Community level”.
In brief: in order to work as intended, the VAT rules need to be harmonised and applied
uniformly by the Member States.
9
1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT
VAT is a major source of revenue6
for Member States’ budgets, representing approximately 7% of
gross domestic product (GDP). In 2019, the VAT revenue for the 27 Member States (EU-27)
amounted to over one trillion euro. Moreover, VAT revenues contribute to the EU budget, since
0.3 percent of VAT collected at domestic level is transferred to the EU as own resources,
representing 12% of the total EU budget.
However, the VAT system has not kept pace with the digitalisation of the economy, which poses
new challenges to tax authorities and the VAT system due to, for example, the emergence of new
business models and the increasing amount of data with which tax authorities need to deal.
Nevertheless, digitalisation also creates opportunities, providing new digital tools and solutions to
help tax authorities cope with their tasks while allowing for the simplification of tax compliance
and reducing its costs. This initiative thus seeks to adapt the EU VAT framework to the digital era,
in line with one of the six top priorities of the Commission7
, “A Europe fit for the digital age”.
The Commission announced this initiative as part of its Action Plan for fair and simple taxation
supporting the recovery (hereafter “Tax Action Plan”)8
and is included in the 2022 Commission
work programme9
. The objectives of this initiative, as indicated in several actions of the Tax Action
Plan, are as follows:
- Modernising VAT reporting obligations10
(Action A4),
- Addressing the challenges of the platform economy11
(Action A23), and
- Avoiding the need for multiple VAT registrations in the EU and improving the functioning
of the tool implemented to declare and pay the VAT due for distance sales of goods
imported from outside the EU12
(Actions A1 and A5).
Following the announcement of the Commission’s Tax Action Plan, the Council stated that it
“supports the Commission’s suggestion to clarify, simplify and modernise the EU VAT rules”,
“welcomes the initiative announced by the Commission to modernise reporting obligations for
cross-border transactions (…) and the Commission’s intention to examine the need to adapt the
VAT framework to the platform economy”13
. The European Parliament resolutions generally support
initiatives to fight VAT fraud14
. Further, the Parliament mentioned its explicit support for the
6
Eurostat: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Tax_revenue_statistics
7
https://european-union.europa.eu/priorities-and-actions/eu-priorities_en
8
https://ec.europa.eu/taxation_customs/package-fair-and-simple-taxation_en
9
COM(2021) 645 final (Annex II, Point 20).
10
VAT reporting obligations refer to the obligation of VAT-registered businesses to make periodic declarations of
their transactions to the tax authority to allow monitoring the collection of VAT.
11
In this respect, the term ‘platform economy’ relates to supplies of services made via a platform, i.e. Airbnb,
Uber etc.
12
https://ec.europa.eu/taxation_customs/business/vat/vat-e-commerce_en
13
Council conclusions on fair and effective taxation in times of recovery, on tax challenges linked to digitalisation
and on tax good governance in the EU and beyond (FISC 226 ECOFIN 1097, doc. 13350/20).
14
European Parliament resolution of 24 November 2016 on towards a definitive VAT system and fighting VAT
fraud (2016/2033(INI)); European Parliament resolution of 4 October 2018 on fighting customs fraud and
protecting EU own resources (2018/2747(RSP)).
10
initiative in that it “looks forward to the legislative proposal for modernising VAT reporting
obligations”15
. More recently, the European Parliament adopted a resolution16
noting the potential
of data and digital tools to reduce red tape and simplify various taxpayer obligations, in particular
in the area of VAT returns and recapitulative statements, (…) and welcoming the Commission's
proposal to modernise, simplify and harmonise VAT requirements, using transaction-based real-
time reporting and e-invoicing. Moreover, the resolution underlines that the diversity of the
Member States’ tax regulations constitutes a cumbersome challenge and, while endorsing the Union
One Stop Shop (OSS), asks to broaden its scope to encompass a wider range of services.
By exploiting digital technologies, the current initiative offers a huge potential in the fight against
VAT fraud, in particular missing trader intra-Community (MTIC) fraud17
, estimated in the range of
EUR 40-60 billion18
, which is a significant part of the ‘VAT Gap’, which itself was recently
estimated at EUR 134 billion in the VAT Gap Study.19
In the same study, the underlying reasons
for the VAT Gap were grouped into four broad categories that include (i) VAT fraud and VAT
evasion, (ii) VAT avoidance practices and optimisation, (iii) bankruptcies and financial
insolvencies and (iv) administrative errors. Since VAT fraud is part of the VAT gap, even if the
exact size of the VAT fraud is difficult to measure, the VAT gap still offers a useful and unique EU-
wide indicator of the fraud. MTIC fraud is linked to the way cross-border EU transactions are taxed
under the current VAT regime20
, which dates from 1993 and was intended to be a transitional
system. While several Member States have made significant technological investments to improve
risk assessment and tax control processes, the possibilities offered by new technologies have not yet
been reflected in the VAT Directive, whose mechanism to report intra-Community transactions, the
recapitulative statements21
, is outdated compared to the digital reporting systems implemented by
Member States.
The Commission tabled in 2018 a proposal22
for a definitive VAT system for the taxation of trade
between Member States, which is still under discussion in Council. This proposal aimed to replace
the transitional system referred above by treating intra-Community transactions in the same way as
domestic ones. VAT would be due in the Member State of destination of the goods23
at the rate of
15
European Parliament resolution of 16 February 2022 on the implementation of the Sixth VAT Directive: what is the
missing part to reduce the EU VAT gap? (2020/2263(INI)).
16
European Parliament resolution of 10 March 2022 with recommendations to the Commission on fair and simple
taxation supporting the recovery strategy (P9_TA(2022)0082).
17
Europol: https://www.europol.europa.eu/crime-areas-and-statistics/crime-areas/economic-crime/mtic-missing-trader-
intra-community-fraud
18
European Court of Auditors:
https://www.eca.europa.eu/Lists/ECADocuments/SR15_24/SR_VAT_FRAUD_EN.pdf
19
The VAT Gap is the overall difference between the expected VAT revenue based on VAT legislation and ancillary
regulations and the amount actually collected: https://ec.europa.eu/taxation_customs/business/vat/vat-gap_en
20
VAT is not charged on cross-border transactions, contrary to domestic ones, allowing taxable persons to buy goods
free of VAT within the Single Market, breaking the chain of fractioned payment and creating an incentive for fraud.
21
See Glossary of Terms.
22
COM(2018) 329 final.
23
This system would be extended to services at a later stage.
11
that Member State but would be charged and collected by the supplier in its own Member State24
.
The VAT in the Digital Age initiative has the potential to strengthen both the current and the
definitive VAT system.
In addition, over recent years, issues relating to the taxation of the digital economy have become
the subject of discussions regarding possible changes to fiscal policies25
. The growing importance
of the platform economy in the collection of VAT was recognised, notably the potential for digital
platforms to significantly enhance the effectiveness of VAT collection given their role in generating
or facilitating online sales26
. This is particularly relevant considering the large number of natural
persons and small businesses who operate on these platforms, many of whom are unaware of their
potential VAT obligations.
The VAT in the Digital Age initiative runs alongside further Commission initiatives relating to the
Digital Economy27
, such as the recently adopted Digital Services Act28
, the recent proposal for a
Directive to improve working conditions in platform work29
, or the ongoing work relating to Short
Term Rental30
. Under these initiatives the general direction of travel is to make platforms more
responsible and play a greater role in the regulatory framework.
Furthermore, from 1 July 2021, the VAT rules on cross-border business-to-consumer (B2C) e-
commerce activities changed to address challenges arising from the VAT regimes for distance sales
of goods and for the importation of low value consignments. Online sellers, including online
marketplaces/platforms can register in a single Member State using the One Stop Shop (OSS) for
the declaration and payment of VAT on their distance sales of goods and cross-border supplies of
services to customers within the EU and the Import One Stop Shop (IOSS) for goods coming from
outside of EU31
. An evaluation of the first six months since the entry into application of these new
rules can be found in Annex 6. Improvements to the current schemes will be considered in this
initiative. Moreover, an e-commerce study32
focussing on the import process as well as an
24
Whereas the current VAT system divides each EU Business-to-Business cross border supply of goods in an exempt
intra-Community supply in the Member State of departure and a taxable intra-Community acquisition in the Member
State of arrival of the goods, the definitive regime foresees the introduction of a single taxable supply in the Member
State of destination of the goods, called intra-Union supply.
25
European Parliament (2016), “Tax challenges in the Digital Economy”, Study for TAXE 2 Committee,
IP/A/TAXE2/2016-04; Report of the Commission Expert Group on Taxation of the Digital Economy.,
https://ec.europa.eu/taxation_customs/system/files/2016-09/report_digital_economy.pdf
26
OECD (2019), “The Role of Digital Platforms in the Collection of VAT/GST on Online Sales”, OECD, Paris.
www.oecd.org/tax/consumption/the-role-of-digital-platforms-in-the-collection-of-vat-gst-on-online-sales.pdf
27
A detailed list of these initiatives is presented in Annex 5
28
Regulation (EU) … /… of the European Parliament and of the Council on a Single Market For Digital Services
(Digital Services Act) and amending Directive 2000/31/EC
29
The proposed Directive is expected to bring legal certainty on the employment status of people working through
digital labour platforms, increase transparency in the use of algorithms by digital labour platforms (for workers and
genuine self-employed), and enhance transparency and traceability in platform work, including in cross-border
situations (https://ec.europa.eu/commission/presscorner/detail/en/ip_21_6605).
30
See Annex for descriptions of relevant current and ongoing initiatives.
31
https://ec.europa.eu/taxation_customs/business/vat/vat-e-commerce_en
32
Study on an integrated and innovative overhaul of EU rules governing e-commerce transactions from third countries
from a customs and taxation perspective, TAXUD/2017/CC/141
12
evaluation of the Union Customs Code is currently being carried out and could impact on the IOSS
extension.
The initiative supports the EU’s sustainable growth strategy33
that refers to better tax collection, the
reduction of tax fraud, avoidance and evasion and the reduction of administrative burdens and
compliance costs for business, individuals, and tax administrations. Improvement of the taxation
systems to favour more sustainable and fairer economic activity is also included in the EU’s
competitive sustainability’s agenda.
33
Member States’ recovery and resilience plans envisage a wide set of reforms aimed at improving the business
environment and favouring adoption of digital and green technologies. These reforms are complemented by important
efforts to digitalise tax administrations as a strategic sector of the public administration (COM(2021) 740 final: Annual
Sustainable Growth Survey 2022).
13
2. PROBLEM DEFINITION
The causes and consequences of the problems to be tackled by the Commission initiative are
summarised in the Problem Tree.
Figure 1 – Problem tree
________________
* i) Some transactions are not covered by the OSS and IOSS schemes and ii) the SME simplification scheme
reduces VAT equality and neutrality in the platform economy
Drivers
Problems
Effects
Increasing scale of
the platform
economy and
e-commerce
Reduced VAT
revenue and
high VAT gaps
indicating fraud
Market
fragmentation
and associated
costs
Outdated reporting
mechanism for
intracommunity
transactions
Fragmented
regulatory
framework
(divergent
requirements)
Multiplicity and
complexity of the
new business
models driven by
technological
changes
Missed
opportunities
linked with the
IT systems,
business
automation
and
digitalisation
of VAT
Multiple
registration
costs for some
types of
businesses
operating
cross-border
Excessive burdens and
compliance costs
Sub-optimal VAT
collection and control
Un-level
playing field:
some business
models are
advantaged by
the VAT rules
Scope of application
of the simplification
schemes*
14
2.1.What are the problems?
Two main problems were identified in the supporting study34
:
1. Sub-optimal VAT collection and control – the EU VAT legislative framework is not fully
adapted to deal with the new digital reality and is prone to fraud.
2. Excessive burdens and compliance costs – the digital economy and the development of
new business models create new challenges and costs for tax administrations and
businesses.
The challenges and potential benefits of digitalisation in terms of control/fight against fraud (related
to problem 1) and burden reduction (related to problem 2) are not fully seized. The problems are
especially visible in three areas:
 VAT reporting (including digital reporting),
 VAT administration (treatment) of the platform economy, and
 VAT registration.
VAT reporting and digital reporting requirements (DRR)
The VAT Directive (Directive 2006/112/EC)35
, which is the main piece of EU legislation in the
field of VAT, dates from the 1970s and, as such, the default reporting requirements are not digital.
However, the Directive grants Member States a wide discretion to introduce the obligations they
deem necessary to ensure the correct collection of the tax and to prevent evasion.
Taking advantage of this possibility, several Member States have introduced various types of digital
reporting requirements (DRR)36
which have proven successful in increasing tax collection, thanks
to both the improvements to tax control and the deterrent effect on non-compliance37
. Different
types of DRRs are currently in place in several Member States: clearance e-invoicing (Italy), real-
time reporting (Hungary, Spain), SAF-T reporting (Lithuania, Poland, Portugal), VAT listing
(Bulgaria, Croatia, Czechia, Estonia, Latvia, Slovak Republic) – see Box 1 and Annex 4: Analytical
methods. In addition, some Member States have requested a derogation to introduce obligatory e-
invoicing (France, Romania, Poland) or announced upcoming reporting requirements (Greece),
while mentioning in the targeted consultation that they prefer to wait for an EU solution before
introducing a unilateral solution. Other Member States (Belgium and Denmark) have announced
their intention to apply mandatory e-invoicing, even though they are not linked to a reporting
obligation yet. Germany has also confirmed its intention to implement mandatory e-invoicing for
B2B transactions. This shows the high degree of complexity generated by the lack of EU regulation
34
Supporting study, vol. I (p. 76 ff.), vol. II (p. 87 ff.), vol III (p.31 ff.).
35
In particular Article 273.
36
See Annex 4 for the mapping of digital reporting requirements.
37
Country factsheets for digital reporting requirements are available in the supporting study (vol. I, Annex A, p. 149 to
162).
15
in the field, and how the situation, far from being settled, continues to evolve, and requires
increasing administrative and adaptation costs for businesses.
An econometric model38
based on a panel regression method with fixed effects was used to
estimate the impact on VAT revenue associated with the introduction of DRR solutions. The model
looked at the development of VAT revenue in Member States which had introduced DRRs as
opposed to a control group which had not. The assessment of the changes to VAT revenues has
been done by means of an econometric analysis based on panel-data, to determine whether and to
what extent the existing DRRs have resulted in an increase in VAT compliance in the Member
States concerned. The increase in VAT revenue during the 2014-2019 period is estimated to be
between EUR 19 and EUR 28 billion in the Member States which have introduced DRRs in this
period, corresponding to an annual increase of VAT revenue of between 2.6% and 3.5%.39
Several Member States (Belgium, Denmark, Germany, Ireland, Cyprus, Luxembourg, Malta,
Netherlands, Austria, Slovenia, Finland, and Sweden) have not yet introduced DRRs. The decision
appears to be mainly driven by their relative lower level of VAT fraud (the 2016-2019 average
VAT Gap of the Member States currently having or announcing to adopt DRRs is 15.2% compared
with an average of 8.6% for the ones who do not yet have DRRs in place). There are other aspects
that may influence the decision on whether to introduce or not DRRs, such as the IT-related ones
(e.g. the particularities of the national IT systems), the adoption of similar requirements in other
Member States (e.g. a neighbouring/important trade partner Member State takes the decision to
introduce DRR), or other local particularities (e.g. the general readiness of the business population
for such measures or the administrative organisation). None of the Member States that have
implemented DRRs had recorded a VAT Gap lower than 10% prior to their introduction, except for
Spain (where the VAT Gap was 6.5% in 2016)40
and the top Member States constantly registering
the highest VAT gaps (Romania, Greece, Lithuania, and Italy) are among those that have
introduced or announced the introduction of DRRs.
As can be seen, the DRRs adopted, which provide information to tax authorities on a transaction-
by-transaction basis, vary substantially from one Member State to the other. They can consist in the
transmission of monthly reports of business transactions, submissions of invoices in real-time, the
transmission of invoice data in real or quasi-real time, or the submission of tax and accounting data
or VAT records. Further, other Member States have implemented non-digital tools for reporting of
transactions, such as listings which do not provide data at transactional level, but only the values of
sales or purchases per customer or supplier (listings of suppliers and customers). All these
requirements are additional to the submission of VAT returns. The global trend shows a move from
traditional VAT compliance (i.e. filing forms with periodic aggregate data) towards real-time
sharing of transaction-based data with the tax administration (generally based on e-invoicing).
38
Full details of the model specifications and the results are available in Annex 4 and in the supporting study (Vol I.,
Annex C, p. 166 to 181).
39
Supporting study, vol. I, p. 40.
40
Supporting study, vol. I, page 83.
16
However, the VAT Directive41
represents a significant barrier towards the adoption of e-invoicing
requirements, due to the need for Member States to obtain an explicit derogation to adopt digital
reporting requirements based on e-invoicing requirements. This has also influenced both the
adoption and the design of national digital reporting requirements.
The importance of this problem and the need to act has been confirmed by stakeholders during the
public consultation: “the rapid introduction of divergent digital VAT requirements (…) since the
adoption of modifications to Article 273 of the VAT Directive via Directive 2010/45 have shown
that it is important not only that Member States formally go along with a consensus, but are
actually committed to harmonization”.42
The resulting fragmented regulatory framework brings additional compliance costs for businesses
operating in different Member States that have to comply with diverse local requirements and
creates barriers within the Single Market. With an increasing number of Member States
implementing different models of digital reporting obligations, the costs of fragmentation for
multinational companies (MNCs)43
are significant, estimated at about EUR 1.6 billion per year EU-
wide, of which 1.2 billion are borne by small-scale and 0.4 billion by large-scale MNCs44
.
Further, the current reporting system of intra-Community transactions (referred to in the VAT
Directive as “recapitulative statements”) does not allow Member States to effectively tackle VAT
fraud linked to these transactions45
. It should be noted that the current recapitulative statements date
from 1993 and have not substantially changed since then. They are ill-prepared for the digital
economy and can hardly be compared to the much more modern digital reporting systems
implemented by the Member States for domestic transactions.
41
There is no explicit option available for Member States to introduce mandatory e-invoicing requirements as a means
to ensure the correct collection of VAT and to prevent VAT fraud. The VAT Directive makes the use of e-invoices
subject to their acceptance by the recipient, in Article 232; this provision cannot be derogated via Article 273, which
allows Member States to introduce other obligations on taxpayers to ensure the correct collection of VAT and to
prevent VAT fraud. Hence, if a Member State wishes to introduce mandatory e-invoicing requirements, it must do so
by requesting a derogation from the Directive under Article 395, which is subject to the unanimous agreement of the
Council based on a proposal from the Commission.
42
The text in quotation marks reproduces one of the opinions received during the public consultation. Generally, the
respondents to the public consultation agreed the most with the statements that the wide discretion left to Member
States together with the lack of EU guidance result in a fragmented regulatory framework for DRRs, and that this
fragmented regulatory framework is generating unnecessary costs for EU companies operating cross-border. Across all
stakeholder groups, more than 80% of respondents agreed or partly agreed with those statements. Among business
federations and economic operators, the rate is even higher with over 90% stating they agree or at least partly agree.
43
Based on Eurostat estimates, there are about 210,000 multinational companies (MNCs) in the EU, 85% of which
have a local headquarters and the rest being controlled by foreign entities.
44
These mainly result from significant setup costs, especially in countries with more complex DRRs. For compliance, a
small-scale MNC can be expected to invest about EUR 10 000 for SAF-T requirements, EUR 25.000 for real-time
requirements and more than EUR 50 000 in case of e-invoicing. For a large scale MNC, figures reach up to
EUR 50 000 for SAF-T requirements, EUR 200 000 for real-time requirements and EUR 500 000 for e-invoicing.
45
A comprehensive retrospective evaluation of the EU VAT system was conducted in 2011 and its findings have been
used as a starting point for the examination of the current transitional VAT system (IFS et al., 2011, A retrospective
evaluation of elements of the EU VAT system); European Commission (2015). Implementing the ‘destination
principle’ to intra-EU B2B supplies of goods, Feasibility and economic evaluation study, Final Report.
17
Among other shortcomings, recapitulative statements provide aggregated data for each taxable
person, and not transaction-by-transaction data. They do not allow cross-matching of the data from
supplies with that of acquisitions, as the VAT Directive leaves optional for Member States the
reporting of intra-Community acquisitions and less than half Member States have introduced this
obligation. Further, due to time-reporting differences across Member States, the data may be
available to tax authorities in other Member States too late, not only because of the filing
frequency, but also because of the time it takes for local tax authorities to upload data on the
system. Such shortcomings were rightfully noticed by almost two-thirds of informed stakeholders
publicly consulted (also see Figure 4 specific to tax administrations) who totally or partly agree that
recapitulative statements would be more effective in fighting intra-EU fraud if data is collected on a
transaction-by-basis and closer to the moment of the transaction.
It is worth noting that the reform of the reporting of cross-border transactions inevitably entails
changes to administrative cooperation and exchange of data between the competent authorities of
the Member States and the VAT Information Exchange System (VIES)46
. The Tax Action Plan also
mentions the “reinforcement of verifications of cross-border transactions”, and a 2023 proposal for
VIES 2.0 is expected to complement the current initiative.
46
In 1993, with the introduction of the Internal Market, the border controls were abolished and replaced by reporting
obligations of intra-Community supplies in form of periodical recapitulative statements for VAT purposes (a
recapitulative statement is a simple form submitted on a monthly/quarterly basis by traders, in addition to their VAT
return, to declare goods delivered and services provided to traders in other Member States. It contains the VAT number
of the customers and the aggregated value of supplies per customer during a given period). These recapitulative
statements are stored in national VAT databases. These databases are then connected through an electronic interface
called VIES (VAT Information Exchange System), the Commission manages the communication links between the
Member States while there are national VIES applications developed by the Member States. Tax administrations access
VIES information for control purposes, while economic operators use a module of VIES, called the ‘VIES-on-the-
web’(VoW) to check the validity of their client’s VAT numbers registered in the European Union for cross border
transactions on goods or services.
18
Figure 2 – VAT reporting: stakeholders’ views on current situation
Concerning the identified problem, stakeholders in different groups (private individuals – ‘PI’;
business organisation/federation – ‘BF’; economic operators – ‘EO’; service providers – ‘SP’; and
others, non-specific – ‘O’) agree on the negative impacts stemming from the current situation with
regards to DRRs. During targeted interviews, Member States also validated the problem.
In conclusion, while the EU legislation leaves substantial freedom to Member States to implement
reporting systems, without providing guidance or a common framework, it still remains difficult for
Member States to apply mandatory e-invoicing. Consequently, businesses operating cross-border
are confronted with completely divergent systems which in addition cannot be used to exchange
information between tax authorities of different Member States. Therefore, Member States cannot
address cross border fraud effectively, and in particular MTIC fraud, which is a fraud specifically
deriving from the way the VAT rules deal with intra-Community trade. That is why it is necessary
to reform the VAT framework right now both to avoid the proliferation of divergent digital
reporting systems, preventing unnecessary costs for businesses and to have a common digital
transaction-based reporting of intra-Community transactions to tackle cross-border VAT fraud.
VAT treatment of the platform economy
Under the VAT rules a taxable person means any person (natural or legal) who, independently,
carries out any economic activity47
. Such a taxable person is normally required to register for VAT
and charge VAT on its sales. Individuals, acting in their private capacity, i.e. not involved in an
independent economic activity, are not therefore considered as taxable persons. In addition, the
VAT Directive allows for various simplification measures, in particular the special scheme for
47
According to Article 9 of the VAT Directive and its settled case-law the concept of “economic activity” has a very
broad meaning. The concept of “independently” however means that employees are not treated as taxable persons.
Tot. PI BF EO SP O Tot. PI BF EO SP O
Lack of guidance at EU-level results in
fragmented regulatory framework
Regulatory fragmentation generates
unnecessary costs for companies
operating cross-border
Agree 159 28 47 39 31 14 160 25 47 39 33 16
Partly Agree 17 3 5 2 5 2 18 6 4 3 4 1
Neither agree nor disagree 4 1 0 2 0 1 3 1 0 1 0 1
Partly disagree 2 0 0 0 1 1 1 0 1 0 0 0
Disagree 3 1 0 0 1 1 3 1 0 0 1 1
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
19
small enterprises (see glossary) which was introduced in order to a) remove the need to tax
administrations to ensure the compliance of a large number of small businesses, and b) reduce the
administrative burdens on these businesses. In the past, these businesses were not considered to
have any impact on market competition with VAT registered businesses.
The platform economy has, however, introduced new business models in which an indefinite
number of private individuals and small businesses can provide their services via a platform. Here
the economies of scale and network effect48
means that these providers are now in direct
competition with traditional VAT registered suppliers. For the accommodation sector, for example,
over 50% of users of a particular accommodation platform specifically access the offer of the
platform over a traditional hotel, and, in Europe, the cost of accommodation offered via the
accommodation platform can be, on average, some 8% to 17% cheaper than a regional hotel’s
average daily rate49
. The traditional hotel can be competing with a large number of short-term
accommodation providers (for example, in Barcelona, one platform alone provides over 15,000
listings (rooms/apartments/houses etc. for rent), which represents around 50% of the total hotel
rooms in the city)50
.
The information provided by the supporting study indicates that the number of underlying suppliers
who are not registered for VAT, whilst varying depending on the type of platform, can be up to
70%51
. This means that, for example, a hotel in Barcelona could be competing with over 10,000
accommodation listings which do not charge VAT on their services. During the public consultation,
more than 70% of respondents having an opinion on the issue said they experience distortions of
competition with other domestic firms offering the same services via platforms due to very uneven
or uneven treatment of similar services and providers in their Member States52
. This experience was
reported most strongly by business federations. On another hand, the platforms themselves did not
see distortions due to uneven treatment at all.
The transport and accommodation sectors have been explicitly identified by the supporting study53
as sectors in which a) the VAT inequality is at its most apparent (in that the accommodation
platform model is competing directly with the hotel sector direct distribution model, and the
transportation platform model is competing directly with private taxi firms); and b) these are the
two largest sectors of the platform economy54
, behind e-commerce, which has its own rules
regarding the supply of goods.55
The transport and accommodation sectors together are accounting
for more than half of the total value of the platform economy and, by contrast, financial services
48
The capacity to build networks through which any additional user will enhance the experience of all existing users;
an increased numbers of people or participants improve the value of a good or service.
49
https://ipropertymanagement.com/research/airbnb-statistics
50
http://insideairbnb.com/barcelona and https://www.statista.com/statistics/743014/annual-hotel-room-numbers-in-
barcelona-spain/
51
Supporting study, Vol. II, p. 37.
52
“Do you experience distortions of competition with other domestic firms offering the same services via ‘non-
platform’ means due to the uneven treatment of similar services/providers in your Member State?” (Yes, it creates very
uneven treatment (42%); Yes, it creates uneven treatment (29%); No, it does not (30%))
53
Supporting study, Vol. II, p. 39.
54
Having an ecosystem value of EUR 38.2 billion and EUR 43.2 billion per annum (Table 4)
55
New rules regarding e-commerce came into force in July 2021 and which have been subject to evaluation (see Annex
6: e-commerce evaluation).
20
represent a far smaller sector whose supplies are mostly VAT exempt (See Table 4). Other sectors
include a variety of areas which suffer less from distortions of competition (e.g. hairdressers,
swimming instructors), thus the issue of VAT inequality is not that manifest.
In addressing the distortions of competition in the transport and accommodation sectors, attention
should be paid not to impose new obligations on SMEs and natural persons. A system should be
found to resolve the existing distortions by looking at the role platforms could play in the collection
of VAT, while not imposing disproportionate burden on them.
Furthermore, there are various rules in the VAT Directive which have been applied differently by
Member States56
. For example, the treatment of the facilitation service charged by the platform – in
some Member States this is regarded as an electronically supplied service, whilst in others it is
regarded as an intermediary service. This is relevant because it can lead to different places of
supply57
, which can subsequently lead to double or non-taxation. Therefore, clarification of these
rules is necessary.
Platforms also face difficulties relating to the establishment of the taxable status of the provider of
the service. This is because whether the provider is a taxable person or not influences how the
platform accounts for the VAT on its facilitation service (for example, if the provider is established
in a different Member State to the platform, the platform could use the One Stop Shop for a non-
taxable person, or the reverse charge for a taxable person58
). Often the platform does not have
sufficient information to establish this tax status.
Finally, under Article 242a of the VAT Directive, platforms are required to keep certain
information59
relating to supplies made via the platform and to make it available on request to
Member States. Platforms can sometimes find it difficult to obtain that information from the
underlying supplier60
. In addition, they find that they are supplying information which they have
already supplied to the tax authorities (for example, under DAC 7 regulations relating to direct
taxes). Therefore, it is necessary to look at the information obligations required by platforms to find
synergies with other legislation where possible, and consider other means of facilitating record
keeping obligations, such as standardising the format in which the records should be made available
to Member States, and the frequency with which the records are made available. Such an approach
was strongly suggested and supported by the stakeholders during consultations.
During the public consultation, a majority of 161 informed respondents (excluding “do not know”
answers) considers ensuring a level-playing field between traditional and platform economy (equal
56
Supporting study, Vol II, Table 25, p. 95 shows that 44% of respondents found the different application of the VAT
rules by Member States to be a problem.
57
The place of supply of an electronically supplied service to a non-taxable person is the place where the customer is
established, whereas the place of supply of intermediary services to a non-taxable person is where the underlying
transaction is supplied, which, in the case of services relating to immoveable property for example, would be where the
property is located.
58
See glossary for explanations of the One Stop Shop and Reverse Charge.
59
For example, the type of supply, date of supply, taxable amount etc.
60
As noted in the final report of the Group on the Future of VAT (GFV) / VAT Expert Group (VEG)sub-group on the
VAT Treatment of Platforms, and discussed during the Fiscalis workshops.
21
treatment) as very important (107) and important (47) For a minority it is either not important (4) or
not so important (2).
In conclusion, the main issue with the platform economy is the inadequacy of the current VAT
legal framework to ensure a level playing field with traditional businesses, specifically in the
transport and accommodation sectors. Supplies made by small underlying suppliers via a platform
are not taxed and the facilitation services made by platforms are taxed differently in different
Member States. This leads to difficulties for the platforms, suppliers, and Member States. The
business models of the platform economy in particular expose the legislative weaknesses of the
VAT Directive with some Member States applying challenging joint and several liability rules on
platforms, for example, or treating the supply of short-term accommodation differently depending
on arbitrary elements such as the supply of towels etc. Uniform rules are therefore not only
required, but also demanded by traditional businesses which are suffering from distorted
competition.
VAT registration requirements in the EU
Where businesses perform cross-border transactions which are taxed in other Member States, they
face considerable compliance burdens and costs, as presented in the table below.
Table 1 – Minimum VAT-related costs61
of cross-border trade for businesses (EUR)
Business type Per MS
Minimum costs of VAT registration (one-off)
Average business 1,200
SME 1,200
Minimum annual VAT compliance costs of doing cross-border trade - implying VAT registration (ongoing)62
Average business 8,000
SME 2,400
Source: elaboration based on the targeted consultation and Deloitte “VAT Aspects of cross-border e-commerce
report” (2015)
From this table, it is to be concluded that the minimum one-off cost of obtaining a VAT registration
in another Member State is EUR 1,200. The minimum ongoing cost, on a yearly basis, for VAT
compliance in another Member State is EUR 8,000 for an average business and EUR 2,400 for a
SME. In fact, being registered in another Member State entails ongoing reporting and other
obligations in that Member State (such as the obligation to complete and submit VAT returns or
61
The VAT registration bears one off costs (at the time of registration) and ongoing costs (being registered entails
ongoing reporting requirements in the Member State which need to be complied with, (such as the obligation to
complete and file/submit VAT returns and pay VAT due, recovery of credits etc.).
62
The costs of VAT registration are not only incurred as a one-off, at the time of registration, but also on an ongoing
basis, as being registered (VAT presence) entails ongoing reporting requirements in the Member State which need to be
complied with (such as the obligation to complete and file/submit VAT returns and pay VAT due, recovery of credits
etc.).
22
listings, to pay the VAT due, or to request VAT refunds) which are included in the annual VAT
compliance costs.
The VAT e-commerce package introduced a number of simplification schemes including the One
Stop Shop (OSS) and the Import One Stop Shop (IOSS), which have alleviated the registration
burden for non-established business carrying out transactions in other Member States. These
optional schemes simplify compliance by avoiding the potential VAT registration obligations of the
supplier/deemed supplier in each Member State of establishment of the customer. They cover cross-
border supplies of services and intra-EU distance sales of goods (OSS) and the distance sales of
imported goods to the EU from a third country/territory in consignments not exceeding EUR 150
(IOSS). As expected, minimising the need for taxable persons to hold multiple VAT registrations
was considered as important/very important by stakeholders participating in the public consultation,
only less than 2% (3 out 197 answers) seeing it as “not important”.
The implementation of the OSS and IOSS has proven to be a great success as shown by the
evaluation of the e-commerce package (see Annex 6). Almost EUR 8 billion in VAT in the first
6 months of application of the new rules was collected via the OSS and the IOSS. The removal of
the EUR 22 VAT exemption on imported goods allowed for the collection of a significant amount
(EUR 0.7 billion) of VAT on previously exempted transactions. At the same time, the costs of
implementation represent only 0.01% of that EUR 8 billion. In addition, the common EU-wide
threshold that replaced the previously disparate VAT rules reduced the risk of non-compliance
while new record keeping obligations for traders, including for platforms, support tax audits carried
out by tax administrations. The success of the VAT e-commerce package was also confirmed by
Member States at the Council Working Party on Taxation in January 2022 and further endorsed by
the March ECOFIN63
. A large majority of respondents to the public consultation (75%)
acknowledged the progress made by the OSS in minimising the need for taxable persons to hold
multiple VAT registrations, with only 2% (4 out of 193 answers) seeing “no progress” and 23% not
expressing their opinion.
While this success has been recognised, a number of operational improvements (see Annex 6) have
nevertheless been identified as a result of the evaluation. These improvements will be addressed in
this initiative.
There are some remaining B2C transactions which are not covered by these simplification schemes.
These include certain types of supplies of goods that, even though they may have a cross-border
aspect, do not fall within the definition of intra-EU distance sales of goods and are not covered by
the OSS. This is also the case, for instance, in the distance sale of goods imported with an intrinsic
value exceeding EUR 150, or the supply of goods subject to excise duties (i.e. alcohol, tobacco and
energy), which are not under the current scope of the IOSS. Certain B2B transactions that are also
triggering registration in another Member States are also assessed. The type and prevalence of these
transactions are depicted in the table below.
63
Council conclusions on the implementation of the VAT e-commerce package (FISC 68 ECOFIN 215, doc. 7104/22).
23
Table 2 – Transactions requiring non-established businesses to VAT register (1 July 2021)
Type of transaction Prevalence
B2C
GOODS
Domestic supply
• Domestic B2C supplies of goods made by suppliers not
established in the Member State of taxation, including:
supplies with installation and assembly; supplies of goods
made on board means of transport; supplies of gas,
electricity, heat or cooling energy; supplies of goods on a
weekly market by a vendor; supplies of goods made by
vendor when participating in an exhibition, trade fair or
similar event.
Specific
market
segments
Second-hand
goods64
(Margin
scheme supplies)
• Second-hand movable goods sold by a supplier not
established in the Member State of the customer,
including: certain works of art, collectors’ items and
antiques.
Specific
market
segments
Distance sales of
imported goods by
the supplier from a
third country/
territory
• B2C Distance sales of imported goods by the supplier
from a third country/territory with an intrinsic value
exceeding €150, or products subject to excise duties.
Specific
market
segments
B2B
GOODS
Domestic supplies
B2B where the
reverse charge does
not apply
• Domestic B2B supplies where the reverse charge does
not apply, including: local supplies of goods after import;
supplies of fuel; supplies of goods with installation or
assembly; supplies of goods previously rented or leased in
the Member State of taxation.
Specific
market
segments
Transfer of own
goods cross-border
 Transfer of own goods cross-border: Transfer of own
stock to be stored and sold in a Member State closer to the
customer, or the transfer made by an electronic interface
on behalf of the owner where the goods are being sold
using the electronic interface .
Widespread
(representing
significant
parts of
business
turnover)
SERVICES
Domestic supplies
of services where
the reverse charge
does not apply
• B2B supplies of services under Articles 47-48, 53, 55-57
if Article 194 does not apply (Member State and/or
transaction specific), including: services connected with
immovable property; passenger transport services; services
in respect of admission to cultural, artistic, sporting,
scientific, educational, entertainment or similar events,
such as fairs and exhibitions, and of ancillary services
related to the admission; restaurant and catering services;
short-term hiring of means of transport.
Specific
market
segments
Source: own elaboration
64
In view of the alignment with the objective of a destination-based VAT system, meeting with the commitment of the
recently adopted VAT rates legislation (Article 4 of Council Directive (EU) 2022/542 of 5 April 2022 amending
Directives 2006/112/EC and (EU) 2020/285 as regards rates of value added tax, OJ L 107, 6.4.2022, p. 1-12).
24
With the IOSS being currently optional, its impact on the need for multiple VAT registrations is
limited and the complexity of import process is not reduced to the optimum level possible. The risk
of undervaluation of the economic value of goods declared for importation is mitigated where the
IOSS is used because the VAT is paid upfront at the time of purchase. Potential undervaluation
remains a significant risk if the IOSS remains optional as VAT is only collected at the time of
import, not at the time of purchase.
At present, imports of goods in the EU below the threshold of EUR 150 are not subject to customs
duties. However, there is no similar VAT exemption65
. As a result, the declared value of B2C
shipments is frequently inaccurate, often intentionally falling under EUR 150 in order to
fraudulently benefit from the Customs duties exemption. These misdeclarations of value affect not
only the assessment of customs duties but also the VAT to be collected on those goods66
.
Despite the introduction of the OSS and the IOSS, 124 respondents to the public consultation (90%
of those providing an opinion on the matter) thought that the requirement to obtain and maintain
multiple VAT registrations continues to be a problem, at least to some extent. Over two-thirds
thought it is a problem to a large or even very large extent.
Figure 3 – Current situation: the need of multiple VAT registrations is still an issue
In general, regarding VAT registration, the problem resides in the scope of the existing EU One
Stop Shop mechanism that was recently expanded but is still not covering specific transactions.
Driven by the recognised success of the latest improvements, businesses and Member States have
strongly advocated for an immediate expansion of the simplification measures to include the
missing transactions. Moreover, in order to establish equal treatment, stakeholders suggested
making the IOSS mandatory for all deemed suppliers.
65
“Putting More Union in the European Customs”, Report by the Wise Persons Group on the Reform of the EU
Customs Union – Brussels March 2022
66
The conservative estimate of duties not collected on imports of a declared value below EUR 150 is close to
EUR 1.5 billion. Roughly 1/5 of not collected duties corresponds to lost VAT
3 0 0 2 0
1
11 2 4 1
3
1
28
7
5 4
9
3
37
4
7
13
8
5
59 10
22
12 12
3
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Tot. PI BF EO SP O
Not at all To a limited extent To some extent To a large extent To a very large extent
25
2.2.What are the problem drivers?
Some of the drivers generating problems are exogenous to the VAT framework (i.e. the evolving
technology and business models, value chains and trading practices), whilst others are about the
VAT framework itself (i.e. the complex and fragmented regulatory environment). Businesses
operating in multiple Member States are especially impacted. The drivers in both categories
combine exposing the discrepancy between the 30 year-old rules and the current digital reality to
create the two-faceted problem regarding the sub-optimal VAT collection and control and
administrative burden.
Table 3 – Overview of the drivers
EXOGENOUS DRIVERS
(outside of the VAT framework)
INTRINSIC DRIVERS
(related to the VAT rules and their application)
Increasing scale
of the platform
economy and e-
commerce
Multiplicity and
complexity of the
new business
models driven by
technological
changes
Fragmented
regulatory
framework
Outdated
reporting
mechanism for
intracommunity
transactions
Scope of the
application of the
simplification
schemes
a) VAT reporting ☒ ☒ ☒ ☒ ☐
b) VAT treatment of
the platform economy ☒ ☒ ☒ ☐ ☒
c) VAT registration ☒ ☒ ☒ ☐ ☒
i. Increasing scale of the platform economy and e-commerce
This driver generally affects all three VAT areas. Over 1,500 digital platforms67
have a significant
presence in the EU27 (about 1,800 including the UK). Overall, in 2019 the revenue of the digital
platforms in the EU27 market reached EUR 66.9 billion. The revenue of their providers68
is
estimated at about three times the platform revenue, at EUR 191.1 billion. The value of VAT
revenue from the digital platform ecosystem69
is estimated at about EUR 25.7 billion per year for
the EU27, i.e. 2.6 percent of total VAT revenue70
.
67
Digital platforms should clearly be distinguished from the other online business models that are not multi-sided and
do not require one of the transaction sides to play the role of digital facilitation. The number of digital platforms
includes both e-commerce (goods) and platform economy (services)
68
Excluding the facilitation fees and excluding the advertising sector
69
This figure includes both the VAT paid on the facilitation service, and on the underlying supply.
70
Excluding advertising. The description on the VAT liability simulation model is available on Annex 4
26
Table 4 – Scale of platform economy operation, by sectors (EU27, EUR billion, 2019)
Sector
Revenue of digital
platforms (EU27)
Revenue of
platforms’
providers (EU27)71
Ecosystem value
(EU27)
Accommodation 6.3 36.9 43.2
Advertising* 32.8 n.a. 32.8
E-Commerce 16.6 93.8 110.4
Finance 0.6 6.7 7.3
Household and Professional Services 1.4 7.1 8.5
Real Estate 0.7 3.8 4.5
Transportation 7.2 31.0 38.2
Other 1.3 11.8 13.1
TOTAL 66.9 191.1 258.0
Source: Targeted consultation. *Revenue of digital platforms only. The numbers may not add up perfectly due to
rounding.
Additionally, and importantly, the scale of the platform economy has increased rapidly over the last
years. Considering the aggregate growth rate of the seven sectors72
involved, platforms’ revenue
grew three times, or 32 percent per year between 2015 and 201973
. The increasing scale and
prevalence of the platform economy and e-commerce naturally magnifies the consequences of any
VAT problem but in particular those identified in the three areas under examination. More
transactions under the platform economy and in e-commerce means an incremental increase in the
problems linked to the VAT registration and the administration of the rules and puts also additional
pressure on the outdated VAT reporting system.
ii. Multiplicity74 and complexity of the new business models driven by technological changes
This driver generally affects all three VAT areas. The multi-sided nature (where there are three or
more parties involved) and complexity of the business models have become a ‘difficult fit’ for the
VAT rules which were developed when these business models were unknown. For example, the
distinction between a consumer and a supplier is becoming blurred, as one party can be both whilst
operating via a platform. Also, the explosion in e-commerce has led to exponential increases in
71
Exclusive of the facilitation fee (Value of transaction underlying platforms’ facilitation service).
72
E-Commerce, Transport Services, Accommodation, Real Estate, Finance, Professional and Household Services, and
Advertising
73
2020 data are severely affected by the COVID-19 pandemic, which led to accelerate the growth for e.g. the e-
commerce and finance sector, while significantly depressing the accommodation sector (for which 2020 revenue were
lower than in 2015
74
The platform business models differ from each other in several important aspects for tax purposes. The varying
elements include: (i) the number of transaction parties/sides, (ii) the roles of each side in value creation, (iii) which side
bears responsibility and risk, (iv) the organisational and the regulatory autonomy of the transaction sides, (v) the
employment relationships, (vi) the direction of information exchange, and (vii) the remuneration mechanism and roles
in payment facilitation. These differences in business models are determinant for defining appropriate tax rules.
Moreover, the difficulty in assigning proper tax rules is not only related to the multiplicity of criteria differentiating the
models. In addition, companies often used mixed (or multiple) models, which hinders classification and application of
proper tax rules.
27
cross-border trade and an increased complexity of business models of the marketplaces (for
example goods being sold from fulfilment centres rather than directly from the underlying supplier)
for which the VAT system is ill-suited. Again this intensifies the problems linked to the VAT
registration, the administration of the rules and the VAT reporting system.
iii.Fragmented regulatory framework (divergent requirements)
The wide discretion afforded to Member States by the VAT Directive in imposing reporting
obligations and the need to apply the existing VAT rules to new business models has led to a
divergence of the rules applicable within the EU as well as to differing interpretations of the
existing rules. This affects differently the VAT areas as follows:
a) VAT reporting
There are 12 Member States which have in place digital reporting requirements, while three more
are considering or have taken the first steps for their introduction75
. These reporting requirements
differ over several dimensions, including:
 Frequency. The main distinction is between periodic and real-time reporting. This can be
further differentiated according to the exact frequency (either jointly with the VAT return or
monthly), and “how real-time” real-time requirements are (within four days in Spain, daily
in Hungary and before the invoice is issued in Italy).
 Scope – Taxpayers. National rules can include a turnover threshold below which VAT-
registered taxable persons are not subject to the reporting obligations, and can exclude
certain sectors or specific VAT regimes from these obligations. Furthermore, requirements
can apply to resident entities only or to all registered taxable persons.
 Scope – Transactions. In a number of countries, only transactions above a certain value
threshold are to be reported in detail. Besides, the reporting systems can differ in whether
they cover (i) purchase and/or sale transactions; (ii) domestic, intra-EU or extra-EU
transactions; and (iii) B2B, B2G or B2C transactions.
 Data content and format. The various systems differ in terms of the type and amount of data
extracted from taxpayers, the format of submission as well as the communication
architecture.
This lack of harmonisation of digital reporting requirements across the EU results in legal
uncertainty and additional administrative burdens and compliance costs for companies with fixed
establishments or VAT registrations in different Member States.
b) VAT treatment of the platform economy
Member States have different views on the treatment of the facilitation service of a platform -
whether to regard this as an electronically supplied service or an intermediary service which in turn
leads to a different place of supply.
75
IDEM 37.
28
c) VAT Registration
The VAT Directive provides the rules for determining in which Member State the VAT on a
transaction is due, and the person liable to pay and report it. These rules are complex and depend on
numerous factors, which differ according to the type of transaction, where suppliers and customers
are based, and the Member States involved. The complexity increases when the taxable person
carrying out a supply is not established in the Member State where the tax is due. Thus, the
fragmentation in VAT registration area should actually read as the need to register in multiple
Member States.
iv. Outdated system for the reporting of intracommunity transactions
VAT reporting
This driver specifically affects the area of VAT reporting. The current VAT rules for the taxation of
cross-border trade between Member States date back to 1993, just after the creation of the Single
Market and the abolition of “fiscal frontiers”. At the time, they were meant to be transitional, but
they are still in place. The rules do not take account of the last 30 years of technological
developments, changes in business models or the globalisation of the economy. These rules divide
each EU Business-to-Business cross-border supply of goods into two transactions - a) an exempt
intra-Community supply in the Member State of departure and b) a taxable intra-Community
acquisition in the Member State of arrival of the goods. As a result, taxable persons acquire goods
cross-border without having to pay VAT76
.
