EUROPEAN COMMISSION Brussels, 1.12.2016 SWD(2016) 379 final COMMISSION STAFF WORKING DOCUMENT



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}

{SWD(2016) 382 final}



1.Introduction and Context 1.1.Introduction 1.2.2015 Changes to the Place of Supply Rules and the introduction of the Mini One Stop Shop Table 1 – Summary analysis of the implementation of the 2015 place of supply rules and MOSS 1.3.Scope for further reforms of the cross-border VAT rules 2.What is the problem and why is it a problem? 2.1.Introduction 2.2.The problems 2.3.Problem drivers 2.3.1.Driver 1 – The complexity of the current VAT rules for B2C Intra-EU supplies of goods 2.3.2.Driver 2 – The complexity of the current VAT rules for B2C imports of goods from third countries 2.3.3.Driver 3 – The lack of an intra-EU threshold for B2C supplies of electronic services and other simplification measures for small business 2.3.4.Driver 4 – Complexity of the current MOSS system. 2.4.Problem Tree Figure 1 – Problem Tree 2.5.Evolution of the problem without action at EU level 3.Why should the EU Act? 4.What should be achieved? 4.1.General objectives The general objectives of are the smooth functioning of the internal market, the competitiveness of EU business and the need to ensure effective taxation of the digital economy. 4.2.Specific objectives Table 2 – Linking the objectives to the problem 5.What are the various options to achieve the objectives? 5.1.Selection of options 5.2.Options analysed 5.2.1.Option 1: Status Quo/Baseline 5.2.2.Option 2: Removal of the distance selling thresholds and the small consignment exemption (with no simplification measure) 5.2.3.Option 3: Option 3 - Option 2 but with the introduction of a new common VAT threshold for EU cross-border sales of both goods and services 5.2.4.Option 4: Option 3 plus the Mini One Stop Shop (MOSS) applying to intra-EU supplies of goods, intra-EU and non-EU supplies of services and to the import of all goods under the customs threshold of EUR 150 5.2.5.Option 5: Option 4 plus amendments to the Mini One Stop Shop (home country rules and home country control subject to applying the VAT rate of the Member State of Consumption, and a ‘soft landing’ for identifying the place where the customer is located) 5.2.6.Discarded option: VAT split payment – intervention of payment service providers in the VAT payment to the relevant tax authorities 5.3.Key features of the Options Table 3 – Summary of the key features of the policy options assessed 6.What are the impacts of the different policy options and who will be affected? 6.1.Methodology Table 4 – Summary of methodology used 6.2.Analysis of the impacts of each of the options 6.2.1.Option 1 – Status Quo 6.2.2.Option 2 - Removal of the distance selling thresholds and the small consignment exemption (with no simplification measure) 6.2.3.Option 3 - Option 2 but with the introduction of a new common VAT threshold for EU cross-border sales of both goods and services 6.2.4.Sub-option – Level of the Cross-border threshold for goods and services 6.2.5.Option 4 - Option 3 plus Mini One Stop Shop applying to intra-EU supplies of goods and services and to the import of all goods under the customs threshold of EUR 150 6.2.6.Option 5 - Option 4 plus amendments to the Mini One Stop Shop (home country legislation and home country control, subject to applying rate/exemptions of the Member State of Consumption) 6.2.7.Option 6 - Option 4 plus fully harmonised EU rules for Mini One Stop Shop, subject to applying the rates/exemption of the Member State of Consumption 7.How do the options compare? 7.1.Summary assessment of the impacts Table 11 – Summary analysis of impacts 7.2.Identification of the Preferred Option 7.3.Subsidiarity of the preferred option 7.4.Proportionality of the preferred option 7.5.Impact on SMEs 7.6.Delivering on REFIT 8.How would actual impacts be monitored and evaluated? 8.1.Indicators for monitoring and evaluation 8.2.Monitoring structures Annex 1: Procedural information Annex 2 – Synopsis Report on stakeholder consultation Annex 3 - Assessment of the implementation and application of the 2015 place of supply rules for the ELECTRONIC services and the Mini One Stop Shop (MOSS) 1.Introduction/Background 1.1.Introduction 1.2.Background to the 2015 Changes 1.3.Intervention logic Figure 1 – Intervention Logic 1.4.Methodology 2.Assessment of the implementation and functioning of the 2015 place of supply rules for electronic services and the Mini One Stop Shop (MOSS) 2.1.Preparatory work for the implementation of the 2015 place of supply rules and the MOSS 2.1.1.Overview of preparatory work undertaken. 2.1.2.Analysis of the Member State perspective of preparatory works/implementation 2.1.3.Analysis of the business perspective of the preparatory works/implementation 2.2.Assessment of the 2015 place of supply rules; 2.2.1.Assessment of the impact on Member States 2.2.2.Assessment of the impact on business 2.3.Assessment of the Mini One Stop Shop 2.3.1.Take up of the MOSS 2.3.2.Changes in VAT compliance costs for businesses 2.3.3.Assessment of the MOSS – Member States’ perspective 2.3.4.Assessment of the MOSS - Businesses’ perspective 2.4.Overview of the key results from the analysis 2.5.Administrative cooperation, audit and audit guidelines 2.6.Assessment of the overall impact of the 2015 place of supply changes and MOSS on SMEs 2.7.Overall assessment of whether the policy objectives were met 3.Recommendations for improvement 3.1.1.Recommendations for immediate improvement 3.1.2.Recommendations for future expansion 3.2.Recommendations on the MOSS system 3.2.1.Recommendations for immediate improvement 3.2.2.Recommendations for future expansion 3.3.Recommendations on the administrative cooperation and audit 3.3.1.Recommendations for immediate improvement 3.3.2.Recommendations for future expansion 4.Conclusion Annex 5 -Methodology 1.Overview of the methodology 1.1.Approach to analysing the impacts 1.2.Tools for the analysis 1.2.1.Standard Cost Model 1.2.2.Computable General Equilibrium (CGE) model 1.3.Quantification of the impacts 1.3.1.Number of businesses 1.3.2.Timeline 1.3.3.Growth rates 1.3.4.VAT revenues and compliance 1.4.Data gathering tools 1.4.1.Consumer survey 1.4.2.Interviews and Questionnaires 1.4.3.Mock purchases 1.4.4.Stakeholder workshops 1.4.5.Business online survey 1.4.6.Desk research 2.CGE Model 2.1.Introduction 2.2.Scope of the CGE model 2.3.Scenarios for the modernisation of VAT treatment 2.4.Outputs of the CGE model 2.5.Data strategy 2.5.1.Macro-economic data 2.5.2.Construction of the EU Social Accounting Matrix 2.5.3.Data on e-Commerce 2.5.4.Data on administrative costs and VAT payments 2.6.Modelling approach 2.6.1.Overview of the CGE model 2.6.2.Equilibrium of the model 2.6.3.Dynamics of the CGE Model 2.6.4.Modelling of the proposed Policy Options 3.Analysis of net VAT revenues in options 1 to 6