The fact that goods can be acquired free of VAT creates a big incentive for fraud. Fraudsters
acquire goods from other Member States, without paying VAT, and sell them on the domestic
market charging VAT without remitting it to the treasury (basic fraud scheme) or pass them
through a chain of transactions possibly involving several Member States (more sophisticated and
typically referred to as MTIC fraud) where in the end no VAT is paid to the treasury. The result is
that the acquirers of these goods can deduct the VAT charged while the fraudsters disappear
without paying that VAT to the treasury.
In order to help detect and react to this fraud, a mechanism for reporting intra-Community trade
flows (the recapitulative statements77
) is in place. However, while business and also fraud models
evolved and became more complex and technologically driven, the recapitulative statements have
remained basically unchanged since the pre-digital age. They are outdated and not adapted to the
76
Unless they do not have the right to fully deduct VAT.
77
Chapter 6 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax – as
amended (OJ L 347, 11.12.2006, p. 1).
29
current reality, with the relevant data reaching the tax administration between two to four months
after the transaction date, thus often too late to prevent VAT loss and fraud78
.
Recapitulative statements provide aggregated information to national tax administrations about the
supplies of goods and services made to their territory from other Member States. They allow tax
administrations to follow the flow of goods and services in order to help fight intra-EU fraud.
However, they are regarded as rather ineffective by the majority of Member States interviewed on
this subject. During the interview carried out as part of the supporting study79
, out of 12 tax
authorities that replied, eleven provided a negative assessment of this reporting mechanism to
tackle intra-EU VAT fraud (see Figure 4).
Figure 4 – Effectiveness of recapitulative statements against MTIC fraud (Member States)
Source: elaboration based on the targeted consultation; views from tax authorities questioned whether the
recapitulative statements are effective to tackle intra-EU Fraud
The reasons for such a widely held negative assessment are largely coherent across Member States,
who unanimously criticize:
 The lack of data granularity, since data are not available at transaction level but aggregated;
 The inadequate timeframe of data exchange, further amplified by time reporting differences
across Member States, as data can be filed monthly or quarterly and also because of the time it
takes for local tax authorities to upload the data that will be later exchanged with other Member
States;
78
Every taxable person must submit recapitulative statements for the exempt intra-Community supplies of goods and
services ("European Sales List"). Taxable persons who make intra-EU acquisitions of goods are also required to submit
statements giving details of such acquisitions ("European Purchases List"). Member States may even impose other
obligations which they deem necessary to ensure the correct collection of VAT and prevent evasion, such as annual
listings reporting all purchases and sales with local VAT registered companies (Annual Sales & Purchases Lists). The
recapitulative statements must be drawn up for each calendar month within a period not exceeding one month or for
each calendar quarter within a time limit not exceeding one month from the end of the quarter. Therefore, in practice
the information is actually available in up to four months after the transaction.
79
Supporting study, Vol. I, p. 85-86
To a large extent; 1
To a moderate extent; 2
To a minor extent; 8
Not at all; 1
Don’t know/Missing; 3
To a large extent To a moderate extent To a minor extent Not at all Don’t know/Missing
30
 The partial scope of the tool, which mandatorily covers only intra-Community supplies (data on
acquisitions are not automatically exchanged between Member States). In this regard, reporting
of intra-Community acquisitions is not required by the VAT Directive and less than half
Member States have introduced this obligation; and
 The poor quality of the data reported.
The shortcomings of the current system to address intra-Community VAT fraud have also been
stressed by the European Court of Auditors80
.
As a result, crosschecks of intra-Community trade data and VAT anti-fraud controls are not as
comprehensive, effective and as real-time as they should be to tackle fraud linked to intra-
Community transactions.
v. The scope of the application of the simplification schemes
This mainly affects the VAT areas as follows:
a) VAT treatment of platform economy
SMEs using the SME simplification scheme do not charge VAT whilst enjoying the economies of
scale and network effects offered by platforms. As outlined in the study81
, this gives them a
competitive advantage over traditional VAT registered businesses making similar or identical
supplies. In the past this competitive advantage was minimal because of the limited outreach and
resources of SMEs, but platforms have allowed SMEs access to global markets, therefore allowing
them to directly compete with traditional businesses without charging VAT or facing the regulatory
or compliance burden of being a VAT registered business.
b) VAT registration
Some transactions are not covered by OSS and IOSS schemes - The complex and fragmented
regulatory environment82
creates costs and hassle for businesses operating in multiple Member
States. The newly introduced One Stop Shop (OSS) helps businesses by reducing the instances in
which registration in another Member State is required. However, the implementation of the OSS83
and IOSS84
schemes has not totally addressed the problem. A number of cross-border transactions
still trigger the need for registration in another Member State forcing the businesses to face costs
and burden associated with the VAT obligations in different Member States. Table 2 is providing
the typology of these transactions constituting the framework for assessing the magnitude of the
problem.
80
On the limits of the current system, cf. European Court of Auditors (2015), Special Report No 24/2015, ”Tackling
intra-Community VAT fraud: More action needed”
81
Supporting study, Vol. II, p. 144
82
Complying with the VAT can be complex due to different provisions such as registration, payment, reporting and
invoice disclosure obligations etc.
83
https://ec.europa.eu/taxation_customs/business/vat/vat-e-commerce/oss_en
84
https://ec.europa.eu/taxation_customs/ioss_en
31
2.3.How likely is the problem to persist?
VAT Reporting
Member States will continue to adopt national Digital Reporting Requirements (DDR) over the
next decade, worsening the fragmentation and the administrative burden. The main trend is
represented by the Member States considering the introduction of mandatory e-invoicing. The
problem of intra-EU fraud is not addressed at all, therefore it will persist.
VAT treatment of the platform economy
Member States are expected to introduce additional rules and guidelines concerning the status of
the provider and the nature of supplies facilitated by platforms, but to do so in an uncoordinated
fashion, as with reporting obligations. These additional rules and guidelines are expected to
increase the administrative burdens and will not solve the level-playing field issue.
VAT Registration
Some key sectors, such as the fuel cards sector, and the supply of gas and electricity, construction
works in another Member State etc. will continue to face the burden of multiple VAT registrations
when supplying goods and/or services in other Member States.
32
3. WHY SHOULD THE EU ACT?
3.1.Legal basis
According to the principle of subsidiarity85
, action at EU level may only be taken if the envisaged
aims cannot be achieved sufficiently by the Member States alone and can be better achieved by the
EU. The VAT rules for cross-border EU trade involve more than one Member State by nature and
VAT is a tax harmonised at EU level. The problems identified in Section 2 are embedded in the
rules of the VAT Directive. Therefore, any initiative to change the VAT system as regards intra-EU
trade requires amending the VAT Directive.
The Treaty on the Functioning of the European Union, Article 113, gives the EU the right to act and
adopt provisions to harmonise legislation in the area of indirect taxation, including value added tax.
In addition, since net VAT revenue collected by each Member State is used to determine the
harmonised base, the loss of VAT impacts both Member States’ revenue and the EU’s VAT own
resource amounts86
.
3.2.Subsidiarity: Necessity of EU action
The legislative proposal must be adopted at Union level, as it amends the existing common system
of value added tax governed by the VAT Directive (Directive 2006/112/EC). Given the need to
modify the VAT Directive, the objectives sought by the present initiative cannot be achieved by the
Member States themselves. Therefore, it is necessary for the Commission, which has responsibility
for ensuring the smooth functioning of the internal market and for promoting the general interest of
the European Union, to propose action to improve the situation. Moreover, the VAT rules have the
potential for distorting intra-EU trade if introduced in an uncoordinated way.
3.3.Subsidiarity: Added value of EU action
The Commission is responsible for ensuring the correct application of the harmonised VAT
assessment base. Each Member State is responsible for the transposition of the VAT provisions into
national legislation and their correct application within its territory. Member States implement
common rules set out in the VAT Directive into their national legislation, thus the practical
application and the administrative practices of each Member State vary. However, the intra-EU
dimension of VAT fraud requires EU intervention regarding reporting obligations. In addition, for
several Member States the size of the VAT gap (and its persistence over time) indicates that
national instruments are not sufficient to fight cross-border and e-commerce fraud, as shown by the
estimated levels of MTIC fraud, which can only be fought efficiently and effectively by
coordinated action at EU level.
85
Article 5(3) of the Treaty on European Union (TEU)
86
C-617/10, Åkerberg Fransson, EU:C:2013:105, paragraph 26: “revenue from application of a uniform rate to the
harmonised VAT assessment bases determined according to EU rules, there is thus a direct link between the collection
of VAT revenue in compliance with the EU law applicable and the availability to the EU budget of the corresponding
VAT resources, since any lacuna in the collection of the first potentially causes a reduction in the second”.
33
The harmonised VAT rules are needed to help businesses benefit from the potential of the internal
market. In the targeted consultation, businesses doing cross-border trading repeatedly stated their
preference to have VAT rules applied uniformly at EU level than to comply with different reporting
or registration obligations at national level. This can only be ensured by EU action.
34
4. OBJECTIVES: WHAT IS TO BE ACHIEVED?
4.1.General objectives
The general objectives of the VAT in the Digital Age initiative are related to the modernisation of
the VAT system. The general objectives address each of the two main identified problems:
General objectives are directly linked to the treaty-based goal of establishing a functional internal
market and reflect the Commission priorities and EU strategic agenda for 2019-202487
. In this
respect, the VAT in the Digital Age initiative aims to render the VAT rules more proportionate,
effective and efficient by updating the 30-year old VAT system to the current realities of the digital
age.
4.2.Specific objectives
The two general policy objectives will be achieved by pursuing five specific objectives in VAT
reporting, VAT treatment of platform economy and VAT registration:
1. Improve reporting requirements to unlock the opportunities provided by digitalisation
The VAT reporting specific objective intends to improve reporting requirements by optimising the
use of digital technologies, notably by utilising digital reporting to fight VAT fraud, and in
particular MTIC fraud.
This specific objective is linked with and supports an effective and fair VAT system (3rd
specific
objective), helping the fight against VAT fraud and reducing the taxpayers’ administrative burden
and compliance costs (4th
specific objective) by allowing tax authorities the provision of additional
services to taxpayers and the removal of other compliance obligations.
2. Promote convergence and interoperability of IT systems
Besides the complications the digital evolution brings, it also provides opportunities linked to IT
systems, business automation and digitalisation. Businesses, Member States and the Commission
have up and running IT systems that must be enhanced and at the same time be made compatible
with each other. Thus, this specific objective, common to both VAT registration and VAT
reporting, aims to promote the convergence and interoperability of existing IT systems and support
87
Article 3 of Treaty on European Union (TEU) and Commission priorities for 2019-24.
General objective Problem
Better VAT collection and control Sub-optimal VAT collection and control
Simplified, modern and legally certain VAT
system
Excessive burdens and compliance costs
35
the necessary developments. It covers both adapting the Commission’s IT environment (e.g. for
exchanges of information between Member States on cross-borders transactions, for IOSS/OSS
registration) and providing guidelines to Member States and businesses for preparing their IT
systems in the short to medium term88
.
3. Create a level-playing field for businesses, regardless of the business model
The specific objective aims to provide a level-playing field for EU businesses by imposing similar
VAT liabilities regardless of the traditional or digital business model, their location or their
engagement in domestic or cross-border transactions.
4. Reduce burdens, regulatory fragmentation and associated costs
The specific objective is expected to contribute to the simplification and modernisation of the VAT
rules by reducing regulatory fragmentation, and to increase legal certainty, by reducing the
multiplicity of the existing national frameworks.
5. Minimise the need for multiple VAT registrations in the EU
Minimising the need for multiple VAT registrations will not only reduce the costs for businesses
but also allow authorities to better focus their control activities.
88
Even if the detailed technical specifications are not yet available, the general definition of the ‘intervention model’
and corresponding IT architecture type must take place at the moment of selecting the policy options, because each
policy choice requires specific IT solutions, hence the need for appropriate guidelines. Moreover, some of the VAT
registration options are IT-intensive, notably those related to customs.
36
5. WHAT ARE THE AVAILABLE POLICY OPTIONS?
5.1.What is the baseline from which options are assessed?
VAT Reporting
Based on the supporting study, the available information regarding the existing and planned
introductions of DRRs89
can be summarised as following:
 as of September 2021, DRRs had been introduced in 12 Member States (Bulgaria, Croatia,
Czechia, Estonia, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Slovak Republic and
Spain);
 between 2021 and 2023, Greece and France will also introduce DRRs;
 public acts were adopted or official announcements were made in Romania towards the
introduction of SAF-T and in Bulgaria, Croatia, Hungary, Poland, Spain and the Slovak
Republic towards the introduction of mandatory e-invoicing;
 a study has been launched in Finland on the possible adoption of DRRs, but no public act
has been adopted by the government;
 given the amount of time necessary to deploy the national systems after the decision to
introduce them, countries that have not taken steps in that direction so far are unlikely to be
able to adopt their own DRRs within the next five years.
If the above information provides a sufficient degree of certainty for the short-term, i.e. the next
five years, in terms of the countries which are likely to adopt or update domestic DRRs, as well as
of those which are not going to do so, reasoned probabilistic incremental scenarios need to be built
for the medium term. In the dynamic baseline scenario underpinning this Impact Assessment,
Member States will continue to adopt national digital reporting requirements over the next decade.
Table 5 – Medium-term adoption scenarios90
Scenario Description New adopters Likelihood
No adoption
The adoption of national DRRs has reached its peak
and the remaining countries do not adopt any
national reporting mechanism, except for Finland
where preparatory work has already started.
Czechia opts for e-invoicing, in line with its
neighbouring countries.
Finland 10%
Central-
Eastern
Slovenia, the only Central-Eastern Member State
without a DRR, adopts one.
Finland, Slovenia 20%
89
Supporting study, Vol I, p. 210 -211; the Study supporting the Impact Assessment was mainly carried on in 2021 and
the above information reflects the reality at that moment. Meanwhile, the situation in the Member States evolved and
such dynamic is described in the problem sections. Nevertheless, the calculations are still based on the initial
assumptions made in the supporting study.
90
Supporting Study, Vol. I, Annex H, Table H1, p. 211. For full scenarios and assumptions about the future adoption of
DRRs see Annex H – of the supporting study, vol. I, p. 210 to 216.
37
Evolution of
existing
obligations
Belgium, Austria, and Luxembourg, which already
have annual listing or SAF-T on demand systems,
adopt a DRR.
Austria, Belgium, Finland,
Luxembourg, Slovenia
40%
Southern
Malta and Cyprus, the only Southern Member
States without a DRR, adopt one.
Austria, Belgium, Cyprus,
Finland, Luxembourg,
Malta, Slovenia
20%
All National DRRs are adopted in all Member States
Austria, Belgium, Cyprus,
Denmark, Finland,
Germany, Ireland,
Luxembourg, Malta, the
Netherlands, Slovenia,
Sweden
10%
Based on the available information and the above scenarios, the dynamic baseline regarding the
adoption of DRRs is presented in the table below.
Table 6 – Dynamic baseline: adoption of Digital Reporting Requirements (2023 – 2028)91
Year
Time for the
analysis
Number of
Member States
with DRR
Type of DRR Adopters
2023 T0 14 (Domestic)
VAT listing BG, CZ, EE, HR, LV, SK
SAF-T LT, PL, PT
Real-time ES, EL, HU
E-invoicing IT, FR
2025 T2 15
VAT listing CZ, EE, LV
SAF-T LT, PT, RO
Real-time EL
E-invoicing BG, ES, HR, HU, IT, FR, PL, SK
2028 T5 20.1*
VAT listing BE, CY, DE, DK, EE, FI, IE, LV, MT, NL, SE, SI
SAF-T AT, LT, LU, PT, RO
Real-time EL
E-invoicing BG, CZ, ES, HR, HU, IT, FR, PL, SK
* weighted average across scenarios.
Tax control efficiency and effectiveness is also expected to increase with the introduction of
various DRRs, and whilst this will help fight fraud at national level, it will not solve the problem of
intra-EU fraud. Furthermore, since no harmonisation measure is introduced, fragmentation costs
would grow as more numerous and divergent DRRs are introduced. Confidentiality risks will
increase as a result of more transactional data being exchanged. The current trend of Member States
considering the introduction of mandatory e-invoicing would further spur business process
automation.
VAT revenue and burdens Environment Tax control Business automation Data confidentiality
91
Supporting Study, Vol. I, Annex H, Table H1, p. 212.
38
More MS adopt national
DRRs. This will result
in overall positive net
impacts, due to the
higher base for VAT
revenues
No impact Tax control efficiency
and effectiveness is
expected to increase
with the diffusion of
DRRs.
The current trend of MS
considering the
introduction of e-
invoicing would spur
further business
automation
The diffusion of DRRs
would mean that more
data are exchanged; this
increases confidentiality
risks
The sections assessing the current situation regarding Member States and taxpayers (domestic and
multinational companies) in the supporting study92
are based on both information from the targeted
consultation of public authorities and data collected during targeted consultation activities with
economic operators, VAT practitioners and service providers, as well as information from
secondary sources, VAT revenue statistics, and studies at national levels. As mentioned in the
problem section, the quantification of the DRRs’ outcomes on tax control activities and fraud
detection is based on the comparison of data before and after the introduction of these requirements.
Since the VAT Gap represents the difference between the theoretical VAT liability and the VAT
revenues accrued, more revenues are a clear sign of improved compliance where the liability does
not change. The assessment of changes to VAT revenues has been done by means of an
econometric analysis based on panel-data (See Annex 4: Analytical methods), to determine whether
and to what extent the existing DRRs have resulted in increased revenues, thus a decrease in VAT
non-compliance in the adopting Member States.
Both costs and benefits are expected to grow over the 2023-2032 period; however, benefits will
remain higher than costs (EUR 371 billion vs. EUR 121 billion) and will grow faster, resulting
EUR 250.7 billion in positive net impacts:
Costs Benefits
Administrative
burden for
businesses
Implementation
cost tax
authorities
Fragmentation
costs
Environmenta
l benefits
Savings pre-
filled VAT
returns
Removal of
recapitulative
statements
benefits
E-
invoicing
benefits
VAT
collection/ C-
efficiency
Max. VAT
Gap
reduction
Dynamic
baseline
(cost and
benefits)
EUR 79.1
billion
EUR 1.7
billion
EUR 40.4
billion
EUR 0.03
billion
EUR 30.7
billion
0
EUR 5.6
billion
EUR 335.6
billion
-3 p.p. 93
EUR 250.7
billion net
benefits
EUR 121.2 billion total costs EUR 371.9 billion total benefits
The VAT collection is measured using the C-efficiency model as the base model. The impacts of
DRRs are estimated on two dependent variables: the VAT Gap and C-efficiency.94
C-efficiency is
the ratio of the actual VAT revenue to the theoretical revenue derived from the product of the VAT
standard rate and the aggregate final consumption. Thus, it measures the departure of a country’s
actual VAT system from a perfectly enforced tax levied at a single rate on all consumption. This
92
Supporting Study, Vol. I, p. 31 to 70.
93
Corresponding to a VAT Gap reduction from 10.5% to 7.5% over a 10-year period (2023-2032). Calculations were
made by updating the VAT Gap figure to exclude the UK. The additional revenue obtained under C-efficiency model
was used as reference and the 2021 VAT Gap Study (VAT revenue) figures were amended accordingly.
94
Supporting Study, Vol I, p. 37 Box 5.
39
ratio takes a value lower than one for various reasons: the application of VAT reduced rates and
exemptions, as well as less-than-perfect compliance. In other words, the C-efficiency is an intensive
measure, i.e. expressed in relation to the tax base, of both the level of VAT compliance as well as
VAT policy choices, such as the adoption of differentiated rates and exemptions. The VAT Gap is
defined as the difference between the expected VAT revenue (i.e. the VAT Total Tax Liability,
VTTL) and the amount of VAT actually collected over the same period. It includes aspects that are
directly influenced by the introduction of reporting obligations, such as VAT fraud and evasion, as
well as other elements which are not impacted (e.g. insolvencies, bankruptcies, legal tax
optimisation). The VAT Gap directly links with the level of VAT compliance in a country.
Since the VAT Gap model relies on annual data, while the C-efficiency model relies on quarterly
data, thus providing larger number of observations and degrees of freedom, the latter was retained
as the base model and is being used to fundament this impact assessment. Nevertheless, for reasons
of transparency, both the base model based on C-efficiency and the alternative model based on
VAT Gap data are presented in the Annex 4: Analytical methods.
In terms of other ongoing initiatives reflected in the baseline, the EU Directive on electronic
invoicing in public procurement (B2G)95
currently in place has the goal of facilitating the use of a
common European Standard on electronic invoicing across Member States to promote
interoperability and convergence at EU level (See Annex 5: other initiatives). In the baseline
scenario, the IT platform used to handle B2G transactions is often leveraged by the tax authorities
for handling and reporting B2B transactions.96
In addition, the work on the proposal for a definitive regime97
that is still to be adopted was used as
a starting point to identify the problems of cross-border VAT fraud. It already reflected the
magnitude of the fraud derived from the way intra-Community transactions were taxed, and how
the existing tools, including the recapitulative statements, were not sufficient to tackle it. The
definitive regime was seen as a solution to address the risk of VAT fraud (MTIC fraud) that is
linked to the current VAT rules build common ground for possible digital solutions such as the
DRRs.
VAT treatment of the Platform economy
Under the dynamic baseline scenario, the growth of the platform economy will increase VAT
revenue in both absolute and relative terms. However, Member States are expected to introduce
additional rules and guidelines concerning the status of the provider and the nature of supplies
facilitated by platforms, but will do so in an uncoordinated fashion, as with reporting obligations.
These additional rules and guidelines are expected to increase the administrative burdens for
95
Directive 2014/55/EU of the European Parliament and of the Council of 16 April 2014 on electronic invoicing in
public procurement.
96
Supporting Study, Vol I, p. 13.
97
SWD (2017) 325 final.
40
businesses by EUR 1.9 billion98
. The distortion of competition will not be solved and will evolve in
line with the development of the platform economy.
VAT revenue Legal certainty and administrative burdens Competition / Internal Market
EUR 410 billion EUR 1.9 billion
No change to the tax treatment means no
effect on market conditions (current
distortion of competition persists)
The scale of the platform economy was estimated by using financial data from Crunchbase and Dun
& Bradstreet databases, web application download statistics from SEMrush, questionnaires for
platform operators and tax administrations, previous reports, and Eurostat’s sectoral statistics.99
A
VAT liability simulation model with two blocks (for platforms’ facilitation services and for the
underlying services) was used in the sectoral analysis. The model is presented in Annex 4:
Analytical methods and in the supporting study.100
The share of the VAT revenue from the platform economy is expected to increase between 0.19 and
0.35 percentage points per year reaching 3.7 percent in 2032. As the pace of growth of the platform
economy will decline in the medium-term, the VAT revenue as a share of overall revenue will start
stabilising in ca. 10 years’ time. In nominal terms, VAT revenue in the platform economy101
will
grow to about EUR 57 billion in 2032. In addition to revenue growth resulting from the increase in
tax base, the availability of information on transactions and providers in the platform economy
resulting from reporting and record-keeping obligations is expected to increase the effectiveness of
control activities and, as a result, VAT compliance. Though it is not possible to assess the
magnitude of this enhancement102
, the improvements in compliance are expected to have a lower
contribution to the VAT increase than the increase in tax base.
In an increasingly digitalised world in which online platforms play a fundamental role, the P2B
Regulation103
aims to protect, in this specific case, the business users of such services (See Annex
5: other initiatives). It contains transparency rules and protection for business users’ accounts. The
98
Expected burdens for digital platforms for complying with reporting and record-keeping obligation amount to ca.
EUR 1.35 billion (2023-2032). The burdens related to recognising the taxable status of providers sum up to ca.
EUR 0.52 billion.
99
For more information on data sources and the exact steps taken for estimating the scale of the platform economy see
the Supporting Study, vol. II, Annexes A and B, p. 161 to 169.
100
Supporting Study, vol. II, Annex C, p. 170-171.
101
Projections of VAT revenue growth in the platform economy (excluding advertising, real estate and e-commerce).
For the sources and assumptions of the potential development of the platform economy, see supporting study, Vol. II,
Annex D, p. 172-173.
102
Very few data could be collected on the scale of VAT non-compliance in the platform economy, due to both the
recent evolution of this phenomenon and the typical time lag in audit activities. Detailed audit information on the
platform economy could be provided by two Member States during targeted consultation. The value of irregularities
assessed for digital platforms and providers in Country A stood for ca. 0.2 percent and in Country B – for ca. 2 percent
of the estimated VAT liability; the available data points are thus too few to assess quantitatively the level of non-
compliance.
103
Regulation (EU) 2019/1150 on promoting fairness and transparency for business users of online intermediation
services.
41
‘DAC7’104
extends the automatic exchange of information in the field of taxation. It creates an
obligation for platforms to report annually the income earned by sellers and for the Member State
where reporting takes place, to exchange this information automatically, thus being fully coherent -
but complementary as an ex-post control tool - with the current initiative.
In addition, the Digital Services Act (DSA)105
enhances the responsibility and transparency
obligations for providers of online intermediary services, including online platforms. For instance,
online platforms allowing the conclusion of contracts between traders and consumers will have to
gather information on the identity of traders. The Digital Markets Act (DMA)106
will ensure fair
markets in the digital sectors across the Union by addressing the unfair practices of certain
undertakings. The DSA and the DMA covers services such as online intermediary services,
including online marketplaces, online search engines, social networking, video sharing, operating
systems, and cloud services, thus having an impact on the VAT in the Digital Age initiative,
especially in the accommodation and transport sectors.
The proposed Platform Workers Directive107
aims to ensure the legal employment status for the
workers. This proposal may have an impact on the VAT in the Digital Age initiative, in that, if
adopted, a number of platform workers may become employees, and therefore taken out of the
scope of the measure concerning the VAT rules for platforms (because employees are not required
to charge VAT on their services, instead this responsibility would fall on the platforms).
VAT Registration
Some key sectors, such as the fuel cards sector, and the supply of gas and electricity, construction
works in another Member State etc. will continue to face the burden of multiple VAT registrations
when supplying goods and/or services in other Member States.
Some transactions requiring non-established businesses to VAT register (see Table 2), such as the
transfer of own goods cross-border108
are mostly relevant within the context of distance sales made
in the e-commerce sector. An estimate of 20,000 ‘average businesses’ and 280,000 SMEs are
experiencing registration costs (see Table 1) associated with VAT registration in the EU in a
Member State other than that of establishment109
. At the EU level, this translates in up to EUR 0.36
billion (one-off) and EUR 0.83 billion yearly VAT compliance costs of doing cross-border trade
implying VAT registration.
104
Council Directive (EU) 2021/514 of 22 March 2021 amending Directive 2011/16/EU on administrative cooperation
in the field of taxation.
105
Digital Services Act Proposal.
106
Digital Markets Act Proposal.
107
Proposal for a Directive on improving the working conditions in platform work - COM(2021) 762 final.
108
In practice, the transfer of own goods cross-border arises in two situations: (i) companies move their own stocks to
another Member State (e.g. for storage in a warehouse), which they may then use or sell to local customers or (ii) the
goods are moved on behalf of the owner by an intermediary (typically an e-commerce interface) for the purpose of
storage and onward sale.
109
Supporting Study, Vol III, p. 61-62. Estimates are based on 2015 data obtained from the report on VAT Aspects of
cross-border e-commerce, updated to remove the UK, to exclude services from calculations and account for the
observed growth of e-commerce over the period 2015-2020. For logistical reasons it was not possible to include
Northern Ireland in the analysis, even though it is still de facto part of the Customs Union and the VAT territory.
42
Administrative burdens
VAT collection (revenue) and
fraud
Level playing field
Burdens related to VAT registration in
another Member State: EUR 0.36 billion
(one-off) and EUR 0.83 billion (recurring
annual costs)
No sizable impact No change
Distance sales of goods cross-border were estimated to amount to about EUR 72 billion across the
EU-27 in 2020 (EUR 43 billion within the EU and EUR 29 billion from outside the EU – distance
sales of imported goods).110
Moreover, in terms of the number of parcels, although it is difficult to
estimate their volumes precisely, the order of magnitude is likely to be in the billions of units
transferred cross-border across the EU every year. In addition to the significance of the scale of
these transactions, the continued growth of e-commerce means they will become more so,
exacerbating the problems if the status quo is left to continue.
The existing burdens (and additional costs) in these specific sectors will persist if the status quo
remains in place.
5.2.Description of the policy options
An overview of the policy111
sub-options in the three areas can be found in the table below.
110
Supporting Study, Vol. III, p. 66.
111
Supporting study includes a more detailed description of the policy options for VAT reporting, VAT treatment of
Platform economy and VAT registration (Vol. I p. 89-95; vol II p. 99-117; vol III, p.46-54)
43
Table 7 – Description of the policy sub-options by VAT area
Sub-option VAT reporting area
Sub-option 1 (Baseline)
 No measure to harmonise the DRRs is introduced at EU level.
 The introduction of mandatory e-invoicing remains subject to a derogation.
 Recapitulative statements are not modified.
Sub-option 2
(Recommendation &
Removal)
 The introduction of DRRs remains optional for Member States.
 The core elements of the EU design are described in a non-binding Recommendation and their introduction is
encouraged for those Member States with a significant VAT Gap.
 The derogation currently needed to introduce mandatory B2B e-invoicing is removed.
 Recapitulative statements are not modified.
Sub-option 3 (Keep data
with the taxpayers)
 Taxpayers will be required to record transactional data according to a pre-determined format. The tax
authority could access such records upon request.
 Member States remain free to maintain (or introduce) national DRRs.
 For the Member States which introduce a DRR, compliance with the reporting mechanism would also ensure
compliance with the new obligation (hence, no duplication).
Sub-option 4a (Partial
harmonisation)112
 An EU DRR is introduced for intra-EU transactions and the recapitulative statements are abolished.
 The derogation currently needed to introduce mandatory B2B e-invoicing is removed.
 DRRs for domestic transactions remain optional for Member States. Member States wishing to introduce
such mechanisms shall conform to the system used for intra-EU transactions.
 Where DRRs for domestic transactions are already in place, ensure interoperability113
with EU system
already in the short-term; national DRRs to converge to the EU DRR system in the medium-term (i.e. five to
ten years).
112
Under both options 4a and 4b, Member States shall implement an EU DRR for intra-EU transactions. The difference is that the implementation of a DRR system for domestic
transactions is voluntary in option 4a while it is mandatory under option 4b. More details in the Box 3.
44
Sub-option 4b (Full
harmonisation)
 An EU DRR is introduced for intra-EU and domestic transactions alike.
 The recapitulative statements are abolished.
 The derogation currently needed to introduce mandatory B2B e-invoicing is removed.
 For Member States where DRRs for domestic transactions are already in place, the interoperability clause
applies in the short-term; then, national DRRs are required to converge to the EU DRR system in the
medium-term (i.e. in five to ten years).
VAT treatment of platform economy
Sub-option A (Baseline)
 Under this option, the Commission would produce no legislative initiatives in this area, with the possible
result of increase fragmentation as Member States adopt unilateral legislative measures to deal with the
platform economy.
 In order to reduce this risk of fragmentation, the Commission could publish guidelines or recommendations.
Sub-option B1
(Clarification of the nature
of the service facilitated by
the platform)
 Currently Member States treat the facilitation service made by the platform as either an electronically
supplied service or an intermediary service, with the corresponding impact on the place of supply.
 A legislative amendment clarifying the nature of the services provided by the platform (intermediary or
electronically-supplied services), and hence their place of supply will be introduced.
Sub-option B2
(Clarification of the tax
status of the provider)
 One of the major difficulties for platforms is establishing the status of the supplier, that is whether they are a
taxable person or not. This is important for platforms, as it allows them to know whether to apply the reverse
charge or not on their facilitation services.
 A rebuttable presumption whereby the platform could regard anyone who does not provide a VAT number as
not being a taxable person is outlined114
.
113
For e-invoicing systems, this consists in making sure that the taxpayers can either use the domestic format and transmission protocol, or an EU-wide format and protocol. For other
DRRs, the interoperability requires that tax authorities can exchange a pre-agreed dataset in a pre-agreed format. It is theoretically possible to have an EU DRR for intra-EU
transactions without requiring convergence. The EU system would co-exist with different domestic systems, with no harmonisation of the current legal framework as a result.
114
In short, if the supplier does not provide a VAT number they are presumed to be a non-taxable person.
45
Sub-option B3
(Streamlining of record
keeping obligations)
 Amending the Administrative Cooperation Regulation115
, which would aim to harmonise the technical means
by which platforms supply information required by Member States, and the frequency of requests.
Sub-option C (The narrow
deemed supplier)
 Where the underlying supplier does not charge VAT116
, the platform will be deemed as the supplier (the
functioning of the deemed supplier model is explained in the Box 2 below).
 The platform will charge VAT on the supply.
 Option C applies to certain117
accommodation and transport services (ride on demand and short term
residential accommodation), which were identified by the study as having the largest negative impact on
VAT equality and neutrality.
Sub-option D (The sectoral
deemed supplier)
 As Option C, but applying to all accommodation and transport services118
.
Sub-option E (The
full/inclusive deemed
supplier)
 As Option C, but applying to all services supplied via platforms.
VAT registration area – OSS (intra EU)
Sub-option 1 (Baseline)
Leave in place the VAT system as of 1 July 2021, with only minor refinements (e.g. additional guidance, quick
fixes) to improve the implementation and use of the OSS.
Sub-option 2 (Minimal OSS
extension)
 Extension of the OSS so that it covers all B2C supplies of goods by non-established suppliers.
 Additional transactions covered (compared with status quo):
o domestic supplies of B2C goods
Sub-option 3 (Moderate
OSS extension)
 Includes sub-option 2.
 Remove the obligation to register in case of transfer of (own) goods.
 Additional transactions covered (compared with status quo):
o domestic supplies of B2C goods, transfers of (own) goods cross-border119
115
Regulation (EU) No 904/2010.
116
Because they are, for example, using the special scheme for small enterprises.
117
Under sub-option C, the deemed supplier role would cover approx. 25 percent of accommodation services and nearly 95 percent of transportation.
118
These sectors represent a large percentage of the platform economy ecosystem (around 30% between them) but have relatively few platforms operating in the EU (around 300).
46
Sub-option 4 (Reverse
charge)
 Introduce a mandatory120
reverse charge for B2B supplies by non-established persons.
 Can accompany any other sub-options121
.
VAT registration – IOSS (importation)
Sub-option 1 (Baseline)  Leave in place the VAT system as of 1 July 2021, no changes regarding the IOSS.
Sub-option 2122
(removal of
the current threshold)
 Removal of the EUR 150 threshold for use of the IOSS and / or extension to excise goods.
 Additional transactions covered:
o B2C distance sales of goods imported by the supplier from a third country/territory with an intrinsic
value exceeding EUR 150 and / or excise goods
Sub-option 3a (IOSS
mandatory for deemed
suppliers)
 Removal of the optional character of the IOSS for deemed suppliers.
Sub-option 3b (IOSS
mandatory above a
threshold)
 Removal of the optional character of the IOSS for taxable persons distance selling into the EU over a certain
threshold.
Sub-option 3c (IOSS
mandatory - no threshold)
 Removal of the optional character of the IOSS for all taxable persons making eligible distance sales into the
EU.
119
A transfer to a warehouse before sending it to the consumer.
120
The concept of “mandatory” should be applied in relation to Member States that should obligatory provide the possibility to non-established suppliers to use the reverse charge
mechanism.
121
The option of extending the OSS to B2B transactions, without or with deduction mechanism, has been analysed in the supporting study (Vol. 3, section 5.3.3) and had to be
disregarded taking into account the reluctance of the businesses to register for the OSS without any deduction mechanism and the difficulties for the Member States to allow the
deduction via the OSS as the deduction rules vary amongst Member States. The reverse charge is therefore the retained sub-option for B2B transactions as it allows the immediate
compensation of the VAT due (concomitant declaration of the VAT due and its deduction in the VAT return).
122
The numbering of sub-options was maintained to preserve the consistency with the Vol. III of the supporting study. However, Sub-option 2 should rank above Sub-options 3a, 3b
and 3c in terms of the intensity of the intervention.
47
Box 1
Types of DRR (also see the Annex 4: Analytical methods - Mapping of digital reporting requirements)
Two types of DRR can be distinguished based on the time at which information is to be submitted:
 Periodic Transaction Controls (PTCs), in which transactional data are reported to tax authorities at regular
intervals.
 Continuous Transaction Controls (CTCs), in which transactional data are submitted electronically to tax
authorities just before, during or shortly after the actual exchange of such data between the parties.
Among PTCs, the most common models are VAT listing and SAF-T requirements. The former requires the periodic
transmission of transactional data to be compiled and transmitted according to a nationally defined format, while the
latter relies on the national specification of an OECD standard, i.e. the Standard Audit File for Tax.
Among CTCs, the two possibilities are real-time and e-invoicing systems. Under a real-time system, the taxpayer
should submit certain data shortly after carrying out a transaction but does not need to mandatorily use and share e-
invoices with the tax administration. Under an e-invoicing system, the taxable person is mandated to use for his
transactions a structured e-invoice according to a pre-determined and machine-readable format, allowing them to
automatically share the whole invoice or a subset of the data with the tax administration.
What type of DRR is optimal for VAT reporting? Interoperability, complexity, costs and benefits
From a taxation point of view, interoperability would be ensured by accepting invoices issued according to the
European e-invoicing standard that is already in place, and the best solution is to combine flexibility with
standardisation. Businesses could have the freedom to use the electronic invoice system they prefer, while the
standardisation will refer to the data file to be submitted to the tax administration. That transmission of the data will be
done directly by the taxpayer or by a service provider on its behalf. Given that the data in the invoice will be machine-
readable, this system will avoid interference with the way invoices are exchanged between businesses while
facilitating the reporting through the automation of the process, avoiding mistakes and manipulation of the data. This
approach strongly points out the e-invoicing to be the most suitable option for digital reporting. A standardised
reporting based on the e-invoice, without a central clearance that is perceived by most MSs and business
representatives as unnecessary and intrusive, is the solution preferred by vast majority of the Group on the Future of
VAT and the VAT Expert Group. In addition, after conducting a feasibility study in consultation with the Member
States, a Central System with data fed by Member States also appears to be the most future-proved solution. 123
The
main features of such system are:
- the freedom for the taxpayers to adopt the e-invoicing solution that they prefer
- reporting of a subset of the data and not of the whole invoice,
- harmonised subset of data to be reported for intra-Community transactions,
- reporting in real-time and on a transaction-by-transaction basis,
- reporting by the taxpayer or by a third party on his behalf,
- the possibility for the taxpayer to always use the European standard, while Member States can put at the
disposal of the taxpayer additional possibilities for reporting.
However, no final decision has been taken yet and technical specifications for the exchange of data between tax
administrations will be further analysed and developed.
The administrative burdens for businesses and implementation costs for tax administrations closely reflect the
complexity of the DRRs: costs are higher for real-time requirements, and lower for VAT listing, with SAF-T systems
in between.124
Since the quantitative analysis did not provide solid findings on the impact of the choice of the type of
123
The IT services of the European Commission conducted a feasibility study in consultation with the Member States
to determine the best option to implement such exchange. More details in the impact analysis section.
124
An assessment of the costs to comply with DRRs is presented in the supporting study, Vol I, p. 41 to 70.
48
DRR, a qualitative analysis (See Table 31)125
was performed to indicate e-invoice as a possible choice for an EU DRR.
Moreover, since real-time reporting requirements and e-invoicing are the most costly and complex types of digital
reporting requirements, the e-invoicing was further considered in this impact assessment, especially to fundament the
cost-effectiveness analysis. In addition, during the public and targeted consultation, businesses expressed a clear
preference in favour of an e-invoicing solution because it can easily be used for their internal automation and not
limited to tax-related reporting, as it is the case with VAT listings or SAF-T. Moreover, e-invoicing appears to be the
most future-proof digital reporting requirement, and Member States have also expressed a preference for e-invoicing
during the targeted consultation. This further supports the conservative approach that was taken to consider the costs
derived from the most complex option, e-invoicing when analysing the impacts of different options in Sections 6 and
7.
Box 2
The deemed supplier model
The “deemed supplier” model is a simplification measure intended to facilitate the collection of VAT in specific
situations. This is typically the case when the intermediary in a transaction (in the envisaged initiative, a platform) is
for some reasons better placed than the “real” supplier (i.e. the underlying supplier) to ensure the collection of the
VAT due on this transaction. The reasons are either because it would be too burdensome for this underlying supplier to
collect the VAT (e.g. when the underlying supplier is a natural person or a taxable person using special schemes for
small enterprises), or because it is more secure to collect it from this intermediary (when the underlying supplier is not
established /VAT registered in the EU).
In a practical sense, when a supplier (the underlying supplier) uses a platform and does not provide the platform with a
VAT number, the platform will adopt the role of the deemed supplier, and add the VAT to the price of the supply. If
the customer pays the amount directly to the platform, the platform will pass the VAT amount due on the transaction
of the supplier onto the tax authority (via their existing VAT return), and the rest (minus their facilitation fee) will be
passed to the supplier. Where the customer makes the payment directly to the supplier, that supplier will be required
to pass the VAT to the platform.
Where the supplier does provide a VAT number to the platform, the deemed supplier regime will, ordinarily not apply,
and the supplier will charge and account for the VAT via their VAT returns. However, there are certain situations
where the underlying supplier will have a VAT number, but will not charge the VAT (for example, some Member
States allocate VAT numbers to businesses using the special scheme for small enterprises). In such cases, the supplier
will be required to identify themselves as such to the platform, and the deemed supplier model will apply.
5.3.Options discarded at an early stage
Certain options have been discarded at an early stage as inconsistent with the EU legal framework
or the objectives of this initiative. Other options were discarded because of their technical
unfeasibility or considering their clearly inferior impacts.
125
Supporting Study, vol. I, p. 128 - 131.
49
1. VAT reporting
a. Adopting different designs for EU and domestic transactions.
It would be inappropriate to design a different DRR for domestic and intra-EU
transactions. From the analysis, no evidence emerged suggesting that domestic and
intra-EU transactions require a different reporting mechanism, and this choice would
duplicate costs without any significant benefit for tax authorities and taxpayers.
However, the possibility of introducing a DRR only for intra-EU transactions is
considered among the policy options. This could, for example, allow substituting the
ineffective recapitulative statements and thus reducing intra-Community VAT fraud,
while limiting compliance costs for taxpayers that only operate domestically.
b. Harmonising existing DRRs in the short-term.
Any policy proposal on an EU DRR does not work on a tabula rasa, given that
national mechanisms have been introduced or adopted in a majority of Member
States. Therefore, any proposal needs to incorporate a strategy for dealing with the
existing requirements. Expecting to immediately retrofit all these systems into a new
EU system would be politically very complex, and, most importantly, would
generate duplicated burdens, since the investment in IT solutions and know-how
borne by tax authorities and taxpayers in these Member States would become sunk
costs.
2. VAT treatment of platform economy
a. Adding a common simplified VAT scheme for persons providing their services via
platforms by applying a flat VAT rate without input tax deduction. Under this
option, a new special scheme would be introduced for providers supplying services
using a platform, subjecting them to a flat VAT rate without input tax deduction.
The additional complexity in the VAT system and the limited impact on VAT
equality and neutrality are the main factors for discarding the option. Also, it would
be difficult to apply, considering that a number of underlying supplies may be
exempt (e.g. provision of real estate services). Accordingly, the option received little
support from both platform operators and tax authorities consulted.
b. A system whereby the provider becomes a taxable person upon exceeding a set
turnover threshold. The enforcement of such an option presents significant
feasibility problems. In particular, it would not be possible for platforms to monitor
the revenue obtained over other platforms and sub-platforms. Also, it would lead to
certain problematic characterisations of the provider. E.g. an individual may provide
occasional supplies in different sectors (for example, short term rental and ride-on-
demand transport services), which, once combined, would bring them over the
threshold. Finally, the threshold could hardly be applied to platforms which operate
in markets with high-value transactions (e.g. sales of properties or second-hand
cars), since individuals may risk being considered as a taxable person from the very
first, occasional, transaction.
50
3. VAT registration
a. One possibility could be to include also B2B transactions in the OSS. In practice,
this means that any cross-border sales made by a business supplier to another
business would fall within the scope of the OSS, hence not require multiple VAT
registrations. Such transactions are very prevalent in the Single Market. However,
without including a deduction mechanism in the OSS, the lifting of the VAT
registration requirement alone may not solve the problem if the burden of claiming
back input VAT through the VAT refund mechanism (Directive 2008/9/EC) is
deemed higher than the burden of VAT registering and filing local VAT returns.
Due to the impossibility to deduct input VAT through the OSS mechanism, the
uptake of this possibility will be very limited.
b. Introducing the input VAT deduction mechanism within the OSS is expected to
make the OSS more attractive for businesses carrying out applicable B2B
transactions, as the impossibility to deduct VAT through the OSS was perceived as a
major stumbling block. However, the feasibility of this option is questionable for
different reasons. Because it would entail the Member State of establishment
deciding on the quantum of deductible VAT incurred in another Member State it is
technically challenging, as VAT deduction rules vary by country. Tax authorities
also discarded this solution both because they would be obliged to make financial
outlays based on decisions made outside their country, and because of the practical
barriers to conducting audits and controls on companies based in other Member
States. In addition, there are obvious similarities between this option and the
proposal on a definitive VAT system (see Section 1 and Annex 5: other initiatives),
whose adoption at the Council is presently stalled due to comparable issues.
51
Figure 5 – Intervention logic
Sub-optimal VAT collection and control Excessive burdens and compliance costs
Better VAT collection, control and fairness Simplified, modern and legally certain VAT system
Improve reporting
requirements to unlock
digital opportunities
“Status-quo”
I. Sub-option 1 (reporting):
No DRR harmonisation
II. Sub-option A (platform
economy): No legislative
intervention
III. Sub-option 1 (VAT
registration OSS&IOSS):
Leave in place the current
VAT registration system
Create level-playing
field for businesses,
regardless of the
business model
Promote convergence
and interoperability of
IT systems
Reduce burden,
regulatory
fragmentation and
associated costs
Minimise the need
for multiple VAT
registrations in the
EU
“Minimalistic approach”
I. Sub-option 2:
Recommendation & Removal
II. Sub-option B: Clarifying
the current VAT treatment of
the platform economy
III. OSS Sub-option 2: Small
extension of OSS to all B2C
supplies
“Moderate approach”
I. Sub-option 3: Keep data
with the taxpayers
II. Sub-option C. Narrow
sectoral deemed supplier
(only some transport and
accommodation services)
III. “Minimalistic
approach” + B2B reverse
charge (OSS Sub-option 4)
“Enhanced approach”
I. Sub-option 4a: intra-EU
DRR introduction
II. Sub-option D: Sectoral
deemed supplier regime
(all Sub-option C sectors)
III. “Moderate approach” +
mandatory IOSS for
deemed suppliers (IOSS
Sub-option 3a)
“Maximal approach”
I. Sub-option 4b: Full
harmonisation of DRR
(including domestic)
II. Sub-option E: Inclusive
(all platforms) deemed
supplier
III. “Enhanced approach”
+ threshold removal
(IOSS sub-option 2)
Specific
objectives
Policy
Options
General
objectives
Problems
Increasing scale of the
platform economy and
e-commerce
Multiplicity and complexity of
the new business models driven
by technological changes
Fragmented regulatory
framework (divergent
requirements)
Scope of the application
of the simplification
schemes
Outdated reporting
mechanism for intra-
Community transactions
Drivers
52
6. WHAT ARE THE IMPACTS OF THE POLICY OPTIONS?
6.1.Description of impacts
The impacts of the VAT in the digital age initiative are described by type and by area (see Table 8):
VAT reporting, VAT treatment of platform economy, VAT registration. The section will also focus
on the impact on small and medium enterprises.
Table 8 – Overview of impact types by VAT area (reporting, platform economy, registration)
Impact type
VAT area
Reporting
Platform
economy
Registration
Administrative burdens and implementation costs ☒ ☒ ☒
Fragmentation and legal certainty ☒ ☒ ☐
VAT collection (revenue) and fraud ☒ ☒ ☒
Environment ☒ ☐ ☐
Social ☐ ☒ ☐
Business automation ☒ ☐ ☐
Level-playing field (Internal Market) ☐ ☒ ☒
Tax control efficiency ☒ ☐ ☐
Data confidentiality ☒ ☐ ☐
Administrative burdens and implementation costs
Administrative burdens represent the largest impact for businesses, spanning all VAT areas.
Measures under analysis may have a negative impact in terms of administrative burden (for
example the introduction of DRRs generates burdens for businesses due to the need to invest in new
IT solutions and because of the routine costs of compliance) but also a positive one (the very same
DRR could reduce burdens by introducing an EU wide harmonised system of reporting allowing
for pre-filled VAT returns, removing the recapitulative statements and other domestic obligations
and encouraging business automation. The use of e-invoicing could also provide benefits linked to
the dematerialisation of paper invoices (savings in printing and postage costs, quicker issuance,
invoice integrity and security, etc.).
Both the administrative burdens and their reduction are assessed using the Standard Cost model
(SCM)126
based on the findings from the current situation.
126
See Annex 4.
53
Fragmentation and legal certainty
Fragmentation is reduced, and legal certainty enhanced for reporting obligations and the rules
regarding the platform economy. For example, the introduction of a standard EU DRR will reduce
the current fragmentation in the unilateral application of DRRs, and clarifications of the VAT rules
for platforms (i.e. in establishing the status of the underlying supplier) will improve the legal
certainty. Fragmentation costs due to the diversity of the DRRs in place increase the more (and
more diverse) DRRs are introduced at national level and decrease by harmonising policy
interventions; these are quantified via the SCM based on the findings from the current situation.
VAT collection (revenue) and fraud
Impacts on VAT collection (which are expressed by the evolution of VAT revenue) and VAT
control/fraud (which are measured by the evolution of VAT Gap) would be the largest impact
generated by the introduction of DRRs and are measured via the econometric model (See Annex 4:
Analytical methods).
Environment
The introduction of mandatory e-invoicing implies the dematerialisation of paper invoices, thus
reducing consumption of paper and transport services (for postage) while increasing the costs for IT
infrastructure and energy consumption. These net savings are converted into CO2 savings per
invoice and monetised by considering the price of EU emission allowances.
A second-order environmental impact derives from the savings associated with the reduction of
administrative burden and digitalisation, where taxpayers will interact less with the authorities and
distance audits will require less resources.
Social
The social impacts derive from the increase of tax fairness and as a second-order effect of the
impacts on competition (VAT neutrality and equality), and the corresponding impact on those
working in the relevant sectors (for example those working in the platform economy). The platform
economy can boost employment not only by creating work opportunities both for unskilled, part-
time and high-skilled individuals, but also by fostering employment opportunities in smaller cities
and disadvantaged zones. The burden reduction also generates some favourable social impacts, as
administrative barriers have the greatest negative effect on micro and individual businesses, which
typically create the most job opportunities for disadvantaged workers.
Business Automation
The VAT in the Digital Age initiative contributes to the digital transformation127
by pushing for
more business automation and the use of digital. The initiative supports digital transformation as
127
On 9 March 2021, the European Commission presented a vision and avenues for Europe’s digital transformation by
2030. The Commission proposes a Digital Compass for the EU's digital decade that evolves around four cardinal
points: skills, infrastructures, digital transformation of businesses, and digitalisation of public services.
54
VAT digital reporting further incentivises the natural trend of business automation. In this respect,
the introduction of specific reporting obligations (listings, SAF-T etc.) for tax purposes only are
rather seen as an additional burden by the stakeholders consulted. However, stakeholders
unanimously agree that when the reporting obligations are combined with standardized e-invoicing,
economic benefits are also expected. The introduction of mandatory electronic invoicing is the
cornerstone in this context and could create benefits such as the use of structured data to analyse
and optimize value chains, quicker invoicing processes, faster VAT reimbursement and strong
business automation gains.
Level playing field (internal market)
Impacts on the functioning of the Internal Market and competition (level-playing field), are linked
to the equality and neutrality of VAT for different business models (digital vs. traditional) in the
platform economy area and the possibility of benefiting from the OSS and IOSS for VAT
registration (domestic vs. cross-border).
Tax control and efficiency
Tax control efficiency for tax authorities is expressed by there being better/fewer audits and
requests for information and quicker VAT reimbursement128
.
Data Confidentiality
Data confidentiality is defined as the protection against the disclosure of information – in this case
the taxpayers’ transactional data – by ensuring that access to the data is limited only to those who
are authorised. Confidentiality can be ensured in various ways (e.g. by limiting data collection or
transmission) and is assessed based on risk variation (increase, decrease), since no IT system is
completely ‘confidential’ (or secure) in absolute terms.
6.2.Impacts by VAT area
The policy sub-options in each of the VAT areas were individually assessed by the supporting
study. Table 9 (VAT reporting), Table 13 (platform economy) and Table 14 (VAT registration)
present an overview of this assessment.
128
In both cases, however, no quantitative evidence exists on whether DRRs have been conducive to better/less audits
(also due to the intervening COVID-19 pandemic) or quicker VAT reimbursement, since positive impacts were
identified only in a few Member States or by a too limited number of interviewees.
55
Table 9 – Impacts in VAT reporting area by policy sub-option (net impacts, 2023-2032)
Impacts
Sub-option
VAT revenue, and
burdens (net
impacts)
Environment Tax control
Business
automation
Data confidentiality
VAT
reporting
1 – Baseline N/A N/A N/A N/A N/A
2 – Recommendation and
Removal
- Higher VAT revenue
and burden, due to
more widespread
diffusion of DRRs
+ EUR 16.5 billion
No impact - More widespread
adoption of DRRs
leads to better risk
analysis, and improves
audit
- Adoption of mandatory
e-invoicing spurs more
companies to automate
- More widespread
adoption of DRRs
increases the risks of
attacks on companies’
data
3 – Keep the data with the
taxpayers
- Some savings in
administrative burdens;
limited effect on VAT
revenue
+ EUR 27.5 billion
No impact - Audits would become
better; no
improvements to risk
analysis possible
- Electronic data may
increase automation;
benefits from e-
invoicing fail to
materialise
- No data transferred
reduces the surface
attack; risk at the
company's premises
(SMEs especially)
remains
4a – Partial harmonisation
(intra EU)
- Increased burdens and
higher VAT revenue
- Domestic DRRs
adoption increases
+ EUR 138.9 billion
Estimated environmental
benefits up to EUR 0.05
billion
- Better risk analysis,
and improves audit
effectiveness and
efficiency
- Electronic handling of
transactional data may
increase automation
- Risks to data
confidentiality increase
significantly the more
fiscal data are stored
and exchanged
4b – Full harmonisation
(intra EU and domestic)
- Highest burdens and
highest VAT revenue
+ EUR 231.1 billion
Estimated environmental
benefits up to EUR 0.06
billion
- Maximum
improvements of risk
analysis and audits due
to the highest coverage
- Electronic handling of
transactional data may
significantly increase
automation
- Highest risks to data
confidentiality
56
The net impacts on VAT revenue and burdens are composed of the elements detailed below.
Table 10 – VAT reporting: net impacts on VAT revenue and burdens (2023-2032)
Costs Benefits
Administrative
burden for
businesses
Implementation
cost tax
authorities
Fragmentation
costs
(elimination)129
Environmental
benefits
Savings pre-filled
VAT returns
Removal of
recapitulative
statements
E-invoicing
benefits
VAT collection/
C-efficiency**
Max.
impact on
VAT
Gap***
Recommendation and
removal (Sub-option 2)
EUR 2.8 billion EUR 0.1 billion EUR 4.4 billion No impacts EUR 0.7 billion No impacts
EUR
0.3billion
EUR 14.1
billion
- 0.13 p.p.
Keep the data with the
taxpayers (Sub-option 3)
EUR 6.5 billion
EUR 0.05
billion cost
reduction
EUR 1.1 billion No impacts No impacts No impacts No impacts
EUR 32.8
billion
- 0.29 p.p.
Partial Harmonisation
(Sub-option 4a)
EUR 11.3
billion*
EUR 2.2 billion EUR 24.2 billion
EUR 0.01-0.05
billion
EUR 4.3 billion EUR 11 billion
EUR 1.9
billion
EUR 111
billion
- 0.99 p.p.
Full Harmonisation
(Sub-option 4b)
EUR 43.5
billion*
EUR 3.4 billion EUR 24.2 billion
EUR 0.01-0.06
billion
EUR 7 billion EUR 11 billion
EUR 14.5
billion
EUR 221.4
billion
- 1.98 p.p.
* To fundament the cost-effectiveness analysis, the most costly and complex type of digital reporting requirement (e-invoicing) was considered.
** The impact of the introduction of DRRs on VAT revenue is estimated based on the results of the econometric model (see Annex 4: Analytical methods).The introduction of DRRs is
estimated to increase C-efficiency by 1.9 percentage points, based on the C-efficiency (quarterly data) model. The alternative methodology using the VAT gap projects a reduction in
the VAT Gap by 2.6 percentage points. The VAT Gap reduction refers to the models used, not accounting for the dynamic baseline. However, Member States will, if nothing is done on
an EU level, introduce domestic reporting requirements to deal with their specific problems. Thus, the figures in Table 10 reflect this situation.130
*** The impact on the VAT Gap mainly comes from the introduction of digital reporting, which is an antifraud measure. Calculations are made by notionally increasing the 2021 VAT
revenue (VAT Gap Study), amended to exclude the UK with the additional VAT revenue obtained under C-efficiency model
129
To maintain the comparability with the presentation in the baseline section, the structure of the tables was kept. However, there is a reduction of fragmentation costs compared with
the baseline, thus the change is reflected corresponding column was moved from costs to benefits
130
The quantification of the net benefits is done against the baseline scenario which assumes that a certain number of MS will adopt DRRs in the coming years; thus, only additional
benefits (and costs) are accounted for. Annex 4: Analytical methods includes relevant assumptions about future adoption of DRRs. Annex H of the supporting study includes a full
description of the scenarios on which Member States will do so and on which date.
57
DRRs: Cost-benefit comparison against baseline
Costs
(EUR billion)
Benefits
(EUR billion)
Net impacts
(EUR billion)
Sub-option 2 2.9 19.4 16.5
Sub-option 3 6.4 33.9 27.5
Sub-option 4a 13.5 152.4 138.9
Sub-option 4b 46.9 278.1 231.1
Tax control and efficiency
The benefits to tax control would increase with the volume, quality, timeliness and granularity of
data. Therefore, options which entail the provision of data on both domestic and cross-border
transactions provide the highest benefits for tax control.
Measures which only cover domestic supplies, would provide benefits in this regard (for example,
through better targeted audits, or allowing faster processing of reimbursements). However, these
benefits would be limited on fight against cross-border fraud, and in particular MTIC fraud, as the
current system of information on intra-EU supplies would remain in place (the recapitulative
statements).
Measures which apply to cross-border transactions would significantly improve the current control
capabilities for these transactions which are currently based on the recapitulative statements,
allowing a more efficient and effective fight against cross-border fraud.
Therefore, the optimal option for tax control purposes would be one which applies both to domestic
and cross border transactions. However, this option would need to be fully interoperable with the
systems already in place in Member States.
In any case, any option increasing the volume, quality, timeliness and/or granularity of the data
would improve the abilities of Member States to control their taxpayers, leading to increased
efficiency in tax collection, and the ability to better target fraudulent traders and problematic
supplies.
Business Automation
The introduction of digital reporting requirements, in particular through the implementation of
mandatory electronic invoicing, allows a more efficient management of the business’ invoicing
process, significantly reducing the cost for receiving and recording invoices. Further, the
dematerialisation of invoices reduces the costs related to their archiving.
The benefits derived from the business automation could be significant. However, they unevenly
distribute among taxpayers. These benefits seem to be more important for large companies, which
keep accounting and invoicing activities in-house, while they will be reduced for small companies,
which frequently outsource these activities to external tax advisors.
58
The more extended the implementation of digital reporting requirements, especially if they take the
form of electronic invoicing, the bigger the benefits for taxable persons derived from the
automation of their processes.
Data Confidentiality
The more data are exchanged, the greater the risk to data confidentiality. In that sense, an option
which keeps the data with the taxpayers gives the lowest risk to data confidentiality, and that which
has the most data travelling from taxpayers to tax administrations, and between tax administrations,
has the highest risk.
59
Box 3
Implementation of an EU DRR: difference between options 4a and 4b (Part I)
Under both options 4a and 4b, Member States shall implement an EU DRR for intra-EU transactions and the
recapitulative statements are abolished.
The difference between both options is that the implementation of a DRR system for domestic transactions is
voluntary in option 4a while it is mandatory under option 4b. The impacts on Member States can summarised as
follows:
- All Member States will be obliged to implement the EU DRR for intra-EU transactions under both options.
- Member States having in place a DRR for domestic transactions shall ensure interoperability with the EU
DRR in the short term and shall converge to the EU DRR in the medium term. This will happen under both
options.
- Member States that do not have in place a DRR for domestic transactions, when implementing such DRR
shall adopt the EU DRR. The implementation of such a DRR for domestic transactions is obligatory under
option 4b and voluntary under option 4a.
The difference between both options is that under option 4a there will be less Member States having in place a DRR
for domestic transactions in the medium term that under option 4b. The study made the following assumptions:131
Table 11 – Option 4a: Adoption of Digital Reporting Requirements (2023-2032)
Year
Time for the
analysis
Number of
Member States
with DRR
Type of DRR Adopters
2023 T0
14 (Domestic)
27 (intra-EU)
VAT listing BG, CZ, EE, HR, LV, SK
SAF-T LT, PL, PT
Real-time ES, EL, HU
E-invoicing IT, FR
2025 T2
20.1* (Domestic)
27 (intra-EU)
VAT listing BG, CZ, EE, HR, LV, SK
SAF-T LT, PL, PT
Real-time ES, EL, HU
E-invoicing IT, FR
EU DRR
AT, BE, CY, DE, DK, FI, IE, LU, MT, NL, RO, SE,
SI
2028 T5
20.1* (Domestic)
27(intra-EU)
EU DRR All Member States
Therefore, even if there is no obligation for Member States to implement a DRR for domestic transactions, it is more
than likely that all of them will implement such systems in the medium-long term. This assessment is backed by the
following recent developments:
- Some Member States without DRR systems in place have recently announced their intention to adopt
mandatory e-invoicing as a basis for digital reporting. This is the case for Romania and Belgium.
- Other Member States are studying the implementation of a reporting system based on e-invoicing, even
though they have not yet announced if they will adopt it. This is the case of some Nordic Countries, which are
carrying out the “Real-time economy” project.
131
For full details about scenarios and assumptions used to fundament the VAT reporting options (including 4a and 4b)
see Vol. I, Annex H – of the supporting study.
60
6.2.1. Impacts on SMEs of the digital reporting (SME test)
The introduction of DRRs will impact all taxable persons. However, this impact will be different
for each type of business. In this regard, it is worthwhile providing an additional analysis on the
impacts on SMEs of the introduction of digital reporting at an EU level. Such SME analysis (SME
test) aim to identify the possible effects of introduction of DRRs on SMEs.
The table below provides the range of net impacts. The analysis assumes that additional services,
and in particular pre-filled VAT returns, will be provided by the tax authorities under the new
digital reporting requirements that are to be introduced.
Table 12 – Administrative burdens by category and type; net impacts, EUR per year; ranges
Active only domestically Active cross-border
Micro/Small132
Medium/Large Micro/Small Medium/Large
Per company
(EUR/year)
Per company
(EUR/year)
Administrative
Burdens
100 / 500 600 / 4,400 100 / 500 600 / 4,400
Administrative
burdens savings*
0 / 300 0 / 16,700 500 / 700 4,900 / 21,600
Net impacts for
businesses
- 200 / 100 - 1,400 / 12,300 300 / 600 3,600 / 17,200
* the analysis does not account for the benefits from business automation
The results show that companies engaged in cross-border transactions get a net benefit from the
introduction of an EU DRR. These are smaller for micro and small entities, but still positive. This is
due to the removal of the recapitulative statements, which come on top of the other benefits
generated by the DRR, and in particular the pre-filled VAT returns. On the contrary, the analysis
shows mixed findings for companies that are not active cross-border, which represent the vast
majority of micro and small entities. For purely domestic micro and small enterprises, net benefits
may be negative; this is because they do not gain benefit from the facilitation of cross-border
transactions. About the ranges, in line with the overall cost analysis, the costs are higher if more
complex types of DRRs are selected, such as e-invoicing. The taxpayers made it clear in the public
consultation that “the VAT reporting should not be planned only to fulfil the information requests of
tax administrations but also to make real-time data available for companies, so that they can
benefit from detailed financial data in their own business”. Therefore, appropriate support
measures, for instance for the investment in e-invoicing services or the provision of free software
could be considered, to make sure that the net costs for taxpayers are lowered or compensated. In
any case, the minimisation of net impacts also depends on the provision of pre-filled VAT returns
132
Estimates based on the compliance costs and savings experienced by companies in the current situation, according to
the Standard Cost Model methodology. Burdens include the implementation costs and ongoing compliance costs
related to the DRRs. Savings include those due to the pre-filling of VAT returns, e-invoicing benefits (quicker issuance,
and printing and postage cost savings) and the removal of the recapitulative statements (See Annex 4).
61
by the tax authorities. Such support was also requested by stakeholders during the public
consultation, precisely pointing at possible compensation measures.
However, it should be underlined that the costs for businesses of the implementation of DRR
systems would materialise even in the case that no action is taken at EU level. This is because
under the current status quo, Member States will continue to implement DRR systems to improve
tax collection. According to the technical study133
carried out to assess the different policy sub-
options, in the medium term the same number of Member States will have in place DRR systems
for domestic transactions if no action is taken at EU level, regardless of whether systems for the
reporting of domestic transactions are harmonised at EU level or left at the discretion of Member
States. Therefore, the main difference of the EU action would be that the process will speed up.
Therefore, the negative impact for certain businesses which are only engaged in domestic
transactions are not a consequence of the EU action.
Table 13 summarises the main impacts in VAT treatment of platform economy area that are visible
on VAT revenue, legal certainty, administrative burdens, and internal market – level playing field.
133
Supporting study, Vol. I, Table 33, p. 104.
62
Table 13 – Main impacts in VAT treatment of platform economy area
Impacts
Sub-option
VAT revenue
Legal certainty and administrative
burdens
Competition / Internal Market
VAT
treatment
of platform
economy
A – Baseline N/A N/A N/A
B – Clarification of VAT
rules (nature of service,
provider status, records)
+ EUR 2.5-2.6 billion (due to increased
compliance compared to the baseline)
+ EUR 0.5 billion savings in administrative
costs resulting from streamlining and
clarifications
- More harmonised level-playing field
across MS
C – Deemed supplier:
certain accommodation
and transport services
+ EUR 19-45 billion due to increased
compliance and broader tax base compared
to the baseline
+ EUR 0.5 billion savings from inclusion of
clarifications
- Burdens due the administration of the
deemed supplier regime (low)
- New legal uncertainties linked to the
boundaries of the system (high)
- Reduction of distortions between same
services offered via different channels,
minor negative impact on competition
among exempt suppliers
D – Deemed supplier: all
accommodation and
transport services
+ EUR 24-66 billion due to increased
compliance and broader tax base compared
to the baseline
+ EUR 0.5 billion savings from inclusion of
clarifications
- Burdens due the administration of the
deemed supplier regime (low to
moderate)
- New legal uncertainties linked to the
boundaries of the system (low to
moderate)
- Reduction of distortions between same
services offered via different channels,
minor negative impact on competition
among exempt suppliers
E – Deemed supplier: all
services for monetary
consideration
+ EUR 63-146 billion due to increased
compliance and broader tax base compared
to the baseline
+ EUR 0.5 billion savings from inclusion of
clarifications
- Burdens due the administration of the
deemed supplier regime (high)
- New legal uncertainties linked to the
boundaries of the system (low)
- Reduction of distortions between same
services offered via different channels,
significant negative impact on
competition among exempt suppliers
63
VAT Revenue
Whilst VAT revenue will grow in absolute and relative terms if nothing is done, this is due to the
growth of the platform economy and not to any increase in compliance efficiencies. The
inconsistencies in the application of the rules will remain, along with the lost revenue collection
opportunities.
Clarifying the existing rules to any extent will increase revenue as suppliers become more aware of
the rules, however the difficulties would remain in how a tax authority would ensure the
compliance of a large number of small suppliers. The clarification of the rules regarding the
treatment of the platforms’ facilitation services (whether they are regarded as an electronically
supplied service or an intermediary service) will lead to a shift in revenue between Member States.
With the introduction of the deemed supplier regime, VAT revenue increases substantially, because
it introduces an extension of the tax base, and because it shifts the compliance burden from the
small supplier to the platform, which would be also easier for the Member States to control. The
wider the scope of the measure, the higher the additional VAT revenue.
Legal Certainty and Administrative Burdens
Currently compliance issues surrounding the determination of the status of the supplier and various
record keeping obligations generate burdens of around EUR 1.9 billion. Any clarification of the
current rules will reduce this burden and increase the legal certainty.
In judging the impact of any measure, it is difficult to assess the numbers of individuals providing
services via platforms. For example, the study ‘VAT in the Digital Age’ assesses 410,000 full time
employees deriving income from the transportation sector, and 458,000 in the accommodation
sector. The Impact Assessment Report on the proposal for a Directive on improving working
conditions in platform work estimates that 28.3 million people have at least occasionally worked
through digital labour platforms.
It should be noted, however, that the impact due to the administration of the deemed supplier
measure will fall not on the underlying suppliers, but on the platforms themselves, who will
account for the VAT on the underlying transactions via their existing VAT accounting procedures.
In addition, the legal uncertainties due to the boundaries of the system will decrease with the scope
of the measure. There is less legal uncertainty regarding the scope of a measure which applies to all
accommodation and transport services rather than certain accommodation and transport services,
and indeed if the measure is applied to all services the legal uncertainties would be minimal.
Level playing field (internal market)
Whilst clarification of the existing rules will help with legal certainty, it will not address the
problem of competition, which, of the options listed, can only be addressed by a deemed supplier
measure. This will eliminate the VAT advantage of occasional and very small suppliers when
operating via a platform and benefiting from the network effect and follows a model adopted in
64
other countries when faced with similar competitive imbalances (most recently the Canadian
deemed supplier model for residential letting134
).
However, the introduction of the deemed supplier rule would create a new impact on competition,
between very small and occasional suppliers within or outside a platform. Such impact is in direct
proportion with the scope: minor for more restricted or sectoral deemed supplier options and more
significant for the inclusive ones.
6.2.2. Impacts on SMEs of the platform economy
The stakeholder consulted asked for a global and reasonable solution, this being valid especially for
the SMEs.
Under the deemed supplier regime options, the platform would account for the VAT in the place of
small underlying suppliers. This means that the underlying supplier would not be required to
register and account for the VAT itself, thus bearing no additional burden.
Table 14 summarises the main impacts in VAT registration area that are visible on administrative
burdens, VAT collection and fraud and internal market – level playing field.
134
The Canadian government proposed a new approach to the application of Goods and Services Tax (GST) – the
equivalent of VAT – to the growing digital and sharing economy (effective July 1, 2021). In particular, it aimed at
introducing a deemed supplier regime for platform-based short-term accommodation. The policy aims to address the
same issues with which the EU is currently faced, and in particular the fact that the local VAT/GST regime is not
applied consistently in this sector, putting traditional business models at a comparative disadvantage.
65
Table 14 – Main impacts in VAT registration area
Impacts
Sub-option
Administrative burdens
VAT collection (revenue) and
fraud
Level playing field
VAT
registration
(OSS)
1 – Baseline N/A N/A N/A
2 – Minimal OSS
extension
Addresses the problem of multiple VAT
registrations, but only in a limited number of
market segments, such as electric vehicle
charging, and supplies of goods on a weekly
market.
Likely impacts on non-compliance and
fraud are assessed as marginal
Minor benefits are expected in terms of
functioning of the Single Market, that are
limited to the market segments involved
3 – Moderate OSS
extension
Eliminate the need to VAT register for
distance sellers, and for many businesses
outside the e-commerce sector.
By making compliance easier for SMEs, it
would also reduce non-compliance.
Reducing distortions to the functioning of
the Single Market in line with the wider
scope
4 – Reverse charge
Positive impacts for businesses operating
where there is currently no access OSS
simplification schemes.
Adoption of DRRs (4a/4b VAT registration)
facilitates the implementation and reduce the
risk of abuse by making it easier for the tax
authorities to verify the transactions
Relying pragmatically on the reverse charge
for wider B2B transactions improves the
functioning of the Single Market
VAT
registration
(IOSS)
1 – Baseline N/A N/A N/A
2 – Removal of the
current threshold
Can be combined with any other sub-option.
Minor benefits expected for businesses that
would be able to use the IOSS to avoid VAT
registration.
Preparing the IT systems of Commission
and Member States takes time and is costly.
Some reduction in fraud risks could
materialise
Levelling of the playing field in the Single
Market could be expected by allowing, via
the IOSS, suppliers to import in any
Member State.
3a – IOSS mandatory for
deemed suppliers
3b – IOSS mandatory
above a threshold
3c – IOSS mandatory, no
threshold
Minor benefits expected for certain actors,
such as postal operators and express
carriers.
Any introduction of thresholds complicates
the schemes and adds complexity.
While in practice the variations work
differently, similar impacts are expected for
3a, 3b and 3c.
The IOSS is also likely to help the
authorities identify fraud and increase
compliance.
However, it is difficult to enforce.
As a knock-on effect of increase
compliance, the level playing field will
improve.
66
Administrative burdens
OSS
The e-commerce sector will continue to grow, and as such, if nothing is done, an increasing number
of businesses, and in particular SMEs, will face the burden of having to register for VAT in
(an)other Member State(s) and comply with the specific VAT obligations of these Member States
in respect of transactions not yet covered by the OSS.
Any measure which increases the scope of the OSS will decrease the necessity of businesses
making B2C supplies (and other specific transactions such as own movements of goods) to register
in other Member States – this could be targeted to specific sectors/problem areas (such as electric
vehicle charging) where the sectoral burden reduction could be significant, or have a broader scope,
enabling a wider use of the OSS.
Similarly, broadening the scope of the reverse charge will reduce the necessity of businesses being
required to register in other Member States when they have made B2B supplies.
IOSS
Removing the current threshold of EUR 150 will mean that some businesses will no longer be
required to register in the Member State of destination, thus reducing their burdens. However, it can
be seen that any of the proposed changes to make the IOSS mandatory will have minimal impact on
administrative burdens (because the majority of businesses who see a benefit from using the IOSS
are already doing so).
VAT collection (revenue) and fraud
OSS
The wider use of the OSS is likely to improve compliance as businesses find the OSS easier to
administer, and the wider use of the reverse charge may help detect and reduce certain types of
MTIC fraud.
IOSS
Increasing the scope of the IOSS will reduce the levels of fraud, particularly from non-EU third
party suppliers, however, it will not eliminate it completely (i.e. there remain the opportunities for
the undervaluation of parcels or the misuse of IOSS numbers).
Level playing field
OSS
The disparity which currently exists between SMEs and large businesses will continue to exist
(because a large business is more likely to be either a) already established in another Member State
or b) if not, will face proportionately lower registration costs) and will rise as the value and volume
of distance sales increases. To increase the scope of the OSS will go some way to redress this
imbalance, reducing the necessity for SMEs to register in other Member States.
IOSS
There are ongoing opportunities for fraud, in particular from non-EU based suppliers, which impact
on the competitiveness of EU businesses. Improvements to the scope and functioning of the IOSS
will reduce this unfairness by improving the compliance of non-EU based suppliers.
67
6.2.3. Impacts on SMEs of the VAT registration
Approx. 280,000 SMEs will benefit from the extension of the scope of the OSS/IOSS. The number
of SMEs was extrapolated from the 2015 study (Deloitte’s VAT Aspects of cross-border e-
commerce report), which estimates 248,581 companies engaged in B2C cross-border e-commerce,
among which 232,118 SMEs. These figures were extrapolated by the supporting study to 300,000
companies in total (and the same proportion of SMEs), resting on the assumption that the growth of
e-commerce since 2015 not only reflects growth in the number of active e-commerce businesses but
also in the growth of volumes and values of sales of already existing businesses; hence the growth
of the number of businesses should be significantly smaller than the growth of e-commerce sales
over the same period (see Table 1)135
. Conservatively, for SMEs only this translates in a cost
saving up to EUR 0.34 (one-off) and up to EUR 0.67 (recurrent), thus a total of EUR 7 billion for
the period 2023- 2032. Since the total savings are EUR 8.7 billion, SMEs will benefit the most from
the measures.
6.3.Stakeholders’ views on the options
Regarding the VAT reporting options stakeholders generally support the introduction of an EU
DRR for intra-EU transactions, with or without the inclusion of the domestic transactions.
Agreement was less pronounced for options referring to recording data on VAT transactions in a
standard digital format, adopting non-binding Commission recommendations providing a common
design for reporting obligations across the EU, and for no longer requiring Member States to have
to ask for an explicit derogation for introducing mandatory e-invoicing for B2B transactions.
Figure 6 – Options for VAT registration (DRRs): stakeholders’ views
135
Supporting Study, Vol III, p. 61-62.
Tot. PI BF EO SP O Tot. PI BF EO SP O Tot. PI BF EO SP O
Non-binding EC
recommendation with
common design for
reporting obligations across
EU
Remove derogation for MS
to introduce mandatory e-
invoicing for B2B
transactions
Require taxpayers to
record VAT data in
standard digital format
Agree 52 11 19 11 5 6 72 16 19 12 15 10 81 17 16 21 17 10
Partly Agree 43 5 16 11 8 3 23 7 5 6 5 0 46 7 13 11 10 5
Neither agree nor disagree 15 2 1 4 6 2 19 0 8 6 1 4 11 1 7 2 1 0
Partly disagree 11 4 4 1 2 0 14 3 4 3 3 1 20 4 8 1 7 0
Disagree 58 10 10 14 17 7 42 5 10 12 12 3 22 2 7 7 3 3
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
68
The need for changes to the VAT rules to ensure proper VAT treatment of the platform economy
was considered necessary by most stakeholders. On the policy options, stakeholders noted that (1)
keeping a legal clarification up to date with the business developments and with the exact nature of
services offered by platforms will be difficult or impossible and it was remarked that the nature of
the service and distinction between an intermediary and electronic supply of service cannot always
be clearly defined; (2) to presume the VAT status of the service provider is difficult and may add
complexity for platforms, thus a simple and secure mechanism should be found; (3) the imposition
of new record-keeping obligations could increase costs and put platforms at a disadvantage
compared to non-platform businesses; and (4) while being seen as a solution by the majority of
respondents, a deemed supplier role for digital platforms may create difficulties for platforms, a
burden which might be unreasonable for smaller or purely domestic platforms which may choose to
shift the burden towards their users by imposing strict conditions and requirements.
Figure 7 – Options for VAT treatment of platform economy: stakeholders’ views
Tot. PI BF EO SP O Tot. PI BF EO SP O
EU DRR for intra-EU transactions and
harmonisation of existing domestic
systems
EU DRR for both intra-EU and
domestic transactions
Agree 93 17 22 26 18 10 103 18 24 25 24 12
Partly Agree 56 11 16 8 15 6 42 8 10 11 11 2
Neither agree nor disagree 8 1 5 1 0 1 6 1 4 0 1 0
Partly disagree 10 1 3 4 2 0 12 2 5 2 1 2
Disagree 11 2 2 3 3 1 14 2 5 4 1 2
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Tot. PI BF EO SP O Tot. PI BF EO SP O Tot. PI BF EO SP O
Clarification of nature of
services provided by
platform
Rebuttable presumption on
status of platform providers
Streamlining of record-
keeping obligations
Agree 111 20 29 24 27 11 70 11 22 13 17 7 86 13 26 20 18 9
Partly agree 27 5 7 8 5 2 33 7 1 14 9 2 36 9 7 9 8 3
Neither agree nor disagree 10 3 3 3 0 1 19 5 5 3 3 3 17 7 2 1 5 2
Partly disagree 1 0 0 0 1 0 5 1 0 2 2 0 2 0 0 0 2 0
Disagree 3 1 0 1 1 0 9 1 5 1 2 0 5 1 1 2 1 0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
69
On the VAT registration proposed options, the strongest agreement among stakeholders was to
extend the OSS to cover all B2C supplies of goods and services by non-established suppliers. Only
slightly less respondents agreed or at least partly agreed with extending the OSS to intra-
Community supplies and acquisitions of goods, and to B2B supplies of goods and services, together
with the introduction of a deduction mechanism into the OSS. The latter was in fact the most
popular option among economic operators. More than half of the answers indicated that they agree
with the options of making reverse charge available for all B2B supplies carried out by non-
established suppliers, and with removing the EURO 150 threshold for the IOSS. Two more options
were at least partly agreed by a majority: to extend the OSS to B2B supplies of goods and services
but leaving the current VAT refund mechanism in place and making the IOSS mandatory for all
distance sales of imported goods. The former, however, was not supported by economic operators.
The options of making the IOSS mandatory either for all distance sales of imported goods above a
certain threshold or for marketplaces only did not find agreement among a majority of the
responding stakeholders.
Tot. PI BF EO SP O Tot. PI BF EO SP O Tot. PI BF EO SP O
Deemed supplier regime for
digital platforms for supply of
certain accommodation &
transport services*
Deemed supplier regime for
digital platforms for supply of
all accommodation & transport
services
Deemed supplier regime
for digital platforms for all
services for monetary
consideration
Agree 48 10 9 9 13 7 39 7 7 7 12 6 42 6 5 10 15 6
Partly agree 32 10 9 6 7 0 38 12 11 8 6 1 39 14 10 9 5 1
Neither agree nor disagree 22 4 5 2 8 3 25 5 4 3 10 3 22 3 5 2 9 3
Partly disagree 6 1 2 1 2 0 6 1 3 1 1 0 7 1 2 1 2 1
Disagree 17 3 4 5 3 2 18 3 4 5 4 2 25 4 9 7 3 2
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
70
Figure 8 – Options for VAT registration (OSS and IOSS): stakeholders’ views
Tot. PI BF EO SP O Tot. PI BF EO SP O Tot. PI BF EO SP O
Extension of OSS to cover all B2C
supplies of goods & services by non-
established suppliers
Extension of OSS to enable intra-
Community supplies & acquisitions of
goods
Extension of OSS to B2B
supplies of goods & service but
leaving in place current VAT
refund mechanism
Agree 113 18 38 20 27 10 111 19 36 23 24 9 48 12 15 9 11 1
Partly agree 21 8 3 5 4 1 23 7 1 7 7 1 32 6 9 5 6 6
Neither agree nor disagree 6 0 1 3 2 0 8 0 3 2 2 1 14 4 4 1 4 1
Partly disagree 4 0 1 1 2 0 6 1 2 1 2 0 13 1 4 6 2 0
Disagree 7 1 0 2 1 3 5 0 0 1 1 3 39 2 9 11 12 5
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Tot. PI BF EO SP O Tot. PI BF EO SP O Tot. PI BF EO SP O
Extension of OSS to B2B supplies of goods &
services, while also introducing a deduction
mechanism into the OSS
Reverse charge made available for all B2B
supplies carried out by non-established
suppliers
Removing the €150 threshold for IOSS
Agree 101 15 26 26 26 8 76 10 23 18 18 7 80 15 22 17 19 7
Partly agree 21 6 5 2 7 1 37 6 9 10 10 2 21 5 6 5 3 2
Neither agree nor disagree 11 2 6 1 0 2 15 2 5 3 3 2 16 4 2 2 8 0
Partly disagree 7 2 2 2 1 0 6 2 1 1 1 1 4 0 1 3 0 0
Disagree 7 1 2 1 1 2 11 4 0 1 5 1 11 3 3 1 2 2
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
71
6.4.Policy intervention – gradual approach
Even if some options were discarded, the total number of remaining valid options in the three areas
still allows for hundreds of possible combinations.
Therefore, the sub-policy options in each areas are combined in five successive approaches for
further analysis of their combined impacts. These approaches are: status-quo, minimalistic,
moderate, enhanced and maximal. With the exception of the status-quo which represents the
baseline, each approach is progressively increasing the intensity of the intervention, thus also
helping to strike the right balance in terms of proportionality and subsidiarity. The logic behind the
grouping was to gradually raise the intensity of the intervention in each of the VAT policy areas:
reporting, treatment of platform economy and registration compared with the preceding choice.
Since the VAT registration area has two components, OSS (intra-EU) and IOSS (outside EU/
importation), the intervention started with the intra-EU component (OSS), and was then extended to
the IOSS.
In addition, combining the various sub-options can produce synergies. For example, the OSS VAT
registration sub-option 4 requires the use of a reverse charge mechanism. Such a system, where the
customer accounts for the VAT on its VAT return instead of the supplier, can be enhanced by the
provision of operational data to tax administrations to reassure them of its good functioning. The
same data that will be made available by the introduction of digital reporting requirements (VAT
reporting options 4a and 4b) can also be used for that purpose. Therefore, the combination of such
sub-options in VAT registration and VAT reporting areas generates greater impacts than the sum of
their separate effects.
Tot. PI BF EO SP O Tot. PI BF EO SP O Tot. PI BF EO SP O
Making IOSS mandatory for all
distance sales of imported goods
Making IOSS mandatory for all
distance sales of imported goods
above an EU turnover threshold (e.g:
€10,000)
Making IOSS mandatory for the
marketplaces (deemed supplier)
only
Agree 43 8 12 8 12 3 33 7 9 6 9 2 30 7 9 5 7 2
Partly agree 18 3 3 5 5 2 23 5 7 6 3 2 15 3 1 5 4 2
Neither agree nor disagree 24 3 8 3 8 2 24 1 8 5 9 1 27 4 10 3 7 3
Partly disagree 12 0 4 4 4 0 15 4 4 2 3 2 8 0 3 3 2 0
Disagree 20 7 3 4 3 3 21 3 3 5 7 3 28 5 3 8 8 4
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
72
“Status-quo”
VAT reporting Sub-option 1:
No measure to harmonise the DRRs is introduced at EU level. The introduction of mandatory e-
invoicing remains subject to a derogation, and recapitulative statements are not modified.
VAT treatment of platform economy Sub-option A:
No legislative intervention to revise the VAT Directive and Implementing Regulation will be
proposed to address the problems identified regarding the platform economy.
VAT registration Sub-option 1 (OSS) and Sub-option 1 (IOSS):
This would leave in place the VAT system as of 1 July 2021, with only minor refinements (e.g.
additional guidance, quick fixes) to improve the implementation of the OSS and IOSS.
“Minimalistic approach”
VAT reporting Sub-option 2:
Under this sub-option, the introduction of DRRs remain optional for Member States whilst being
encouraged for those Member States with a significant VAT Gap or evidence of VAT frauds136
,
provided that the new system conforms to the EU design. The core elements of the EU design
which Member States are invited to consider are described in a non-binding recommendation. In
parallel, the requirement for a derogation to introduce mandatory e-invoicing is removed. Member
States can thus choose any reporting mechanism they deem fit. Recapitulative statements are not
modified.
VAT treatment of platform economy Sub-option B:
Clarifying the current VAT treatment of the platform economy. The nature of the services provided
by the platform and their place of supply will be clarified and a rebuttable presumption on the status
of providers of services using a platform will be introduced.
VAT registration Sub-option 2 (OSS):
An extension of the OSS so that it covers all B2C supplies of goods and services by non-established
suppliers. This option would address the problem of multiple VAT registration, but only in a
limited number of market sectors, particularly electric vehicle charging, supplies of goods made on
board means of transport and certain companies operating in border regions. This would entail a
minor increase in the scope of the OSS. The IOSS will remain unchanged.
“Moderate approach”
VAT reporting Sub-option 3:
Under this option, no EU DRR is imposed; rather, a new provision would be included in the VAT
Directive requiring taxpayers to record transactional data according to a pre-determined format.
VAT treatment of platform economy Sub-option C:
Under the deemed supplier options, the platform would be deemed to be the supplier, and liable to
collect and charge the VAT in cases where the provider does not charge VAT. A narrow deemed
supplier regime would apply to the supply of certain accommodation and transport services (i.e.
short term residence renting, ride-on-demand) for monetary consideration.
136
Possibly via the European Semester, and supported by the Commission (e.g. via DG REFORM programmes)
73
Certain elements from the Sub-option B regarding clarification of the existent VAT treatment
should also be included or adapted, for example, new rules for the place of supply of the platform’s
facilitation services and a presumption determining the status of the provider using the platform.
VAT registration the “Minimalistic approach” + Sub-option 4 (OSS):
It will add that Member States shall provide for the possibility of reverse charge for B2B supplies
by non-established persons. The IOSS will remain unchanged.
“Enhanced approach”
VAT reporting Sub-option 4a:
A DRR is introduced for intra-EU transactions and the recapitulative statements are abolished137
.
The introduction of a DRR for domestic transactions remains optional for Member States. Member
States wishing to introduce such a mechanism shall ensure that it conforms to the system used for
intra-EU transactions. For Member States where a DRR for domestic transactions is already in
place, interoperability138
with the intra-EU digital reporting is required in the short-term, and
national DRRs are required to converge to the EU system in the medium-term.
VAT treatment of platform economy Sub-option D:
A sectoral deemed supplier regime would apply to the supply of all accommodation and transport
services for monetary consideration. This also includes those elements from sub-option B described
in the moderate approach.
VAT registration “Moderate approach” + Sub-option 3 (OSS) + Sub-option 3a (IOSS):
Extension of the OSS so that it covers all B2C supplies of goods and services by non-established
suppliers and the transfer of own goods cross-border combined with the introduction of a reverse
charge for B2B supplies by non-established persons. The optional character of the IOSS will be
removed for the deemed suppliers combined with additional data exchange prior the importation.
“Maximal approach”
VAT reporting Sub-option 4b:
A DRR is introduced for intra-EU and domestic transactions alike, and the recapitulative statements
are abolished. For Member States where DRR for domestic transactions are already in place,
interoperability with the intra-EU digital reporting is required in the short-term, and national DRRs
are required to converge to the EU system in the medium-term.
VAT treatment of platform economy Sub-option E:
Under this option, the deemed supplier regime would apply to all services for monetary
consideration. This also includes those elements from sub-option B described in the moderate
approach
137
The change in the data reported on intra-EU transactions will consequently change the way these data are
exchanged between Member States. The IT services of the European Commission conducted a feasibility study in
consultation with the Member States to determine the best option to implement such exchange. Three main options
were assessed (i) a Central System with data fed by economic operators (ii) a Central System with data fed by Member
States and (iii) a Distributed System (an enhanced VIES system). The Central System with data fed by Member States
appears to be the most future-proved solution. The implementation would require minimum 18 months but on average
25 months.
138
Interoperability is the capacity to extract and exchange among Member States a pre-defined set of basic transactional
data in a common format.
74
VAT registration “Enhanced approach” + Sub-option 2 (IOSS):
Extension of the OSS so that it covers all B2C supplies of goods and services by non-established
suppliers and the transfer of own goods cross-border combined with the introduction of a reverse
charge for B2B supplies by non-established persons. Both, the EUR 150 threshold for use of the
IOSS and its optional character will be removed combined with additional data exchange prior the
importation.
75
7. HOW DO THE OPTIONS COMPARE?
7.1.Evaluation criteria and the gradual approach
The options are assessed and compared with regard to their effectiveness, efficiency and
coherence. Because the approaches include a mix of policy options in three areas of VAT
(reporting, platform economy and registration), the synergies are also mentioned, where applicable.
In addition, the proportionality and subsidiary are also taken into account for the full evaluation
(see Table 17):
Effectiveness
The specific objectives against which the effectiveness is evaluated are (1) to improve reporting
requirements to unlock the opportunities provided by digitalisation; (2) to promote convergence and
interoperability of IT systems; (3) to create a level-playing field for businesses, regardless of the
business model; (4) to reduce burdens, regulatory fragmentation and associated costs; and (5) to
minimise the need for multiple VAT registrations in the EU.