1.Introduction and Context 1.1.Introduction The European Commission is committed to ensuring the free movement of goods and services and to ensuring that “individuals and businesses can seamlessly access and exercise online activities under conditions of fair competition”. This commitment was underlined in May 2015 with the adoption of the Digital Single Market strategy which contained a series of actions designed to break down the barriers for the growth of e-commerce in the EU. The proposed initiative to modernise VAT for cross-border e-commerce, which is the subject of this impact assessment, stems from the fact that the current VAT system has been identified as one of the major barriers for business engaging in cross-border trade, and as will be demonstrated in this impact assessment is a major source of distortions for EU losses as well as leading to substantial revenue losses for Member States. This impact assessment recognises that the modernisation of cross-border e-commerce is an evolving process, and thus takes into account and assesses the implementation of important changes made in 2015 to the VAT place of supply rules and the introduction of the Mini One Stop Shop (MOSS). This assessment, which comes under the REFIT programme, intends to ensure that the future proposal is cognisant of the experiences which have gone before and in particular identify any areas where the regulatory framework can be improved to bring benefits to business, Member States and citizens. 1.2.2015 Changes to the Place of Supply Rules and the introduction of the Mini One Stop Shop As set out above, the modernisation of VAT is an ongoing process. Until the end of 2014, VAT on telecommunications, broadcasting and electronically supplied services (hereafter referred to as electronic services) provided to final customers within the EU was levied in the country where the supplier was located but now, since 1 January 2015, with the coming into effect of new rules, VAT on those services is levied instead where the consumer is located (in accordance with the country of consumption principle). This change was adopted by the Council in 2008 to address revenue losses due to business relocating in Member States with low VAT rates as well as significant distortions faced by business as the differential in VAT rates ranged by up to 24% by applying the VAT rate of the place of the supplier. In parallel with this change and in order to simplify compliance with the new rules, a simplified electronic registration and payment system, "the mini One Stop Shop" (the MOSS) has been introduced, which reduced the costs and administrative burdens for businesses concerned. Instead of having to declare and pay VAT directly to each individual Member State where their customers are based, businesses are able to make a single declaration and payment in their own Member State. Suppliers can use a web portal in their Member State of establishment to account for the VAT due on sales in other Member States. In this way a vendor of electronic services has to charge the VAT of the country in which the consumer is located, but is only required to register and account for VAT in their home country or for third country suppliers in the Member State designated as such. An analysis of the implementation of the new place of supply rules and the MOSS has taken place (see Annex 3) as part of the Study ‘VAT aspects of cross-border E-Commerce – Options for modernisation’ (hereafter referred to as the Study). The study (available at https://ec.europa.eu/taxation_customs/publications/studies-made-commission_en ) has concluded that the introduction of the 2015 changes has been very successful with general satisfaction from business and increased revenues for the vast majority of Member States arising from the application of the destination principle for supplies of electronic services. VAT revenues of approximately EUR 3 billion were paid through the MOSS in 2015 representing about 70% of the total supplies of these services. Further, the study has estimated that for business there has been a reduction in costs of nearly EUR 500 million or EUR 41 000 per company as a result of the availability of the MOSS compared to the alternative of registering and accounting for tax in the Member State of the consumer. Nevertheless, some problems have been identified with the new rules which will need to be addressed in the proposal. Business, particularly in the UK which has a very high domestic exemption threshold, have complained that the lack of a threshold for intra-EU supplies of electronic services has meant that they have to account through the MOSS for a negligible amount of sales to other Member States and this is acting as a barrier for such businesses accessing the single market. They have also experienced difficulties in identifying where their customers are located due to the requirement to have two pieces of non-contradictory evidence. Further problems identified by business both large and small is the requirement in EU law to keep records for 10 years, which is over and above national requirements, as well as the need to know different national rules such as those applicable to invoicing and bad debt reliefs. An additional significant concern which has emerged is the inability for a business to adjust a return in the current period and instead have to adjust past returns and seek refunds from Member States. Table 1 – Summary analysis of the implementation of the 2015 place of supply rules and MOSS

Summary Analysis of the implementation of 2015 Place of Supply rules/MOSS Positive results Significant milestone in EU taxation – for the first time Member States are collecting tax on behalf of each other. 12 000 businesses used the MOSS system in 2015. 70% of EU turnover of electronic services covered by the MOSS. EUR 3 billion paid through the MOSS in 2015 representing up to EUR 18 billion in turnover. The MOSS has saved these businesses EUR 500 million versus the alternative of direct registration and payment – on average EUR 41 000 per business. This represents a 95% reduction in costs. Overall, business and Member States very satisfied with the introduction and implementation of the systems. EU acknowledged as the global leader for such a system – other jurisdictions are following. Areas for improvement Problems experienced by micro business due to the lack of a threshold and difficulties in identifying customers. Despite an exceptional communication campaign carried out at EU and national levels, there is still a need for Member States and Commission to communicate with micro-businesses. Business concerned at the prospect of multiple audits by potentially each Member State into which they make supplies as well as the need to correct past VAT MOSS returns rather than adjust in current returns and then seek refunds. 10 years record keeping, different invoicing rules and onerous correction methods are areas to be looked at. 1.3.Scope for further reforms of the cross-border VAT rules In the 2011 Communication on the Future of VAT, the Commission outlined that the general principle of EU VAT law should be based on taxation taking place in the country where the good or the service is consumed (the destination principle). In considering the Communication, Council in May 2012 broadly endorsed the destination principle as the way forward for a definitive VAT system in the EU. The European Parliament also recommended reforms in its 2013 report on “Simplifying and Modernising VAT in the Digital Single Market for e-Commerce”. Taxation in the jurisdiction of the recipient of the services is fully in line with international standards in this field. The OECD principles on the taxation of e-commerce were agreed in 1998 in Ottawa and provide that when applied, consumption taxes (like VAT) should result in taxation where consumption takes place. The EU in 2003 became the first tax jurisdiction to tax electronic services in line with the principles developed by the Organisation for Economic Co-operation and Development (OECD) by taxing B2C supplies of electronic services from non-EU businesses in the Member State of consumption. This was followed in 2015 by the changes to the intra-EU place of supply rules which now tax B2C supplies of electronic services in the Member State where they are consumed. However, it cannot be ignored that the destination principle causes difficulties for business in the EU as they are faced with different rules in different Member States. The complications of having to deal with many different national systems represent a real obstacle for companies trying to trade cross-border both on and offline. Indeed, the complexity of VAT for making intra-EU B2C supplies is cited by business as one of the top three barriers to cross-border e-commerce . Applying the destination principle is also relevant when considering the need to ensure taxation in the context of the digitalisation of the economy, particularly given the significance of VAT revenue for EU economies. This broad issue was considered by the Commission Expert Group on Taxation of the Digital Economy, chaired by the former Portuguese Finance Minister Vítor Gaspar, who reported in May 2014 and made a number of recommendations in respect of modernising VAT for cross-border e-commerce. The recommendations of the Expert Group were considered by the Commission in the context of preparatory works for the digital single market strategy. As outlined in the Communication 'A Digital Single Market Strategy for Europe' (the DSM Strategy), the Commission is working to minimise burdens attached to cross-border e-commerce arising from different VAT regimes, provide a level playing field for EU business and ensure that VAT revenues accrue to the Member State of the consumer. Having carefully considered the problems business face, the Commission made a commitment in the DSM Strategy indicating that it will make legislative proposals in 2016 to reduce the administrative burden on businesses arising from different VAT regimes including: (i) extending the current single electronic registration and payment mechanism (the Mini-One Stop Shop) to intra-EU and 3rd country online sales of tangible goods, (ii) introducing a common EU-wide simplification measure (VAT threshold) to help small start-up e-commerce businesses, (iii) allowing for home country controls including a single audit of cross-border businesses for VAT purposes, and (iv) removing the VAT exemption for the importation of small consignments from suppliers in third countries. The Commission has restated this commitment in the April 2016 VAT Action Plan. It is also relevant that the Single Market Strategy recognises the complexity of VAT regulations for SMEs and identifies the DSM VAT commitment as one to assist SMEs accessing the single market. Further, the April 2016 e-Government Action Plan recognises the 2015 MOSS system as a successful pan-European governmental IT project which has provided benefits for business and the single market, and has included the extension of the MOSS system in its list of actions for the 2016 – 2020 plan. 2.What is the problem and why is it a problem? 2.1.Introduction As set out in the 2011 Communication on the Future of VAT and the VAT Action Plan, the VAT system for cross-border e-commerce is highly complex for business generally, for SMEs, for tax administrations and indeed for consumers. The Commission receives frequent complaints from business and Member States and therefore there is a need for action. This need to act was supported in the open public consultation for this initiative whereby 94% of respondents either agreed or strongly agreed with the objective of the Commission in the DSM Strategy to minimise burdens attached to cross-border e-commerce arising from different VAT regimes. It is also relevant that at a stakeholder seminar in Dublin in September 2015 involving representatives from all Member States and business representatives from online and offline EU and international businesses, the vast majority of Member States as well as business present were broadly in favour of the Commission commitment in the DSM Strategy.