Table 15 – Effectiveness table
Effectiveness (specific objectives)
Improve reporting
requirements
Convergence and
interoperability of
IT systems
Create a level-
playing field
Reduce burdens
and fragmentation
costs
Minimise multiple
VAT registrations
Minimalistic
approach
+ 0/+ 0/+ + 0/+
Moderate
approach
0/+ 0 + + +
Enhanced
approach
++ +++ ++ ++ ++
Maximal approach +++ ++ ++ ++ ++
Efficiency
To measure the efficiency (cost-effectiveness) of policy sub-options in each area, a combination of
net benefits and scoring system was used to denote the nature and scale of impacts in comparison to
the continuation of the status quo for all policy sub-options in the areas of VAT reporting, VAT
treatment of platform economy and VAT registration. A score of 0 indicates no or only marginal
change. The scale ranges from ‘much worse’ (---) to ‘much better’ (+++).
Table 16 – Efficiency table (against baseline)
Impacts
Sub-option
VAT revenue, and burdens (net
impacts compared to the
baseline)
Environment Tax control
Business
automation
Data
confidentiality
VAT reporting
Sub-option 2 0/+ (EUR 16.5 billion) 0 + 0/+ –
Sub-option 3 + (EUR 27.5 billion) 0 0/+ + +
Sub-option 4a ++ (EUR 139 billion) + ++ + – –
Sub-option 4b +++ (EUR 231.1 billion ) + +++ ++ – – –
76
Impacts
Sub-option
VAT revenue139 Legal certainty and
administrative burdens
Competition / Internal Market
VAT treatment
of platform
economy
Sub-option B 0/+ (EUR 2.5 - 2.6 billion) ++ +
Sub-option C + (EUR 19 - 45 billion) + +
Sub-option D ++ (EUR 24 - 66 billion) + +
Sub-option E +++ (EUR 63 - 146 billion) 0/+ 0
Impacts
Sub-option
Administrative burdens
VAT fraud and compliance
levels
Functioning of the Single
Market
VAT
Registration
(OSS)
Sub-option 2 + 0/+ +
Sub-option 3a ++ + ++
Sub-option 3b 0/+ 0 0/+
Sub-option 3c ++ + ++
(IOSS)
Sub-option 2 + 0/+ 0/+
Sub-option 3 0/+ + +
Coherence
Other Commission initiatives (see Annex 5) either do not impact the coherence or translate into a
minimal impact on the VAT in the Digital Age initiative. Therefore, the coherence with EU policy
objectives is assessed against the provisions of the Tax Action Plan, more specifically against
Actions A1, A4, A5, and A23 (see the Introduction).
The comparison of the options is made using the aforementioned five gradual approaches in policy
intervention: status-quo as a baseline, minimalistic, moderate, enhanced and maximal. The gradual
approach is used to ensure the intervention does not go beyond what is necessary to achieve the
objective.
7.2.Policy comparison
“Status-quo”
The “status-quo” approach is analogous to no intervention. This approach fails to meet all specific
objectives. It also fails the coherence objectives, since it is not aligned with the Tax Action Plan.
“Minimalistic approach”
Effectiveness in meeting the specific objectives
The minimalistic approach does not improve reporting requirements in a systematic way. The
recapitulative statements that are the main source of the ineffective reporting system are not
modified. Some positive impacts are possible due the non-binding recommendations addressed to
Member States with significant VAT Gap levels. The IT systems are already running and do not
need further preparation, since also the scope of OSS changes is limited and can be easily absorbed
by the current system. Clarifications in the platform economy add some certainty and reduce
burden but fail in addressing the distortion of competition. An extension of the OSS so that it
covers all B2C supplies of goods and services by non-established suppliers would address the
139
An alternative approach of calculating net present value for the costs related to the VAT treatment of Platform
economy would require additional assumptions regarding the time of bearing the costs, as well as assuming the pace of
their depreciation. In the light of many uncertainties regarding the development of the platform economy, to limit the
number of assumptions, a simpler approach has been retained.
77
problem of multiple VAT registration, but only in a limited number of market sectors. No synergies
and/or multiplication factors manifest.
Coherence and efficiency
The approach is only partly coherent with the Tax Action Plan, since it falls short in four action
areas of the Plan: A1, A4, A5, and A23. The cumulative impact in efficiency (see Table 17) is
minimal, however marginally positive in all areas, bringing EUR 16.5 billion net benefits from
VAT reporting, approx. EUR 2.5 billion in platform economy area
“Moderate approach”
Effectiveness in meeting the specific objectives
The moderate approach still limits the ambition levels in all areas. However, the approach has the
merit of allowing convergence and interoperability of IT systems and it is the first one to score
more consistently across all specific objectives. Thus, some savings in administrative burdens are
expected, however they will be combined with a more limited effect on VAT revenue as the DRRs
are still optional for the Member States. The approach reduces the distortions between the same
services offered via different channels in platform economy area, thus creating a more level-playing
field, but adds new legal uncertainties linked to the limits of its application, since only part of the
accommodation and transport sectors are in the scope. The combination of VAT registration
minimalistic approach with the reverse charge (including the chain transactions into the scope)
helps generating positive impacts for more business that will not have to register in multiple
Member States.
Synergy factor
Because the moderate approach combines clarification elements from platform economy sub-option
B with the deemed supplier regime and also combines multiple sub-options in area of VAT
registration, it punches above the added impacts by integrating some synergies. However, because
the digital reporting obligations are not introduced which would complement the reverse charge, the
synergies are more limited.
Coherence and efficiency
The moderate approach achieves the minimum operational efficiency in all areas of the Tax Action
Plan, except A4140
. It streamlines the mechanisms that can be applied for domestic transaction using
a pre-determined format, but does not provide a quicker, possibly real-time, and more detailed
exchange of information on VAT intra-EU transactions. However, the cumulative impact in
efficiency is largely positive compared with the previous approach and it is mainly driven by the
introduction of a limited deemed supplier role in platform economy area that increases the VAT
revenue several times (EUR 19-45 billion). The net benefits almost double compared with the
previous approach in the VAT reporting area and amounts to EUR 27.5 billion.
140
“(…) it should ensure a quicker, possibly real-time, and more detailed exchange of information on VAT intra-EU
transactions and at the same time streamline the mechanisms that can be applied for domestic transactions. (…)”.
78
“Enhanced approach”
Effectiveness in meeting the specific objectives
The enhanced approach further increases the ambition level and the intensity of intervention in all
areas. With the introduction of intra-EU digital reporting (VAT reporting Sub-option 4a), over
2 billion intra-EU transactions per year141
are to be considered.
The convergence and interoperability of IT systems specific objective is met by introducing the
short-term interoperability and medium-term convergence of the domestic reporting obligations
with the EU DRR system. The interoperability and convergence combine with the non-inclusion of
the removal of EUR 150 threshold for the use of IOSS that would further complicate the IT
environment and lead to a maximum score regarding the IT-specific objective. The IT specific
objective also has an inherent time-related component: this enhanced approach will reach the fastest
the full convergence and interoperability for the Member States who have domestic DRRs in place
or planned. Because of the introduction of an intra-EU digital reporting obligation, the enhanced
approach is the first one to fulfil the improvement of reporting requirements using the opportunities
provided by digitalisation specific objective. The benefits are driven mostly by higher VAT
revenue, but the savings for businesses due to reduced burdens and improved business automation
also contribute to the positive impacts. The introduction of an EU DRR and the wider and more
targeted use of DRR for domestic transactions (being optional, it is expected that Member States
with high VAT Gap or with specific fraud issues will be the first ones to use it) will also positively
impact tax controls and business automation, especially if an e-invoicing solution is adopted, while
the increased storage and exchange of fiscal data increases risks to data confidentiality.
In the platform economy field, the enhanced approach addresses the distortion of competition in the
accommodation and transport sectors where the problems where identified. In addition, it achieves
a good balance in dealing with burdens related to (1) the administration of the deemed supplier
regime (2) legal uncertainties linked to the boundaries of the new system and (3) limiting the
possible new distortion between very small and occasional suppliers within or outside a platform to
these two sectors.
In the VAT registration area, combining the OSS sub-option 4 with 3a would maximise the likely
positive impacts, by extending the OSS to transfers of own goods cross-border, and relying
pragmatically on the reverse charge for wider B2B transactions. In addition, the removal of the
optional character of IOSS for deemed suppliers will remove administrative burdens for certain
actors, such as postal operators and express carriers, helping the authorities identify fraud, increase
compliance and, as a consequence, improve the level playing field.
Synergy factor
The enhanced approach helps create greater synergies not only inside the VAT areas (mixing parts
of and sub-options in reporting, platform economy and registration), but the multiplication effect is
visible across the areas, by combining the reverse charge with the reporting obligations that are now
in the scope. Thus, the synergy score is significantly improved.
141
Estimate based on figures from the study on evaluation of invoicing:
https://ec.europa.eu/taxation_customs/system/files/2019-07/report_evaluation_invoicing_rules_vol1_en.pdf
79
Coherence and efficiency
The enhanced approached is better balanced to achieve the coherence in all areas of the Tax Action
Plan, without exception. It provides a quicker and more detailed exchange of information on VAT
intra-EU transactions and offers a very important and targeted incentive for Member States to
introduce domestic reporting.
Additional EUR 139 billion net benefits in VAT reporting area are expected, and VAT revenue will
increase by EUR 24-66 billion due to increased compliance and a broader tax base in the platform
economy. Driven mainly by the introduction of digital reporting obligations, the cumulative impact
in efficiency increases several times compared with the previous approach.
“Maximal approach”
Effectiveness in meeting the specific objectives
The maximal approach increases the intervention to the maximum extent possible. The majority of
the specific objectives are fully met, with the exception of the IT-related one. The extension of the
digital reporting requirements to include domestic transactions dramatically increases the number
of transactions and the IT-related burdens for tax authorities and businesses. In principle, IT
demand regarding the introduction of a DRR for intra-EU transactions should be lower than those
necessary to apply the requirements to both intra-EU and domestic transactions. This may be
especially true for operating costs, which are more closely linked to the number of transactions
processed, but less so for investment costs.
Moreover, the maximal approach includes the elimination of the EUR 150 threshold for the use of
the IOSS (VAT registration IOSS sub-option 2) wich also has a significant impact on customs, even
more prominent when linked with the abolition of the threshold also for the customs duties. The
inclusion has an additional negative impact on the IT-related specific objective that adds to a
similar negative impact on the same specific objective linked with the possible adoption of the
domestic digital reporting obligations
The benefits are driven mostly by higher VAT revenue, but the savings for businesses due to
reduced burdens and improved business automation also contribute to the positive impacts. The
introduction of an EU DRR and the wider use of DRR for domestic transactions will also positively
impact tax controls and business automation, especially if an e-invoicing solution is adopted, while
the increased storage and exchange of fiscal data increases risks to data confidentiality.
In the platform economy field, the maximal approach solves the identified distortion of
competition. It deals better with the burdens related to the legal uncertainties linked to the
boundaries of the new system but worsens the burdens related to the administration of the deemed
supplier regime. It is increasing the possible distortion among very small and occasional suppliers
within or outside a platform.
In the VAT registration area, the maximal approach further expands the scope by including the
removal of the EUR 150 threshold, thus adding marginal benefits.
The synergy score is similar with the enhanced option.
80
Coherence and efficiency
The maximal approach has the highest cost and also displays superior net benefits. In VAT
reporting area the benefits amount to EUR 231 billion. VAT revenue will also increase by EUR 63-
146 billion due to the extension of the scope of deemed supplier broadening the base in platform
economy. Driven by the introduction of domestic digital reporting obligations and the extension of
the scope in platform economy, the cumulative impact in efficiency takes a step further compared
with the previous approach.
Proportionality and subsidiarity
Under the minimalistic approach the action taken are subpar and they do not meet the minimum
needs to achieve the goals. The moderate approach observes better the proportionality and
subsidiarity, however it still falls short. The enhanced approach is the better balanced one, while the
maximal approach is pushing the limits of proportionality and subsidiarity. The stakeholder
consultation pointed to the fact that the maximal approach is more uncertain from a political
feasibility point of view, having in mind the general rule in the European treaties that EU Member
States must agree tax proposals unanimously before they can be adopted. The stakeholder
consultation indicates that at least in the area of VAT reporting, where some Member States
strongly expressed their preference for optional domestic DRRs, and in the platform economy,
where the possible distortion and network effects manifest in specific areas, reaching the level of
ambition required by the maximal approach could be challenging.
To summarise, the minimal and moderate approaches are the lowest hanging fruits, the enhanced
approach is balanced, although cautious, and the maximal approach is very ambitious.
Table 17 – Comparison of gradual policy intervention
Effectiveness Efficiency Coherence Synergy factor
Proportionality
and subsidiarity
Minimalistic approach 0/+ 0/+ – 0 0/+
Moderate approach 0/+ + 0/– 0/+ +
Enhanced approach ++ ++ ++ ++ +++
Maximal approach ++ +++ ++ ++ ++
Table 18 – Comparison of policy intervention: total net benefits (2023-2032)
Costs
(EUR billion)
Benefits
(EUR billion)
Net benefits
(EUR billion)
Average
benefit/cost
ratio
Average benefit/cost
(proportionality
factor included) *
Minimalistic approach 2.9 31.1 – 31.2 28.2 – 28.3 10,6 10.6
Moderate approach 6.4 62.1 – 88.1 55.7 – 81.7 11,7 11.7
Enhanced approach 13.5 185.6 – 227.6 172.1 – 214.1 15,4 46.1
81
Maximal approach 46.9 350.3 – 433.3 303.3 – 386.3 8,3 16.7
* A multiplication factor of 1, 2, and 3 (see corresponding column in Table 17) was used to amend the benefit/cost
ratios to better account for proportionality and subsidiarity
8. PREFERRED OPTION(S)
From the comparison, it can be concluded that the best policy choice results from the introduction
of digital reporting requirements (EU DRR), combined with a deemed supplier provision and an
extension of the scope in VAT registration. This points to the maximal and enhanced approaches.
The enhanced approach introduces an EU DRR for intra-EU transactions with an option for
Member States to introduce this system for domestic transactions and a deemed supplier regime in
the accommodation and transport sectors in the platform economy. It also entails the modification
of VAT registration by extending the coverage of OSS to all B2C supplies, extending the reverse
charge to B2B supplies and making the IOSS mandatory. The maximal approach goes one step
further by including mandatory domestic DRR, a deemed supplier regime in all sectors of the
platform economy and also removes the EUR 150 threshold for the use of IOSS.
The maximal and the enhanced approaches are effectively addressing all specific objectives of
improving reporting requirements to include digital opportunities; providing a level playing field
for businesses; ensuring convergence and interoperability of IT systems; reducing burdens,
regulatory fragmentation and associated costs; and minimising the need for multiple VAT
registrations.
The most significant expected benefits are from the options that cover the greatest proportion of
these situations. Both the maximal and enhanced approaches have a wide coverage, hence the
greatest potential benefits. For example, in the VAT registration area where the focus is more on
the issue of ‘high administrative and compliance costs’, the sub-options for OSS and IOSS mainly
differ in terms of the scope of the situations currently triggering multiple VAT registrations that
would be addressed. However, for a business to benefit from any change, it would need to avoid all
situations that still require additional VAT registrations. In other words: even if 99% of the
transactions of a business currently requiring VAT registration could be dealt with using the OSS or
via the reverse charge, it would still need to register for VAT for the remaining 1%, meaning that
the availability of the OSS would hardly affect its administrative burdens. Having this in mind, the
greatest coverage of the enhanced and maximal approaches address the issue.
There is no clear single preferred option for the following reasons:
1. The maximal approach scores highest in efficiency: between 2023 and 2032 it will bring
between EUR 303 billion and EUR 386 billion142
(net impacts against baseline), compared to
142
EUR 231 billion (VAT reporting), EUR 63 to 146 (VAT treatment of platform economy) and EUR 9 billion (VAT
registration)
82
between EUR 172 billion and EUR 214 billion143
for the enhanced approach. The difference will
certainly be lower due the fastest adoption of domestic DRRs by the Member States.144
From the
cost-benefit analysis without including any potential risks, the maximal approach should be the
obvious choice.
2. If in terms of efficiency the maximal approach is a clear winner, adding the effectiveness and
especially proportionality and subsidiarity criteria tips the balance towards the enhanced approach.
More precisely, the enhanced approach respects to a greater degree the principles of subsidiarity
and proportionality. For example, Member States will have the possibility to decide at a national
level whether to introduce domestic reporting requirements, (whilst ensuring the
interoperability with the EU solutions).
Box 3 (cont.)
Implementation of an EU DRR: difference between options 4a and 4b (Part II)
In the VAT reporting, the enhanced approach is restricted to the introduction of a mandatory EU DRR for intra-EU
transactions, leaving the domestic DRR optional, while the maximal approach foresees the introduction of mandatory
DRRs for both intra-EU and domestic transactions (Table 11). It should be noted that the mandatory implementation
of the EU DRR for intra-EU transactions (this affects both option 4a and 4b) would make much easier the future
adoption of a DRR system for domestic transactions, given that all Member States will have already in place the IT
developments necessary to receive and process the data from the taxpayers. Therefore, the extension of the EU DRR
to domestic transactions would be a logical following step.
Another factor is that certain Member States drew the attention to the possibility that the adoption of DRRs by a
majority of Member States could create an incentive for fraudsters to target those Member States which have not
adopted such systems. That would push for a generalised adoption of a DRR system for domestic transactions.
Therefore, it can be concluded that the difference between options 4a and 4b relies more in the pace of adoption of
DRRs for domestic transactions than on the number of Member States that will adopt such systems. The trend points
to a scenario where, in the medium-long term, all Member States will have an EU DRR for domestic and intra-EU
transactions, irrespective of the choice made between options 4a and 4b.
3. The enhanced approach follows the targeted consultation more closely, therefore making any
gains politically feasible. Member States strongly indicated during targeted consultations and in
various forums that they value a higher degree of freedom regarding the introduction of domestic
digital reporting obligations and manifested the strong support for a more moderate intervention.
Moreover, they were equally concerned about the impacts of a wide deemed supplier regime on the
sector as a whole, and indicated that it should begin with a more targeted approach, approving the
Commission’s suggestion of introducing it into the transport and accommodation sectors.
143
EUR 139 billion (VAT reporting), EUR 24 to 66 (VAT treatment of platform economy) and EUR 9 billion (VAT
registration)
144
Between the moment of the VAT in the Digital Age supporting study and the publication of the Impact Assessment,
the conservative assumptions made regarding the Member States having in place a DRR for domestic transactions in
the medium term under VAT reporting option 4a compared with option 4b (Table 11) are changing as Member States
are either publicly announcing their intention to introduce domestic DRRs or asking for the derogation currently needed
to introduce digital reporting requirements.
83
A final word should be said on the compatibility of the enhanced and maximal approaches. If
the maximal approach is a best case scenario, the enhanced approach is a self-standing viable set of
measures that can be extended in scope in the future depending on aspects such as (1) the further
evolution of the drivers, e.g. platforms that may become dominant and impose their specific
business model, and (2) the evolution of IT solutions, thus being ready for the VAT in the digital
age now and fit-for-future. For instance, Member States that do not adopt a DRR for domestic
transactions immediately, could implement it once the DRR for intra-Community transactions is
consolidated and businesses progress towards automation, fully achieving in the long term the
benefits on VAT fraud reduction estimated for the maximal approach.
8.1.REFIT (simplification and improved efficiency)
VAT in the Digital initiative will fully compensate the costs of its implementation; however, the
different parts of the initiative act differently in this regard: VAT reporting comes with additional
costs and possible cost reductions, platform economy and VAT registration are mainly reducing
costs. The Fit for Future Platform included VAT in the Digital Age in its annual work programme
for 2022, recognising its potential for reducing the administrative burden in the policy field. The
evidence produced by the Platform informed the impact assessment, as explained below.
The Platform’s evidence pointed out to the need of avoiding additional registration through change
of VAT rules on processing in another Member State before exporting and extension of the VAT
One-Stop-Shop to the transfer of own goods. The need to minimise the number of instances where
a business has to register in other Member States than its Member State of establishment is
accounted for in the preferred options under the VAT registration. Also, the aspect of e-invoicing
features in the preferred options on VAT reporting. From a taxation point of view, interoperability
would be ensured by accepting invoices issued according to the European e-invoicing standard that
is already in place, and the best solution is to combine flexibility with standardisation.
While the registration process is under national responsibility, the preferred option on VAT
registration (OSS, IOSS) addresses as well the Platform’s call for a more efficient registration
process by proposing solutions for VAT registration in a way that will limit the number of instances
where businesses have to register and deal with tax administrations of other Member States.
By removing the optional character of the IOSS for deemed suppliers, one of the measures
proposed will indirectly limit the number of mistakes made by businesses. This is done by
transferring certain responsibilities towards the platforms and hence lowering the risk of businesses
receiving heavy penalties. This is also an aspect brought up by the Fit for Future Platform evidence
pointing out to changing rules on VAT exemptions for services related to the importation of goods.
The introduction of a DRR could generate net costs for businesses, especially for those operating
purely domestically, these could be partly compensated by the introduction of additional services,
such as the pre-filling of VAT return, as well as by the removal of recapitulative statements.
The removal of recapitulative statements alone does not compensate for the higher costs associated
with the introduction of digital reporting in the maximal approach. Therefore, to fully compensate
the remaining costs, possible solutions would be:
84
 Introducing or promoting the introduction of support measures for investments in IT
systems, such as support to the purchase of e-services for complying with the new
requirement145
, and/or
 Introducing other simplification measures. For instance, once the tax authority receives all
transactional data from the digital reporting, it may consider that VAT returns are no longer
necessary, thus, in the medium-to-long-term, VAT returns could become an optional
obligation, at least for Member States which have implemented a DRR for all transactions.
In the platform economy area, the disparate reporting obligations introduced by several Member
States at national level will certainly be removed, because a deemed supplier regime makes them
obsolete and transforms them in a redundant burden for businesses and tax administration alike.
In the VAT registration area, the costs generated by the need to VAT register for distance sellers
will be eliminated almost completely.
Under the one-in-one-out (OIOO) principle, the Commission committed to offset new burdens from
legislative proposals by reducing existing burdens in the same policy area, so that negative impacts
for businesses are limited. The offset concerns administrative burdens and not necessarily
adjustment costs (e.g. the investment needed to upgrading production lines, reducing damage to the
environment, improving public health or raising the level of consumer or worker protection), and
the one-in-one-out table below includes adjustment costs (which do not need to be off-set and
administrative costs (that will have to be off-set) and are more of recurrent nature.
Table 19 – One-in-one-out comparison table (enhanced/maximal approach)
ADMINISTRATIVE COSTS – IN
(2023-2032, EUR billion)
ADMINISTRATIVE COSTS – OUT
(2023-2032, EUR billion)
One-off Recurrent One-off Recurrent
VAT
reporting
(DRRs)
Costs related to the
introduction of DRRs
3.77 / 14.5
Reduction of costs
generated by
fragmentation
24.2
Environmental benefits
from the introduction of
DRRs
0.01 / 0.02
Savings from pre-filled
VAT returns
4.3 / 7
Removal of
recapitulative
statements
11
E-invoicing benefits 1.9 / 14.5
Platform
economy
Compliance and the
status of providers
determination
0.5
VAT
registration
VAT registration in
another Member State
0.4 8.3
Reflecting the high and growing level of automation, most of the costs of digital reporting
requirements fall in the one-off (set-up) category. Unlike other DRRs such as the listings or SAF-T,
145
This could for instance be done as a support to business digitalisation within the National Plans for Resilience and
Recovery, as already anticipated by Spain to support the switch to mandatory e-invoicing.
85
the e-invoice does do not serve exclusively for the purpose of reporting obligations i.e. the e-
invoicing is largely used today without any obligation as a measure of automation/efficiency gain;
thus, they are generally adjustment costs. The one-off costs represent approx. two-thirds of the total
costs. The costs are higher for larger companies than for smaller ones due to the complexity of their
internal systems and the number of transactions and their diversity. There is also an inverse relation
between one-off and recurring implementation costs, so that companies that invest more upfront
have lower recurring expenses, and vice versa.146
Finally, since the digital reporting obligations and the deemed supplier regime introduced at the EU
level are harmonised, it will reduce the administrative burden derived from multiple divergent
domestic obligations created by national authorities. However, the Commission cannot control the
removal of national obligations, but is contra intuitive to think such obligations will be maintained.
Moreover, in the targeted consultation the Member States having in place similar obligations
declared they are in favour of an EU already indicated that on one hand, they are thinking to
remove similar national obligations.
9. HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?
In line with the Tax Action Plan and following, inter alia, the views of stakeholders, the measures
grouped under VAT in the digital age initiative are to be introduced progressively via legislative
steps by amending the VAT Directive 2006/112/EC, supplementing the Council Implementing
Regulation (EU) No 282/2011 and Council Regulation (EU) No 904/2010 on administrative
cooperation. The measures are expected to contribute to better VAT collection and control, to
improve fairness and reduce burdens.
Table 20 – Monitoring and evaluation framework
Objectives Indicator Measurement tool Operational objectives
Better VAT collection,
control and fairness
- VAT revenue (VAT
collection)
- VAT gap
- MTIC fraud
- VAT revenue data
(Eurostat)
- VAT gap study and
other specific studies
(e.g. ‘MTIC/e-
commerce fraud VAT
gap’ studies currently
under consideration)
- Data provided by the
Member States
- Improved efficiency in VAT
compliance: min. EUR 134 billion /
EUR 284 billion (enhanced
approach/maximal approach) net
positive impact on EU VAT revenues
(2023-2032)
- Positive trend in VAT Gap – up to
4 percentage points decrease, (to
approx. 6.5% including the baseline)
until 2032
- Substantial decrease of MTIC fraud
(approx. 80% decrease at EU level)
Excessive burdens and - Compliance costs - Study to estimate the - Min. 20% reduction of compliance
146
Supporting study, Vol. I, p. 43-44, p. 54
86
compliance costs for businesses compliance costs
- Data and feedback
provided by the
business via VEG147
costs in cross-border trade for
businesses subject to the measures
Implementation Indicator Measurement tool Operational objectives
DRR - DRR health check - Number, frequency
and completeness
- Reducing the reporting time from
up to 2-4 months to less than 5 days
Platform Economy
- Platform Economy - Data from platform
providers (provided
by VEG and Member
States)
- Platforms managing VAT
obligations for their users
VAT registration
- OSS/IOSS
statistics (flow of
revenue)
- Real time reports in
OSS and IOSS
- Better re-distribution of VAT
revenues between Member States
9.1.Monitoring structures
The VAT Committee, an advisory committee on VAT issues in which representatives of all
Member States participate and which is chaired by Commission officials from Directorate General
Taxation and Customs Union (DG TAXUD), will monitor the implementation of the VAT in the
Digital Age initiative, discuss and clarify possible interpretation issues between Member States
regarding the new legislation. It is also envisaged that the Standing Committee on Administrative
Cooperation (SCAC) will deal with all possible issues regarding administrative co-operation
between Member States resulting from the new rules on the taxation of intra-EU trade. In case new
legislative developments are required, the Group on the Future of VAT (GFV) and the VAT Expert
Group (VEG)148
might be further consulted.
9.2.Evaluation
Member States and the Commission shall examine and evaluate the functioning of the VAT rules
provided for in the new legislation. To that purpose, Member States shall communicate to the
Commission any relevant information as regards the level and the evolution of the administrative
costs, MTIC fraud and the OSS and IOSS data necessary for the evaluation of the effectiveness,
efficiency, coherence with other interventions with similar objectives, and continued relevance of
the new legislation. The evaluation should also seek to collect input from all relevant business
stakeholders as regards the level and the evolution of their compliance costs. The Commission will
prepare a retrospective evaluation of the functioning of the new legislation five years after its entry
into force.
147
VAT Expert Group – see explanation in Annex 1.
148
For more explanation on GFV and VEG see Annex 1: Procedural information.
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88
10. FIGURES AND TABLES OVERVIEW
Figure 1 – Problem tree ....................................................................................................................13
Figure 2 – VAT reporting: stakeholders’ views on current situation ...............................................18
Figure 3 – Current situation: the need of multiple VAT registrations is still an issue .....................24
Figure 4 – Effectiveness of recapitulative statements against MTIC fraud (Member States)...........29
Figure 5 – Intervention logic.............................................................................................................51
Figure 6 – Options for VAT registration (DRRs): stakeholders’ views ............................................67
Figure 7 – Options for VAT treatment of platform economy: stakeholders’ views...........................68
Figure 8 – Options for VAT registration (OSS and IOSS): stakeholders’ views ..............................70
Figure 9 – Targeted consultation – stakeholder coverage................................................................95
Figure 10 – Type of Respondent (Call for Evidence)........................................................................97
Figure 11 – Type of Respondent (public consultation) .....................................................................98
Figure 12 – Digital Reporting Requirements in the EU..................................................................142
Figure 13 – Problem tree (VAT registration)..................................................................................149
Figure 14 – Linking the objectives to the problem..........................................................................149
Figure 15 – E-commerce deployment map of 23 March 2022........................................................155
Figure 16 – Estimated number of (cross-border) e-commerce consumers in the EU, 2014-2029 .157
Figure 17 – Estimated volume of cross-border e-commerce in the EU, 2014-2029.......................158
Figure 18 – MOSS Total Revenues 2015-2020 ...............................................................................159
Figure 19 – VAT revenue collected in the OSS between 1 July 2021 and 31 December 2021.......163
Figure 20 – Total of VAT amounts declared via OSS/IOSS (1/07/2021 to 31/12/2021).................166
Table 1 – Minimum VAT-related costs of cross-border trade for businesses (EUR)........................21
Table 2 – Transactions requiring non-established businesses to VAT register (1 July 2021)..........23
Table 3 – Overview of the drivers .....................................................................................................25
Table 4 – Scale of platform economy operation, by sectors (EU27, EUR billion, 2019) .................26
Table 5 – Medium-term adoption scenarios......................................................................................36
Table 6 – Dynamic baseline: adoption of Digital Reporting Requirements (2023 – 2028)..............37
Table 7 – Description of the policy sub-options by VAT area ..........................................................43
Table 8 – Overview of impact types by VAT area (reporting, platform economy, registration).......52
Table 9 – Impacts in VAT reporting area by policy sub-option (net impacts, 2023-2032)...............55
Table 10 – VAT reporting: net impacts on VAT revenue and burdens (2023-2032) ........................56
Table 11 – Option 4a: Adoption of Digital Reporting Requirements (2023-2032) ..........................59
Table 12 – Administrative burdens by category and type; net impacts, EUR per year; ranges.......60
Table 13 – Main impacts in VAT treatment of platform economy area ............................................62
Table 14 – Main impacts in VAT registration area...........................................................................65
Table 15 – Effectiveness table...........................................................................................................75
Table 16 – Efficiency table (against baseline) ..................................................................................75
Table 17 – Comparison of gradual policy intervention ....................................................................80
Table 18 – Comparison of policy intervention: total net benefits (2023-2032)................................80
Table 19 – One-in-one-out comparison table (enhanced/maximal approach) .................................84
Table 20 – Monitoring and evaluation framework............................................................................85
Table 21 – Sample for the targeted consultation...............................................................................93
Table 22 – Consultation strategy ......................................................................................................93
Table 23 – Targeted consultation – geographical coverage.............................................................95
Table 24 – Country of residence or main headquarter (Call for Evidence) .....................................95
Table 25 – Country of residence or main headquarter (public consultation)...................................98
89
Table 26 – Variables and Descriptive Statistics (econometric model) ...........................................122
Table 27 – Baseline approach model estimates: C-efficiency quarterly data (econometric model)
.........................................................................................................................................................124
Table 28 – Alternative approach model estimates: VAT Gap annual data (econometric model) ..125
Table 29 – Baseline approach model estimates with lags and leads: C-efficiency quarterly data.126
Table 30 – Baseline approach model estimates with lags and leads of distinguished types of
reporting obligations: C-efficiency quarterly data .........................................................................127
Table 31 – Type of DRRs: multi-criteria analysis...........................................................................132
Table 32 – VAT digital reporting obligations: annual administrative burdens per company
(EUR/year) ......................................................................................................................................132
Table 33 – VAT digital reporting obligations: implementation costs for tax authorities ...............133
Table 34 – Administrative burdens from recapitulative statements................................................136
Table 35 – Share of companies active in intra-EU trade and annual burden from recapitulative
statements ........................................................................................................................................136
Table 36 – Burden savings from pre-filled VAT return...................................................................136
Table 37 – Number of invoices issued in the EU (million per year)...............................................137
Table 38 – Parameters to estimate the benefits from e-invoicing (per e-invoice issued) ...............137
Table 39 – Estimated amount of taxable persons potentially covered by the EU DRR (domestic and
intra-EU transactions).....................................................................................................................138
Table 40 – Annual administrative burdens per multinational subsidiary (EUR/year) ...................139
Table 41 – Number of registrations in OSS/IOSS on 1 February 2022 ..........................................167
Table 42 – OSS/MOSS – Comparison of the number of registrations ............................................168
Table 43 – OSS/MOSS – Comparison of the VAT declared on an annual basis.............................168
90
11. ANNEX 1: PROCEDURAL INFORMATION
11.1. Lead DG, Decide Planning/CWP references
Lead Directorate-General: Taxation and Customs Union (TAXUD)
Decide Planning Reference: PLAN/2021/11943
CWP references: The initiative is included in the Commission Work Programme 2022 (listed under
No 20 in CWP Annex)149
11.1.1. Organisation and timing
Organisation and timing of Inter Service Steering Group’s meetings: the Inter Service Steering
Group included representatives of the Directorates General BUDG, COMP, CNECT, DIGIT,
ECFIN, EMPL, ESTAT, FISMA, GROW, JRC, JUST, MOVE, OLAF, REFORM, TAXUD,
TRADE, the Legal Service (SJ) and the Secretariat General (SG and SG-RECOVER).
 1st
Meeting on 3 December 2021: to discuss the Consultation strategy, the Call for evidence
and Questionnaire for the Public Consultation
 2nd
Meeting on 31 March 2022: to discuss the first draft impact assessment related to the
problem and objectives
 3rd
Meeting on 5 May 2022: to discuss the impact assessment including the impacts and the
chosen solution.
11.1.2. Consultation of the RSB
The draft Impact Assessment was submitted to the Regulatory Scrutiny Board on 25 May 2022, for
consideration at a meeting on 22 June 2022. The Regulatory Scrutiny Board issued a positive
opinion with reservations on 24 June 2022 (ARES(2022) 4634471).
The board gave a positive opinion with reservations because it expects the following rectifications
to be made:
(1) To provide sufficient evidence and detail of the identified problems, in particular in terms of
Member State and sectoral perspectives.
(2) To better set out the evidence base behind the expected impacts. To provide a clear description
of the modelling behind the VAT revenue estimates and of the methodology used for estimation of
costs and benefits in the scope of the One In, One Out approach.
(3) To sufficiently explain the future configuration of the options, in particular the expected
structure of the EU digital reporting requirements and the degree of flexibility envisaged for
Member States.
What to improve What was improved
149
https://eur-lex.europa.eu/resource.html?uri=cellar%3A9fb5131e-30e9-11ec-bd8e-
01aa75ed71a1.0001.02/DOC_2&format=PDF
91
(RSB suggestions)
(1) The problem section should
more clearly outline the reasoning
behind the problem scope as well
as the urgency to act. It should set
out clearly why Member States
with digital reporting
requirements (DRR) apply
different methods and better
explain why some Member States
have not yet introduced DRR.
When discussing the VAT
treatment of the platform
economy, the report should
explain to what extent the
identified problems are significant
for sectors beyond
accommodation and transport
(such as finance, and professional
services). It should also clarify
what drives the VAT Gap and
how the quantitative level
provided was calculated.
The reasoning was better outlined and the urgency to act was
added in the reasoning. Additional evidence from the
supporting study was added, the link with the VAT Gap Study
clarified. More evidence from previous impact assessments
such as the one on definitive regime was included.
A section explaining which Member States introduced DRRs
was added, different types of DRRs explained and a figure
illustrating the distribution of DRRs in the EU was added in
the in the Annex 4: Analytical methods. An explanation of
why some Member States have not yet introduced DRR was
also provided.
It was underlined that in the area of platform economy the
problem is not pregnant for some sectors, especially for
specific sectors such as finance and professional services.
It was explained how the VAT Gap and VAT fraud are linked
and why the VAT Gap was used as a proxy for fraud.
The econometric model based on panel regression method
with fixed effects was described, as it was used for the
estimation of VAT revenues. It was made clearer the
distinction between the theoretical models used to estimate
VAT revenues (C-efficiency and VAT Gap). The dynamic
baseline (attempting to anticipate the domestic actions and
business patterns going into the future) was also accounted
for.
(2) The report should explain
better how the baseline reflects
the other ongoing and existing
related initiatives. It should be
clear to what extent Member
States can be expected to
introduce DRR (and similar
solutions) domestically in the
absence of further EU measures.
Apart from the Annex 5: other initiatives, a specific part
related to other ongoing and existing initiatives was included
in the main report. The link with the VAT in the Digital age
was made clearer.
A specific table referring to the adoption of Digital Reporting
Requirements was introduced for baseline (status quo),
together with the adoption scenarios used.
(3) The report should provide
more information on the
methodology, underlying
assumptions and sources used in
the impact analysis. It should
summarise in the main report the
key methodological aspects,
assumptions, and limitations. It
More information on methodology from the Supporting
Study and Annex 4: Analytical methods was added in the
main report. The assumptions and sources are explicitly
mentioned, or a reference to the supporting study was added.
It was made clear that the C-efficiency is the used model
(base model).
A presentation of the VAT Gap and C-efficiency concepts
(Box 5, Volume I, p. 37 of the supporting study) was added,
92
should provide a stronger
connection between the impacts
presented and the underlying
methodology. It should be clear
how the two econometric models
(C-efficiency and VAT Gap) are
applied across the analysis. The
same metrics should be used to
enable better comparison of
impacts. The report should better
explain how different options will
reduce the estimated VAT Gap.
clarifying that the C-efficiency model was used and
explaining why.
An explanation of what is the VAT Gap and how it works was
added. The influence of the introduction of DRRs on the VAT
Gap was determined by imputing the additional VAT revenue
in the corresponding figures from latest VAT Gap Study: an
increase of revenues implies a reduction of the VAT gap if the
VAT liability does not change.
An indicative calculation of the VAT gap reduction was
added in the baseline as well as in Table 10.
(4) Given the scale of the
presented estimates in scope of
the One In, One Out approach,
the report should provide a more
detailed description of the method
behind the estimates and clearly
outline the metrics (in particular
one-off versus recurrent costs).
The methods behind the estimates were detailed for
quantitative impacts under the description of impacts area.
The figures for One In, One Out and especially the one-off vs.
recurrent were reviewed in the Section 8.1, a table was added
in the same section. In addition, the Annex 3 was aligned and
clarified.
(5) The report should present a
more final outline of the options
and the sub-option elements. It
should clarify to what extent a
future harmonised EU DRR
system is tied to a specific type of
digital reporting requirement,
such as SAF-T or e-invoicing. It
should also be clear about the
future degree of flexibility for the
Member States. It should clarify
what political choices exist and
present their differences in terms
of costs and benefits.
It was clarified in Box 1 why we chose the e-invoicing for the
IA and what are the benefits of such approach.
Moreover, the Box 1 also offers more details on what type of
reporting will be implemented and an overview of the features
of such system.
(6) The report should strengthen
the comparison of options. It
should present the net benefits
and benefit cost ratios and
compare them across the option
packages, including in terms of
proportionality.
A table presenting net benefits and cost ratios was added to
strengthen the comparison of options. Moreover, the table also
accounts for proportionality, amending the ratios by using a
proportionality factor between, 1 and 3 on the basis of a
proportionality score determined before.
93
(7) The report should better
present the views of different
stakeholder groups in the main
report, for example, stakeholder
views on VAT treatment of the
platform economy. It should more
systematically present the
divergent views of different
stakeholder groups on the
problems, options and their
impacts.
Stakeholders’ views were included in the report, especially on
the problem and options and their impacts. Explanations and
visuals (graphs and figures) were added in the main report
using more data from the stakeholders’ consultation (public
and targeted). On the options, a specific section (5.3) named
‘Stakeholders’ views on the options’ was added.
In addition, in the report (including in the new section added),
the views of different stakeholder are presented in five main
groups, as suggested: individuals, business federations,
economic operators, service providers and others (non-
specific, such as academia).
11.1.3. Evidence, sources and quality
Evidence used in the impact assessment came from a variety of sources, including:
- Targeted consultation with stakeholders and Member States.
- Public consultation and Call for Evidence150
. Feedback period: 20 January to 5 May 2022.
- Meetings of the Group on the Future of VAT (GFV)151
on 6 December 2021, 9 February
2022 and 6 May 2022.
- Meetings of the VAT Expert Group (VEG)152
on 29 November 2021 and 10 June 2022.
- Nine meetings (between January and July 2021) of the GFV and VEG subgroups on the
“VAT aspects of the platform economy”.
- Technical Study “VAT in the Digital Age” by ‘Economisti Associati’. Final Report
submitted on 1 April 2022.
- VAT Gap Study (2021)153
- Impact assessment for the VAT definitive regime154
- Implementing the ‘destination principle’ to intra-EU B2B supplies of goods155
- Fiscalis events in May and October 2021 with Member States, businesses and stakeholders
to discuss the Interim Report and the draft Final Report prepared by the external consultant.
- Eurofisc meeting with Member States on 18 and 19 November 2021 to discuss the
objectives and findings of the VAT in the Digital Age package, with special focus on DRR.
- Heads of CLO (Central Liaison Office) meeting with Member States on 28 April 2022 to
discuss and deepen the reflection of the Commission on the DRR part of the VAT in the
Digital Age package and its impact on exchange of information between the member States.
- Evaluation of the e-commerce package.
150
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13186-VAT-in-the-digital-age_en
151
Taxud expert group composed of representatives from Member States https://ec.europa.eu/transparency/expert-
groups-register/screen/expert-groups/consult?lang=en&groupId=2609&fromMeetings=true&meetingId=24314
152
Taxud expert group composed of businesses and tax practitioners https://ec.europa.eu/taxation_customs/news/vat-
expert-group-2016-05-23_en
153
European Commission, Directorate-General for Taxation and Customs Union, Poniatowski, G., Bonch-
Osmolovskiy, M., Śmietanka, A., VAT gap in the EU: report 2021, Publications Office, 2021,
https://data.europa.eu/doi/10.2778/447556
154
SWD(2017) 325 final
155
European Commission, Directorate-General for Taxation and Customs Union, Jaras, T., Whittle, E., Patel, K., et al.,
Implementing the ‘destination principle’ to intra-EU B2B supplies of goods feasibility and economic evaluation study :
final report, Publications Office, 2015, https://data.europa.eu/doi/10.2778/216975
94
12. ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT)
12.1. Targeted consultation
In total about 272 stakeholders participated to consultation activities, including 25 during the
familiarisation interviews and 247 during the targeted consultation. The Targeted Consultation
spanned over 15 Member States. More in detail, for Part 1 and Part 2, the sample consists of 12
Member States each, resulting in nine core Member States, relevant to both Parts, as well as three
Part-specific-countries. For Part 3, the sample is smaller, as it consists of ten Member States. The
sample is shown in the table below.
Table 21 – Sample for the targeted consultation
Region Size VAT reporting
Platform
economy
VAT registration
1 Czechia CE M
2 Estonia156
CE S
3 France NW L
4 Germany NW L
5 Hungary CE S
6 Italy S L
7 The Netherlands NW M
8 Poland CE L
9 Spain S L
10 Portugal S M
11 Greece S M
12 Finland NW S
13 Austria NW S
14 Denmark NW S
15 Sweden NW M
Notes. NW: North-Western; CE: Central-Eastern; S: Southern. S: Small; M: Medium; L: Large. In green: Member
States included in the part-specific samples; in dark blue: Member States not included in the part-specific samples.
Given the multi-faceted nature of the Study, the consultation strategy (shown in Table 22) had to
identify which category of stakeholders was relevant for each part of the Study. This was done,
first, to ensure that the necessary primary information could be collected; secondly, to limit the
burden on interviewees, by focusing the exchange on the themes that were most relevant to them.
Table 22 – Consultation strategy
VAT reporting
VAT treatment of Platform
economy
VAT registration
Business Federations Business Federations Business Federations
156
Despite contacting a very large number of local business federations and VAT practitioners, and activating
additional contacts within the Study team, it was not possible to enrol in the targeted consultation for Part 1 – Reporting
requirements Estonian businesses. The businesses contacted provided several reasons, in particular the lack of sufficient
resources and expertise. Also, differently from other Member States, local business federations could provide no
support in reaching out to businesses, mostly due to their limited available resources and lack of specific expertise on
the subject matter. As a consequence, no data could be obtained on the costs and benefits of the local VAT listing
system. To address this data gap, the Study team collected primary information from other countries (in particular
Czechia), multinational companies and services providers. As other sources pointed out that the costs and benefits of
transactional VAT listing systems are quite similar across countries, this data gap did not affect the quality of the
estimates.
95
 General BFs
 SME BFs
 Digital BFs  General BFs
 SME BFs (including local
associations)
Companies (only in Member States
with digital reporting requirements)
Platform operators Companies
 Large
 SMEs
 MNCs
 E-commerce
 Other industries
 MNCs
 Cross-border operators
(including SMEs)
VAT experts VAT experts VAT experts
 Practitioners
 Tax advisors
 Practitioners (lighter
involvement, given legal
mapping)
 Practitioners
 Tax advisors
Service providers Others
 Pan-European
 National (in Member States
with reporting requirements)
 Customs authorities, brokers
Tax Authorities Tax Authorities Tax Authorities
 Via interviews in all EU-27
(including non-sampled
Member States)
 Via interviews in all EU-27
(including non-sampled
Member States)
 Via interviews in all EU-27
(including non-sampled
Member States)
In total, 247 stakeholders participated in the targeted consultation.
The Figure 9 provides an overview of the distribution per stakeholder groups. Businesses represent
the most important category with 157 stakeholders, of which 15 platform operators and 15 service
providers. Company interviews were complemented with those with business federations (27,
including 7 SME associations and 7 digital industry federations) and VAT practitioners (33
interviews). Among tax authorities, 15 interviews were carried out in the fieldwork Member States,
and 12 written replies were received, therefore covering all Member States.