Following the publication of the May 2014 Report of the Expert Group on the taxation of the digital economy, the Commission commenced work on a Study to identify the problem, the problem drivers, evaluate the 2015 changes and to analyse the impacts of the policy options to address the problems. This work forms the basis for the analysis of impacts in this assessment. 2.2.The problems There are in essence three distinct problems with the current VAT system in respect of cross-border e-commerce. These problems are inter-related and stem from the complexity and exceptions within the current system. The digitalisation of society has in many respects exacerbated inherent problems from these exceptions to the extent that what was designed as simplification measures have now emerged to be a significant problem. However, as will be seen in the options to address the problem there will be a need to use technology as well as introduce simplification measures targeted at small and micro-business. While technology in particular the internet through the growth in e-commerce is somewhat to blame for the extent of these problems, it is through technological solutions that these problems can be addressed. The identification of the problems and the problem drivers derive from the report of the Commission Expert Group, the Study and consultations with business and Member States. 1.Cross border compliance costs Since the introduction of VAT in the EU, the destination principle has effectively applied to the business to consumer (B2C) intra-EU supply of goods. However, this principle entails registration of the EU traders in the Member State where its clients are located, provided that a certain threshold for sales is achieved. The complications of having to deal with many different national systems represent a real obstacle for companies trying to trade cross-border both on and offline, and indeed this has been cited by business as one of the top three barriers to cross-border e-commerce. It is also identified as one of the main reasons why a company will geo-block. These complications apply to each Member State the business wishes to make supplies to, and therefore represent a significant barrier to the single market. For instance, a 2011 study indicated that, on average, a firm trading in two EU15 Member States would have to deal with 11 differences in VAT-related procedures. In addition, such businesses could be subject to audits from the tax administration in each of the Member States they supply to. The Study has estimated using the standard cost model that the average VAT cost annually for intra-EU e-Commerce ,where a simplification measure such as the MOSS is not available, is EUR 8 000 per Member State per company. This can cover registration, the appointment of a fiscal representative, VAT returns, VAT statistical returns, dealing with queries from ta administrations etc. For a business supplying to all 28 Member States, the annual cost could be in excess of EUR 220 000. VAT compliance costs are particularly challenging for SMEs, including micro-businesses, who account for more than 99% of businesses in the EU. They are already active in cross-border B2C e-Commerce, and are increasingly interested in this channel to expand their activities. However, micro-enterprises and SMEs have to face a complex legislative framework for cross-border transactions. SMEs are currently required to charge and remit VAT to the Member State of the consumer for all supplies of electronic services as well as supplies of goods where the distance selling thresholds are exceeded. The average cost for SMEs to account for VAT in another Member State is estimated to be EUR 4 100 annually per Member State they supply to. It is also relevant to note that while the MOSS itself is a significant simplification for business who make cross-border supplies of electronic services (the cost of approximately EUR 2 200 per business annually is far less than the estimated average cost of EUR 41 000 for direct registration and payment), it is disproportionately high for businesses who have a cross-border turnover less than EUR 10 000 and therefore represents a real barrier for such businesses wishing to trade cross-border. 2.Lack of neutrality/distortions for EU business The issue of neutrality can arise due to non-taxation of goods coming from outside the EU or different VAT rates for supplies from businesses in other Member States. In effect, the same good purchased by a consumer in one Member State can have multiple tax treatments depending on where the supplier is located – this can mean no tax in the case of the imports of small value and lower taxes in respect of supplies from other Member States. In addition, one of the key outputs from the Study is the extent of non-compliant activity under the status quo. This activity is having a profound impact on EU businesses who as a result are not able to compete on level terms with suppliers from outside the EU. Further there is also evidence that that there is abuse of the current distance selling thresholds in intra-EU trade particularly where there are VAT rate differentials. This is significant as the VAT element in many Member States can be close to one quarter of the total price paid by a customer. Micro-business and SMEs, whether they operate in the traditional or digital economies, are particularly vulnerable to such distortions. It is also relevant in terms of neutrality that there are differences in the level of administrative burden a business faces. There are no VAT compliance costs for non-EU businesses selling to EU customers as opposed to local compliance rules applying for domestic sales and foreign registrations for EU cross-border sales. 3.VAT revenue losses for Member States The different rules applicable in Member States as well as the VAT foregone from the VAT exemption for the importation of small consignments create challenges for tax administrations as there can be uncertainty about the tax treatment. Based on the analysis in the Study, the compliance losses for Member States are conservatively estimated as between EUR 2.6 and 3.8 billion annually. In addition, it is estimated that VAT foregone from the VAT exemption for the importation of small consignments could be up to EUR 1 billion annually. 2.3.Problem drivers 2.3.1.Driver 1 – The complexity of the current VAT rules for B2C Intra-EU supplies of goods The evidence collected through stakeholder consultations, external studies and in-house research clearly demonstrates that the VAT rules for cross-border transactions are complicated, non-harmonised, costly for business and difficult for Member States when it comes to ensuring compliance. Businesses wishing to trade cross-border face different VAT rules depending on the Member State they are supplying to. Member States require that a non-established business registers and accounts for tax on goods ordered via e-Commerce channels and other channels where annual sales to their country are expected to be in excess of EUR 35 000 or EUR 100 000. Once this threshold is reached they will need a VAT registration in that other Member State; they may need to engage a fiscal representative; they are facing a different national legislation which in many cases is in a different language and different accounting periods. They may also be subject to audit enquiries from multiple Member States. The level of the threshold is a matter for Member States which due to its non-harmonisation adds complexity, although most Member States apply the EUR 35 000 threshold with the trend for a lower threshold given the decision by France to apply the lower EUR 35 000 threshold this year. Furthermore, the distance selling thresholds are problematic for Member States to control. In recent years there has been increasing evidence of abuse driven by e-commerce which is highly concerning to Member States. In this respect a project group of the Commission and Member States was established in 2015 to examine the means whereby Member States could work together to address these abuses. The ultimate driver for the abuse is differences in VAT rates between Member States together with the complex rules which make it difficult for Member States to control. It is important to note that such abuse leads to distortions – the non-compliant taxpayers have a VAT advantage over the compliant ones. Aside from such abuses, it is also relevant that distortions can legitimately arise under the current rules. For example an Irish trader who does not reach the Danish registration threshold of EUR 35 000 could make supplies of children clothes to customers in Denmark charging the 0% rate applicable in Ireland. The corresponding rate of VAT in Denmark is 25%. This same trader could be supplying to each Member State up to the threshold of EUR 35 000 or 100 000, and hence can theoretically benefit from an overall threshold in excess of EUR 1 million.

2.3.2.Driver 2 – The complexity of the current VAT rules for B2C imports of goods from third countries Currently the system of imports of tangible goods to end-consumers in the EU is highly complex, is open to abuse and provides a competitive advantage to non-EU suppliers as such suppliers can in certain circumstances make VAT free supplies while EU suppliers generally have to charge VAT. Further, the Commission and Member States receive complaints from consumers who face hidden VAT and administrative fees when purchasing goods from non-EU suppliers – in many cases the consumer may not even be aware where the goods are coming from. There are in effect 3 types of VAT treatment in respect of imports of goods to consumers in the EU: I.Imports covered by the VAT exemption for small consignments (EUR 0 – 10/22) Consignments supplied directly to consumers below EUR 10/22 can benefit from a VAT exemption i.e. they are supplied VAT free direct to consumers in the EU. This measure was designed at the time of its adoption in 1983 as a simplification measure to avoid that too much time is devoted by customs administrations and economic operators in the customs clearance of low value goods. With the rise of e-commerce, this has however turned into an expensive and growing tax subsidy benefiting non-EU sellers and triggering relocations of EU businesses to third countries or third territories. It is estimated that in 2015 there was 144 million consignments benefitting from this exemption (more than a 300% increase over the last 15 years) with the possibility that VAT foregone could be as high as EUR 1 billion in 2015. This exemption is a source of ongoing complaint by EU businesses as they legitimately argue that they are at a competitive disadvantage to non-EU suppliers. There is also some evidence that the exemption is the subject of abuse whereby the value of the consignments is under-declared so as to be kept within the exemption amount which indicates that the VAT losses could be higher (see below). Member States do have the option to remove the threshold for mail order including e-commerce transactions which France has recently done. A recent report of the French senate shows that the mail order exception implemented in France does not work in practice. The report provides some interesting figures from the Roissy airport: in 2014 3.5 million of express packages and 37 millions of postal packages arrived from third countries whereas the VAT collected in customs amounts to only EUR 1.4 million. II.Imports above EUR 10/22 and below the customs threshold (EUR 150). Consignments between EUR 10/22 up to the customs duty exemption threshold of EUR 150 are subject to VAT but customs duties do not apply. It is estimated that there were 43 million such imports in 2015. In the vast majority of cases the customer is not charged VAT at the time of sale but rather the package is assessed for VAT at importation in the territory of the European Union. The customer pays the VAT and an administrative fee is charged to the customer by the transport operator i.e. the express courier or postal operator at the point of delivery of the good to cover the administrative costs of clearing customs. The postal charges