Figure 9 – Targeted consultation – stakeholder coverage
In terms of geographical distribution (shown in Table 23), the bulk of stakeholders obviously
originate from fieldwork Member States (185). This figure includes 71 stakeholders from Italy,
where a business survey on the costs and benefits of the only e-invoicing system currently in place
in the EU was carried out with the support of the local business federation, Confindustria. In
addition, 14 stakeholders came from non-sample Member States (mostly the local tax authorities)
Tax authorities
27
General
businesses 127
VAT
practitioners
33
Service
providers 15
Platform
Operators 15
BF - General
13
BF - SME 7
BF -
Digital 7
Other 3
96
and another interview was carried out with the Commission services; finally, 47 interviews
involved multinational operators, including a number of non-EU based entities.
Table 23 – Targeted consultation – geographical coverage
MS # Stakeholders MS # Stakeholders MS # Stakeholders
AT 5 ES 13 PL 15
CZ 15 FI 6 PT 10
DE 12 FR 7 SE 5
DK 4 HU 9 MNC 47
EE 4 IT 71 Other 15
EL 5 NL 4
Familiarisation interviews. An initial round of interviews was conducted between October and
December 2020 to identify the most important issues for subsequent examination and collecting
broad insights on the topics covered by the three Parts of the Study, as well as to gather opinions on
the likely impacts of possible policy interventions. Moreover, these interviews were functional for
the collection of suggestions on available data sources, as well as for securing support by EU
umbrella organisations representing national-level stakeholders, which have been contacted during
the targeted consultation.
A total of 25 interviews were organised with public institutions and private stakeholders, following
a tailored semi-structured list of themes and questions to allow sufficient flexibility during the
discussion. The Study Team also took part in two focus group discussions, namely: (i) one
organised within the framework of Business Europe’s VAT Group meeting; and (ii) one with
certain members from the European E-invoicing Service Providers Association. The interviews
conducted involved different categories of stakeholders, namely 10 EU-level business federations;
six institutional stakeholders (including five Commission services and the OECD), three VAT
Practitioners or federations thereof; four providers of eVAT services or federation thereof, and two
Economic Operators.
12.2. Call for Evidence
A Call for Evidence was launched on 20.01.2022, together with the Public Consultation and it
remained open until 05.05 2022, for a total of 15 weeks. A total of 322 responses were received,
from 22 Member States and 7 non-EU countries.
Table 24 – Country of residence or main headquarter (Call for Evidence)
Geographical origin of
respondent
Number of
respondents
Geographical origin of
respondent
Number of
respondents
Germany 113 Switzerland 2
Slovakia 62 Croatia 2
Austria 25 United States 2
Italy 22 Canada 2
Slovenia 13 Luxembourg 1
Netherlands 13 Bulgaria 1
Czechia 10 Denmark 1
France 10 Portugal 1
Lithuania 10 Norway 1
Poland 8 Romania 1
Belgium 7 United Kingdom 1
Hungary 3 Russia 1
97
Greece 3 Finland 1
Latvia 3 Philippines 1
Sweden 2 Total 322
The vast majority (86%) of responses came from citizens, as businesses and tax administration
preferred to answer via more structured channels: targeted and public consultation.
Figure 10 – Type of Respondent (Call for Evidence)
In their answers, the 277 citizens responding to the Call for Evidence were almost unanimously
against the initiative. The reasons for rejection are (one or a combination of) the following:
- Respondents were rejecting any intervention because they are generally against European
Union;
- Respondents are against any form of digitalisation; notably and out of the scope of the
consultation many declared themselves against the digital vaccination certificate
- Citizens are against taxation in general and VAT in particular, as they would prefer fewer or
no taxes and especially consumption taxes such as VAT which they have to pay rather than
being taken at source
The businesses are generally welcoming the initiative. As mentioned, they generally preferred the
more structured public consultation questionnaire for their feedback.
12.3. Public consultation
12.3.1. Overview
The Public Consultation was launched together with the Call for Evidence. The Public Consultation
was structured using a dedicated questionnaire consisting of 71 questions157
, divided into four
sections: one introductory section about the respondent’s profile, and three thematic ones dedicated
157
This is not the number of questions posed to each respondent, as it includes duplications and filtered questions for
respondents replying in different capacities.
277
15
14
7
4 2
1 1 1
EU citizen
Company/business organisation
Business association
Other
Non-EU citizen
Public authority
Non-governmental organisation
Academic/research Institution
Consumer organisation
98
to VAT reporting, VAT treatment of Platform economy and VAT registration. A total of 193
responses were received, from 22 Member States and 5 non-EU countries. Questions targeted
stakeholders’ views on the adaption of VAT rules to the digital age, the use of digital technology to
fight fraud and to benefit businesses.
The stakeholders could upload additional documents at the end of the PC, and 55 respondents did
so. A total of 62 documents were uploaded, of which 24 addressed VAT reporting, 9 added to their
responses on the VAT treatment of the platform economy, and 14 delved further into the VAT
registration. 18 stakeholders noted further comments on all three parts of the public consultation.
Belgian and German stakeholders were the most active in uploading further documents, with 18
and 11 respondents from the countries doing so, respectively. An additional 10 documents were
added by stakeholders to the Call for Evidence.
12.3.2. About the respondents
The public consultation resulted in a total of 193 valid responses. The vast majority – 159 – of
respondents replied to the public consultation in their professional capacity or on behalf of
their organisation, while 34 private individuals (PI) answered in their personal capacity. Among
professional respondents, business organisation/federation was the largest category with 58 replies,
followed by the categories of company and VAT practitioner / VAT expert / tax advisor with 34
and 30 responses respectively. A lower number of participants was recorded for the categories of
company – platform operator (9), self-employed person (1), provider of IT or tax compliance
services (8), academic institution / think tank (2), public authority (5).
For the most part of the following analysis, professionals have been grouped into four categories:
(i) Business Federations (BF), (ii) Economic Operators158
(EO), Service Providers of Tax-Related
Services159
(SP), and Others160
(O). In certain instances, the distinction will be limited to PIs and
Business Stakeholders (BS), the latter combining BFs, EOs, and SPs.
Figure 11 – Type of Respondent (public consultation)
158
Combining the following sub-groups: (i) company, (ii) company – platform operators, and (iii) self-employed
person.
159
Combining the following sub-groups: (i) VAT practitioner / VAT expert / tax advisor, and (ii) provider of IT or tax
compliance services.
160
Combining the following sub-groups: (i) academic institution / think tank, (ii) public authority, and (iii) others.
0
10
20
30
40
50
60
70
Private
individuals
Business
federations
Economic
operators
Service
providers
Others
99
Across all respondents, 22 Member States are represented in the PC. While private individuals
answering come from 16 Member States, those replying in their professional capacity present 17
different Member States. Overall, the country with the highest number of replies is Germany
with a total of 54, followed by Belgium with 29 respondents (due to the fact that a number of pan-
EU organisation have their seat there). A considerable number of replies have also been registered
from Italy (18), France (12), and Ireland (11). Non-EU countries are also prominently represented
with 22 replies coming from outside the EU, namely from Brazil, Panama, Switzerland, the United
Kingdom, and the United States. Among those, the United Kingdom shows the highest number of
participants with 9.
Table 25 – Country of residence or main headquarter (public consultation)
Geographical origin of
respondent
Number of
respondents
Geographical origin of
respondent
Number of
respondents
Germany 54 Malta 2
Belgium 29 Austria 1
Italy 18 Bulgaria 1
France 12 Croatia 1
Ireland 11 Cyprus 1
Netherlands 8 Hungary 1
Finland 6 Luxembourg 1
Sweden 6 Romania 1
Poland 5 Slovak Republic 1
Spain 4 Non-EU countries 22
Czechia 3 Total 193
Greece 3
Denmark 2
Concerning the size of participating companies, respondents represented predominantly large
companies with 250 employees or more (33 replies, i.e. more than three quarters of company
respondents). Among the remaining companies, 3 responses were from micro companies with less
than 10 employees, 5 from small-sized companies with 10 to 49 employees, and 2 from medium-
sized ones with 50 to 249 employees.
12.3.3. VAT reporting (Digital Reporting Requirements)
The first thematic part of the questionnaire deals with Digital Reporting Requirements (DRRs). It
was open to all respondents, although certain questions were filtered according to the status of the
respondent or preceding questions. The section deals with the various types of reporting and e-
invoicing requirements.
Concerning the current situation, a majority of all stakeholders view negative impacts stemming
from the current situation with regards to DRRs. Respondents agreed the most with the
statements that the wide discretion left to Member States together with the lack of EU guidance
result in a fragmented regulatory framework for DRRs, and that this fragmented regulatory
framework is generating unnecessary costs for EU companies operating cross-border. Across all
stakeholder groups, more than 80% of respondents agreed or partly agreed with those statements.
Among business federations and economic operators, the rate is even higher with over 90% stating
they agree or at least partly agree. At a lower rate (65-70% agree or partly agree), respondents also
agreed to the statements that the optional nature of DRRs for Member States have a negative impact
on the fight against VAT fraud intra-EU and domestically, respectively. Here, the agreement is
100
strongest among private individuals, economic operators, and other stakeholders, while business
federations and service providers had ‘neither agree nor disagree’ as the most common single reply.
As for recapitulative statements for intra-EU transactions, around half of the respondents
considered them at least partially effective in fighting intra-EU fraud, but also think their
effectiveness could be improved. Business federations found them less effective. Respondents did
not consider recapitulative statements as effective in fighting VAT fraud as domestic DRRs. A
clear majority of stakeholders agreed or partly agreed that recapitulative statements would be more
effective in fighting intra-EU fraud if data is collected on a transaction-by-transaction (rather than
per customer) basis and closer to the moment of the transaction. This statement generated
marginally more disagreement from business federations and economic operators than from other
groups.
The role of the EU in fostering the adoption of reporting and e-invoicing requirements was
considered crucial by stakeholders. Over two-thirds of respondent perceived to a large extent
that EU action is necessary in ensuring a more widespread adoption of reporting and e-
invoicing requirements. This opinion was shared by a majority of respondents across all groups of
stakeholders (only service providers perceived this to a more limited extent).
When asked whether the EU should promote uniform DRRs for domestic transactions or rather
leave Member States free to adapt requirements to their local needs, stakeholders expressed a
strong preference for the EU to promote uniform DRRs for domestic transactions. Across
both private individuals and business stakeholders, the distribution was leaning towards DRRs
being promoted at the EU-level, but private individuals showed a less pronounced preference in this
direction compared to business stakeholders.
In the case of an EU initiative in the field of DRRs, a majority of stakeholders agreed on the
importance of its possible objectives. Across all groups, almost all respondents viewed it as very
important or important that possible EU initiatives both foster the adoption of digitally-savvy
DRRs, and reduce the fragmentation of DRRs.
Of the suggested possible revisions, a majority of the stakeholders agreed, at least partly, to all of
them. The revisions with the most support include:
 introduce an EU DRR for intra-EU transactions and harmonise existing systems for
domestic transactions (Sub-option 4a), and
 introduce an EU DRR for both intra-EU and domestic transactions (Sub-option 4b).
Agreement was less pronounced for recording data on VAT transactions in a standard digital
format, adopting non-binding Commission recommendations providing a common design for
reporting obligations across the EU, and for no longer requiring Member States to have to ask for
an explicit derogation for introducing mandatory e-invoicing for B2B transactions. For the
publishing of a non-binding recommendation, the disagreement among service providers and
private individuals was higher than for other groups. Over one-third of responding economic
operators disagreed at least partly with removing the need for an explicit derogation for Member
States to introduce mandatory B2B e-invoicing.
101
When it comes to exchanging information on intra-EU transactions between Member States,
stakeholders were fairly split between preferring a decentralised or a centralised model161
.
Overall, a centralised model showed the highest support, but, if added together, the decentralised
option and the option of a decentralised model with additional features gained more consensus.
Economic operators and service providers indicated a stronger support for a centralised model than
others, while business federations preferred a decentralised one, ideally with additional features.
In assessing the risks in terms of data protection, respondents viewed the centralised model as
the one with the highest data confidentiality risk. A decentralised model, possibly with
additional features, gathered more confidence among stakeholders, with around two-thirds of
replies assessing the risk to be average or lower. In these cases, less than or around one third of
respondents viewed the risk as high or very high.
Rating the models with regards to their interoperability with national systems, stakeholders
assessed the interoperability of a decentralised system as more difficult. For the centralised
model, stakeholders were fairly evenly split across their assessments, but more participants thought
it would be easy or very easy to ensure interoperability.
Concerning existing reporting and e-invoicing requirements, about one-third of replies come
from countries with reporting or e-invoicing requirements in place. Slightly less respondents
live or operate in countries that have such requirements planned. Among replies coming from
countries with reporting or e-invoicing requirements in place, the effects for which a majority
of respondents perceive a strong or moderate intensity were (i) significant compliance costs for
companies operating cross-border, (ii) a lack of support from tax authorities, and (iii) limited time
to handle error and warning messages. In particular business stakeholders were concerned with
compliance costs for cross-border operators.
Significant compliance costs for the overall business population were reported by more than two-
thirds of respondents, but most answers assessed the intensity of this effect as minor. More than
half of the stakeholders considered that national DRR systems do not allow for sufficient time to
implement changes in IT systems, or feature too frequent changes to requirements, and generate
risks to the confidentiality of transaction and invoice data. Concerning those effects, more than one-
third of stakeholders thought it was too early to experience them, or they did not observe them at
all.
The compliance with existing reporting and e-invoicing requirements did not appear to be a
significant difficulty for a majority of responding stakeholders. Around one-third of the
respondents said that complying with the requirements is either very difficult or difficult. Another
third viewed the compliance as neither difficult nor easy. Business stakeholders assessed
compliance to be more difficult in comparison to other respondents.
Confronted with outcomes after the introduction of reporting and e-invoicing requirements, a
majority of stakeholders replied that significant benefits have manifested. A majority of
responding stakeholders saw major or moderate benefits because of the promotion of structured e-
161
In this regard it should however be noted that, based on the evidence from targeted questionnaires of consultation
events listed under 11.1.3, there is a broad preference amongst the Member States tax authorities for combining the
DRR with a centralised model for the exchange of information between them since this will lower the IT costs for
Member States, comes with common implementation of analysis and crosschecks, as well as common interpretation of
results, all through automation.
102
invoices, quicker invoicing processes, and business automation. Business stakeholders in particular
viewed a quicker invoicing process as a beneficial outcome. Around one-third also assessed major
or moderate benefits to come from quicker audits, but most participating stakeholders qualified it as
being too early to tell. At least minor benefits were mentioned by one-third of respondents to come
from fewer audits, fewer information requests, the pre-filling of VAT returns, and the removal of
other VAT obligations, but the single answer provided most often for those four outcomes was that
these benefits have not materialised. Quicker VAT reimbursements were not perceived as a
significant benefit.
For those stakeholders not established or resident in countries with reporting or e-invoicing
requirements, all seven suggested possible outcomes were deemed likely after the introduction
of reporting and e-invoicing requirements. Around two-thirds of respondents viewed a major or
moderate risk of the following outcomes materialising: significant compliance costs; significant
compliance costs for companies operating cross-border; insufficient time allowed to implement
changes to IT systems; lack of support from tax authority; frequent changes to requirements;
limited time to handle error and warning messages; and risks to the confidentiality of data. Business
stakeholders were most concerned about the risks of insufficient time to implement IT system
changes and a lack of support from tax authorities materialising.
With regards to the expected difficulty of compliance, a majority thought that compliance with
digital reporting and e-invoicing requirements is going to be very difficult or difficult. None of
the respondents expected compliance to be very easy and only a marginal number of answers was
assuming it is going to be easy.
Concerning possible effects of the introduction of DRRs, major or moderate benefits were
expected to materialise for all nine suggested outcomes by a majority of participating
stakeholders. The most positive expectations were expressed for the promotion of structured e-
invoices, for quicker invoicing processes, for quicker audits, for fewer information requests,
removal of other VAT obligations, and for quicker VAT reimbursements, for which more than two-
thirds of replies expected major or moderate benefits. Around two-thirds of respondents also
expected major or moderate benefits to manifest from business automation gains, fewer audits, and
pre-filling of VAT returns.
The additional comments provided to this section can be grouped under the following main themes:
 There is an urgent need for an EU-level standard, which should be limited – at least at first –
to intra-EU transactions. At the same time, domestic systems should share an obligatory
basis to avoid further fragmentation. Existing models at the EU-level should be maintained
and further developed for this purpose, namely the CEN Norm 16931.
 The granted derogations have led to a fragmented situation across the EU, which creates
barriers for economic operators in entering markets in certain Member States. This creates
particular problems for SMEs. Mandatory e-invoicing might be favourable for economic
operators, as DRRs potentially require further administrative work.
 SMEs must be supported when it comes to DRRs and e-invoicing, for example through
cost-free software or by allowing hybrid file formats.
 The data to be submitted and stored should be kept to a minimum in order to reduce the risk
to data confidentiality.
12.3.4. VAT treatment of the Platform economy
In the initial questions of this section, stakeholders answered about their usage of platforms in order
to buy and sell goods. A majority of respondents use platforms to buy goods or services at least
103
once or twice a month. Slightly less than half of the participating stakeholders replied that they
buy goods or services via platforms several times per month. Around two-fifths also stated that they
do not buy via platforms at all. Over two-thirds of participants purchase goods via platforms,
while around half uses platforms to buy accommodation services and other services, and over
one-third to buy transport services. Moving from buying to selling via platforms, the vast
majority of respondents do not offer goods or services via platforms. More than a quarter of
respondents offer goods or services via platforms at least once or twice per year. Of those supplying
goods or services via platforms over half do so several times per week. Around two-thirds of the
stakeholders state that they are supplying goods via platforms, while the supply of services is
more fragmented. The most regular answer concerning the supply of services via platforms was
‘other services’, which are supplied by about half of the respondents using platforms. One-fifth
replied that they offer transportation services via platforms. At a lower rate, participants indicated
that they supply financial services, professional and household services, accommodation services,
and advertising / exchange of information services.
When supplying goods or services via platforms, a vast majority of business stakeholders
declared to be charging VAT on those supplies made via a platform. Among private individuals
and other stakeholders selling goods or services via platforms the rate is significantly lower, as less
than half replied that they charge VAT on such supplies.
Concerning the absence of specific provisions in the VAT Directive dealing with the treatment of
services supplied via platforms, two-thirds of responding stakeholders thought that this is
creating major or moderate problems for platforms and their users. Business federations and
service providers viewed the situation as more problematic.
More than two-thirds of respondents reported that they have not experienced specific
problems concerning the VAT treatment of services supplied via platforms. Among those
stakeholders that have stated that they offer goods or services via platforms, the share was slightly
higher. The remaining ones mentioned specific issues that can be summarised into five general
problems:
1) Stakeholders reported difficulties with Member States applying different VAT treatments,
ranging from different rates over different treatment of electronically supplied and
intermediary services to different thresholds for the application of VAT to SMEs.
2) Some respondents noted having experienced problems with either double-taxation or no-
taxation.
3) Problems were mentioned concerning the definition of supplies, the status of the supplier
and customer, and the place of supply.
4) Problems arise due to the platform providers, for example because of a lack of appropriate
invoicing from their side or because the wrong VAT rate is being applied by them.
5) Some respondents have experienced problems when dealing with non-EU counterparts,
such as uncertainty over whether VAT must be applied and what rate is correct to apply or
that foreign entities must register in Member States.
With regards to specific problems, the definition of when providers and consumers would
qualify as VAT taxable persons is the most difficult issue. This result is particularly driven by
the accommodation sector, where the issue was mentioned the most often. Across the five sectors,
the question of determining the status of the service as to whether it is taxable or exempt (and taxed
104
at what rate) was noted as the least pronounced. This was viewed differently by stakeholders for the
financial services sector, where it was in fact the most frequently mentioned issue. For transport
services, the assessment of the consumer’s VAT status, which could define the place of supply in
cross-border transactions, was the most indicated issue. Also often indicated across all sectors was
the issue of defining whether a platform’s services should be classified as intermediation or
electronically supplied services.
The majority of stakeholders shared the view that the differences in VAT treatment across
Member States has led to them experiencing at least moderate distortions to cross-border
competition with other firms offering the same services. Responding business federations,
economic operators, and service providers viewed those distortions as minor at a higher rate than
private individuals and other stakeholders.
Asked about competition with non-platform-supplied services, over two-thirds of total
respondents said they experience distortions of competition with other domestic firms
offering the same services due to very uneven or uneven treatment of similar services and
providers in their Member States. This experience was reported most strongly by business
federations. Almost half of the responding economic operators did not see distortions due to uneven
treatment at all.
There does not emerge a clear consensus among the different stakeholders as to whether the current
VAT treatment represents an important driver of or an obstacle to the digital platform business
model. Economic operators said at a majority that the current VAT treatment is a strong or
moderate driver of the digital platform business model, while business federations were
pretty evenly split. Across all stakeholders, slightly more participants said that the current VAT
treatment is a driver rather than an obstacle to the digital platform business model.
Concerning VAT evasion in the platform economy, about three quarters of respondents
considered it a specific problem for the platform economy, for trade in either or both goods
and services. Responses coming from business federations show a different assessment of the
situation than the other stakeholder groups, as half of this group did not think that VAT evasion and
avoidance represents a specific problem for the platform economy all together.
The need for changes to the VAT Directive and its Implementing Regulation in order to
ensure proper VAT treatment of the platform economy was considered necessary by a
majority of all stakeholders. The different groups of stakeholders largely agreed on this question,
and only among business federations those believing changes are necessary to a large or very large
extent were in a slight minority.
When provided with six different objectives for potential EU initiatives, a majority of respondents
considered all six objectives as at least important. The objective with the highest importance is
the simplicity of application, which was considered very important by more than three quarters of
participants, and in particular by business federations. Around two-thirds of respondents considered
it very important that potential EU initiatives aim at reducing costs for economic operators,
ensuring a level-playing field between the traditional and platform economy, and ensuring
harmonised treatment of the platform economy across Member States. Slightly less highly rated,
but still significant, was the importance of ensuring a broad tax base and tax compliance.
Clarifying the nature of services provided by the platform was the most supported
intervention across different stakeholders. Over two-thirds also at least partly agreed with
initiatives concerning the introduction of a rebuttable presumption on the status of platform
providers and the streamlining of record-keeping obligations. The latter found high agreement
105
among business federations and economic operators. A lower support, but still majoritarian,
concerned the remaining interventions, namely a deemed supplier regime for digital platforms,
especially among business federations and economic operators.
Stakeholders were asked about possible practical difficulties (for businesses or the public budget)
due to the suggested legislative interventions at the EU level. For each of the interventions, the
responses can be summarised as follows:
 Clarification of the nature of the services provided by the platform: Stakeholders noted that
keeping a legal clarification up to date with the business ideas and offered services of
platforms will be difficult or impossible; it was remarked that the nature of the service and
distinction between an intermediary and electronic supply of service cannot always be
clearly defined
 Rebuttable presumption on the status of the service provider using a platform: Respondents
stated that presuming the VAT status of the service provider is difficult as even a taxpayer
with a VAT ID might not be VAT taxable on certain transactions; other replies warned that
this adds complexity for platforms and a simple and secure mechanism should be found.
 Streamlining of record-keeping obligations: Some stakeholders were worried this would in
fact increase costs and put platforms at a disadvantage compared to non-platform
businesses; additional difficulty could be caused by difficulties for platforms to verify
whether the underlying service provider is resident or non-resident; some responses also
indicated that problems with data protection regulations could occur.
 Deemed supplier role for digital platforms: Respondents said that this creates difficulties for
platforms as they become liable to charge and collect VAT in certain cases, a burden which
might be unreasonable for purely domestic platforms; there is also a worry that the
platforms would shift burdens to users of platforms by imposing strict conditions and
requirements, a problem related to the often existing power imbalance in favour of
platforms; some stakeholders also thought it could be difficult to correctly calculate the
VAT rate in some cases
A majority of respondents said that the deemed supplier model would have at least moderate
positive impacts on the equal treatment of the traditional and platform economy. Concerning
the supply of certain accommodation and transport services (i.e. residence renting, ride on demand
and home delivery services), around three-quarters of stakeholders thought it would have a
moderate or major positive impact. Still over two-thirds had this view on a deemed supplier model
for the supply of all accommodation and transport services. Among business federations, the
responses were slightly less positive. The fear of at least moderate negative impacts was even
higher among business federations for a deemed supplier model for all services for monetary
considerations.
The additional comments provided to the VAT treatment of the Platform economy can be grouped
into three main themes, which are the following:
 Any intervention should foster a level-playing field not only between traditional and
platform economies, but also between platforms operating in different sectors and platforms
of different sizes. Requirements targeted at cross-border supplies could cause unnecessary
burdens on platforms with a domestic scope. Certain changes, such as using the ‘group of 4’
as a requirement for deemed supplier rules, might be impossible to apply in some sectors.
106
 The platform economy has been addressed by other initiatives and any action should be
aligned with those. Stakeholders recall that the platform economy is part of the focus of
CESOP, DAC7, the eCommerce Directive, and ‘improving working conditions for platform
workers’.
 The platform economy is one dimension of an overall economy, and it should not be subject
to a specific VAT regime. Furthermore, specific digital taxes targeted at platforms might
undermine the Digital Single Market.
12.3.5. VAT registration
At first, participants to the public consultation were asked about their view on the importance of
some objectives to them or their organisation. Overall, all four suggested objectives were seen as
very important by a majority of the responding stakeholders. The objective with the highest
importance was the simplification and facilitation of VAT compliance, particularly among business
federations and economic operators. Business federations also rated the importance of minimising
the need for taxable persons to hold multiple VAT registrations across the EU as more importantly
than other respondents. Still over two-thirds of replies viewed it as important to reduce fraud and
maximise VAT revenue, and to modernise VAT rules linked to VAT registration as important
objectives.
When asked whether the launch of the OSS brought progress towards those objectives,
stakeholders believed by a majority that the OSS has led to at least moderate progress
towards all four objectives. The most significant progress due to the OSS was towards the
minimisation of the need for taxable persons to hold multiple VAT registrations. The progress on
the other objectives – the simplification and facilitation of VAT compliance, and the reduction of
fraud and maximisation of VAT revenue – was seen less positively by economic operators than by
others. More than half of the responding economic operators saw minor or no progress towards
these objectives due to the launch of the OSS.
The same question posed about the progress towards the objectives caused by the IOSS shows very
similar results. More than half of the responding stakeholders thought that the launch of the
IOSS has led to significant or moderate progress towards all four objectives. A slightly
different outcome was visible concerning the objective to modernise VAT rules linked to VAT
registration obligations for distance sales of goods, for which around one-fifth of answers assessed
no or minor progress due to the IOSS launch.
Stakeholders predominantly expressed their view that the OSS is at least mostly, if not very,
consistent with other EU policies, requirements, and regulations in the four suggested fields
(the SME strategy for a sustainable Europe, the European digital single market, and the EU
administrative cooperation in the field of indirect taxation). In particular, replies from business
federations assessed the consistency positively. The consistency was viewed slightly less high by
respondents when it comes the Union Customs Code.
The consistency of the IOSS with EU policies, requirements, and regulations in the listed
fields was still assessed positively, but at a slightly lower level than for the OSS. The consistency
with the SME strategy for a sustainable Europe and the European digital single market was still
appreciated by over two-thirds of responses. For the Union Customs Code, around half of
responding stakeholders thought the IOSS is very or mostly consistent with policies, requirements,
and regulations in this area. The answers coming from economic operators valued the consistency
less than other participants across all four fields, in particular for the Union Customs Code.
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Around half of the participating stakeholders have direct experience with either IOSS, OSS,
or both. About one-fifth stated that they only have experience with the OSS, about one-fourth with
both mechanisms, and only a very small amount has experience only with the IOSS. The most
experience with the IOSS and OSS can be found among service providers.
Many businesses confirmed that, thanks to OSS, they no longer need to maintain previously
held VAT registrations in other Member States, and that the OSS is particularly helpful for
SMEs. Over 70% of stakeholders held this view, and more often so among business federations.
The perception is less positive when it comes to whether the OSS has been implemented smoothly,
a view which was shared, at least partly, by less than 50% of stakeholders. Among economic
operators, more than half of respondents did not consider that OSS is allowing businesses to pursue
new customers and/or markets, and that it is easy to use the OSS. Private individuals, on the other
hand, did not agree by a majority that the OSS helps to reduce discrepancies in the application of
VAT rules in the EU.
Among the factors determining whether businesses use the OSS or not, the types of
transactions the business is engaged in and the Member States in which they would otherwise
face VAT registrations obligations were noted as the most important. The importance of these
two factors is especially underlined by the responding business federations. The size of the
business, the sector/market where the business operates, and whether the business is a deemed
supplier were still seen as a very important or important factor by over 70% of those stakeholders
providing a response. Slightly less importance was assigned to the Member States in which the
business is established, but a majority of replies still qualifies this at least as important.
The stakeholders considered that the IOSS is making it easier for businesses to engage in new
transactions which would require them to register in other Member States. Around one-third
of respondents agreed with this statement and another third partly agreed. Agreement was
especially high among replies from business federations, but considerably lower from economic
operators. Over two-thirds of participating stakeholders agreed or partly agreed that the IOSS
improves VAT compliance. Still a majority agreed at least partly that the IOSS is simplifying the
process of importation for low-value consignments, that it is particularly helpful for SMEs, that it
helps reducing discrepancies in the application of VAT rules in the EU, and that it reduces
administrative burdens for businesses. The latter was, however, not perceived by a majority of
economic operators. Less than half of respondents considered that the IOSS has been implemented
smoothly, that it is easy to use, and that it helps to reduce discrepancies in the application of
Customs and VAT rules in the EU.
Out of four possible impacts from the changes of the VAT exemption for low-value goods,
stakeholders mentioned the level playing field between EU and non-EU businesses as the most
significant impact. This impact was agreed to by almost two-thirds of respondents, with only
private individuals and economic operators showing a slightly lower rate of agreement. A majority
also mentioned the minimisation of the risk of undervaluation and the increase of VAT revenue. A
stop to businesses relocating outside the EU to benefit from VAT savings was an impact that
around 50% of responding stakeholders agreed or partly agreed to.
The most important factor in determining whether a business uses the IOSS or not is the
types of transactions in which a business is engaged. Around 90% of replies viewed this factor as
very important or important. Around 80% of respondents thought it is at least important what the
size of the business is, the sector/market where the business operates, whether the business is a
deemed supplier, the desire of a business to be compliant, and the customer experience. The latter
was viewed as less important by private individuals. A lower percentage of stakeholders said that
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whether the business has an EU place of establishment is an important factor, but still around two-
thirds noted it as important or very important.
Other observations in relation to OSS/IOSS experience can be summarised in four categories:
 There appear to be certain dangers of fraud and/or misuse of the IOSS number. One
stakeholder noted that the IOSS is in practice used for VAT fraud, in particular with relation
to drop shipping. Other stakeholders described a separate issue with the IOSS number and a
misuse of the number, for example that there is a conflict with the number being considered
semi-secret by sellers but the buyer needing it to declare the parcel to customs or the IOSS
number being used fraudulently.
 The lowering of the distance selling limit to EUR 10.000 is creating problems for some
stakeholders. In particular SMEs run into the obligation to register in other EU countries or
use the OSS due to the change. This requires them to obtain the necessary information about
the respective national VAT law, which can be time-consuming and costly.
 Several respondents remarked that the OSS could be improved by including both B2C and
B2B transactions.
 A number of problems were being mentioned with the overall functioning of the IOSS and
OSS, such as: certain operators being still inexperienced in managing imports through the
IOSS; the IOSS/OSS being difficult to apply for deemed suppliers; occurrences of double-
taxation when VAT is collected at customs and through the IOSS; Member States requiring
businesses to include OSS/IOSS transactions in domestic VAT returns leading to additional
complexity
Despite the introduction of the OSS and the IOSS, there are still transactions that require taxpayers
to obtain and maintain multiple VAT registrations across the EU. Stakeholders were asked to assess
the importance of these transactions by assessing whether they are widespread among businesses or
in specific segments, and the affected share of turnover. Among the listed transactions,
stakeholders assessed the transfer of own goods cross-border as the most widespread
transaction, representing a significant share of their turnover. Close to 60% of respondents
expressed this view. Export from a Member State in which the exporter is not established was
considered to be either relevant only in specific market segments or affecting a limited proportion
of turnover. The domestic supply of B2B services where the reverse charge does not apply was
considered a more marginal transaction in terms of both prevalence and turnover significance.
Overall, however, none of the proposed transactions was seen as marginal by a majority of replies,
meaning a majority thinks each of them has at least sectoral prevalence, or is widespread among
businesses, albeit with a low turnover significance.
Despite the introduction of the OSS and the IOSS, 124 responding stakeholders (90% of those
providing an opinion) thought that the requirement to obtain and maintain multiple VAT
registrations continues to be a problem, at least to some extent. Over two-thirds thought it is a
problem to a large or even very large extent.
With a majority of stakeholders still seeing problems with multiple VAT registrations, over two-
thirds of respondents believed that it should be a high priority for the European Commission
to take further action to reduce the need for taxpayers to hold multiple VAT registrations. An
additional fifth of replying stakeholders said that it should be a medium priority, and less than 10%
thought it being a low priority is appropriate.
109
According to more than 90% of stakeholders, VAT registration requirements lead to high
administrative and compliance costs for businesses. Especially business federations supported
this view. Over 80% of respondents considered that difficult compliance with VAT registration
requirements contributes to high levels of fraud and non-compliance, and that taxpayers do not
pursue certain markets or transactions due to them wanting to avoid VAT registration in multiple
Member States.
In addition to their opinion on the proposed policy options, stakeholders were asked to put forward
suggestions to make the IOSS more fraud-proof. A suggestion brought forward by a range of
stakeholders was the introduction of a robust system to avoid the misuse of the IOSS number, for
example by introducing a two-factor-authentication or by making it easier for intermediaries to spot
fraudulent uses of IOSS numbers by allowing them access to EU databases logging all imports
using the relevant IOSS number. It was also suggested by some respondents to improve
communication with Customs authorities, such as providing additional data to the authorities or
sharing information collected by Customs with businesses to reconcile their IOSS VAT returns.
Finally, a stakeholder suggested to introduce a solution for the calculation and collection of VAT
immediately on all IOSS sales at the time of sales, eliminating the intermediary role
For VAT registration, additional comments provided by stakeholders can be classified under five
main topics:
 Extend the OSS – several respondents called for the OSS to be extended. In particular the
transfer of own goods and the subsequent domestic sale of that inventory was mentioned
repeatedly as an area that should be included in the OSS. In addition, it is suggested by
some to include the remaining areas of B2C transactions, in order to fully develop the
already achieved simplification brought by the OSS.
 Remove €150 threshold for IOSS – the scope of the IOSS should also be broadened
according to a number of stakeholders, who argued for a removal of the €150 threshold in
order to do so. Yet, one respondent warned that this removal would need to be accompanied
with a review of how customs duty is paid/collected.
 Making IOSS mandatory and its risks – while there were replies wishing for the IOSS to
become mandatory, others did not wish to see this change. Certain stakeholders warned that
this would make small overseas companies much less likely to sell to EU customers, if they
only occasionally have sales into the EU market.
 General complexity – it was underlined by a range of answers that, while they do simplify
things, the IOSS and OSS do not manage to solve the general complexity of the VAT
system and also bring their own complexities. One respondent believed that the
simplifications should be less targeted on how to declare VAT but rather on how to apply
VAT, as the main problems of determining the right VAT rate or finding the proper place of
supply rule remain. Other stakeholders outlined that certain complexities arise due to
administrative issues with the OSS and IOSS, such as determining residency, trying to
understand how to correct invoices, and the lack of information about transactions within a
VAT group. Furthermore, the mechanisms are still perceived as complex by smaller entities.
Finally, it was mentioned that the interaction between the OSS and the margin regimes for
second-hand goods needs to be examined, as they cannot be used together at the moment.
110
 Importance of reverse charge – a couple of respondents underlined the importance of the
reverse charge mechanism and that it has proven simpler than the OSS system. Therefore,
they insisted that the OSS should not override the reverse charge model.
111
13. ANNEX 3: WHO IS AFFECTED AND HOW?
13.1. Practical implications of the initiative
The initiative will impact businesses and Member States directly and citizens indirectly, trough
possible price changes.
13.1.1. Businesses (taxpayers)
Businesses will be impacted in the way they comply with their VAT obligations.
13.1.2. Member States
On one hand, Member States will be impacted by the need to implement the new VAT rules and on
another hand by how they audit the application by businesses.
13.1.3. Citizens
Citizens should not be affected by the changes as they will continue to purchase goods and services
with payment of VAT. However, citizens only theoretically described as such, but who in the
economic reality act like a business will be impacted by the initiative because they will need to pay
VAT as businesses do. In this situation, the impact is transferred to the platforms who will bear the
burden of complying with the VAT obligations. Finally, citizens may be indirectly impacted by a
price variation as the playfield levels and the undetected businesses surface, although the price
change will not be substantial. In normal market conditions, a better competition, fraud detection
and burden reduction as result of simplification are expected to lead to a reduction of the final price
paid by citizens.
13.2. Summary of costs and benefits
I.a. Overview of Benefits (total for all provisions) – Enhanced approach, 2023-2032
Description Amount Comments
Direct benefits
Compliance cost
reductions
Pre-filling of VAT returns: EUR 4.3 billion savings Businesses will benefit from the
savings
The more widespread use of e-invoicing (due to quicker issuance and the
reduction in postage and printing costs) will save EUR 1.9 billion
Businesses will benefit from the
savings
EUR 11 billion savings from removal of recapitulative statements Businesses will benefit from the
savings
EUR 0.5 billion savings in administrative costs resulting from
streamlining and clarifications for the from the platform economy
Platforms to benefit from the savings
VAT registration: almost completely eliminating the need to VAT register
for distance sellers will save up to EUR 8.7 billion registration costs
(EUR 0.4 billion one-off and EUR 8.3 billion recurrent)
Businesses doing cross-border trade
who otherwise have to register will
benefit
112
Reduction of
fragmentation costs
(costs of non-
harmonisation)
EUR 24.2 billion (after the 5th
year when the full interoperability and
convergence is reached)162
.
Businesses will benefit
Additional VAT
revenue
Between EUR 135 billion and EUR 177 billion: EUR 111 billion (digital
reporting) and EUR 24 billion to EUR 66 billion (platform economy)163
Being a simplification measure, the VAT registration will only bring
minor additional VAT revenue.
Member States will benefit
Tax control The introduction of DRRs is expected to bring positive impacts on the
efficiency and effectiveness of tax control activities
This would mainly result from the
improvement of the risk
analysis systems, which is the main
positive impact acknowledged by tax
authorities that will benefit
Taxpayers will also benefit because
of more targeted audits and
sometimes less audits
Levelling the
playfield
VAT reporting: reduction of MTIC and intra-Community VAT fraud
Platform economy: competition made fairer between actors performing in
the same economic reality
VAT registration: Benefits on levelling the playing field derived from the
extension of the scope
VAT reporting: In particular, it will
be more difficult for fraudsters to
operate, since the good faith trading
partner in the chain will disclose
(possibly in real-time) the
transactions to the authorities.
Platform economy: Part of the
increase in VAT collection will
come from participants in economic
life that are not VAT taxable while
enjoying the network effects will
make the competition fairer
VAT registration may not be
responsible for substantial amounts
of fraud, regulatory costs and
complexity can increase non-
compliance, especially among
SMEs. Thus, reducing the scope of
situations requiring VAT registration
for non-established businesses would
make compliance simpler and
cheaper, and likely to improve it.
Indirect benefits
Quicker introduction
of a DRR for
domestic transactions
across Member
States, due to the
model-role played by
the EU DRR
Some specific benefits under option 4b (introduction of domestic digital
reporting requirement) will also materialise because the voluntarily
adoption of domestic DRRs.
Member States will benefit
Interoperability and
reduction of
fragmentation
Under selected option, any new introduction of domestic reporting
obligation must ensure the compatibility and interoperability with existing
intra-EU solution
Member States and businesses will
benefit
Indirect compliance
benefits are very
First, the reduction of the number of taxpayers in charge of paying VAT
from millions of providers to hundreds of (sometimes very large)
Businesses and member States to
benefit
162
Fragmentation cost savings arise when a country introduce (or is so required to introduce) a uniform EU DRR.
Fragmentation costs are eliminated in the medium-term (after fifth year of the 10-year period).
163
The initiative does not create additional VAT liabilities = does not introduce any new tax. The additional VAT
revenue is due to fraud reduction, increased compliance and broader tax base.
113
likely under the
deemed supplier
regime.
platforms will markedly increase the ability of tax administrations to
monitor VAT liability in the platform economy.
Secondly, the understatement of turnover to remain below the VAT
Scheme threshold, which is one of the main sources of non-compliance in
the platform economy pointed out by tax authorities, will no longer lead
to the evasion of the VAT due on their supplies.
Benefits from
business automation
An important benefit is the automation of business processes driven by
the introduction of digital reporting requirements, due to the electronic
handling of transactional data
Larger, more structured, business
entities are likely to obtain more
savings due to larger scale of their
invoicing and accounting processes
and because they have more means
and know-how to invest in business
automation
Environmental
benefits, i.e. the
monetary value of the
CO2 saved
Between EUR 0.01 billion and EUR 0.5 billion
Administrative cost savings related to the ‘one in, one out’ approach*
Direct cost Pre-filling of VAT returns EUR 4.3 billion
Direct cost E-invoicing related savings EUR 1.9 billion
Direct cost Removal of recapitulative
statements
EUR 11 billion
Direct cost Costs of compliance and to
determine the status of providers
EUR 0.5 billion
Direct cost VAT registration costs EUR 8.7 billion
Direct cost Fragmentation costs for MNCs EUR 24.2 billion
I.b. Overview of Benefits (total for all provisions) – Maximal approach, 2023-2032
Description Amount Comments
Direct benefits
Compliance cost
reductions
Pre-filling of VAT returns: EUR 7 billion savings Businesses will benefit from the
savings
The more widespread use of e-invoicing (due to quicker issuance and the
reduction in postage and printing costs) will save EUR 14.5 billion
Businesses will benefit from the
savings
EUR 11 billion savings from removal of recapitulative statements Businesses will benefit from the
savings
EUR 0.5 billion savings in administrative costs resulting from
streamlining and clarifications for the from the platform economy
Platforms to benefit from the savings
VAT registration: almost completely eliminating the need to VAT register
for distance sellers will save up to EUR 8.7 billion registration costs
Businesses doing cross-border trade
who otherwise have to register will
benefit
Reduction of
fragmentation costs
(costs of non-
harmonisation)
EUR 24.2 billion (after the 5th
year when the full interoperability and
convergence is reached)164
.
Businesses will benefit
164
Fragmentation cost savings arise when a country introduce (or is so required to introduce) a uniform EU DRR.
Fragmentation costs are eliminated in the medium-term (after fifth year of the 10-year period).
114
Additional VAT
revenue
Between EUR 284.4 billion and EUR 367.4 billion: EUR 221.4 billion
(digital reporting) and EUR 63 billion to EUR 146 billion (platform
economy)165
Being a simplification measure, the VAT registration will only bring
minor additional VAT revenue.
Member States will benefit
Tax control The introduction of intra EU and domestic DRRs is expected to bring
maximum positive impacts on the efficiency and effectiveness of tax
control activities
This would mainly result from the
improvement of the risk
analysis systems, which is the main
positive impact acknowledged by tax
authorities that will benefit
Taxpayers will also benefit because
of more targeted audits and
sometimes less audits
Levelling the
playfield
VAT reporting: reduction of MTIC and intra-Community VAT fraud
Platform economy: competition made fairer between actors performing in
the same economic reality
VAT registration: Benefits on levelling the playing field derived from the
extension of the scope
VAT reporting: In particular, it will
be more difficult for fraudsters to
operate, since the good faith trading
partner in the chain will disclose
(possibly in real-time) the
transactions to the authorities. By
inclusion of domestic DRRs the
chain of transaction will be
complete.
Platform economy: Part of the
increase in VAT collection will
come from participants in economic
life that are not VAT taxable while
enjoying the network effects will
make the competition fairer
VAT registration may not be
responsible for substantial amounts
of fraud, regulatory costs and
complexity can increase non-
compliance, especially among
SMEs. Thus, reducing the scope of
situations requiring VAT registration
for non-established businesses would
make compliance simpler and
cheaper, and likely to improve it.
The removal of EUR 150 threshold
will help the competition by putting
on equal footing the businesses
inside and outside EU for certain
transactions under the scope
Indirect benefits
Interoperability and
reduction of
fragmentation
Under selected option, the domestic reporting obligation must ensure the
compatibility and interoperability with existing intra-EU solution
Member States and businesses will
benefit
Indirect compliance
benefits are very
likely under the
deemed supplier
regime.
First, the reduction of the number of taxpayers in charge of paying VAT
from millions of providers to thousands of platforms will markedly
increase the ability of tax administrations to monitor VAT liability in the
platform economy.
Secondly, the understatement of turnover to remain below the VAT
Scheme threshold, which is one of the main sources of non-compliance in
the platform economy pointed out by tax authorities, will no longer lead
to the evasion of the VAT due on their supplies.
Businesses and member States to
benefit
Benefits from An important benefit is the automation of business processes driven by Larger, more structured, business
165
The initiative does not create additional VAT liabilities = does not introduce any new tax. The additional VAT
revenue is due to fraud reduction, increased compliance and broader tax base.
115
business automation the introduction of digital reporting requirements, due to the electronic
handling of transactional data. This is maximised by the inclusion of
domestic DRRs
entities are likely to obtain more
savings due to larger scale of their
invoicing and accounting processes
and because they have more means
and know-how to invest in business
automation
Environmental
benefits, i.e. the
monetary value of the
CO2 saved
Between EUR 0.01 billion and EUR 0.6 billion
Administrative cost savings related to the ‘one in, one out’ approach*
Direct cost Pre-filling of VAT returns EUR 7 billion
Direct cost E-invoicing related savings EUR 14.5 billion
Direct cost Removal of recapitulative
statements
EUR 11 billion
Direct cost Costs of compliance and to
determine the status of providers
EUR 0.5 billion
Direct cost VAT registration costs EUR 8.7 billion
Direct cost Fragmentation costs for MNCs EUR 24.2 billion
Indirect cost Environmental benefits EUR 0.02 billion
(1) Estimates are gross values relative to the baseline for the preferred option as a whole (i.e. the impact of individual
actions/obligations of the preferred option are aggregated together); (2) Please indicate which stakeholder group is the
main recipient of the benefit in the comment section;(3) For reductions in regulatory costs, please describe details as to
how the saving arises (e.g. reductions in adjustment costs, administrative costs, regulatory charges, enforcement costs,
etc.;); (4) Cost savings related to the ’one in, one out’ approach are detailed in Tool #58 and #59 of the ‘better
regulation’ toolbox. * if relevant
II.a. Overview of costs – Enhanced approach (total costs 2023-2032)
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Introductio
n of intra-
EU digital
reporting
obligation
Direct costs
No cost
impact
No cost
impact
EUR 7.53 billion
adjustment costs
for businesses166
EUR 3.77 billion
compliance costs
for businesses
EUR 0.43
billion
implementati
on costs for
tax
authorities167
EUR 1.7
billion
implementation
costs for tax
authorities
Indirect costs No cost
impact
No cost
impact
No cost
impact
Data
confidentiality:
more data will be
collected, stored,
and
exchanged
Familiarisati
on and
training
costs;
awareness
campaigns.
Data
confidentiality
Deemed
supplier for
Direct costs
No cost
impact
No cost
impact
Initial higher
costs related to
New burdens for
platforms linked
No cost
impact
No cost
impact
166
See Section 8.1
167
The one-off costs of tax administration represent approx. 20% of total costs. The value varies across Members
States, depending on the IT development approach adopted (in-house or outsourced), the range of functions and
services included, and the possibility of exploiting platforms already set up to support existing digital reporting
requirements for public procurement.
116
accommod
ation and
transport
services
the clarification
of taxable status
of the existing
users
to the
administration of
the deemed
supplier regime
Indirect costs No cost
impact
Price variation
(VAT/part of
VAT currently
not paid may be
passed on the
consumer)
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Extension
of the OSS,
reverse
charge
Direct costs
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Minimal
costs related
to updates of
the existing
OSS schemes
No cost
impact
Indirect costs No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Removal of
the optional
character of
the IOSS
Direct costs
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Marginal
costs related
to small
increase in
capacity of
current
systems in
place
No cost
impact
Indirect costs No cost
impact
No cost
impact No cost
impact
No cost
impact
No cost
impact
No cost
impact
Costs related to the ‘one in, one out’ approach
Total
Direct adjustment
costs
No cost
impact
No cost
impact
EUR 7.53 billion
related to the
introduction of
DRRs
No cost
impact
Indirect adjustment
costs
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Administrative
costs (for
offsetting)
No cost
impact
No cost
impact
No cost
impact
EUR 3.77 billion
II.b. Overview of costs – Maximal approach (total costs 2023-2032)
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Introductio
n of intra-
EU digital
reporting
obligation
Direct costs
No cost
impact
No cost
impact
EUR 29 billion
adjustment costs
for businesses
EUR 14.5 billion
compliance costs
for businesses
EUR 0.7
billion
implementati
on costs for
tax
authorities
EUR 2.7
billion
implementation
costs for tax
authorities
Indirect costs No cost
impact
No cost
impact
No cost
impact
Data
confidentiality:
much more data
will be collected,
stored, and
exchanged
Familiarisati
on and
training
costs;
awareness
campaigns.
Data
confidentiality
117
Deemed
supplier for
accommod
ation and
transport
services
Direct costs
No cost
impact
No cost
impact
Initial higher
costs related to
the clarification
of taxable status
of the existing
users
New burdens for
platforms linked
to the
administration of
the deemed
supplier regime
No cost
impact
No cost
impact
Indirect costs No cost
impact
Price variation
(VAT/part of
VAT currently
not paid may be
passed on the
consumer)
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Extension
of the OSS,
reverse
charge
Direct costs
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Minimal
costs related
to updates of
the existing
OSS schemes
No cost
impact
Indirect costs No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Removal of
the optional
character of
the IOSS
Direct costs
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Costs related
to small
increase in
capacity of
current
systems in
place and the
IT systems
for
No cost
impact
Indirect costs No cost
impact
No cost
impact No cost
impact
No cost
impact
No cost
impact
No cost
impact
Costs related to the ‘one in, one out’ approach
Total
Direct adjustment
costs
No cost
impact
No cost
impact
EUR 29 billion
related to the
introduction of
DRRs
No cost
impact
Indirect adjustment
costs
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Administrative
costs (for
offsetting)
No cost
impact
No cost
impact
No cost
impact
EUR 14.5 billion
(1) Estimates (gross values) to be provided with respect to the baseline; (2) costs are provided for each identifiable
action/obligation of the preferred option otherwise for all retained options when no preferred option is specified; (3) If
relevant and available, please present information on costs according to the standard typology of costs (adjustment
costs, administrative costs, regulatory charges, enforcement costs, indirect costs;). (4) Administrative costs for
offsetting as explained in Tool #58 and #59 of the ‘better regulation’ toolbox. The total adjustment costs should equal
the sum of the adjustment costs presented in the upper part of the table (whenever they are quantifiable and/or can be
monetised). Measures taken with a view to compensate adjustment costs to the greatest extent possible are presented in
the section of the impact assessment report presenting the preferred option.
118
13.3. Relevant sustainable development goals168
III. Overview of relevant Sustainable Development Goals – Preferred Option(s)
Relevant SDG Expected progress towards the Goal Comments
e.g. SDG no. 8 – Promote
sustained, inclusive and
sustainable economic
growth, full and productive
employment and decent
work for all
A more efficient and sustainable VAT system
will promote economic growth
The net impacts are reflecting an annual
average increase of the EU GDP worth
between EUR 17 billion and EUR 38 billion
between 2023 and 2032. While significant
as value, these amounts remain very limited
when compared to the EU GDP are
(between. 0.1% and 0.2% of EU GDP).
Therefore, in line with the supporting
study169
, the effects on GDP are estimated
by applying the appropriate multiplier to
changes in VAT revenue and not via a full-
fledged macroeconomic modelling.
e.g. SDG no. 9 - Build
resilient infrastructure,
promote inclusive and
sustainable industrialization
and foster innovation
Although not possible to quantify, automation
allows the integration of multiple services, apps,
and technologies, translating in companies
providing an overarching and highly customised
service.
Technology and market needs dictate an
increased level of security, data protection,
integration, and trust. Digital reporting
contributes to business automation and
foster innovation.
168
https://sdgs.un.org/goals
169
Supporting Study, Volume I, Box 18, p. 122
119
14. ANNEX 4: ANALYTICAL METHODS
14.1. Econometric Model (estimate the DRR impact on VAT compliance)
As different types of DRRs are already in place in some Member States, their effectiveness could
be verified by looking at actual figures on VAT non-compliance and using appropriate econometric
methods. Using such methods means assessing how an independent variable, in this case the
presence of DRRs and their features, impact on VAT non-compliance170
while controlling other
factors which may also explain changes in non-compliance (i.e. a country’s tax policy or economic
structure) across analysed time horizon.
This note discusses initial choices that were made with respect to the data and methods used.
Section 2.1 presents a general formula that formalizes the link between VAT efficiency,
compliance, and revenue. Section 2.2 explains the choice of the dependent variables – the VAT
Gap measure. Section 2.3 presents two alternative econometric approaches and econometric tests
that are performed and discusses exogenous variables and methods for their imputation. Section 2.4
presents the results.
Section 2.1: General formula for measuring impacts on VAT revenue
The value of actual tax revenue for all ad valorem taxes can be decomposed into three basic
components, which are helpful to understand its underlying sources of their evolution. Since
revenue is a product of the theoretical liability and the compliance ratio, tax collection could be
expressed as:
Actual Revenue = Theoretical Liability × Compliance Ratio ,
where Compliance Ratio is: 1 – Tax Gap (%).
As for all ad valorem taxes the Theoretical Liability is a product of the base and the average rate
(WAR, Weighted Average Rate), the actual revenue could be further decomposed and expressed as:
Actual Revenue = Net Base × WAR × Compliance Ratio ,
where the WAR is the ratio of the Theoretical Liability to the Net Base.
Expressed as relative changes, the equation could be rewritten as:
(1 +
∆𝐴𝑐𝑡𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝐴𝑐𝑡𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
) = (1 +
∆𝐶𝑜𝑚𝑝𝑙𝑖𝑎𝑛𝑐𝑒 𝑅𝑎𝑡𝑖𝑜
𝐶𝑜𝑚𝑝𝑙𝑖𝑎𝑛𝑐𝑒 𝑅𝑎𝑡𝑖𝑜
) × (1 +
∆𝑁𝑒𝑡 𝐵𝑎𝑠𝑒
𝑁𝑒𝑡 𝐵𝑎𝑠𝑒
) × (1 +
∆𝑊𝐴𝑅
𝑊𝐴𝑅
)
As the impacts of additional reporting obligations are expected to come predominantly via change
in VAT compliance the overarching formula for measuring impacts on tax compliance takes the
form:171
170
VAT non-compliance is a broad term that stands for VAT foregone not only due to fraud and evasion but also due to
insolvencies, bankruptcies, administrative errors, and legal tax optimisation.
171
In other words, it is assumed that ∆𝑁𝑒𝑡 𝐵𝑎𝑠𝑒 = 0 and ∆𝑊𝐴𝑅 = 0.
120
∆𝐴𝑐𝑡𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 ≅
∆𝐶𝑜𝑚𝑝𝑙𝑖𝑎𝑛𝑐𝑒 𝑅𝑎𝑡𝑖𝑜
𝐶𝑜𝑚𝑝𝑙𝑖𝑎𝑛𝑐𝑒 𝑅𝑎𝑡𝑖𝑜
× 𝐴𝑐𝑡𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
Section 2.2: Non-compliance measure
Due to unavailability of figures for certain components of the VAT Gap, the most precise indication
of the evolution of non-compliance across countries with a sufficiently long time period is the
overall VAT Gap measure172
. The VAT Gap accounts for the difference between the expected and
actual VAT revenues; still, it represents more than just fraud and evasion. The VAT Gap also
covers VAT lost due to, for example, insolvencies, bankruptcies, administrative errors, and legal
tax optimization, whose scale could only to a limited extent be affected by the reporting
obligations. Despite this fact, the use of VAT Gap as the endogenous variable for assessing the
impact of reporting obligations has an advantage as it directly links with the compliance ratio (as
presented overleaf). The use of the VAT Gap figures also has a clear advantage over using VAT
revenue as an explanatory variable because VAT revenue is also affected by other components, e.g.
changes in policy structure and tax base. For this reason, the use of VAT revenue as the
endogenous variable would not allow to disentangling the direct effect of reporting obligations on
VAT compliance.
The VAT Gap measure which is used in the analysis comes from the most up-to-date Study
published by the European Commission. The Study contains 532 panel observations from all past
vintages of the Study transformed using so called backcasting method. The backcasting method
allows the Study Team to minimise the problem of structural breaks between vintages of the Study.
After running the procedure, the figures rely on the magnitude of values for a period of 5 years
covered by the most recent estimates (2019 Study). At the same time, the dynamics, i.e. year-over-
year changes in percentage points, for the years not covered by the full estimates, are based on
older Studies, as more recent editions did not cover the relevant period of time. Overall, the VAT
Gap observations (of country i in year t) cover 27 EU Member States and the UK for the 2000-2018
period initially derived for seven European Commission’s VAT Gap Studies (i.e. the 2013, 2014,
2015, 2016, 2017, 2018, and 2019 Studies).
The VAT Gap, which is the most accurate measure that could be used for the modelling of the
impacts of reporting obligations on VAT compliance, is available only as yearly series.
Unavailability of a more granular series poses two important limitations. Firstly, compared to
quarterly data, yearly series reduce markedly the degrees of freedom of the model. As a result, the
model lacks data points and their variability may prevent the inclusion of additional explanatory
variables. Secondly, yearly series limit the possibility of observing dynamic effects of introducing
additional reporting obligations. This is an important drawback as some countries introduced their
measures in phases and often in the course of the year. Moreover, it may be expected that some of
the measures may have some pre-emptive and/or delayed impact.
An alternative measure that could be used as a proxy of VAT-compliance in the situation when tax
rules remain stable is C-efficiency173
and its changes over time. C-efficiency is expressed as:
𝐶𝐸 =
𝑉𝑅
𝑡𝐶
172
Proxies of certain components of the VAT Gap, i.e. fraud in intra-Community transactions, are available. However,
as they likely contain a measurement error they can only serve as right-hand side variables in the model.
173
Also known as VAT revenue ratio, see: Ebrill, L. Et al. (2001), The Modern VAT, International Monetary Fund,
ISBN:9781589060265.
121
where, VR stands for VAT revenue, t for statutory standard rate and C for final consumption.
C-efficiency could be regarded as an indicator of the departure of the VAT from a perfectly
enforced tax levied at a uniform rate on all consumption.174
In other words, it is an intensive
measure, i.e. expressed in relation to the tax base proxy, of both Compliance and Policy Gap.175
C-
efficiency can be computed on a quarterly basis, based on revenue and national accounts data from
Eurostat. Thus, it allows addressing limitations of VAT Gap indicated above.
Section 2.3: Econometric methods
The approach to the econometric modelling implements two methods: (1) the base approach that
uses quarterly C-efficiency data, and (2) the alternative approach that uses annual VAT Gap data.
Two different methods were implemented to ensure the robustness of econometric estimates and to
verify that the results do not depend on the choice of the dependent variable or data frequency.
The base approach uses the econometric setup of fixed-effects estimation for modelling
determinants of quarterly C-efficiency. Such an approach could be regarded as a specific form of
the difference-in-difference estimator in a panel data setting. The main advantage of the fixed
effects estimator is that it can isolate the impact of reporting requirements from non-observed time
and country-specific factors.
The model of the quarterly C-efficiency includes variables expected to determine the level of non-
compliance but also controlling for factors behind C-efficiency. The base model could be expressed
as:
𝐶𝐸𝑖𝑡 = 𝛼1𝑇𝐴𝑉𝑖𝑡+𝛼2𝑀𝑉𝑖𝑡+𝛼3𝐸𝑆𝑉𝑖𝑡 + 𝛼4𝑅𝑂𝑖𝑡 + 𝛼5𝐹𝑅𝑖𝑡 + 𝛼6𝑆𝐸𝐶𝑖𝑡 + 𝑎𝑡 + 𝑎𝑖 + 𝑢𝑖𝑡
(1)
where the endogenous variable is C-efficiency for country i in year t, CEit, which might be
explained by the variables related directly to the actions taken by tax administrations (𝑇𝐴𝑉𝑖𝑡),
control variables describing the current macroeconomic situation (𝑀𝑉𝑖𝑡), control variables
describing the characteristics of specific Member States (economic structure variables - 𝐸𝑆𝑉𝑖𝑡).
Those control variables are: . 𝑅𝑂𝑖𝑡 stands for the vector of variables describing reporting
obligations. 𝐹𝑅𝑖𝑡 stands for fraud proxies (e.g. shadow economy) and the 𝑆𝐸𝐶𝑖𝑡 for the sectoral
shares in the economy (e.g. share of agriculture in the total value added). Apart from these
variables, country fixed effects (𝑎𝑖) and time fixed effects (𝑎𝑡) are included to control for the non-
observed time and country-specific factors. Finally, 𝑢𝑖𝑡 is the error term with the classical statistical
properties.
The dependent variable (CEit) and some of the explanatory variables (e.g. 𝑅𝑂𝑖𝑡, 𝑀𝑉𝑖𝑡, 𝑆𝐸𝐶𝑖𝑡) are
available at quarterly frequency whereas the remaining explanatory variables (e.g. 𝑇𝐴𝑉𝑖𝑡, 𝐹𝑅𝑖𝑡) are
available only at annual frequency. Since all the variables should be aligned in terms of frequency,
an interpolation technique to break the annual data into quarterly series was necessary. We
employed linear interpolation to construct new data points within the range of a discrete set of
known data points. The linear interpolation is a data imputation method that assumes a linear
relationship between missing and non-missing values176
. The gains of such approach are threefold;
174
See: Keen, M. (2013), The Anatomy of the VAT, IMF Working Paper, WP/13/111.
175
Policy Gap is an indicator of tax preferences. It grasps the additional VAT revenue that could theoretically (i.e.
under the assumption of perfect tax compliance) be generated if a uniform VAT rate is applied to the final domestic use
of all goods and services.
176
The linear interpolation technique is used also to impute the values of the missing variables.
122
(i) the number of observations and degrees of freedom is substantially higher; (ii) addressing
possible problem of omitted variable bias; and (iii) more granular series that enable us to estimate
the dynamic effect of introducing reporting obligations in the base approach.
The alternative approach uses the econometric setup of fixed-effects estimation for modelling
yearly VAT Gap series. This approach limits degrees of freedom and hinders the introduction of
lead and lags but may prove better if the effective rate, which is one of the revenue components,
cannot be accurately controlled for.
The structure of the model takes the form:
𝑉𝐺𝑖𝑡 = 𝛼1𝑇𝐴𝑉𝑖𝑡+𝛼2𝑀𝑉𝑖𝑡+𝛼3𝐸𝑆𝑉𝑖𝑡 + 𝛼4𝑅𝑂𝑖𝑡 + 𝛼5𝐹𝑅𝑖𝑡 + 𝛼6𝑆𝐸𝐶𝑖𝑡 + 𝑎𝑡 + 𝑎𝑖 + 𝑢𝑖𝑡 (2)
As mentioned above, the endogenous variable is the VAT Gap for country i in year t, VGit. Other
variables are related directly to the actions taken by tax administrations (𝑇𝐴𝑉𝑖𝑡), control variables
describing the current macroeconomic situation (𝑀𝑉𝑖𝑡), control variables describing the
characteristics of specific Member States (economic structure variables - 𝐸𝑆𝑉𝑖𝑡).
As shown in Table 26, the explanatory variables are often available for only a subset of
observations even at annual frequency. The nature of the missing data varies across variables. Some
data sources cover only specific Member States (e.g. OECD), other are available for most recent
years only (Surveillance database) or were discontinued (e.g. Verification actions). However, there
is one important similarity: data is not missing at random in most of the instances.
The problem of unavailability of observations decreases markedly the number of degrees of
freedom in the models with numerous right-hand side variables. This creates a trade-off between
two econometric problems – i.e. omitted variables and insufficient degrees of freedom.
To reduce the scale of the problem the values of the missing variables were imputed for the
alternative approach as well. The Study Team decided to use a simple and intuitive method that
partially controls the bias created by the non-random character of missing data.177
The procedure
for missing predictors in regression analysis that has been used is called dummy variable
adjustment or missing indicator method. In this approach if X is an incompletely observed predictor
in a regression model, then a binary response indicator for X is created (RX = 1, if the value in X is
missing; RX = 0, if the corresponding value in X is present) and included in the regression model
together with Missing values in X are set to the same value, i.e., any constant value c.
Reporting obligation proxies and control variables. The treatment dummies, i.e. indicator
variables that capture the timing and location of the existing reporting requirements, are introduced
in the model as independent variables. Proxies include dummy variables standing for countries in
which were introduced (grouped by type, i.e. VAT listing, SAF-T, Real-time, e-invoicing).
In addition to reporting obligation proxies, the model specification includes variables from multiple
sources, i.e. Eurostat, World Bank, the VAT Gap Study. The full list of variables, their sources
along with coverage periods and frequencies, and number of observations are included in Table 26.
177
See: Allison, P.D. (2001), Missing Data, Sage, Thousand Oaks.
123
Table 26 – Variables and Descriptive Statistics (econometric model)
Source Coverage Frequency
Number of
Observations
Dependent (Endogenous) Variables
C-Efficiency Own elaboration 2007-2021 Quarterly 1 334
VAT Gap VAT Gap reports, EC 2007-2019 Annual 273
Macroeconomic Variables
Real GDP growth EUROSTAT 2007-2021 Quarterly 1 334
Deficit to GDP Ratio EUROSTAT 2007-2021 Quarterly 1 334
Debt to GDP Ratio EUROSTAT 2007-2021 Quarterly 1 334
Unemployment EUROSTAT 2007-2021 Quarterly 1 334
Tax administration variables
Standardized fiscal rules index EC 2007-2019 Annual 273
Number of staff OECD
2011,
2013-2017
Annual 123
Verification actions OECD 2007-2015 Annual 162
VAT electronic filing rate % OECD
2009, 2011, 2013-
2015
Annual 92
IT expenditure as a share of total
costs
OECD 2007-2017 Annual 168
Shadow Economy
Size of the shadow economy IMF 2007-2019 Annual 273
Fraud Proxies
Intra-EU Import at risk Own calculation 2007-2019 Annual 273
Trade-at-risk Own calculation 2007-2017 Annual 231
Economic Structure and Institutional Variables
Population at risk of poverty EUROSTAT 2007-2019 Annual 273
Share of companies with no
employees
EUROSTAT 2007-2018 Annual 195
Share of companies with over 10
employees
EUROSTAT 2007-2018 Annual 195
Gini Index World Bank 2007-2018 Annual 236
Economic Risk Rating ICRG 2007-2015 Annual 189
Political Risk Rating ICRG 2007-2015 Annual 189
The Worldwide Governance
Indicators: Rule of Law
World Bank
2007-2014, 2018-
2019
Annual 189
The Worldwide Governance
Indicators: Control of Corruption
World Bank
2007-2014, 2018-
2019
Annual 189
Sector Shares
Agriculture, forestry and fishing EUROSTAT 2007-2021 Quarterly 1 334
Industry EUROSTAT 2007-2021 Quarterly 1 334
Wholesale and retail trade,
transport, accommodation and food
service activities
EUROSTAT 2007-2021 Quarterly 1 334
Information and communication EUROSTAT 2007-2021 Quarterly 1 334
Financial and insurance activities EUROSTAT 2007-2021 Quarterly 1 334
Real estate activities EUROSTAT 2007-2021 Quarterly 1 334
Professional, scientific and
technical activities; administrative
and support service activities
EUROSTAT 2007-2021 Quarterly 1 334
Based on ‘VAT Gap Study, 2020’.
Section 2.4: Results measure
Baseline model
Base approach (C-efficiency quarterly data). The baseline econometric estimates using quarterly
data and C-efficiency, where 𝑅𝑂𝑖𝑡 stand for a dummy variable that takes value 1 for country i if any
type of DRRs is being implemented in country i at time t and zero otherwise. The simplest model,
124
the baseline specification, is described in column (1) and the sample covers periods from 2007q1 to
2021q2. The econometric estimates include all EU-27 states except Bulgaria, Latvia, Luxembourg,
and Malta178
.
As can be seen in Table 27, the estimated coefficients of the reporting obligations are statistically
significant at 1 percent level. The other explanatory variables are statistically significant as well
with GDP growth at 5 percent and general government surplus (deficit), and unemployment rate at
1 percent levels. According to the estimation results of the baseline specification, introducing
reporting obligations lifts VAT revenue by 1.9 percent of the theoretical liability (liability that
would be obtained if all consumption was taxed at standard rate).
The alternative specifications (columns (2) to (6)) show that the estimated coefficient of reporting
obligations is statistically significant regardless of additional exogenous variables introduced179
.
The value of the parameter itself is relatively stable as it varies between 1.5 and 2.6 basis points. In
summary, the results from the base model show that the countries that introduced DRRs have
experienced an increase in their VAT revenue and this positive impact is found to be robust
under different specifications.
Alternative approach (VAT Gap yearly data). The results of the regressions from the alternative
set of models using annual data are shown in Table 28. Similar to the base model, 𝑅𝑂𝑖𝑡 in Equation
2 is a dummy variable that takes value 1 for country i if any type of reporting obligation is being
implemented in country i at time t and zero otherwise. The dependent variable is 𝑉𝐺𝑖𝑡, VAT Gap
for country i in year t. The simplest model, the baseline specification, is described in column (1)
and contains the same explanatory variables of the baseline specification of the base approach
except unemployment rate. The estimated coefficients of the reporting obligations and GDP growth
are statistically significant at 1 and 10 percent levels, respectively, whereas general government
surplus are not statistically significant at the p=0.1 level. According to the estimation results of the
baseline specification, introducing reporting obligations decreases VAT Gap by 2.6 percentage
point and thus the revenue increase by 2.6 percent of VAT Total Tax Liability (VTTL).
The alternative specifications (columns (2) to (5)) show that the estimated coefficient of the
reporting obligations is statistically significant in all specifications at the 1 percent level and the
estimated values vary between 2.4 to 2.6 basis points.
The results from the base model estimated on annual data confirm that the countries that
introduced DRRs have experienced decrease in their VAT Gap and this positive impact of
reporting obligations on VAT Gap is found to be robust under different specifications.
Moreover, and importantly, the magnitude of the reporting obligation coefficient estimated
through annual data is similar to the coefficient estimated through quarterly data given in
column (1) of Table 27, as discussed in the following paragraph.
178
Bulgaria and Latvia are excluded because VAT listing obligation was introduced long ago (back in 2001), while
only digital compliance balance mandatory in 2011. Luxembourg and Malta are excluded due to their small size
compared to the other EU-27 Member States which may pose a risk of heteroscedasticity in the residuals.
179
The R-sq coefficients for some alternative specifications, notably (3) are biased downwards owing to the need to
impute interpolated quarterly estimates for annual variables. This issue however does not affect the chosen specification
(baseline). The table provides alongside the basic R-sq, also within-country R-sq which are more informative for a
panel regression with country fixed effects.
125
In order to compare the results from both modelling approaches, the relation between C-efficiency
and the VAT Gap needs to be established. Using the equation presented in Section 2.2, the result is:
𝑑𝑉𝐴𝑇𝑟𝑒𝑣𝑒𝑛𝑢𝑒 ≈ −𝑑𝑉𝐺 ×
𝑉𝑇𝑇𝐿
𝑉𝑅
≈ 𝑑𝐶𝐸 ×
𝑡𝐶
𝑉𝑅
As 𝑉𝑇𝑇𝐿 ≈ (1 − 𝑃𝑜𝑙𝑖𝑐𝑦 𝐺𝑎𝑝) × 𝑡𝐶:
𝑑𝐶𝐸
𝑑𝑉𝐺
= 𝑃𝑜𝑙𝑖𝑐𝑦 𝐺𝑎𝑝 − 1
The average Policy Gap in the EU was estimated at 44 percent in 2018180
. Hence, one can expect
that when the coefficient of reporting obligation is equal to -2.6 basis points when the dependent
variable is VAT GAP, the same coefficient should be equal to 1.5 basis points when the dependent
variable is C-efficiency based on the above formula. However, even though close, this does not
hold perfectly in our regressions and the coefficient is equal to 1.9 basis points in the model with C-
efficiency. The difference could be explained by considering that the quarterly data may better
capture the timing of the impact since data are more granular, thus leading to a larger estimated
impact of reporting obligations on VAT revenue and by different periods between quarterly and
yearly data.
Econometric tests. All model specifications were thoroughly tested. Among others, the Study
Team conducted a collinearity test for the exogenous variables to minimize the risk of
multicollinearity. As this test proved, there was no case of Variance Inflation Factor with value
above 10 in the specifications presented.181
Since the model contains time series, the Study Team
verified that the model does not suffer from the issue of spurious regression. For this purpose, unit
root tests were performed – Levin-Lin-Chu (2002), Harris-Tzavalis (1999), and Im-Pesaran-Shin
(2003). All tests indicated that the C-efficiency and explanatory variables included in the
specifications are stationary. The tests showed that debt-to-GDP is non-stationary and cannot be
included in levels in the base model equation.
Table 27 – Baseline approach model estimates: C-efficiency quarterly data (econometric model)
(1) (2) (3) (4) (5) (6)
Baseline Fraud Shadow
Economy
Economic
Structure
Tax
Administration
Sectors
Reporting Obligations 0.019*** 0.015*** 0.017*** 0.016*** 0.026*** 0.020***
(5.47) (4.36) (5.07) (4.30) (7.25) (5.71)
GDP growth 0.122** 0.129** 0.095* 0.121** 0.120** 0.145***
(2.15) (2.33) (1.70) (2.11) (2.17) (2.63)
Government
surplus(deficit)
0.136*** 0.119*** 0.107*** 0.138*** 0.150*** 0.131***
(6.26) (5.63) (4.90) (6.30) (7.07) (6.21)
Unemployment rate -0.465*** -0.493*** -0.533*** -0.537*** -0.427*** -0.248***
(-9.22) (-9.93) (-10.45) (-10.35) (-8.42) (-3.80)
Intra-EU import at risk -0.190
(-0.87)
Trade at risk -0.287***
(-8.57)
Shadow economy size -0.011***
(-6.06)
180
European Commission (2020), Study and Reports on the VAT Gap in the EU-28 Member States: 2019 Final Report,
TAXUD/2015/CC/131.
181
Variance Inflation Factor measure the correlation among independent variables. In general, factor above 10 indicates
high correlation and is cause for concern (Dodge, Y., 2008).
126
Poverty Index 0.505***
(5.44)
Small size companies 0.006
(0.35)
Large size companies 0.225**
(2.23)
Standardised fiscal rules -0.013***
(-7.37)
Number of staff -0.738**
(-2.42)
Number of verifications -0.006***
(-3.90)
Electronic filling 22.208
(0.62)
IT expenditure 0.003
(0.30)
Agriculture share -0.207
(-0.85)
Industry share -0.102
(-1.07)
Retailers share -0.137
(-1.09)
Communication share -0.568***
(-3.83)
Finance share -0.756***
(-4.14)
Real estate share 0.125
(0.78)
Scientific share -0.572***
(-2.80)
Constant 0.558*** 0.574*** 0.823*** 0.499*** 0.573*** 0.647***
(81.60) (78.89) (18.64) (26.23) (59.87) (7.99)
Observations 1334 1334 1334 1276 1334 1334
R-sq overall
R-sq – within
R-sq – between
0.1850
0.3892
0.1569
0.0477
0.4235
0.0010
0.0000
0.4067
0.0072
0.1236
0.3968
0.0495
0.3132
0.4240
0.2938
0.0307
0.4631
0.0033
Number of countries 23 23 23 22 23 23
Table 28 – Alternative approach model estimates: VAT Gap annual data (econometric model)
(1) (2) (3) (4) (5)
Baseline Fraud Shadow
Economy
Economic
structure
Tax
Administration
Reporting Obligations -0.026*** -0.025*** -0.026*** -0.024*** -0.026***
(-3.66) (-3.38) (-3.61) (-3.17) (-3.66)
GDP growth -0.138* -0.156** -0.137* -0.146* -0.142*
(-1.84) (-2.08) (-1.82) (-1.94) (-1.91)
Government surplus(deficit) 0.019 0.050 0.022 0.003 0.004
(0.25) (0.65) (0.28) (0.04) (0.05)
Trade at risk 0.261**
(2.00)
Intra-EU import at risk -0.315
(-0.74)
Shadow Economy 0.001
(0.12)
Gini (Unequality) Index -0.000
(-0.18)
Poverty Index -0.253
(-1.11)
Small size companies -0.039
(-1.02)
Large size companies -0.295
(-1.49)
Standardised fiscal rules 0.000
(0.02)
Verification Actions 0.000**
127
(2.21)
Constant 0.142*** 0.136*** 0.131 0.215*** 0.136***
(19.72) (13.95) (1.36) (3.63) (18.24)
Observations 273 273 273 273 273
R-sq within 0.4439 0.4543 0.4440 0.4559 0.4600
Number of countries 21 21 21 21 21
Lagged and forward-looking effects
In the baseline estimations, the reporting obligations were allowed to have only contemporaneous
impact on the VAT revenue (through C-efficiency). However, the impact of reporting obligations
on VAT revenue may be ‘dynamic’. It could be expected that it may take some time to reach full
impact, and some of the impact might also be seen already before the introduction (e.g. if taxpayers
adjust their behaviours by anticipating the forthcoming obligations). For this purpose, the Study
Team rerun the baseline estimation six different times and at each time 𝑅𝑂𝑖𝑡 was replaced with one
or four quarter of the lagged or lead values of 𝑅𝑂𝑖𝑡.
Base approach (C-efficiency quarterly data). The results of the base estimations are shown in the
columns (2)-(5) of Table 29. In the very last two columns, the Study Team rerun the baseline
estimation with ROit and it’s one quarter lagged and lead value, separately.182
As can be seen in column (2) of Table 29, the estimated coefficient of one quarter lagged reporting
obligations (L.RO) is statistically significant at 1 significance percent level and its magnitude is
similar to the coefficient of current reporting obligations (RO) given in column (1). The same holds
for one and four quarter lagged reported as (L.RO) in column (2) and as (L4.RO) in column (4),
respectively, and one lead reporting obligations reported as (F.RO) in column (3). When current
and one quarter lagged values of reporting obligations are included in the explanatory variable
vector, only current value coefficient becomes significant in column (6). Even though the
coefficient of current is larger relative to the baseline estimation, its sum with the coefficient of the
lagged reporting obligations gives the same magnitude as given in column (1). Finally, the
coefficients of the current and lead values become insignificant in column (7) when both of them
are used as explanatory variable. Even though both coefficients are statistically not different than
zero, the magnitudes of reporting obligations given in column (1) and the sum of lead and current
ROs are equal.
All in all, the regressions with lead and lag values for introducing reporting obligations show that
the impacts of introducing reporting obligations do not vary significantly over time. The forward-
looking impact, if any, appeared to be not larger relative to the lagged or contemporaneous impact.
This proves that there is no reversed causality in the model.183
Table 29 – Baseline approach model estimates with lags and leads: C-efficiency quarterly data
(1) (2) (3) (4) (5) (6) (7)
Current One
Quarter
Lag
One
Quarter
Lead
Four
Quarter
Lag
Four
Quarter
Lead
One
Quarter
Lag and
Current
One
Quarter
Lead and
Current
Reporting Obligations 0.019*** 0.022** 0.006
(5.47) (2.25) (0.60)
L.Reporting Obligations 0.018*** -0.003
182
The analysis could not be replicated with the alternative approach due to the different time granularity of the
dependent variable.
183
Reversed causality would mean that the change in the VAT Gap is a major reason for implementing reporting
obligations rather than on the contrary.
128
(5.22) (-0.30)
L4.Reporting Obligations 0.018***
(5.18)
F.Reporting Obligations 0.019*** 0.013
(5.52) (1.34)
F4.Reporting Obligations 0.015***
(4.32)
GDP growth 0.122** 0.112** 0.125** 0.118** 0.189*** 0.113** 0.125**
(2.15) (1.98) (2.19) (2.11) (2.94) (1.98) (2.19)
Government
surplus(deficit)
0.136*** 0.132*** 0.134*** 0.135*** 0.123*** 0.133*** 0.134***
(6.26) (6.08) (6.13) (6.27) (5.60) (6.11) (6.13)
Unemployment rate -0.465*** -0.442*** -0.469*** -0.380*** -0.503*** -0.436*** -0.468***
(-9.22) (-8.60) (-9.24) (-7.18) (-10.02) (-8.48) (-9.21)
Constant 0.558*** 0.533*** 0.558*** 0.530*** 0.559*** 0.532*** 0.558***
(81.60) (72.37) (81.36) (73.45) (82.95) (72.28) (81.31)
Observations 1334 1311 1311 1242 1242 1311 1311
R-sq overall 0.1850 0.1792 0.1838 0.1689 0.1847 0.1787 0.1837
Number of countries 23 23 23 23 23 23 23
The analysis with lagged and lead values is also carried out for the distinguished types of reporting
obligations; periodic and CTCs. Results are not different from the general analysis: for PTCs,
coefficients of lagged and led variables are of the same order of magnitude and their significance
disappears when controlling for current variables. For CTCs, results are more spurious, likely
because of the data limitations discussed above. When controlling for both lagged and current
variables, both coefficients are statistically significant (at least at 5 percent level), and the analysis
would point out that only the lagged variable has a positive effect on VAT revenue. However,
caution is needed in that respect, since, in the EU, the implementation of CTCs took place in
countries where already obligations were already in place. Therefore, it is not possible to argue
whether the lagged effect is due to the introduction of CTCs or to the pre-existing PTC system.
Table 30 – Baseline approach model estimates with lags and leads of distinguished types of
reporting obligations: C-efficiency quarterly data
(1) (2) (3) (4) (5) (6) (7)
Current One Quarter
Lag
One Quarter
Lead
Four Quarter
Lag
Four Quarter
Lead
One Quarter
Lag and
Current
One Quarter
Lead and
Current
Periodic 0.019*** 0.012 0.010
(5.04) (0.97) (0.84)
L.Periodic 0.019*** 0.009
(5.06) (0.74)
L4.Periodic 0.018***
(4.78)
F.Periodic 0.019*** 0.010
(4.99) (0.80)
F4.Periodic 0.015***
(3.90)
CTCs 0.018*** 0.048*** -0.004
(2.93) (2.68) (-0.19)
L.CTCs 0.014** -0.032*
(2.28) (-1.74)
L4.CTCs 0.019***
(2.73)
F.CTCs 0.019*** 0.023
(3.14) (1.25)
F4.CTCs 0.015**
(2.43)
GDP growth 0.122** 0.112** 0.125** 0.118** 0.189*** 0.113** 0.125**
(2.15) (1.98) (2.18) (2.11) (2.93) (1.99) (2.18)
Government
surplus(deficit)
0.136*** 0.132*** 0.134*** 0.135*** 0.123*** 0.133*** 0.134***
(6.25) (6.06) (6.13) (6.26) (5.60) (6.12) (6.12)
Unemployment -0.465*** -0.439*** -0.469*** -0.380*** -0.503*** -0.435*** -0.468***
129
rate
(-9.17) (-8.53) (-9.21) (-7.17) (-9.95) (-8.46) (-9.17)
Constant 0.558*** 0.533*** 0.558*** 0.530*** 0.559*** 0.533*** 0.558***
(81.52) (72.36) (81.28) (73.37) (82.86) (72.34) (81.22)
Observations 1334 1311 1311 1242 1242 1311 1311
R-sq overall 0.1857 0.1818 0.1837 0.1688 0.1849 0.1796 0.1834
Number of
countries
23 23 23 23 23 23 23
Conclusions for the econometric analysis (VAT liability simulation model):
 the impact of introducing reporting obligations on VAT compliance and overall efficiency,
and thus on VAT revenue, is positive with a central estimate of +1.9 basis points for C-
efficiency (range: 1.5-2.6 basis points) and -2.6 basis points for VAT Gap (range: 2.4-2.6
basis points), meaning a reduction of the VAT Gap
 Such results are highly significant and robust across two approaches and various model
specifications. The magnitude of the impact is similar, albeit slightly larger for VAT Gap.
 The results on any differential impact of PTCs and CTCs are conflicting and non-
conclusive, and this likely depends on the very short period and limited number of Member
States which implemented the latter. In a nutshell, as far as the impact of CTCs in the EU
Member States, it is yet too early to tell.
 When considering lagged or forward-looking effects, the impacts of DRRs do not vary
significantly across times and, consequently, the non-dynamic variables well capture the
impacts on VAT revenue.
Although both methods used in this analysis have pros and cons, the analysis looking at C-
efficiency and using quarterly data appears to be better-suited for the purpose. The quarterly data
provide larger number of observations and degrees of freedom that increase the statistical power of
the estimations. Moreover, quarterly data allows to inspect the dynamic effects of the reporting
requirements.
14.2. Net impacts on businesses’ administrative burdens by category and type of firm
(Table 12)
On company size, data are taken from a recent Commission study on the VAT schemes (Deloitte
(2017), Special scheme for small enterprises under the VAT Directive 2006/112/EC - Options for
review, Final Report, Annex D). Based on data from national tax authorities, the number of VAT
taxable persons in the EU is estimated at about 37.5 million, 36.5 million of which are micro
entities with a turnover lower than EUR 2 million. Of the about 900,000 companies with a turnover
higher than EUR 2 million, the distribution in small, medium and large companies is extrapolated
based on Eurostat’s data. Data on VAT taxable persons are not directly compatible with Eurostat’s
data on enterprises for at least two reasons. First, not all taxable persons are enterprises (they could
include, for instance, self-employed individuals or VAT registrations of non-established
companies). Secondly, data on taxable persons are segmented on a turnover basis, while data on
companies are segmented based on the number of employees. For instance, it is possible that an
entity with a turnover of less than 2 million is not a micro company if it has more than 10
employees; or that an entity with 9 employees is not a micro company if it has a turnover higher
than EUR 2 million. Therefore, the following procedure is applied: first, the relative weight of
small, medium and large enterprises are calculated based on Eurostat’s data; then, these weights are
applied to the number of VAT taxable persons with a turnover higher than EUR 2 million.
130
14.3. VAT liability simulation model
A VAT liability simulation model for each Member State was used to estimate VAT revenue from
the platform economy for the sectoral analysis. The model was calibrated to reflect changes in tax
rules under projected policy scenarios and adapted to forecasted increase in the tax base.
The model consists of equations parametrised for each Member State and each sector, calibrating
the shares of transactions provided by exempt and non-taxable providers separately for providers’
and platforms’ services.
The VAT liability simulation model used for in the sectoral analysis and for the impact assessment
composes of two blocks: (1) the set of equations modelling effective liability on platforms’
facilitation services, and (2) the set of equations calculating liability for the underlying services.
The equations in each of the block were calibrated and adapted to tax base in every Member State
and sector.
The model for facilitation services (for country i and sector s) is a sum of products of net tax bases
subject to different rules and applicable rates. The factors of this equation are.
1) VAT collected in country i as a permanent location of the provider (on respective tax base -
𝑇𝐵1,𝑖.𝑠) with the effective rate applicable as on the underlying service (𝑡𝑠);
2) VAT collected in country i as the place of establishment or permanent location of the
provider (on respective tax base - 𝑇𝐵2,𝑖.𝑠) with the effective rate applicable as on average
rate for final goods in the transaction chain (𝑡𝑓𝑖)
3) VAT collected in country i as the place of establishment or permanent location of the
provider (on respective tax base - 𝑇𝐵3,𝑖.𝑠) with the effective rate applicable as on facilitation
services (𝑡𝑓𝑎)
4) VAT collected in country i as the place where the underlying transaction was supplied (on
respective tax base - 𝑇𝐵4,𝑖.𝑠) with the effective rate applicable as on facilitation services (𝑡𝑓𝑎)
5) VAT paid in country i as the place of establishment or permanent location of the user (on
respective tax base - 𝑇𝐵5,𝑖.𝑠) with the effective VAT rate as on facilitation services (𝑡𝑓𝑎)
For every sector s and country i, we have: 𝑉𝐿𝑖,𝑠 = 𝑇𝐵1,𝑖.𝑠 × 𝑡𝑠 + 𝑇𝐵2,𝑖.𝑠 × 𝑡𝑓𝑖 + 𝑇𝐵3,𝑖.𝑠 × 𝑡𝑓𝑎 + 𝑇𝐵4,𝑖.𝑠 ×
𝑡𝑓𝑎 + 𝑇𝐵5,𝑖.𝑠 × 𝑡𝑓𝑎
The estimates of respective tax bases for each of the country was based on estimated revenue and
cross border flows of services. The parameters necessary to decompose the overall value of revenue
to components of tax base were based primarily on statistics of transaction characteristics provide
by platform operators. The list of estimated coefficients that allowed to decompose tax base
includes: (1) percent of services classified and ESS and intermediary services, (2) percent of
providers who are taxable person, non-taxable persons and belonging to group of four, (3) percent
of consumers who are taxable person, non-taxable persons and belonging to group of four, and (4)
percent of transactions in which provider and/or consumers pay the facilitation fee.
The equation describing the VAT liability on underlying services excluding liability attributed to
the facilitation fee takes simpler form as it is assumed that the place of supply is always the
physical location of consumption. On the contrary to the liability on the facilitation services, non-
deductible input VAT of exempt and non-taxable providers had to be modelled. For this purpose,
the parameter of average value of input tax to output in sectors covered by this analysis was
131
calculated using fiscal figures provided by Member States Authorities. Three situations were
possible:
1) VAT collected in the place of consumption with the rate applicable as on the service (𝑡𝑠);
2) VAT collected in the place of consumption with the rate applicable as on final goods in the
transaction chain (𝑡𝑓𝑖);
3) There is no output VAT but there is non-deductible intermediate VAT on inputs (of non-
taxable or exempt providers).
The sum of liabilities could be expressed as:
𝑉𝐿𝑖,𝑠 = 𝑇𝐵𝑖.𝑠𝜑(𝛾𝑡𝑠 + (1 −𝛾)𝑡𝑓𝑖) + 𝑇𝐵𝑖.𝑠(1 −𝜑)𝛼𝑠𝑡𝑓𝑎
where:
𝑇𝐵𝑖.𝑠 – value of service s consumed in MS i;
𝜑 – share of transactions provided by taxable non-exempt persons;
𝛾 – share of transactions with good provided to taxable persons (C2B and B2B in all transactions);
𝛼 – proportion of intermediate input in output.
14.4. Standard Cost Model (SCM)
The Model estimates administrative burdens of regulatory interventions based on personnel’s time
(in FTE) and IT investment associated with the provision of information, as reported by businesses.
14.5. Comparative analysis
A comparative analysis is used to assess the VAT burden on the platform economy and competing
businesses in the traditional economy
14.6. Qualitative assessment of legal certainty and other regulatory costs
Qualitative assessment of legal certainty and other regulatory costs (that could not be quantified
using the SCM) based on the legal analysis, sectoral analysis and legal analysis, as well as the
results of the targeted consultation.
14.7. Methodology to assess the revenue shift in platform economy
The type of service that would be most impacted by the revenue shift are is intra-Community cross-
border trade in accommodation services in situations when the consumer is a non-taxable person
and is responsible for the payment of the facilitation fee. The second type of services with a sizable
impact on revenue shifts between Member States is cross-border trade in accommodation services
when the property owner is a non-taxable person and resides in a Member State other than that of
the location of real estate he/she rents. If the facilitation service is recognised as an electronically
supplied service (ESS), VAT on the facilitation services shall be collected in the place of residence
of the consumer. If the facilitation service is recognised as an intermediary service (IS), VAT shall
be collected in the Member State where the property is located.
132
Three parameters are crucial for the assessment of VAT revenue shifts for the above-mentioned
services in the scenarios of alternative rules on the place of supply applicable. These are: (i)
percentage of transactions in the accommodation sector in which consumers pay the fee (estimated
at 18.8 percent), (ii) share of facilitation services that are classified as ESS and intermediary
services (estimated at 80.7 and 19.3 percent respectively), and (iii) cross-border ownership of
rented apartments and vacation houses. Out of the three parameters, (i) and (ii) were estimated
using detailed statistics provided by platform operators.