for customs clearance vary between 0 and 22 EUR, whereas the courier firm will report on average cost of approximately 9 EUR per consignment and in practice the fee charged to the consumer can be much higher. A recent 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. This is significant as it is estimated that 70% of transactions are sent through public postal channels. III.Imports above the customs threshold of EUR 150 Consignments above the customs threshold of EUR 150 require a customs declaration and will be subject to VAT and customs duties if applicable. Similar to the situation above the customer is liable to the VAT and customs duties and is usually charged an administrative fee by the transport operator to cover the costs of clearing customs. As indicated, the current complexities for B2C imports of goods are conducive to non-compliance for businesses and it is not ideal for consumers who are faced with the payment of VAT and administrative fees. The Study has estimated VAT foregone a year due to non-compliance of approximately EUR 570 million below the threshold of EUR 10-22 and of approximately EUR 2.1 billion on consignments with a value between EUR 10-22 and EUR 150. The consultant considers that this estimate might ‘be quite conservative’ given separate work undertaken by the French Senate and reports in the UK which estimate losses in the UK alone of up to EUR 1.9 billion annually. The types of abuses can be 1) goods over the value of the small consignments exemption but under-declared as being within the exemption (VAT free), 2) commercial goods incorrectly declared as consumer to consumer transactions or samples (VAT free), 3) under-declaration of goods between the VAT exemption threshold and the customs threshold (lower VAT paid), and 4) goods supplied from EU based warehouses but fraudulently treated as VAT-free imports. The latter problem has been the subject of much discussion in recent months including in the UK parliament with many complaints primarily from UK and German based businesses that this abuse means that honest businesses cannot compete. This can have wider implications as supplies from these warehouses can be made to consumers in other Member State. It should also be noted that the European Court of Auditors recently reported on VAT fraud in the EU, and has urged action to address this problem. In summary, this problem driver has implications for both Member States VAT revenues in terms of VAT legitimately foregone by Member States and as well as additional VAT compliance losses due to non-compliance and fraud, and it causes significant distortions to EU business as they are at a competitive disadvantage to non-EU business. 2.3.3.Driver 3 – The lack of an intra-EU threshold for B2C supplies of electronic services and other simplification measures for small business Firstly, it should be noted that the changes to the 2015 place of supply rules for VAT were sought by Member States to address base erosion issues (BEPS). Those issues arose where larger and some smaller mobile businesses utilised changes in technology by locating in Member States with low VAT rates and hence reducing the tax base of other Member States. Secondly the MOSS is, in itself, a significant simplification and can reduce the costs for business by up to 95% compared to the alternative of direct registration and payment. Nevertheless, the lack of a cross-border threshold for the place of supply rule changes in 2015 has been the source of a large number of complaints by business, it has been raised in the European Parliament and was one of the main problems raised by business in both the open public consultation and the assessment of the implementation of the 2015 changes. While the vast majority of complaints have come from UK based business primarily due to the fact that the UK has a very high domestic exemption for VAT of EUR 106 000, the Commission has accepted the difficulties that the 2015 change have caused for micro-businesses given the absence of a threshold and the difficulties they have faced in identifying where their customers are established. The problem driver in essence is that a small business which is below the domestic exemption threshold (no VAT is charged on their supplies but no input VAT can be deducted) is now as a result of the 2015 place of supply rules required to charge VAT to customers in other Member States and account for this tax either through direct registration or using the simplified MOSS. The challenge they face is to identify where all their customers are located – to do this they are required under the VAT Implementing Regulation to collect two pieces of non-contradictory evidence such as the IP address, bank details or other commercially relevant information. For electronic services this is difficult because there is no physical delivery address for the customer and many business use 3rd party platforms to process the payments. Such businesses are then faced with secondary challenges of needing to know the relevant VAT rules in the Member States they make supplies to and the requirement to keep records of all their supplies for 10 years. In addressing this problem driver, it should be noted that many Member States were not in favour of a threshold when the 2015 changes were discussed in Council as it could lead to a loss of tax revenues and put their business at a competitive disadvantage and cause distortions in the single market. In discussions on this new initiative at the Fiscalis seminar in Dublin in 2015, many Member State representatives restated their desire for no threshold or a very low threshold, the exception being the UK perhaps due to the high domestic exemption threshold in place. A group representing the interests of micro-businesses on the issue (the UK based EU VAT Action) is seeking a cross-border threshold of EUR 20 000 (which is already high for many Member States) and a so called soft landing up to EUR 100 000 where a business can benefit from simplified requirements such as a customer declaration to identify the location of a customer.

It is essential therefore that the Commission builds a business case based on evidence to ensure that the burden on small business is alleviated without causing any distortion to the single market. 2.3.4.Driver 4 – Complexity of the current MOSS system. The analysis of the implementation of the 2015 changes identified complexities in the current MOSS system which cause difficulties for business and could be considered as less than efficient for Member State tax administrations. The inherent drivers of this problem are as follows: 1.The requirement in some Member States to issue invoices to private consumers While most Member States do not require a business to issue a full or simplified VAT invoice for cross-border B2C supplies of electronic services, the fact that some Member States still do unnecessarily complicates matters and means that many businesses operating cross-border still have to issue these in various different formats as well as different languages. Given that private consumers do not claim input VAT, there is little justification for requiring the issuance of such invoices which is an unnecessary cost on business. To be noted that other commercial documents will always be available to show the value of the transaction. 2.The prospect of audits from 28 tax administrations Control measures including audits under the MOSS lies with the Member State of the consumer rather than that where the business is located. This raises the possibility that a business could be audited by any Member State. While arrangements have been agreed by many Member States to apply audit guidelines these are voluntary and do not have any legislative base. 3.Record keeping requirements Businesses registered and operating via MOSS are required to retain records for a period of 10 years even if in certain Member States the period for domestic transactions is shorter. This means that businesses have additional costs to systematically separate records relating to domestic and intra-EU transactions as well as the costs for retaining these for longer. 4.Inability to make corrections in the current MOSS VAT return In modern tax administrations and with self-assessed taxes, it is generally seen as good practice to allow a business to correct past VAT returns in its most recent return. The reasons for corrections could be a customer returning a product, money back guarantees for services, incorrectly assigning as B2C when it was B2B, or incorrectly attributed to the wrong Member State. Under MOSS, a business is required to adjust past returns individually which could mean that they need to be refunded VAT for that period. Some businesses have outlined to the Commission that the period for receiving such refunds is in excess of 4 months for some Member States which could have cash flow implications for the businesses. 5.Filing time Under the MOSS businesses are required to file and pay the tax return within 20 days of the end of the quarter. The assessment of the implementation of the MOSS has indicated that this period is challenging particularly when considering the inability to adjust a return in the subsequent period. 2.4.Problem Tree A summary of the problems, the problem drivers and the effects is summarised below. As indicated above the problems and the underlying problem drivers are inter-related and stem from the complexity and exceptions within the current system. Figure 1 – Problem Tree

2.5.Evolution of the problem without action at EU level E-commerce has become a key part of the economy and an important driver of economic growth demonstrated by the fact that over the last five years, e-Commerce in Europe has grown by between 17% and 20% . From 2009 to 2014, the contribution of e-Commerce to GDP has almost doubled . In terms of expenditure, it is estimated that total online expenditure on goods and services in 2015 was EUR 540 billion across the EU-28 with cross-border e-commerce accounting for about 18% of this figure, or EUR 97 billion. Therefore, it is evident that the problems identified in section 2.2 particularly the lack of neutrality for EU businesses and revenue losses for Member States will only increase if there is no action at EU level. Furthermore, the high compliance costs for business wishing to trade cross-border will continue, in the absence of simplification, to hold back the development of the single market in this important area of growth. Failure to act, given the expect continued growth in e-commerce, will lead to an even greater advantage for non-EU sellers and to VAT revenue losses for Member States estimated at EUR 7 billion annually in 2020 and growing by at least 15% year-on-year. While not quantified, there would also be continued negative effects on employment and direct tax revenues. 3.Why should the EU Act? In analysing the problems and the problem drivers it is clear that the root causes are within the VAT Directive itself: The small consignments exemption which was designed as a simplification measure is leading to VAT foregone in Member States of EUR 1 billion. While Member States can limit this exemption and indeed reduce to zero, the experience in France is that without pan EU simplification measures non-compliance will increase. The regime for imports of goods whereby the customer is liable for the VAT rather than the supplier as is currently the case with electronic services means that compliance is difficult to enforce. The distance sales thresholds are provided for in the VAT Directive and only an amendment of the Directive can replace them by a common cross-border threshold. In addition, an amendment to the VAT Directive is required to include the supply of tangible goods within MOSS and therefore address the costly administrative burden which businesses face in trading cross-border. The experience of the MOSS system clearly demonstrates the EU added-value for Member States in terms of securing VAT revenues and business in terms of reducing the costs for trading cross-border. This could not have been achieved without an amendment to the VAT Directive as it is an exception to the normal rules whereby business are generally required to register for VAT in the Member State of destination in respect of B2C supplies. As set out above, any further added-value by extending this system can only be achieved through a legislative amendment. The initiative respects the principle of proportionality and will not go beyond what is necessary for the smooth functioning of the single market. The proposal is indeed limited to cross-border ecommerce and will not seek to harmonise purely domestic legislation and procedures. As with the subsidiarity test, it is not possible for Member States to address the problems and problem drivers without a proposal to amend the VAT Directive. In conclusion, if the problem at hand is to be addressed in a coherent and meaningful fashion it can only be achieved through a legislative proposal. Therefore, it is necessary for the Commission, which has responsibility for ensuring the smooth functioning of the Internal Market and promoting the general interest of the European Union, to propose action to improve the situation. The legal basis is Article 113 of the TFEU. 4.What should be achieved? 4.1.General objectives The general objectives of are the smooth functioning of the internal market, the competitiveness of EU business and the need to ensure effective taxation of the digital economy. 4.2.Specific objectives The specific objective for the proposal are outlined in the Digital Single Market strategy. These objectives are: I.Minimising burdens attached to cross-border e-Commerce arising from different VAT regimes which act as a barrier to intra-EU trade and unduly limit consumer choices. II.Providing a level playing field for EU businesses whether involved in the traditional economy, engaged in domestic e-commerce or cross-border e-commerce. III.Facilitating the monitoring of compliance and the fight against fraud for Member States’ authorities. IV.Ensuring that VAT revenues accrue to the Member State of consumption.