Unfortunately, the evidence on cross border ownership and of rented real estate is rather scarce and
outdated, and required extrapolating the information from various unconnected sources. Available
information on the cross-border ownership of rented apartments and vacation houses According to
the information from real estate registers, between 2010 and 2012, the fraction of the stock of
homes purchased by foreigners in Spain was about 6 percent. In 2003, the share of foreign owners
of real estate in Mediterranean region in France was estimated at ca. 12.8 percent. Despite growing
popularity of apartments and vacation homes rented via platforms, they account for a moderate
share of short-term rentals even in most popular tourist destinations. Overall, the count of person-
nights spent in other locations than hotels, campsites, caravan or trailer parks (considered to be
taxable persons at all times) in all rented locations was ca. 34.1 percent in 2019. Apartments and
vacation homes rented by individuals contributed to a fraction of these stays and their value, and
even more so if only non-resident owners were to be singled out. Therefore, in monetary terms,
transactions in accommodations services in which the provider is non-taxable person and the
location for the real estate in different than the residence of the owner are estimated at a very small
share of the accommodation service market, tentatively set at one percent of transactions184
.
When matching the available data on foreign ownership of real estate in touristic regions and the
number of nights spent by tourists in non-traditional accommodation service providers, the
available information points out that this represents a small share of transactions, Based on the
available information, it is estimated that, in monetary terms, transactions in accommodations
services in which the provider is a non-taxable person and the location for the real estate is different
than the residence of the owner account for ca. 1 percent of transactions (across all accommodation
services).
14.8. Parameters, assumptions and calculations
To ease the readability of the Section on Impact Assessment, a number of parameters and methods
for calculation are described in this Annex, and referred to, when necessary, in the main text.
Currency Conversion
All monetary values in this Report are expressed in EUR. Values in other currencies were
converted into EUR based on ECB annual average exchange rate, retrievable at:
https://sdw.ecb.europa.eu/browse.do?node=9691296.
184
The estimate of one percent of transactions results from multiplying the expected ownership of rented real estate by
foreigners in the EU (ca. 5 percent) and the share of apartments and vacation houses rental in the accommodation sector
(ca. 20-25 percent).
133
Type of Digital Reporting Requirements
The quantitative analysis does not provide solid findings on the impact of the choice of the type of
DRR. This result is also due to the fact that the econometric analysis provides no conclusive
evidence on a differential impact on VAT revenue between PTCs and CTCs.185
Therefore, the
analysis of the choice among different DRRs has been performed by means of a qualitative analysis
(multi-criteria analysis).
Table 31 – Type of DRRs: multi-criteria analysis
VAT Listing SAF-T Real-time e-Invoicing
Compliance Costs - - -- ---
Fragmentation costs ++ ++ ++ ++
VAT revenue ++ ++ ++ ++
Tax control ++ ++ ++ ++
Additional services + + ++ ++
Administrative burden
savings
0 0 0 ++
Environmental benefits 0 0 0 +
Business automation 0 0 + +++
Data confidentiality - - - --
Fit-for-the-future 0 0 0 +++
The multi-criteria analysis identified e-invoicing as the preferred type of DRR and more
importantly, the only one that is fit for the future. The main two disadvantages are related to the
higher compliance costs (specific to all real-time solutions) and data confidentiality (manageable
with appropriate measures).
Annual administrative burdens per company
The monetary equivalent of personnel time was calculated based on Eurostat statistics on earning
by occupation: Mean annual earnings by sex, age, and occupation - NACE Rev. 2, B-S excluding
O.
In line with the SCM standard, 25% overheads were added to the annual earning. For IT personnel,
the earning of ‘technicians and associate professionals’ was used; for familiarization costs,
‘professionals’; and for training and ongoing costs, ‘clerical support workers’.
Annual administrative burdens per company
The annual administrative burdens per company are estimated based on the assessment of the
current situation and result from the average of the values estimated for the Member States with
existing DRRs. They are estimated per company size and type of DRR.
185
See Supporting Study, Vol. I, p. 128, p. 141
134
Table 32 – VAT digital reporting obligations: annual administrative burdens per company
(EUR/year)
Micro Small Medium Large
VAT listing 150 450 760 1 950
SAF-T 230 870 1 350 2 470
Real-time 170 760 1 350 (HU) / 4 710
(ES)
4 870 (HU) / 20 980
(ES)
E-invoicing 500 600 3 400 16 300
Implementation costs for tax authorities
The annual implementation costs for tax authorities result from the annualised investment costs and
the annual operating costs. They are estimated based on the assessment of the current situation and
result from the average of the values estimated for the Member States with existing DRRs. The
estimation is provided per type of DRR.
For most types of DRRs, the existing costs are predominantly one-off (investment). They are
therefore not expected to vary whether the investment is done for both EU and domestic
transactions or only for the former (i.e. under Option 4a). Only for e-invoicing, the operational
costs are significant. In that case, the operational implementation costs for the tax authority are
assumed to be 60% lower (in line with the estimate of VAT revenues from intra-EU transactions).
Table 33 – VAT digital reporting obligations: implementation costs for tax authorities
EUR million / year
VAT listing 0.85
SAF-T 0.85
Real-time 10.5
E-invoicing 25
E-invoicing
(intra-EU transactions only)
10.60
Source. Assessment of the current situation.
Share of intra-EU VAT
Due to unavailability of detailed revenue figures, the share of VAT revenue from intra-EU
transactions on the overall net VAT revenue was estimated on the basis of estimated VAT
liabilities. The VAT liability on the intra-Community acquisition of goods and services was
estimated by multiplying intra-EU importation figures (in basic prices, broken by two-digit
Classification of Products by Activity codes) multiplied by their respective weighted average
rates.186
As the Supply and Use Tables were unavailable for most of Member States for 2018
onwards, the calculations are based on a sample of 23 EU Member States in 2017.187
Then, the
import VAT liability in intra-Community acquisition for all countries in the sample was divided by
their overall VTTL for 2017 reported in the 2020 VAT Gap Study.
The calculation does not account for ‘re-export’. As a result, the figures could be slightly
overestimated to the fact that import figures partially involve the importation in transit procedures,
186
Source: intra-EU Acquisition - Eurostat SUT, weighted average rates - VAT Gap Study 2020.
187
The 2017 SUT was not available for BG, CY, LU, and MT. The UK was excluded from the calculation.
135
in which the VAT payments are suspended. To account for the risk of over estimation, the EU
estimate is set at 40%, slightly lower than the results of the calculation. Smaller Member States
(more exposed to intra-EU trade) tend to have a higher share, while larger Member States a lower
one.
Companies active in intra-EU trade, administrative burdens from recapitulative statements
The administrative costs and burdens due to the submission of recapitulative statements are not due
to DRR; accordingly, they do not enter the CBA carried out in sections 6 and 7 of the supporting
study.188
Nevertheless, they are assessed to provide a reference point that can be used to measure
the impact of possible changes to these rules in the IA. Because of such different analytical need,
the underlying data were not retrieved directly from companies during the targeted consultation, but
are based on two representative secondary sources, and namely two studies carried out for the
European Commission:189
1) Capgemini’s measurement of administrative burdens in the area of Tax Law;190
2) PWC’s study on recapitulative statements.191
The findings from these studies are helpful in defining a cost per occurrence. Capgemini’s study
estimates that the costs per occurrence are as follows
 For companies complying with this IO in-house, annual administrative costs are estimated
at EUR 240 for companies submitting the statements every three months, and EUR 960 for
those submitting them every month;
 For companies outsourcing compliance, annual administrative costs are estimated at EUR
400 for companies submitting the statements every three months, and EUR 1 200 for those
submitting them every month.
This assessment does not include any familiarisation and software cost associated with
recapitulative statements;192
no segmentation based on company size is provided.
PWC’s study provide a separate estimate of setup and recurring costs for different company
segments:
 For SMEs, median setup costs are estimated at around EUR 180 and recurring costs at
around EUR 1 200;193
188
Supporting Study, Annex B, p. 163.
189
As a consequence, the supporting study cannot account for local differences in the implementation of recapitulative
statements, such as different frequencies and scope of transactions. However, the data for the two studies originate from
companies located in 14 different Member States, thus ensuring that the costs reported are representative of the various
local conditions.
190
Capgemini (2009),”EU Project on Baseline Measurement and Reduction of Administrative Costs, Final Report,
Measurement data and analysis as specified in the specific contract 5&6 on Modules 3&4”, Report on the Tax Law
(VAT) Priority Area.
191
PwC (2011), ”Expert study on the issues arising from a reduced time frame and the options allowed for submitting
recapitulative statements - Application of Article 263(1) of Directive 2006/112/EC (amended by Directive
2008/117/EC)”, Final Report.
192
Which are separately recorded under the generic IOs “VAT training” and “Software cost”.
136
 For large companies, median setup costs amount to about EUR 180 and recurring costs at
about EUR 8 000.
No information is available on difference between insourcing and outsourcing population segments.
Based on the above, the following costs per occurrence are estimated:
 Setup costs are very low or negligible: once properly annualised over three or five years,
depending on whether they relate to physical or intangible investments, they would result in
few tens of euros per year. This was confirmed by the discussions with VAT practitioners,
suggesting that in most cases no additional investment compared to the ‘normal’ VAT setup
are required for the provision of the recapitulative statements. Therefore, setup costs are
assumed to be nil.
 In terms of annual recurring costs, the studies provide rather consistent data for SMEs. In
particular, Capgemini estimates for the insourcing companies194
with monthly submission
almost coincide with PWC data for SMEs. Therefore, in this case, the annual costs are
assumed to be EUR 400 or 1 200, depending on whether they are required to submit the
statements quarterly or monthly.
 For large companies, PWC estimates can be used, with annual costs of EUR 8 000.
In terms of business population, two dimensions are to be considered: company size, and the
likelihood that companies engage in cross-border trade (since this IO only applies to companies
engaged in certain intra-EU transactions). The size of the company also impacts on the likely
amount of cross-border trade, which in turn affects the frequency of submission:
 On company size, data are taken from a recent Commission study on the VAT schemes195
.
Based on data from national tax authorities, the number of VAT taxable persons in the EU is
estimated at about 37.5 million, 36.5 million of which are micro entities with a turnover
lower than EUR 2 million. Of the about 900 000 companies with a turnover higher than
EUR 2 million, the distribution in small, medium and large companies is extrapolated based
on Eurostat’s data.196
193
Results presented in the Study are significantly higher, due to the presence of an outlier which has a significant
impact on the sample, consisting of 5 SMEs. In this study, it has been preferred to remove the outlier, since data were
not compatible with the information retrieved during the targeted consultation.
194
A majority of SMEs, and a large majority of small and micro in particular, is likely to delegate this IO to an external
provider.
195
Deloitte (2017), Special scheme for small enterprises under the VAT Directive 2006/112/EC - Options for review,
Final Report, Annex D.
196
Eurostat Structural Business Statistics. Data on VAT taxable persons are not directly compatible with Eurostat’s data
on enterprises for at least two reasons. First, not all taxable persons are enterprises (they could include, for instance,
self-employed individuals or VAT registrations of non-established companies). Secondly, data on taxable persons are
segmented on a turnover basis, while data on companies are segmented based on the number of employees. For
instance, it is possible that an entity with a turnover of less than 2 million is not a micro company if it has more than 10
employees; or that an entity with 9 employees is not a micro company if it has a turnover higher than EUR 2 million.
Therefore, the following procedure is applied: first, the relative weight of small, medium and large enterprises are
calculated based on Eurostat’s data; then, these weights are applied to the number of VAT taxable persons with a
turnover higher than EUR 2 million.
137
 As for the likelihood of engaging in cross-border trade, the same study estimates that 15%
of SMEs trade cross-border. While this estimate seems appropriate for small and medium
companies, the Study also suggested that micro-entities may have a lower propensity, in the
area of 5%197
. For large companies, no estimate could be retrieved it is therefore assumed
that the share of large companies in transactions that need to be reported the recapitulative
statements is treble than the SME segment, in line with the ratio between SMEs and micro
companies.
 Based on the different turnover, medium and large companies are associated with monthly
frequency, while small and micro companies with quarterly submission.
Finally, costs per occurrence reported in the previous studies need to be updated to account for
changes in the average earnings.198
The BAU factor is assumed to be 0% (i.e. all administrative
costs are burdens) in line with the previous analyses.
Table 34 summarises the main assumptions about the business population, the frequency, and the
annual costs per company, and provides the estimates for total burdens across the EU. In total,
administrative burdens from recapitulative statements amount to about EUR 1,100 million. About
80% of the burdens are borne by microenterprise, given that they represent 98% of the overall
business population on the EU and 93% of the companies subject to this IO.199
Table 34 – Administrative burdens from recapitulative statements
Share of taxable
person active in cross-
border trade
Business
population
subject to IO
Frequency
Annual
burden per
company
Total
burdens
(EUR mn)
Micro 5% 1,827,800 Quarterly 470 859
Small 15% 106,882 Quarterly 470 50
Medium 15% 21,228 Monthly 1,410 30
Large 45% 16,754 Monthly 9,400 157
Total 9% 1,972,664 - - 1,096
Table 35 – Share of companies active in intra-EU trade and annual burden from recapitulative
statements
Companies active in cross-
border trade
Annual burden per company
(EUR/year)
Micro 5% 470
Small 15% 470
Medium 15% 1,410
Large 45% 9,400
197
Deloitte (2017), Special scheme for small enterprises under the VAT Directive 2006/112/EC - Options for review,
Final Report, Annex I.
198
Eurostat, Mean annual earnings by sex, age and occupation - NACE Rev. 2, B-S excluding O.
199
The results are higher than those provided by the previous Capgemini study (2009) for three reasons: (i) the Study
included no specific segmentation for large companies, that have higher costs; (ii) the Study assumed, for VAT
obligations in general, that 50% of micro, small and medium companies would insource compliance; this is however
not realistic for this specific IO, which most companies would need to outsource; and (iii) the mean earning of clerical
workers increased by 17%.
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Burden savings from pre-filled VAT return
The administrative burdens saved per company due to the availability of pre-filled VAT return are
estimated based on the number of person/days saved on this obligation, per company size. This is
retrieved from the assessment of the current situations in countries where this simplification is
already operational (Spain, Portugal).
Table 36 – Burden savings from pre-filled VAT return
Person/days per year
Micro 1.5
Small 1.5
Medium 6
Large 12
Number of invoices issued in the EU
The number of invoices – in total, paper, and electronic – issued in the EU is estimated based on
‘EA 2019’, per company size. Electronic invoices include both structured and unstructured (e.g.
PDF) format. It is then apportioned across Member States proportionally to the number of taxable
persons.
Table 37 – Number of invoices issued in the EU (million per year)
Total Electronic Paper
Million per year % %
Micro 1,953 50% 50%
Small 1,451 50% 50%
Medium 1,310 50% 50%
Large 4,553 58% 42%
Total 9,266 54% 46%
Source: EA 2019.
Burden savings from e-invoicing
The calculation of burden savings from switching to paper to e-invoicing are based on the
parameters estimated for ‘EA 2019’.
Table 38 – Parameters to estimate the benefits from e-invoicing (per e-invoice issued)
Share of paper
invoices sent via
post
Number of
invoices sent per
postage
Postage
costs
Printing costs (EUR per
invoice)
E-invoice issuance
saving (minute per
invoice)
Micro 15% 1 1.1 0.02 0
Small 50% 1 0.28 0.02 0
Medium 80% 3 0.28 0.02 0.22
Large 80% 5 0.28 0.02 0.22
Sources. EA 2019; Deutsche Post 2021 for postage costs; Assessment of current situation for
invoice issuance savings.
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Environmental benefits
When an invoice is issued electronically rather than on paper, it is estimated that 27 grams of CO2
are saved.200
To monetise the amount of CO2 saved, a price of 30 EUR/tonne of CO2 is used, based
on 2020 market trends for EU Emission Allowances.
Exchange rates
Yearly average 2020 exchange rates for non-Euro countries are retrieved from the European
Central Banks.
VAT revenue and compliance
VAT receipts (in national currency and EUR), VTTL, the VAT Gap are taken from the latest EU
VAT Gap Study (2021). C-efficiency and total liability are authors’ own calculation, based on
Eurostat’s national account data. Latest available data are used.
Number of taxable persons
The number of taxable persons per country is retrieved from Deloitte (2017), which provide data on
VAT taxable persons below EUR 2 million revenue (micro-enterprises) and above. The latter are
then segment into small, medium, and large enterprises based on Eurostat Structural Business
Statistics.
Share of taxable persons covered by DRRs
In EU Member States with a domestic DRR, the number of taxable persons within its scope is
invariably lower than the number of taxable persons. This is due for various reasons, including (i)
the existence of a threshold within the DRR; (ii) the application of the VAT SME scheme which
may foresee such a simplification for micro taxable persons; (iii) inactive VAT persons; or (iv)
persons carrying out only VAT exempt transactions. Currently, in all Member States with a DRR,
excluding Spain with a very high threshold in place, the share of taxable persons covered by the
DRR is 67%.
Administrative burdens are calculated on the number of taxable persons covered by the DRR. It
is assumed that 100% of small, medium and large companies are covered by the DRR, while the
non-covered taxable persons are assumed to be micro entities.
The estimated amount of taxable persons potentially covered by the EU DRR at EU level, in the
case of its application to intra-EU transactions and domestic transactions is about 12 times higher
than for the application to intra-EU transactions only.
Table 39 – Estimated amount of taxable persons potentially covered by the EU DRR (domestic and
intra-EU transactions)
Domestic + intra-EU
transactions
Intra-EU transactions
only
Micro 24,230,297 1,829,787
200
Endresen, L. – Pagero, “Sustainable business: E-invoicing, your company and the environment”, January 2021,
available at: https://www.pagero.de/blog/sustainable-business/ (last accessed in September 2021);
Moberg, A., Borggren, C., Finnveden, G., Tyskeng, S. (2021), Effects of a total change from paper invoicing to
electronic invoicing in Sweden, Report from the KTH Centre for Sustainable Communications (Royal Institute of
Technology, Stockholm).
140
Small 639,713 95,957
Medium 319,149 47,872
Large 27,051 12,173
Total 25,216,210 1,985,789
Deflator
A cost deflator per each Member States is calculated based on Eurostat national accounts data.
Number of subsidiaries of multinational companies
The number of subsidiaries of MNCs established in another Member State or in a third country is
estimated based on Eurostat, Structure of multinational enterprise groups in the EU. Missing data
are extrapolated proportionally to nominal GDP (from Eurostat national accounts).
Annual administrative burdens for multinational companies
The annual administrative burdens per each subsidiary of a MNC company are estimated based on
the assessment of the current situation and result from the average of the values estimated for the
Member States with existing DRRs. They are estimated per small- and large-scale MNC, and per
type of DRR.
Table 40 – Annual administrative burdens per multinational subsidiary (EUR/year)
Small-scale Large-scale
VAT listing 13,000 17,000
SAF-T 17,000 25,000
Real-time 28,000 97,000
E-invoicing 32,000 133,000
Salaries
Salaries for the various typologies of workers across the EU Member States are taken from
Eurostat’s national mean annual earning by occupation (2018). In line with the SCM standard, 25%
overheads were added to the earning.
Mapping of digital reporting requirements (Box 1)
Since reporting requirements can be introduced and defined at national level, DRRs existing in the
EU are heterogeneous and differ over several dimensions, such as the frequency (time) and
modality of reporting.
Two types of systems can be distinguished based on the time at which information is to be
submitted:
 Periodic Transaction Controls (PTCs), in which transactional data are reported to tax
authorities at regular intervals.
 Continuous Transaction Controls (CTCs), in which transactional data are submitted
electronically to tax authorities just before, during or shortly after the actual exchange of
such data between the parties, also including e-invoicing requirements.
141
Regarding the modality of compliance with the reporting obligations, such distinction captures
better the various types of requirements that exist across the EU Member States:
 within PTCs, one could distinguish between VAT listing and SAF-T requirements. The
former requires the periodic transmission of transactional data according to a nationally-
defined format, while the latter relies on the national specification of an OECD standard, i.e.
the Standard Audit File for Tax;
 within CTCs, the main difference is between real-time and e-invoicing systems. Under a
real-time system, the taxpayer should submit certain data shortly after carrying out a
transaction but does not need to mandatorily use and share e-invoices with the tax
administration. Under an e-invoicing system, the taxable person is mandated to use a
structured e-invoice according to a pre-determined format, which is then shared with the tax
administration.
Scope of data. Considering the systems currently in place in the EU, relevant differences also
appear as regards the scope of the data required. Member States may require businesses to provide:
 only certain or all VAT data among those which can be retrieved from an invoice, such as
the VAT taxable amount, the VAT payable and the applicable rate, including the e-invoice
(or a subset of data from it); or
 both VAT and other data on other taxes or accounting information, such as stock data on
inventories or depreciation, or payments.
Groups of requirements. Based on the reporting frequency, the modality of compliance and the
data required, the DRRs existing in the EU can be classified into one of the following four groups
Frequency of the
obligation
Periodic Transaction Controls (PTCs) Continuous Transaction Controls (CTCs)
Group VAT listing SAF-T Real-time E-invoicing
Their distinctive features can be summarised as follows:
 VAT listing is the obligation imposed on taxpayers to submit VAT transactional data
according to a national format. Transactional data usually consist of a list of transactions
(hence the term ‘listing’) with information on their values and counterparts, as well as other
VAT relevant data among those which are to be included in the invoice. The data are
submitted on a periodic basis (typically monthly or quarterly), often jointly with the VAT
return.
 SAF-T reporting is a specific form of DRRs based on the OECD’s standard. The standard
was developed for tax audit purposes and can encompass information on direct and indirect
taxes as well as accounting data; it can be tailored to single countries via national
specifications. Several Member States adapted and then mandated a SAF-T standard as the
format through which tax and audit information, including on VAT transactions, is to be
submitted to tax authorities on a periodic basis.
 Real-time reporting is the obligation on taxpayers to transmit transactional data shortly
after issuance of the invoice. The data required can be extracted from the invoice, but the
142
invoice itself does not need be transmitted to the tax authority. The taxpayers must comply
with the requirement within a short time-limit (the same day, or within a few days).
e-Invoicing is a compliance system requiring taxpayers to issue a structured e-invoice for VAT
purposes. ‘Structured’ means that the e-invoice must conform to a machine-readable standard, so
that it can be automatically processed. The e-invoice as a whole, or a set of data therefrom, must
then be transmitted to the tax authority, prior to its issuance, as it takes place, or shortly thereafter.
The taxpayer may be able to send the e-invoice directly to its customers while sharing it with the
tax authority (no-clearance e-invoicing). Alternatively, the taxpayer may be required to go through
the tax authority first, either to obtain a preliminary authorisation, or by using a central IT platform,
which, in turn, delivers the e-invoice to the customer (clearance e-invoicing)
Figure 12 – Digital Reporting Requirements in the EU
Legend:
Clearance e-invoicing
(IT)
Real-time reporting
(ES, HU)
SAF-T reporting
(LT, PL, PT)
VAT listing
(BG, CZ, EE, HR, LV, SK)
Forthcoming reporting requirement
(EL, FR, RO)
No digital reporting requirement
Supporting Study, vol. I, p. 18
15. ANNEX 5: OTHER INITIATIVES
Directive 2014/55/EU of the European Parliament and of the Council of 16 April 2014 on
electronic invoicing in public procurement.
The Directive 2014/55/EU on electronic invoicing in public procurement has the goal of facilitating
the use of a European Standard on electronic invoicing across Member States and to reduce the
obstacles in cross-border trade that arise from the coexistence of different national legal
requirements and technical standards in e-invoicing. A common European Standard on e-invoicing
(EN 16931)201
is used to achieve interoperability, ensuring that public entities are able to receive
and process electronic invoices. A previous assessment of the EU invoicing legal framework202
proved that this requirement was instrumental in fostering the use of structured e-invoices among
economic operators in several Member States.
201
C/2017/6835 (OJ L 266, 17.10.2017, p. 19–21)
202
SWD(2020) 29 final
143
VAT in the Digital Age and the definitive regime203
VAT in the digital age is about adapting the VAT system to new technologies from different
angles: real-time reporting to the tax administrations to fight fraud more efficiently, an increased
use of the One Stop Shop to enable businesses to enjoy a single place of registration in the EU and
increased responsibilities for platforms to collect VAT. The definitive regime of VAT is a proposal
whose aim is to replace an exemption on intra-EU trade (with taxation at destination by the
customer) by a collection of the VAT by the supplier at the rate of destination. Together with a One
Stop Shop to facilitate compliance, the aim of definitive regime, like the digital reporting, is to fight
VAT fraud.
Therefore, the two proposals have a common goal (fighting fraud), through different means which
can be seen as complementary. The definitive regime of VAT is still needed to address intrinsic
weaknesses of the EU VAT system and remains a medium to long term goal. VAT in the digital
age can work with both VAT systems (the current one and a definitive regime). Moreover, the
DRRs (real time reporting) can help increasing the level of trust between Member States, which
constitutes one of the main obstacles in agreeing on a VAT definitive regime that requires Member
States to collect VAT on behalf of each other.
Regulation (EU) 2019/1150 on promoting fairness and transparency for business users of online
intermediation services (the ‘P2B Regulation’)
The P2B Regulation contains a set of rules to ensure a fair, predictable, sustainable and trusted
online business environment, granting business users of online intermediation services appropriate
transparency, as well as effective redress possibilities. These rules create an obligation for online
platforms, inter alia, to update their terms and conditions to provide information to business users
about whether they are granted access to the data generated through their use of the online platform
and whether data is shared with third parties. Depending on the outcome of this STR initiative,
online platforms shall need to update their terms and conditions to refer to the data that could be
shared with public authorities and give business users prior notice of this change, before it becomes
effective.
In addition, the Regulation imposes a reporting obligation on larger online platforms, which
requires them to make easily available public information on the functioning and effectiveness of
their internal complaint-handling system on an annual basis, which could be more frequent if
significant changes are needed. Therefore, any reporting obligations imposed by the STR initiative
would be in addition to those already required by the P2B Regulation. Article 4 of the P2B
Regulation requires notice to be provided prior to the restriction, suspension or termination of a
business users’ account. Any notice and takedown obligation would need to respect the time
periods, notice periods and requirements to provide a reason and be listed as a possible grounds for
removal of an offer in the terms and conditions in respect of providers of STR who are business
users (Article 3(1)(c)). Such business users would have the possibility to lodge a complaint in
accordance with the procedures for complaint handling set out in Article 11 and also, potentially the
subject of mediation under Article 12. Member States have taken steps to implement Article 15 that
requires them to ensure adequate and effective enforcement of the Regulation and have appointed
authorities to be responsible for the enforcement in the following Member States. It is possible that
such authorities could take on the limited additional responsibility for the enforcement of the
obligations on online platforms to share data.
203
COM/2017/0569 final - 2017/0251 (CNS)
144
Council Directive (EU) 2021/514 of 22 March 2021 amending Directive 2011/16/EU on
administrative cooperation in the field of taxation (‘DAC7’)
Council Directive (EU) 2021/514 has amended Directive 2011/16/EU on administrative
cooperation in the field of taxation extending the EU framework on the automatic exchange of
information in the field of taxation. Member States have to transpose this Directive by 31 January
2022 and apply the new provisions from 1 January 2023.
The purpose of this amendment was to (i) address the potential loss of tax revenue caused by
unreported income earned through the sale of goods and services via online intermediating
platforms and (ii) ensure a level playing field between operators active on platforms and traditional
businesses.
To this end, the new rules create an obligation for platforms to report the income earned by sellers
and for the Member State where reporting takes place, to exchange this information automatically.
They introduce due diligence procedures and an annual reporting obligation on platforms located
both inside and outside the EU concerning information on sellers that use the platforms to earn
income. This includes, among other activities, the rental of immovable property, including on a
short-term basis. Platforms must collect the following information and assess its reliability using all
information and documents available in their records, including their electronically searchable
records:
 the first and last name of the host who is an individual, or its legal name if the host is an
entity;
 the primary address;
 the tax identification number (TIN) of the host, including each Member State of issuance,
or, in the absence of a TIN, the place of birth of the host who is an individual;
 the business registration number of the host that is an entity;
 the VAT identification number of the host, where available;
 the date of birth of the host who is an individual;
 the address of each property listing and, where issued, respective land registration number
or its equivalent under the national law of the Member State where it is located, where
available.
Platforms must report the following information to the relevant Member State:
 details of the platform (name, registered office address, TIN, as well as the business name(s)
of the platform(s) in respect of which the Reporting Platform Operator is reporting);
 the information collected and listed above;
 the Financial Account Identifier (where the financial account to which the consideration is
paid is different from the name of the seller, the name of the account holder is required
along with any other financial information available to the Reporting Platform Operator
with regard to this account holder);
 Member State(s) of residence of the host;
 the revenue received during each quarter and the number of relevant activities provided with
respect to each property listing;
 any fees, commissions or taxes withheld or charged by the platform during each quarter;
 where available, the number of days each property listing was rented and the type of each
property listing.
145
The Member State where reporting takes place will then share the relevant information with the
competent tax authorities of the other relevant Member State(s). DAC7 requires Platform Operators
to report certain information with the competent authorities of Member States. DAC7 includes a
legal base to share such information for VAT purposes.
The Digital Services Act (DSA)204
The DSA establishes EU-wide due diligence obligations that will apply to all digital services that
connect consumers to goods, services, or content, including new procedures for faster removal of
illegal content as well as comprehensive protection for users' fundamental rights online. The DSA
includes enhanced due diligence rules for very large online platforms (i.e. online platforms with
more than 45 million users in the EU), that will be supervised by the Commission. The Regulation
maintains the key principles of the e-Commerce Directive, in particular the provisions concerning
the liability of intermediaries and the prohibition of general monitoring obligation. It has impact on
the VAT in the Digital Age initiative.
The Digital Markets Act (DMA)205
The DMA proposal, adopted in 2022 together with the DSA, aims to ensure contestable and fair
markets in the digital sectors across the Union by addressing the unfair practices of certain
undertakings (designated as “gatekeepers”). Gatekeepers are companies that play a particularly
important role in the internal market because of their size and their importance as gateways for
business users to reach their customers. Providers of core platform services should be designated as
gatekeepers either based on the quantitative criteria or following a case-by-case assessment during
a market investigation.
The DMA will apply to ‘core platform services’, a concept which includes online intermediation
services provided or offered by gatekeepers companies to business users established in the EU or
end users established or located in the Union, irrespective of the place of establishment or residence
of the gatekeepers and irrespective of the law otherwise applicable to the provision of service.
These core platform services include, among others, online intermediation services, online search
engines, social networking, video sharing platform services, operating systems and cloud services.
It has minimal impact on the VAT in the Digital Age initiative.
Upcoming proposal for a Regulation concerning short-term accommodation rentals (STRs)206
The main objective of the initiative is to improve and harmonise the framework for data generation
and data sharing on short-term rentals across the Union. The initiative seeks to tackle two main
problems: first, the market fragmentation and burdens for online platforms caused by numerous and
divergent transparency and data sharing requirements across the EU and, second, the insufficient
access to data on STRS by public authorities in the EU. However, when let on a temporary short-
term basis the accommodations are subject to VAT, unlike the leasing of residential property,
which is usually exempt, thus the STR initiative has minimal impact on the VAT in the Digital Age
initiative.
204
https://eur-lex.europa.eu/legal-content/en/TXT/?qid=1608117147218&uri=COM%3A2020%3A825%3AFIN)
205
https://eur-lex.europa.eu/legal-content/en/TXT/?qid=1608116887159&uri=COM%3A2020%3A842%3AFIN
206
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13108-Tourist-services-short-term-rental-
initiative_en
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Proposal for a Directive on improving the working conditions in platform work - COM(2021) 762
final
The proposed Directive seeks to ensure that people working through digital labour platforms are
granted the legal employment status that corresponds to their actual work arrangements. It provides
a list of five control criteria to determine whether the platform is an “employer”. If the platform
meets at least two of those criteria, it is legally presumed to be an employer. This means the digital
labour platforms in question will be considered as employers by relevant national authorities, and
will have to fulfil their obligations as employers, for instance with regard to working time and
annual and family-related leaves. Platforms will have the right to contest or “rebut” this
classification, with the burden of proving that there is no employment relationship resting on them.
The clear criteria the Commission proposes will bring the platforms increased legal certainty,
reduced litigation costs and it will facilitate business planning.
The Directive increases transparency in the use of algorithms by digital labour platforms, ensures
human monitoring on their respect of working conditions and gives the right to contest automated
decisions. These new rights will be granted to both workers and genuine self-employed.
In addition, national authorities often struggle to access data on platforms and the people working
through them. This is even more difficult when platforms operate in several Member States, making
it unclear where platform work is performed and by whom.
The Commission's proposal will bring more transparency around platforms by clarifying existing
obligations to declare work to national authorities and asking platforms to make key information
about their activities and the people who work through them available to national authorities.
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16. ANNEX 6: E-COMMERCE EVALUATION
16.1. Introduction
Value added tax (VAT) has become an increasingly important source of revenue for Member States
and is also an important EU own resource. However, recent developments, such as the increase of
online sales via internet, created new challenges for the smooth functioning of the EU VAT system.
On 1 July 2021 the VAT e-commerce package207 introduced a number of simplifications in order
to reduce the administrative burdens for businesses in complying with their VAT obligations. With
the introduction of two new mechanisms, namely the One-Stop Shop (OSS) and the Import
One-Stop Shop (IOSS), businesses can now declare and pay VAT incurred on certain types of
B2C transactions taking place in Member States where they are not established in their own
Member State and, consequently, the scope of situations requiring VAT registration was reduced. A
new rule, known as the ‘deemed supplier rule’, has also been introduced to reduce VAT avoidance
among businesses whose supplies are facilitated by electronic platforms208
. In addition, the new e-
commerce rules reduced the intra-EU distance selling thresholds for the application of the
destination principle to an EU wide EUR 10,000 threshold, minimising the VAT compliance
burden for micro-businesses. This new annual threshold applies to intra-Community distance sales
of goods and supplies of telecommunications, broadcasting and electronic (TBE) services. Since 1
July 2021, as part of the e-commerce package, the import VAT exemption for goods valued at up to
EUR 22 was also abolished.
Nonetheless, there remain numerous circumstances – adding up to a significant volume of
transactions and affecting many stakeholders – that oblige businesses to obtain and hold more than
one VAT registration. Further reducing the range of situations that require non-established persons
to obtain multiple VAT registrations is one of the objectives of the VAT in the Digital Age
initiative209
. This particular objective can be achieved by further extending the scope of the above
mentioned two mechanisms (OSS and IOSS), the feasibility of which is examined in the VAT
registration pillar of the VAT in the Digital Age initiative. In this context, it is necessary to reflect
on the effectiveness of the current rules, hence the need to evaluate the functioning of the e-
commerce package, its robustness and the potential need for improvements. This evaluation is
based on the replies (i) to a public consultation and (ii) to a specific questionnaire addressed to the
27 Member States (tax and customs authorities). The evaluation covers the first 6 months of
implementation of the e-commerce package, from 1 July 2021 until 31 December 2021.
207
Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC
as regards certain value added tax obligations for supplies of services and distance sales of goods and Council
Regulation (EU) 2017/2454 of 5 December 2017 amending Regulation (EU) No 904/2010 on administrative
cooperation and combating fraud in the field of value added tax.
208
When an electronic interface facilitates (i) the distance sales of goods B2C imported from a third country (not
exceeding a value of EUR 150) to a customer in the EU or (ii) the B2C supply of goods within the EU if the underlying
supplier is not established in the EU, the electronic interface is ‘deemed’ to purchase the goods from the underlying
supplier and to sell them to the final customer, thus being liable to report on and pay the VAT.
209
Communication from the Commission to the European Parliament and the Council COM(2020)312
https://ec.europa.eu/taxation_customs/system/files/2020-07/2020_tax_package_tax_action_plan_en.pdf
148
In the first instance, the effectiveness criterion of the evaluation report is assessed by measuring
how the objectives of these new rules are met: fairer taxation, facilitation of VAT compliance,
reduction of the administrative burden and protection of Member States’ VAT revenue. The
evaluation of the implementation of the VAT e-commerce package from each Member State’s
perspective, including relevant figures in relation to the functioning of the OSS/IOSS schemes (the
number of registered traders and the total VAT revenue declared and paid), along with an
assessment of business satisfaction, enables to gauge the efficiency of these new rules.
Furthermore, the relevance criterion of this VAT e-commerce reform is assessed against the need to
reform the VAT system to address the exponential increase in e-commerce activity in recent years,
together with the associated need to level the playing field between EU and non-EU traders and to
simplify the collection of VAT. Finally, the coherence of the reform is assessed by the consistency
of these new rules with other EU policies, requirements and regulations such as the SME strategy
for a sustainable Europe210
, the European digital market211
, the EU VAT administrative
cooperation212
and the Union Custom Code213
. Ultimately, the EU added value criterion is covered
by further strengthening the internal market and simplifying the VAT obligations.
16.2. What was the expected outcome of the intervention?
16.2.1. Description of the intervention and its objectives
The VAT e-commerce package was one of the priorities under the Digital Single Market
Strategy214
. This strategy was adopted on 6 May 2015 in response to the problem of barriers to the
use of online tools faced by the EU citizens and businesses and was intended to adapt the European
market to the digital age. In recent years, advancements in technology have had a profound, lasting
effect on commercial activity. Affordable access to technology has been one of the key drivers in
initiating a global e-revolution, affecting how consumers transact, breaking down market barriers
and creating new opportunities for traders to gain access to a globalised market.
To help overcome the challenges presented by the globalised economy and to modernise and
simplify the collection of tax on e-commerce transactions, the European Commission proposed a
package of VAT reforms215
. These proposals were designed to reshape, update and modernise the
VAT system to ensure its relevance and effective application to the new realities of the e-commerce
market. The main aim was to create a fairer, simpler and more harmonised system of taxation by
210
Communication from the Commission to the European Parliament, the Council, the European Economic and Social
committee and the Committee of the Regions “An SME strategy for a sustainable and digital Europe”, COM(2020) 103
final,
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020DC0103
211
Communication from the Commission to the European Parliament, the Council, the European Economic and Social
Committee and the Committee of the Regions “A Digital Single Market Strategy for Europe” COM(2015) 192 final,
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52015DC0192
212
Council Regulation (EU) No 904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the
field of value added tax.
213
Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the
Union Customs Code.
214
Communication from the Commission to the European Parliament, the Council, the European Economic and Social
Committee and the Committee of the Regions “A Digital Single Market Strategy for Europe” COM(2015) 192 final,
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52015DC0192
215
Communication from the Commission to the European Parliament, the Council, the European Economic and Social
Committee on an “Action plan on VAT”, COM(2016) 148 final, https://eur-lex.europa.eu/legal-
content/EN/TXT/HTML/?uri=CELEX:52016DC0148&from=EN
149
removing legislation that created distortions of competition and achieving better administrative co-
operation. At the same time, the reforms sought to make VAT compliance easier for legitimate
businesses who carry out cross-border online commercial activity by taking a new approach to tax
collection.
Figure 13 – Problem tree (VAT registration)
Figure 14 – Linking the objectives to the problem
150
As part of the 2016 VAT Action Plan216
, the Council adopted the VAT e-commerce package on
5 December 2017, which focussed on reforming the taxation of e-commerce activity. On 21
November 2019, the Council also adopted the implementing measures for this package. The reform
entered into force on 1 July 2021 (with the exception of some new simplification measures related
to the Mini One-Stop Shop217
(MOSS) that took effect on 1 January 2019).
The new rules included:
1) improvements to the MOSS special scheme and introduction of a new harmonised EU-wide
annual threshold for intra-Community distance sales of goods and cross-border supplies of TBE
services,
2) extension of the scope of the MOSS, turning it into a One-Stop Shop (OSS) for all B2C
supplies of services,
3) provisions relating to the supply of goods (e-commerce), such as:
 special schemes for intra-Community distance sales of goods (OSS) and distance sales of
goods imported from third countries and third territories in consignments of an intrinsic
value of not exceeding EUR 150 (IOSS);
 special rules applicable to supplies of goods facilitated by electronic interfaces (deemed
supplier regime218
);
 removing the VAT exemption for imports of goods in small consignments not exceeding
EUR 22;
 introducing the special arrangements for declaration and payment of import VAT.
These measures were designed to strike a balance between the need to take action against e-
commerce related VAT fraud and the ultimate objective of facilitating e-commerce trade. On the
one hand, the purpose of introducing the changes was to ensure effective collection of VAT and
avoid distortion of competition between suppliers inside and outside the EU. On the other hand,
equally important, was to simplify VAT obligations for taxable persons and reduce administrative
burdens on e-commerce businesses, tax administrations and consumers.
16.2.2. Point(s) of comparison
Improvements to the MOSS and introduction of new harmonised EU-wide threshold
In January 2015, the Commission introduced a simplified system (MOSS special scheme) to
declare and pay VAT on B2C supplies of telecommunications, broadcasting and electronic (TBE)
216
https://ec.europa.eu/taxation_customs/action-plan-vat_en.
217
The Mini One-Stop Shop came into force on 1 January 2015 and allows taxable persons supplying
telecommunication services, television and radio broadcasting services and electronically supplied services to non-
taxable persons in Member States in which they are not established to account for the VAT due on those supplies via a
web-portal in the Member State in which they are identified. This scheme was optional, and constituted a simplification
measure following the change to the place of supply VAT rules, in that the supply takes place in the Member State of
the customer, and not the Member State of the supplier. This scheme allows these taxable persons to avoid registering
in each Member State of consumption (Member State where the customer is located).
218
When an electronic interface facilitates (i) the distance sales of goods B2C imported from a third country (not
exceeding a value of EUR 150) to a customer in the EU or (ii) the B2C supply of goods within the EU if the underlying
supplier is not established in the EU, the electronic interface is ‘deemed’ to purchase the goods from the underlying
supplier and to sell them to the final customer, thus being liable to declare and pay the VAT due on those supplies.
151
services in the EU. The MOSS allowed suppliers of TBE services to declare and pay VAT due in
all Member States where they have customers via a MOSS registration in one single Member State.
As assessed in the Impact Assessment of the VAT e-commerce package219
, this special scheme
offered an attractive solution to many traders who wished to simplify their VAT obligations arising
from their supplies of TBE services to customers in the EU. The experience of the MOSS system
clearly demonstrated the EU added-value for Member States in terms of securing VAT revenues
and in terms of reducing the costs for businesses trading cross-border. However, the assessment of
MOSS has also identified a number of areas for improvement. For this reason, new simplification
measures, which took effect on 1 January 2019, were introduced.
In order to reduce the burdens and complexity associated with VAT compliance for micro
businesses, a new harmonised EU-wide annual threshold of EUR 10 000 for intra-Community
distance sales of goods and cross-border supplies of TBE services was introduced. As a result,
supplies of TBE services below this threshold remained subject to VAT in the Member State where
the taxable person supplying those TBE services was established, thus preventing the micro
businesses from having to register in the Member State of consumption or to register for the MOSS
to declare their TBE supplies of services. Moreover, non-EU suppliers were permitted to access the
non-Union scheme as improvements were introduced to allow foreign suppliers to register for the
MOSS even if they were already VAT registered in some Member States without a fixed
establishment. Finally, the proofs required to determine the place of supply were simplified. In
addition the invoicing rules were amended to ensure the application of the rules in accordance with
the Member State of identification. As a result of these measures, the administrative burden for
taxable persons using the special scheme was reduced and the efficiency for Member State tax
administrations increased.
Extension of the scope of MOSS special scheme to all B2C supplies of services
Prior to the implementation of the VAT e-commerce package, taxable persons supplying services
other than TBE services to non-taxable persons had to register for VAT purposes in each and every
Member State where those services were subject to VAT. These rules were burdensome and
expensive for business to monitor and comply with. In 2015220
, ongoing cost of maintaining a VAT
registration in a Member State was estimated, on average, to EUR 8 000 per annum. Taking into
account the success of the MOSS simplification, the 1 July 2021 amendments extended the scope of
the MOSS to become a broader OSS, which now covers all services221
supplied to non-taxable
persons established in the EU. These rules were introduced to further simplify VAT obligations and
reduce the administrative burden for taxable persons supplying cross-border services.
New rules relating to the supply of goods (e-commerce)
On 1 July 2021 the VAT e-commerce package entered into application and introduced a number of
amendments to the VAT rules governing the taxation of B2C cross-border e-commerce activity in
Europe aiming to protect Member States' tax revenue and to create a level playing field for the e-
219
Impact assessment accompanying the document Proposals for a Council Directive, a Council Implementing Regulation
and a Council regulation on modernising VAT for cross-border B2C e-commerce, COM(2016) 757 final.
220
Deloitte Study for the Commission on ‘Modernising VAT for cross-border e-commerce’ – Lot 1, Pg. 44
221
This concerns all B2C supplies of services that do not follow the general rules of place of supply of services in the
Member State of establishment of the supplier as stated in Article 45 of Council Directive 2006/112/EC.
152
commerce businesses while, at the same time, minimizing the burden for complying with the VAT
obligations.
Removal of the VAT exemption for imports of goods in small consignments
The VAT provisions previously applicable to the taxation of low value imports of goods were
prone to fraud and created favourable conditions for businesses selling low value imported goods to
consumers in the EU. Those complex and non-harmonised rules granted a VAT exemption to
supplies of low value goods imported into the EU with a value not exceeding EUR10 to EUR 22,
varying from one Member State to another. The application of this exemption was detrimental to
EU established businesses that were selling the same goods within the EU as their low value
supplies did not enjoy such a relief and, therefore, led to a distortion of competition within the e-
commerce market. This situation was further compounded by the misuse of this EUR 22 threshold.
A study carried out by Copenhagen Economics, which was based on a sample of 400 real
purchases, has found that 65% of consignments from non-EU suppliers through the public postal
channels were non-compliant resulting in a lack of payment of VAT and import duties to the
national authorities222
. The VAT e-commerce package levelled the playing field for EU established
suppliers making sales of goods within the EU, as the VAT exemption for the importation of small
consignments not exceeding EUR 22 was abolished. As a result, VAT is now due on all
commercial goods imported into Europe from a third country or third territory, irrespective of their
value.
Special schemes OSS and IOSS
In recognition of the success of earlier initiatives, many of the measures included in the VAT e-
commerce package leveraged and built on the success of the MOSS simplifications. In fact, the
MOSS infrastructure has been used as the blueprint for the design of a number of new
simplifications such as: (i) the One-Stop Shop (OSS), which has extended the range of supplies
within the scope of the Union scheme of the MOSS to include intra-Community distance sales of
goods and certain domestic supplies of goods facilitated by electronic interfaces, (ii) for non-EU
established traders the non-Union scheme of the MOSS is extended to cover all B2C supplies of
services within the EU, and also (iii) the introduction of the Import One-Stop Shop (IOSS) scheme,
which is a special scheme for declaring and remitting VAT on distance sales of goods imported
from third territories or third countries in consignments of an intrinsic value not exceeding EUR
150. Traders who opt to register in these schemes can deal with their VAT compliance obligations
in one language via the tax administration of the Member State in which they are registered, even
though their sales are EU-wide.
Moreover, the IOSS supports the import side of e-commerce activity and reduces the VAT
compliance burden associated with the importation of low value goods. Customers who purchase
from IOSS registered suppliers pay the VAT inclusive price at the time of their online purchase.
The customer, therefore, has certainty and transparency about the total price of the transaction and
222
E-COMMERCE IMPORTS INTO EUROPE: VAT AND CUSTOMS TREATMENT (2016) Authors: Dr Bruno
Basalisco, Julia Wahl, Dr Henrik Okholm E-commerce imports into Europe: VAT and customs treatment - Copenhagen
Economics carried out this study on behalf of UPS by making approximately 400 real purchase brought to delivery via
e-commerce platforms located in US, Canada, Japan, India and China. Delivery was made to 7 destination Member
States. 50% of purchases were via express operators with 50% via public postal operators. VAT was due on all the
consignments, customs duties were due on 45% of the consignments. This experimental study found that shipments
sent via national postal operators , resulted in a lack of payment of VAT and import duties to the national authorities for
more than 60% of items purchased online.
153
is not confronted with unexpected VAT costs when goods are imported into the EU and delivered
to their home address. IOSS goods are, therefore, exempt from VAT upon importation into the EU
as the VAT has already been paid at the time of the purchase. The use of the IOSS further
simplifies logistics and introduces more flexibility as the goods can enter the EU and be released
for free circulation in any Member State, regardless of where the transport of those goods to the
customer ends.
Deemed supplier regime
Prior to the implementation of the VAT e-commerce package, the rule according to which Member
States may provide that a person other than the person liable for the payment of VAT is to be held
jointly and severally liable for payment of VAT was insufficient to ensure effective and efficient
collection of VAT in cases when distance sales of goods were facilitated through the use of an
electronic interface, such as platforms. Therefore, it was decided to involve electronic interfaces in
the collection of VAT on those sales. This new ‘deeming’ provision for VAT purposes is
significant as it mitigates the risk of non-payment of VAT. Where the deeming provision applies,
individual sellers on electronic interfaces do not have to register for VAT as the platforms will be
responsible for paying the VAT due on sales from its platform. This particular reform bolsters
compliance as it streamlines the VAT obligations of thousands of underlying sellers by deeming the
platform as the person liable to declare and pay the VAT due on those supplies. This is
accompanied by new record keeping obligations for these deemed suppliers and also for platforms
who merely facilitate the supply without being a deemed supplier.
Special Arrangements for declaration and payment of import VAT
The VAT e-commerce package also introduced a new simplification measure known as the special
arrangement. This provides an alternative solution for the collection of import VAT in cases where
neither the IOSS nor the standard VAT collection mechanism on importation are used. The special
arrangement measure applies to distances sales of good imported into the EU with an intrinsic value
not exceeding EUR 150, excluding excisable goods. It allows postal operators, express carriers,
customs agents and other operators who fulfill the customs import declarations on behalf of the
customer to declare and remit the collected VAT on these imports on a monthly basis. It only
applies where the goods are released for free circulation in the Member State where the dispatch or
transport ends.
16.3. How has the situation evolved over the evaluation period?
16.3.1. Implementation
Originally, the VAT e-commerce package was supposed to enter into force on 1 January 2021 (with
the exception of some new simplification measures related to the MOSS that took effect on 1
January 2019). However, taking into consideration the challenges that Member States faced in
tackling the COVID-19 crisis and the fact that the new provisions were based on the principle that
all Member States had to update their IT systems, which also impacted e-commerce stakeholders, it
was necessary to postpone the date of transposition and entry into application of the package. To
minimize the additional budgetary losses for Member States, the delay was as short as possible and
limited to only 6 months. Thus, the e-commerce rules are applied as of 1 July 2021 instead of 1
January 2021, which gave Member States and businesses some additional time to prepare.
Overall, the entry into application of the package went smoothly, without major operational
problems. The Commission services ensured a close follow-up of the implementation in the
154
Member States prior to 1 July 2021 and provided support during the deployment phase as well as
during the first months of operation. The OSS and IOSS are based on interoperability between
different Member States’ tax authorities as well as between the tax and customs authorities within
each Member State. To ensure the correct functioning of the systems, it was essential that all the
Member States met the critical deployment deadlines, therefore regular deployment and operational
calls were organised with the Member States throughout 2021. In the spirit of providing support,
these calls continue to take place on a regular basis, even after the new rules entered into force on 1
July 2021. A risk dashboard and a deployment map providing an overall state of play of the
deployments were regularly updated and shared with Member States. All national webportals (OSS
and IOSS) were accessible before 1 July 2021, allowing traders to register for these new schemes.
However, a couple of Member States needed to set up workaround solutions with the help of the
Commission services in order to assure interoperability between tax and customs authorities. Only
the UK, in relation to Northern Ireland, was not able to implement all the mandatory requirements
on time. This affected the Northern Irish businesses willing to register for the IOSS in Northern
Ireland, forcing them to register for this special scheme via an intermediary in another Member
State
155
Figure 15 – E-commerce deployment map of 23 March 2022
16.3.2. Growth and evolution of e-commerce
Although the evaluation period only covers the first six months of application of the e-commerce
package, it is, nevertheless, important to understand the recent and profound changes in the
economic landscape that drove this reform.
To help set the scene, in 2017, at the time when the need for reform of VAT e-commerce rules was
ratified, worldwide revenues from e-commerce sales were in the region of EUR 2,1 trillion223.
At
that time, projections indicated that this figure would more than double over the next 4 years. The
predictions suggested that global e-commerce retail sales would reach EUR 4,3 trillion by 2021224
.
From a European perspective, at that time, the total value of the e-commerce economy was
estimated to be in the region of EUR 530 billion225
. By 2019, studies showed that the e-commerce
sector in Europe had grown to EUR 636 billion, up 14,2% on the previous year226
. The value of the
e-commerce economy in Europe was expected to be in the region of EUR 717 billion by 2020.
At the same time, the VAT compliance losses (which include compliances losses from non-EU and
intra-EU transactions) for Member States were estimated to EUR 5 billion227
. This estimate
included the VAT foregone (EUR 1 billion) from the VAT exemption for the importation of small
consignments.
223
The 2017 average US dollar to Euro exchange rate of 0.8865 was used for 2017 figures and for projections.
224
Worldwide retail e-commerce sales 2014 -2024 – statista.com.
225
Ecommercenews.eu – The total value of e-commerce in Europe was EUR 530 billion in 2016.
226
Euroecommerce.eu – e-commerce activity in Europe was estimated was up 14.2% in 2019 from 2018’s figures.
227
SWD(2016) 379 final p20.
156
The pre-1 July VAT rules governing the taxation of low value imports of goods were prone to fraud
and created favourable conditions for non-EU businesses selling low value imported goods to
consumers in the EU. Those rules granted a VAT exemption to supplies of low value goods
imported into the EU with a value not exceeding EUR 22. In fact, of the EUR 5 billion VAT that
was estimated to be lost across Member States on cross-border supplies of goods each year, it is
estimated that EUR 1 billion of it was a direct result of the application of the VAT exemption itself,
whereas the remaining EUR 4 billion related to compliance losses (non-compliance) from non-EU
and intra-EU transactions. The significance of the EUR 5 billion loss that the EU suffered each
year (estimated to have reached EUR 7 billion by 2020) could not be ignored and, therefore, it
focussed the Commission’s priorities on the need to take action to combat e-commerce rated VAT
fraud.
Analysis from PricewaterhouseCoopers (PwC)228
suggests that in 2020, over two billion people
purchased goods or services online worldwide229.
In Europe, e-commerce is expected to grow by 42
percent in five years from 2021230.
. The recent pandemic, as well as the UK’s withdrawal from the
EU, seem to have contributed to this growing trend. Within the EU, e-commerce accounts for 10-
15% of total retail sales231.
In terms of turnover, e-commerce in Europe grew 14% in 2019, while in
2020 the growth rate was at 10%232
. Despite the slight dip, the forecast suggests an upward trend for
the coming years.233.
The number of e-commerce consumers in the EU almost doubles between from 2014-2029. The
number of consumers participating in e-commerce increased in 2020, at the height of the COVID-
19 pandemic. Across the period, there is an upward trend in consumers making cross-border
purchases, increasing from 30 million in 2014 to a projected 160 million in 2029. This is driven
partially by the growth in the total number of e-commerce shoppers over the period.
228
On-going study carried out by PwC on ‘an integrated and innovative overhaul of the collection of import duties and
taxes (VAT and excise duties) on B2C e-commerce transactions from third countries’.
229
Statista, 2021a.
230
Statista, 2021a, projection to 2025.
231
E-commerce Europe, 2021
232
E-commerce Europe, 2021
233
E-commerce Europe, 2021
157
Figure 16 – Estimated number of (cross-border) e-commerce consumers in the EU, 2014-2029
Source: PwC analysis; (Eurostat, 2021a) (Eurostat, 2021b) (Eurostat, 2021c) (Statista, 2021a) (Eurostat, 2021d);
(Forrester Research, 2021). See text for the key assumptions underlying these estimates.
In terms of import, the total volume of e-commerce consignments from third countries is estimated
to increase significantly by 2029. This is driven by a combination of growth in the number of EU
consumers purchasing goods online and growth in the average annual volume of consignments
purchased per consumer. The largest growth in the number of cross-border e-commerce imports is
for consignments worth less than EUR 22, which is estimated to increase from 40 million
consignments in 2014 to around 460 million consignments by 2029.
158
Figure 17 – Estimated volume of cross-border e-commerce in the EU, 2014-2029
Volume of cross-border e-commerce in the EU by consignment price in EUR.
Source: PwC Analysis; (European Commission, 2015a) (International Postal Corporation, 2021) (International Postal
Corporation, 2022) (Juniper Research, 2021) (Fusacchia et al., 2020) (Ghodsi et al., 2016) (Eurostat, 2022a)
(Eurostat, 2022b).
Note: The graph above includes the impact of COVID-19, the UK’s departure from the EU, business model change and
the e-commerce VAT package.
The total value of cross-border e-commerce consignments from third countries is projected to
increase from EUR 14 billion in 2014 to EUR 37 billion in 2029. The largest growth in the value of
cross-border e-commerce imports is in consignments valued between EUR 22 and EUR 150. These
imports are expected to grow by EUR 18 billion over the period.
16.3.3. Actions taken
Although the period of the evaluation only covers the first six months of application of the e-
commerce package, it is, nevertheless, important to consider the development of European policies
that were introduced to reshape the VAT system to these new e-commerce realities.
Taxation of TBE supplies and MOSS
Generally, the pre-MOSS VAT rules were burdensome and expensive for business to monitor and
comply with. At that time, the Commission estimated that the costs associated with registration in
other Member States is somewhere in the region of EUR 8,000 per Member State per annum. The
implementation of the 2015 new place of supply rules was the first step towards increasing the
fairness and efficiency of the VAT collection system. The MOSS offered an attractive solution to
many traders who wished to simplify their VAT obligations arising from their supplies of TBE
services to customers in the EU. Prior to the introduction of the VAT e-commerce package, there
were over 11.500 traders registered to use the MOSS.
159
In 2020, EUR 6.56 billon in VAT revenue was collected via the MOSS, which was more than
double 2015’s figure of EUR 3 billion. These figures highlight the success of this initial action
which formed the foundations for the development of the VAT e-commerce package.
Figure 18 – MOSS Total Revenues 2015-2020234
VAT e-commerce package
Building on the success of the MOSS, the e-commerce package introduces a number of reforms to
help modernise the VAT system in response to the increase in e-commerce activity.
Since the new rules came into application, preliminary analysis of import data from the EU
Customs Surveillance system suggests that approximately EUR 1,9 billion VAT was collected in
respect of imports of low value consignments not exceeding EUR 150 in the first 6 months of
implementation of the new rules, which equates to approximately EUR 3,8 billion on an annual
basis.
In terms of registration numbers, the data provided by Member States show that there were 8654
traders registered to use the Import One-Stop Shop at the end of the first 6 months of application of
the scheme. Early analysis also shows that the top 8 IOSS registered traders accounted for
approximately 91% of all transactions declared for import into the EU via the IOSS. This is a very
encouraging statistic as it highlights the impact that the new ‘deeming’ provision for marketplaces
has had on compliance. As a result of the deeming provision, the critical compliance effort is now
focused on a much smaller number of large players in the market, who account for the majority of
low value goods imported into the EU.
234
The blue chart bars represent the total MOSS revenue each year whereas the green bars represent the year on year
percentage increase in revenue.
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16.3.4. Identified issues
Although the implementation went smoothly, some teething problems emerged which required
further intervention in order to ensure a proper functioning of the VAT e-commerce rules.
Therefore, the Commission services and Member States have been looking into possible solutions
to tackle the following issues:
 Cases of double taxation when the IOSS VAT identification number could not be validated due
to technical issues
 Further limiting the possibilities to misuse Import One-Stop Shop (IOSS) VAT identification
numbers
 High postal fees
Double taxation
Cases of double taxation, which may arise in certain circumstances, were identified as a major
issue235
that requires the urgent application of a pragmatic and workable solution to address the
problem in the short-term. Such circumstances are considered temporary, because postal operators
are gradually adapting their IT systems that enables the electronic transmission of the VAT IOSS
identification number across the postal network and Member States are gradually updating their
national import customs systems by end 2022 so that these can process declarations relating to
IOSS goods.
In order to mitigate the financial effect on the customers facing double taxation, common
guidelines236
to handle these cases of double taxation have recently been agreed by Member States.
Misuse of the IOSS VAT identification numbers
Upon importation, IOSS consignments are exempt from import VAT when the valid IOSS VAT
identification number of the (deemed) supplier is provided to the competent customs office in the
Member State of importation at the latest upon lodging of the import declaration.
235
There are two main root causes for such systematic double taxation cases: (i) the non-communication of the
supplier’s IOSS number due to the fact that the postal operator of the country of dispatch is unable to transmit the IOSS
number and (ii) some Member States’ national import customs system currently cannot validate the IOSS number
correctly communicated in a full customs declaration, because they have not been updated in accordance with the
Union Customs Code. Such update has to take place until 31 December 2022.
236
VAT Committee Guidelines on the proposed solution to regularise double taxation in the IOSS VAT return.
Working paper No 1036, Document A, taxud.c.1(2022)1657365.
161
The Commission is conscious that there may be a risk that IOSS VAT identification numbers could
potentially be misused and, therefore, understands the associated need to secure IOSS import
transactions. The risk of IOSS abuse manifests itself in cases where the trader is not IOSS
registered, yet fraudulently uses the IOSS number of a legitimate IOSS registered trader in order to
falsely benefit from the VAT exemption upon importation. Currently, IOSS monthly reports can
help somewhat in the detection of this abuse as they provide the total value of the imported goods
VAT exempted under the IOSS, during each month, per IOSS VAT identification number, per
Member State of identification and can be compared with the amount of VAT declared in the IOSS
VAT return.
To date, the Commission has facilitated a number of discussions with different stakeholders across
various fora with the view to establishing the magnitude of the issue and identifying potential
solutions. Although the magnitude of the problem could not be established in these discussions, the
participants, nevertheless, recognised the potential risk of abuse and the importance of further
securing the IOSS VAT identification number against possible fraud. Despite the difficulties in
assessing the scale of the fraud, the Commission is aware that Member States have already taken
steps to examine the extent of potential IOSS VAT identification number abuse. The Commission
will support common and innovative solutions to better secure the IOSS process which will be
addressed in the VAT in the Digital Age initiative.
High postal fees
When postal operators act as representatives of consignees receiving parcels in the EU, they need to
follow the required formalities necessary to release goods for free circulation. Postal operators may
require a fee for this service. The Commission and Member States received several complaints
regarding high postal fees. Consequently, the Commission and the national consumer protection
authorities in some Member States, are interested in verifying that the fees charged are proportional
to the services rendered to the consignee of the goods. Following this action, the relevant
information on the level of service fees applicable by national postal operators will be published on
the website of the Commission.
List of improvements
In addition to the three above mentioned operational issues, the Member States and the
Commission have identified a certain number of technical improvements that should be addressed
in relation to the current schemes in order to further improve their functioning. These are
implementing/technical improvements of the current policy that may require a legislative update
and will be included in the VAT in the Digital Age initiative.
EUR 10 000 threshold - Article 59c of the VAT Directive Exclude from the calculation of this threshold the
distance sales from other Member States than the
Member State of establishment
Services provided to non-established customers Include in the scope of Article 359 of the VAT Directive
services provided to non-established customers (non-
Union scheme)
Allow the declaration of zero rated supplies and exempt
distance sales in the Union OSS following the
introduction of the new SME rules
(i) Allow the declaration of zero rates supplies
(exempted supplies with right for deduction)
(ii) Cohabitation of new SME and OSS schemes:
Amend the OSS VAT return to allow taxable
persons to declare exempted distance sales (in the
Member States where the business benefit from the
SME scheme)
162
Disparate rules on tax representation for access to the
OSS/IOSS schemes
(i) Harmonise the rules for the appointment of a tax
representative/intermediary for the registration of
non-EU traders in the different OSS/IOSS schemes
(ii) Align the joint and several liability rules of
intermediaries
TEDB database with CN and CPA codes Make the use of CN and CPA codes mandatory in the
TEDB database
Use of the Standard Audit File (SAF) OSS for records
related to Article 242a of the VAT Directive
Enable the use of the standard audit file to the records
requested to platforms when they are facilitating a
supply (although not deemed supplier)
Include the timing of the chargeable event for intra-EU
distance sales under the Union scheme
Modify Article 369g of VAT Directive to include the
timing of the chargeable event for intra-EU distance
sales under the Union scheme
Treatment of the registration of a VAT group Amend the registration form of the IOSS in order to
specify that the taxable person is a VAT group and
clarify the scope of the transactions that can be declared
by a VAT group having stock of goods in another
Member States
Upgrade the IOSS monthly reports Include the Member State of final destination in the
IOSS monthly reports
Miscellaneous IT suggestions for improvements Update of registration, declaration and payment
processes and interoperability between Member States in
order to further improve the functioning of the schemes
16.4. Evaluation findings (analytical part)
16.4.1. To what extent was the intervention successful and why?
Effectiveness
Effectiveness is measured in terms of the extent to which the objectives of the VAT e-commerce
package were achieved:
Fairer taxation
The implementation of the e-commerce package has resulted in a system of fairer taxation, which
has been achieved by the removal of the EUR 22 VAT exemption on imported goods. The abolition
of this exemption was one of the key amendments introduced by the e-commerce package, the aim
of which was to level the playing field between EU and non-EU established traders. More than 80%
of the respondents to the public consultation who had an opinion agreed that the e-commerce
packaged achieved a system of fairer taxation as a result of the removal of the VAT exemption
threshold.
Moreover, in addition to the removal of the EUR 22 threshold, the taxation of cross-border supplies
and distance sales of goods in the Member State of consumption has also led to fair competition
among EU businesses. On the basis of the figures provided by the tax authorities more than
163
EUR 6 billion VAT revenue was collected in the (extended) Union scheme, distributed among
Member States in accordance with the principle of taxation in the Member State of consumption.
Figure 19 – VAT revenue collected in the OSS between 1 July 2021 and 31 December 2021
Facilitate VAT compliance
Without the simplification mechanisms brought by the OSS and IOSS schemes, businesses would
have to register in all Member States in which they are supplying goods and services to consumers.
These schemes have therefore minimised the need for taxable persons to hold multiple VAT
registrations. Moreover, they simplified and facilitated the VAT compliance by allowing
businesses to declare and pay the VAT due on all of their distance sales of goods and cross-border
supplies of services in a single VAT return, from their Member State of establishment.
As shown in the pie charts below, the e-commerce package’s goal to facilitate VAT compliance is
recognised by the respondents to the public consultation as an important achievement of this
intervention.
3.993
2.014
752
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
Union scheme non-Union scheme
EUR
Millions
VAT revenue during the first 6 months in the OSS
goods services
164
When replying to the specific questions on VAT compliance, 75% (OSS) and 75% (IOSS) of the
respondents confirmed the improvements. In terms of registration numbers, the figures as at 31
December 2021 also demonstrate how the e-commerce package reforms have been widely
welcomed by traders. These figures are a further indication of the success of the e-commerce
package as many traders have opted to reduce the administrative burdens associated with VAT
compliance by streamlining their VAT compliance obligations via the e-commerce simplification
schemes.
The e-commerce package also introduced new rules governing the taxation of supplies of goods
that are facilitated by electronic interfaces/platforms and, under certain conditions, those platforms
become the ‘deemed supplier’ in respect of certain supplies they facilitate. Where the electronic
interfaces are the deemed supplier, they are liable to report on and pay the VAT on those supplies.
Therefore, the introduction of the deemed supplier provision has further contributed to the goal of
improving VAT compliance. IOSS registration data shows that all of the major platforms have
registered to use the import scheme. Early analysis of import data indicates that the top 8 IOSS
165
registered traders accounted for approximately 90% of all transactions declared for import into the
EU via the IOSS. In terms of volume, an analysis of the import data from Q3 of 2021 suggests that
this equates to approximately 200 million transactions in the import scheme during the initial
quarter.237
. The results of this analysis clearly evidence the fundamental impact that the new
‘deeming’ provision for marketplaces has had on compliance by shifting the compliance burden
from underling suppliers to platforms. As a result of the deeming provision, the compliance effort is
now directed at a much smaller number of large players in the market, who account for the majority
of low value goods imported into the EU.
Protection of Member State VAT revenue
In these times of recovery following the pandemic, the fight against loss of VAT revenue has
become a high priority. The e-commerce package helps to generate additional VAT revenue for
Member States as a result of the removal the EUR 22 VAT exemption on goods imported into the
EU. In the first 6 months (July to December 2021), the total amount of VAT collected on low value
consignments is estimated at around EUR 1,9 billion. As an estimate, the VAT collected to-date
equates to at least EUR 3,8 billion on a yearly basis. Almost one third of the EUR 1.9 billion (EUR
692 million during the first six months of application) is generated from imported goods with a
value not exceeding EUR 22, which can be considered as additional VAT revenue due to the
abolition of the VAT exemption. The other portion is generated from imported goods with a value
between EUR 22 and EUR 150, on which studies showed the level of fraud was very high (65%)
before the reform.
By simplifying the declaration and the collection of VAT, the OSS and IOSS have clearly
contributed to the protection of VAT revenue. The statistics provided by the Member States for the
first 6 months of entry into application indicate that a VAT revenue of almost 8 billion was
collected in these schemes:
237
Statistics of Q3/2021 provided by the Surveillance system gathering data from the import declarations
€ 692.404.694
€ 1.214.595.375
VAT due to the import of low value
goods ≤ 150€
Total VAT value ≤ EUR 22 Total VAT value > EUR 22 and ≤ EUR 150
166
Figure 20 – Total of VAT amounts declared via OSS/IOSS (1/07/2021 to 31/12/2021)
Cost-benefits analysis
To measure the real added value and the extra revenue generated for Member States as a direct
result of the implementation of the e-commerce package reforms, it is necessary to undertake a cost
benefits analysis.
In their replies to the questionnaire, the Member States provided details in relation to the costs of
implementing these new rules and schemes. These costs encompass the IT implementation of the
OSS and IOSS schemes, together with the costs associated with the development of the IOSS
distributive registry which enables customs to validate the IOSS VAT identification number. It also
includes the costs of updating the Surveillance system with additional data from the import
declaration that are used to set up the IOSS monthly reports and the costs of the implementation of
the new import declaration with super reduced data set, as well as any other costs Member States
may have faced (e.g. communication, human resources…). The amounts provided by the majority
of tax and customs administrations indicate that the total implementation costs are estimated to be
in the region of EUR 72 million across all the Member States. These costs therefore represent
approximately only 10% of the new VAT collected on goods imported with a value not exceeding
EUR 22 for the first 6 months of application of these new rules and 0.01% of the total amount of
VAT collected via the OSS and IOSS schemes.
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
Union scheme non-Union scheme import scheme
6.006
752
1.084
EUR
Millions
VAT revenue during the first 6 months
167
Facilitate the monitoring of compliance and the fight against fraud for Member States’
authorities
From 1 July 2021, the country-based thresholds on distance sales disappeared238, and VAT
became due in the country of the consumer, subject to an EU-wide turnover threshold of just
EUR 10 000. This EU-wide threshold applies to intra-Community distance sales of goods and
cross-border supplies of TBE services. The threshold only applies to EU established businesses that
are established in one Member State only. If distance sales of goods and supplies of TBE services
are under the threshold, sellers who are only established in one Member State can continue to
charge and pay the VAT in the Member State where the goods are located at the time of dispatch.
Once the threshold is exceeded, for intra-Community distance sales of goods, VAT has to be paid
in the Member State of destination of the goods, and for supplies of TBE services VAT has to be
paid in the Member State of establishment of the consumer, possibly by means of the OSS.
The replacement of the different Member State’s distance sales thresholds by a uniform and lower
EU-wide threshold has significantly reduced the risk of non-compliance with disparate VAT rules
and has helped to improve overall compliance levels. Moreover, the record keeping obligations for
businesses and marketplaces registered for these special schemes facilitate the audit and control of
the VAT declared via the OSS and IOSS.
As regard imports, the compliance is reinforced by the IOSS monthly reports, which is drawn up by
the Commission’s Surveillance system and is based on the data collected from the import customs
declarations. They provide the total value of the imported goods VAT exempted under the IOSS,
during each month, per IOSS VAT identification number, per Member State of identification and is
shared with the tax authority of the Member State where the given IOSS VAT identification
number was registered.
The replies to the EU survey as regards the audit process show the limit of such reports which do
not correspond entirely with the taxable amounts declared in the IOSS VAT returns239
. The
respondents also expressed the need to upgrade these reports to include the Member State of final
destination. The access to additional data, in conjunction with the records that are already held by
traders, should provide improvements to the audit and control processes.
Efficiency
The efficiency of the VAT e-commerce package is measured by how well Member States
implemented the special schemes, by the evaluation of the functioning of the OSS and IOSS and by
the level of business satisfaction.
238
Until 1 July 2021, according to Article 34 of the VAT Directive, a supplier selling goods to consumers (B2C) in
other EU Member States charged VAT in his own country if the total value of his sales to the consumer’s country
within the respective calendar year fell below the threshold set by that country and had not exceeded that threshold in
the previous calendar year. Each Member State was able to define the threshold for supplies made to customers in their
country (destination country) by choosing between the maximum EUR 100 000 threshold set by the Directive and a
lower threshold of EUR 35 000. If the sales of the supplier were above the national threshold, the supplier needed to
register and pay VAT in the Member State of destination.
239
The time of the import differs from the time of declaring the transactions in the IOSS VAT return.
168
Implementation of the OSS and IOSS
Built on the experience and functioning of the MOSS, the implementation of the OSS and IOSS
went smoothly, without major operational issues. The vast majority of Member States were able to
meet the deadlines while the Commission services helped a few Member States to put in place
some workarounds.
In their evaluation, Member States are however insisting on the need to stabilise the current
functionality of the systems. In this regard, as a first step, Member States have indicated the need to
solve issues relating to the exchange of information between Member States so that all messages
(registration, VAT return and payment messages) can be treated in a fully automated way. The
issues of interoperability between Member States must be seen as mere teething problems,
especially given the fact that the new rules only entered into force 6 months ago. Furthermore, this
particular issue rarely impacts businesses.
Moreover, Member States have also listed a number of improvements/simplifications to the current
functioning of these schemes. These improvements/simplifications will be taken in account in the
framework of the VAT registration part of the VAT in the Digital Age initiative, which examines
options to further extend the schemes.
As showed above, the schemes are regarded as real simplification mechanisms avoiding the VAT
registration in multiple Member States. A majority of OSS registered traders provided a positive
reaction to the statement that it is easy to use the OSS. The equivalent replies in terms of the IOSS
are more evenly spread.
Functioning of the OSS and IOSS
The evaluation of the functioning of the OSS and IOSS is based on the figures provided by the
Member States’ administrations in relation to the number of registrations in the different schemes
and the amount of VAT declared/collected via those schemes.
It must be underlined that although the use of the schemes is voluntary, the number of registrations
in the schemes is increasing on a daily basis and, thus, the appetite for registration further
demonstrates the attractiveness of the schemes.
Table 41 – Number of registrations in OSS/IOSS on 1 February 2022
OSS-Union
scheme
OSS- Non-
Union scheme
IOSS –Import
scheme
Number of
intermediaries
Total number 90250 4638 8654 876
169
of registrations
These figures can be compared with the number of registrations in the MOSS Union and non-Union
schemes in 2020. The extension of the scope of the Union scheme to cover intra-Community
distances sales of goods has had a major impact on the number of registrations. Although the
extension of the scope of the non-Union scheme was limited, the number of registrations in the
non-Union scheme almost tripled. This high number of registrations confirms the attractiveness of
the schemes and helps to verify the success of the accompanying communication campaign.
Table 42 – OSS/MOSS – Comparison of the number of registrations
Number of registrations in: OSS (01/02/2022) MOSS (2020)
Union scheme 90250 9892
Non-Union scheme 4638 1696
Moreover, the amount of VAT declared through the schemes confirms the good functioning of
these schemes. As the scope of the MOSS was extended to become the broader OSS, which now
includes Intra-EU distance sales of goods, it is therefore not possible to compare the VAT amounts
collected under the MOSS with the VAT amount collected under the OSS. Nevertheless, these
figures proof the proper functioning of the OSS as a VAT collection mechanism. Although the
increase in the amount of VAT collected in the OSS is not proportionally as high as the increase in
OSS VAT registrations, this may be due to the fact that the amount of VAT collected in respect of
new registrations in the first quarter of 2022 will only be reflected in April 2022 (outside of the
scope of this evaluation).
Table 43 – OSS/MOSS – Comparison of the VAT declared on an annual basis
VAT declared on an annual
basis
OSS (2021240
) MOSS (2020)
Union scheme EUR 12 billion EUR 5,92 billion
Non-Union scheme EUR 1,5 billion EUR 0,64 billion
Coherence
The evaluation of the coherence criterion is possible by assessing the consistency of the VAT e-
commerce package with EU policies, requirements and regulations. A focus has been placed on the
coherence of these new schemes with the SME strategy for a sustainable Europe241
, the European
240
The amount of VAT declared in OSS in Q3 and Q4 in 2021 is multiplied by 2 in order to have an estimate for the
annual amount.
241
Communication from the Commission to the European Parliament, the Council, the European Economic and Social
Committee and the Committee of the Regions “An SME strategy for a sustainable and digital Europe”, COM(2020)
103 final, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020DC0103
170
digital single market242
, the EU administrative cooperation in the field of indirect taxation243
and
the Union Customs Code244
.
The respondents to the public consultation underlined the coherence of this intervention with the
SME strategy for a sustainable Europe. As the VAT e-commerce package simplifies the process of
distance sales of goods and services into the EU by decreasing the need to register in different
Member States, it clearly helps SMEs to cope more easily with their VAT obligations and to extend
and grow their business throughout the EU.
Public consultation – Assessment of the consistency of the OSS/IOSS with the SME strategy for a sustainable
Europe
The coherence with the European digital single market policy is fully recognised by the respondents
to the public consultation. Indeed, the OSS and IOSS schemes are completely digitalised solutions
allowing the businesses to declare and remit the VAT on all cross-border B2C supplies of services
and distance sales of goods through the national webportal of their Member State of establishment.
Public consultation – Assessment of the consistency of the OSS/IOSS with the European Digital single market policy
The functioning of the VAT e-commerce package is based on exchanges of information between
Member States. After the MOSS, the cases whereby Member States are collecting VAT on behalf
of each other are further increased. These processes are supported by some control tools245
such as
the IOSS monthly reports, the requests for the records of a business and the coordination of
administrative enquiries. These control tools are also based on administrative cooperation. The e-
242
Communication from the Commission to the European parliament, the Council, the European Economic and Social
Committee and the Committee of the Regions a Digital Single Market strategy for Europe, COM/2015/0192 final,
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52015DC0192
243
Council Regulation (EU) No 904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the
field of value added tax.
244
Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the
Union Customs Code.
245
Council Regulation (EU) 2017/2454 of 5 December 2017 amending Regulation (EU) n°904/2010 on administrative
cooperation and combating fraud in the field of value added tax.
171
commerce package introduces a consistent approach with the existing administrative cooperation
practices. This consistency has been confirmed by the respondents to the public consultation as well
as by the Member States in their replies to the evaluation. As listed in section 3, Member States
have suggested further improvements concerning exchange of information, for both the OSS/IOSS
processes and for the control tools (e.g. upgrade of the IOSS monthly reports).
Public consultation – Assessment of the consistency of the OSS/IOSS with the EU administrative cooperation in the
field of indirect taxation
Finally, the consistency of these new rules with the Union Customs Code (UCC) must be assessed.
The removal of the EUR 22 VAT exemption on importation of goods accompanied by simplified
procedures to collect the VAT on distance sales of imported goods, such as the Import One-Stop
Shop (IOSS), has undoubtedly impacted the customs processes (e.g. mandatory check of the IOSS
VAT identification number validity by customs offices upon importation to grant VAT exemption,
collection of VAT on all goods imported when the IOSS is not used). An import declaration with
super reduced dataset was introduced for the release for free circulation of low value goods below
the dutiable threshold to facilitate their customs clearance and to collect the import VAT (when
IOSS is not used).
The changes introduced by the VAT e-commerce package amplified the need to adapt the customs
processes as well to the digital age. At the end of 2021, the Commission launched a comprehensive
study246
to explore new approaches in relation to e-commerce goods imported into the EU with a
view of increasing the synergy between customs and taxation rules. In parallel, the Commission
evaluated the implementation of the Union Customs Code and confirmed the need to adjust the
customs legislation for e-commerce transactions. Moreover, the recommendations of the Wise
Persons Group247
point to radical changes in relation to the customs treatment of e-commerce
imports. The outcome of these processes could impact the rules as defined in the VAT e-commerce
package.
246
On-going Study carried out by PwC on an integrated and innovative overhaul of EU rules governing e-commerce
transactions from third countries from a customs and taxation perspective.
247
Wise Persons Group on Challenges Facing the Customs Union (WPG) (europa.eu)
172
Public consultation- Assessment of the consistency of the OSS/IOSS with the Union Customs Code
16.4.2. How did the EU intervention make a difference?
The assessment of the EU added value criterion in relation to the VAT e-commerce package will
focus on the strengthening of the internal market, on ensuring fairer taxation and on simplifying the
VAT obligations.
Further strengthening the internal market and ensuring fairer taxation
By replacing the Member State thresholds on intra-EU distance sales of goods by a uniform, lower,
EU-wide threshold of EUR 10.000, the e-commerce package has further enforced the principle of
taxation at the place of consumption. Subject to this threshold, all EU businesses must apply VAT,
at the relevant rate, to their supplies of services in the Member State where the customer is
established or to their intra-Community distance sales of goods in the Member State where the
goods are dispatched to. This reform prevents any distortion of competition and also contributes to
a fairer system of taxation. Consequently, the principle of taxation in the Member State of
consumption strengthens the functioning of the internal market and creates a fairer system of
taxation, which is a necessary and fundamental reform to ensure that the VAT system is adapted to
new realities of the e-commerce market.
The EUR 6 billion of VAT collected over the first 6 months in the OSS confirms its success.
The removal of the EUR 22 VAT exemption on imported goods has also contributed to a fairer
taxation by levelling the playing field between EU and non-EU traders. Now, all goods imported
into the EU are taxed regardless of their value. The supplies of goods from outside or inside the EU
are therefore equally taxed thereby further strengthening the internal market.
Simplified VAT obligations
To complement and support taxation at the place of consumption, the e-commerce package
introduced a number of simplifications to help avoid the need for businesses to register in multiple
Member States in which they are supplying services and/or goods. The OSS and IOSS allow traders
to report and pay the VAT due on these supplies to the relevant Member States of consumption via
a single OSS/IOSS registration in their Member State of establishment. As shown above, the
number of registrations in the special schemes is testament to their overall attractiveness.
To help businesses fulfil their VAT obligations, these simplification measures are supported by
different EU tools:
- The Taxes in Europe Data Base248
(TEDB) is a webportal, which provides the VAT rates
applicable in all Member States by CN code for goods and CPA codes for services.
- The OSS portal249
provides information on the functioning of the schemes, including
guidelines, explanatory notes and relevant legislation. The specific national VAT rules, as
well as contact points in the Member States’ administration are available in this portal.
The Commission has also designed a Standard Audit File (SAF-OSS) allowing businesses to fulfil
more easily their record keeping obligations by providing them with a standard format for reporting
that is acceptable in all Member States.
248
Taxes in Europe Database v3: https://ec.europa.eu/taxation_customs/tedb/taxSearch.html
249
One-Stop Shop: https://vat-one-stop-shop.ec.europa.eu/index_en
173
16.4.3. Is the intervention still relevant?
The exponential increase of e-commerce was one of the major drivers for the need for better
regulation in this market segment. The estimated growth of the e-commerce market by 42% in the
next five years250
reinforces the relevance and importance of this intervention. This trend has been
further exacerbated by the recent pandemic, as well as the UK’s withdrawal from the EU.
As outlined in the replies of the respondents to the public consultation, the main objectives of the
VAT e-commerce package remain very relevant for businesses.
The objectives of modernisation/digitalisation and of simplification of the VAT collection on the
cross-border supplies of goods and services, as achieved by the implementation of the OSS and
IOSS, are still of high importance. The aim to minimise the need for businesses to hold multiple
VAT registrations is a fundamental part of this simplification and it is clearly recognised as a very
important feature by the respondents to the public consultation.
Following the implementation of the e-commerce package, there are still some transactions that
continue to trigger VAT registration in a Member State in which a taxable person is not established.
Taking in account the importance of the above-mentioned objectives of modernisation and
simplification, business stakeholders expressed a keen interest in extending the OSS to cover all
remaining B2C transactions within the scope of the schemes. The VAT Registration pillar of the
VAT in the Digital Age initiative will propose measures in this direction.
250
Statista, 2021a, projection to 2025.
174
In terms of distance sales of imported goods, the IOSS simplification could also be extended by
removing the EUR 150 threshold, as currently the IOSS scheme is restricted and cannot be used for
imported goods above this value. It could also be made mandatory in order to further prevent the
under-evaluation and secure the VAT revenue. These improvements are also supported by
businesses and will be addressed in conjunction with the comprehensive revision of the respective
customs rules as mentioned above.
As depicted above, the objectives to accrue the VAT revenue in the Member State of consumption
as well as to set up a fairer taxation by levelling the playing field for EU businesses are covered
with the application of the destination principle and the removal of EUR 22 VAT exemption on
importation of goods. These objectives remain however relevant in times of post-pandemic
recovery.
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16.5. What are the conclusions?
The exponential growth of e-commerce impacted EU VAT policies, which were upgraded
subsequently to take into account the specificities of this new market segment. In 2015, the
Commission implemented its initial response to help adapt and modernise the VAT rules to the new
realities of the e-commerce market by introducing new rules to ensure the application of the
destination principle to the taxation of the cross-border supplies of telecommunication,
broadcasting and electronic (TBE) services. A fairer system of taxation was achieved under the
destination principle, which was complemented and supported by the introduction of simplification
mechanism for reporting and collecting VAT: the Mini One Stop Shop (MOSS). The MOSS was a
ground breaking concept as it allowed businesses to report and remit the VAT on all their cross-
border supplies of TBE services in a single VAT return of their Member State of establishment,
avoiding the costly and burdensome registration and reporting obligations in the different Member
States. The application of the MOSS proved to be an innovative approach to the declaration and
collection of VAT as it pioneered the collection of VAT by Member States on each other’s behalf,
which is a fundamental feature of the broader simplifications that followed in 2021.
With the focus on the objective of a fair taxation, it was decided to extend the destination principle
to all B2C cross-border supplies of services and intra-Community distance sales of goods. In
parallel the MOSS was extended to simplify the compliance burden associated with these supplies.
The VAT e-commerce package entered into application on 1 July 2021 and provided for a number
of amendments to the VAT legislation, which were introduced to address and overcome the barriers
to cross-border online sales, including the challenges arising from the unharmonised VAT regimes
for distance sales of goods. The amendments further modernised the VAT legislation governing the
taxation of business-to-consumer supplies of services and the importation of low value
consignments and created a fairer, more harmonised and simpler system of taxation.
All the different distance sales thresholds were replaced by one unique EU-wide threshold of EUR
10.000 above which intra-Community distance sales and supplies of TBE services are taxed in the
Member State of consumption. To minimise the VAT compliance burden for businesses, the MOSS
was extended to become a bigger One-Stop Shop (OSS). The broader OSS was designed and
introduced to allow taxable persons to declare and pay VAT due on all their cross-border supplies
of services and intra-Community distance sales of goods. At the same time, the EUR 22 VAT
exemption, which applied to imported goods, was removed. A new Import One-Stop Shop (IOSS)
was created to ease the collection of VAT and improve the import process of these low value
consignments not exceeding EUR 150.
Due to the Covid-19 pandemic, the entry into application of the e-commerce package was delayed
by 6 months, but nevertheless, the final implementation of the new rules went smoothly with only
few workarounds required for certain Member States, which did, however, not impact the business
side of the system. The necessary IT systems at both EU and national level for the implementation
of these EU VAT rules are now broadly up-and-running, with Member States finalising their
implementation and solving the few remaining issues.
However, some teething problems emerged which require further intervention in order to ensure a
proper functioning of these new rules and schemes. A practical solution has been agreed between
the Commission and the Member States to solve the temporary technical problem triggering
possible double taxation which may arise in certain circumstances in the framework of the IOSS.
The potential risk of abuse of the IOSS number has also been recognised. In this regard, the
Commission is cognisant of the importance of further securing the IOSS VAT identification
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number and is currently taking a proactive approach to further secure the IOSS process against
possible fraud. This issue will be addressed as part of the VAT in the Digital Age initiative.
Teething issues aside, the VAT e-commerce package has proved to be a success by achieving its
main goals: fairer taxation, VAT compliance simplification and increase of the VAT revenue. The
package clearly contributes to the digital transition, the economic recovery and also helps to
generate sustainable public finances across the EU.
The removal of the EUR 22 of VAT exemption on imported goods, as well as the application of the
principle of taxation at destination on all distance sales of goods and cross-border supplies of
services have contributed to a fairer system of taxation. The removal of the exemption threshold
generated additional EUR 692 million of new VAT revenue during the first six months.
By simplifying the declaration and payment of VAT, the OSS and IOSS are helping businesses to
comply with their VAT obligations on e-commerce sales. The e-commerce package’s goal to
facilitate VAT compliance is recognised by the respondents to the public consultation as an
important achievement of this intervention. This recognition is reinforced by the high number of
traders that registered for these schemes. The e-commerce package has simplified and clarified the
VAT rules for businesses which has, in turn, strengthened the European Single Market and
contributed to a level playing field, thereby helping European businesses to compete in domestic
and global markets.
In these times of recovery following the pandemic, the VAT e-commerce package has also
contributed to the protection of Member State VAT revenues, which is evidenced by the fact that
the OSS and IOSS have been used for the collection of almost EUR 8 billion of VAT in the first 6
months of application of the new rules. The cost-benefits analysis of the implementation shows the
real added-value of this intervention as the estimated costs represent only 0,01 % of the EUR 8
billion of VAT that has been collected during the period covered by this evaluation.
Moreover, the replacement of the different Member State’s distance sales thresholds by a uniform
and lower EU-wide threshold has better ensured taxation at the place of consumption and has
significantly reduced the risk of non-compliance with the previous disparate and complicated VAT
rules and has, thus, helped to improve overall compliance levels. The ability to monitor compliance
has been supported by new record keeping obligations that have been introduced for the
traders/deemed suppliers registered in the schemes, including for platforms that facilitate supplies.
Together, these new measures will help to support and bolster the audit and control processes used
by tax administrations and businesses who engage in e-commerce activity.
The functioning of the OSS and IOSS has proved to be efficient taking into account the high
number of registered traders and the amount of VAT collected. Although there are no major
operational issues, Member States have expressed the need to stabilise the system. They have also
listed a number of improvements to the functioning of these schemes that will be taken forward in
the proposal to further extend the schemes in the framework of the VAT registration part of the
VAT in the digital age initiative.
The VAT e-commerce package is also fully in line with the SME strategy towards a sustainable
Europe, as it simplifies the process of distance sales into the EU by decreasing the need to register
in different Member States. The VAT e-commerce package’s coherence with the European digital
single market policy is also well recognised in light of the fully digitalised solution that the OSS
and IOSS provide. Moreover, the enforcement of the new administrative co-operation rules for e-
commerce are relatively straightforward as they are consistent with the practices that were already
developed and provided for in the EU Administrative cooperation regulation in the field of indirect
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taxation. In fact, the functional processes of the OSS/IOSS are, in essence, based on interoperability
between the Member States.
Finally, the changes introduced by the VAT e-commerce package underscore the need to also adapt
the customs rules and processes so that they, too, are fit for purpose and able to meet the new
challenges that have emerged as a result of the digital age. This process is ongoing and its outcome
could impact the rules as defined in the VAT e-commerce package.
The objectives of modernisation/digitalisation and of simplification of the VAT collection on the
cross-border supplies of goods and services, as achieved by the implementation of the OSS and
IOSS, continue to be of high importance to all relevant stakeholders. In this regard, Member
States251
and businesses continue to support the Commission’s intentions to propose further
simplifications to improve the efficiency of taxation of EU cross-border trade, which is expected to
lead to a further reduction of administrative burdens for businesses as well as tax authorities. The
VAT in the Digital Age initiative seeks to build on the success of the actions already taken to-date.
In particular, as part of the VAT Registration pillar of the proposal, the Commission aims to
develop new policy options to enhance the fight against VAT fraud and further simplify the VAT
obligations of non-established traders who engage in e-commerce activity by further reducing the
number of situations in which those traders need to register for VAT in different Member States.
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6534/22 FISC 52 ECOFIN 164 Council conclusions on the implementation of the VAT e-commerce package.