Table 2 – Linking the objectives to the problem Specific Objectives Link to the problem Minimising burdens attached to cross-border e-Commerce arising from different VAT regimes which act as a barrier to intra-EU trade and unduly limit consumer choices. Addresses the problem of business compliance costs Addresses the problem of a level playing field as non-domestic business can compete without prohibitive costs. Providing a level playing field for EU businesses whether involved in the traditional economy, engaged in domestic e-commerce or cross-border e-commerce. Addresses the problem of the lack of neutrality for business. Facilitating the monitoring of compliance and the fight against fraud for Member States’ authorities. Addresses the problem of the losses of VAT revenues for Member States and the lack of neutrality for business who are at a disadvantage to suppliers who do not charge VAT. Ensuring that VAT revenues accrue to the Member State of consumption. Addresses the problem of the losses of VAT revenues for Member States and the lack of neutrality for business. 5.What are the various options to achieve the objectives? 5.1.Selection of options Six Policy Options were considered for the Study. These options were inspired by the Report of the Expert Group on the taxation of the digital economy and through dialogue with business interest and Member States. The options are designed to build on each other through a minimal intervention to address the neutrality aspect (Option 2), the introduction a cross-border threshold to address the problems facing micro-business and start-ups to the more comprehensive interventions proposed in Options 4, 5 and 6 which largely reflect the commitment made in the DSM strategy. The options studied are the same as those identified in the inception impact assessment. Further, these options were tested with Member States and business at the 2015 Dublin Fiscalis seminar, which took place in September 2015. It should be noted that no other options emerged at this seminar, with vast support from both Member States and business for Options 5 or 6, although representatives from many Member States expressed strong doubts in respect of the proposed introduction of a threshold. The policy options are targeted at business in respect of removing obstacles and improving the competitiveness of EU business. There is a particular emphasis here on SMEs. The policy options are also targeted at Member States in terms of increasing VAT revenues. Benefits will accrue to consumers because they will get a wider choice of products coming from different Member States, and also because under the MOSS, for supplies from 3rd country suppliers, consumers will be able to pay for VAT when making an online purchase of goods and therefore not have any responsibility to pay the VAT and an administrative fee when the good is delivered. A soft law approach such as voluntary approach to use the MOSS is not feasible. The nature of the MOSS is that a supplier can benefit from a simplified tax accounting process whereby VAT in respect of sales to customers in other Member States is paid through a web portal hosted by his own Member State – in essence Member States agree to let each other collect taxes on their behalf and ensure compliance. Legislatively this is an exception from the normal rules – according to which each Member State is collecting its own taxes - and is considered as a special scheme in the VAT Directive. Therefore a proposal to amend the VAT Directive and get agreement by all 28 Member States is essential. It is also required that the individual MOSS portals inter-connect through IT systems hosted by the Commission. 5.2.Options analysed 5.2.1.Option 1: Status Quo/Baseline This options means no action will be taken at EU level. This option will serve as the benchmark against which the other options will be assessed. The description of the problem and the problem drivers of the status quo is described in Section 2. 5.2.2.Option 2: Removal of the distance selling thresholds and the small consignment exemption (with no simplification measure) Option 2 proposes a minimal intervention by removing the VAT exemption for the importation of small consignments (supplies from 3rd countries) and the distance selling thresholds (Intra-EU supplies). This option is fully in line with the destination principle of VAT by charging VAT in the Member State of the consumer and addresses the issues of tax neutrality. There are no simplification measures proposed in this option. Therefore all imports will be subject to VAT and all businesses who engage in cross-border B2C trade will be required to register and account for VAT in the Member State of destination. This option could be adopted rapidly as no pan European IT system would need to be built. 5.2.3.Option 3: Option 3 - Option 2 but with the introduction of a new common VAT threshold for EU cross-border sales of both goods and services Option 3 builds on Option 2 with the removal of the distance selling thresholds and the small consignment exemption but also proposes the introduction of a new common VAT threshold for all intra-EU B2C supplies of goods and services (cross-border threshold). The different levels of the threshold analysed under this option are EUR 5 000, EUR 10 000 and EUR 100 000 taking account of the number of businesses affected and the potential distortions. Such a threshold is independent of the existing domestic VAT exemption thresholds. Up to the threshold an EU business making e-commerce supplies to customers in other Member States could opt to treat these supplies as domestic transactions. Once the threshold is exceeded, the supplier would be required to register and account for VAT due in all other Member States (average annual cost of EUR 8 000 per Member State without MOSS). A business which only supplies cross-border electronic services to a given Member State would be able to use the existing MOSS. This option could be adopted rapidly as no pan European IT system would need to be built. 5.2.4.Option 4: Option 3 plus the Mini One Stop Shop (MOSS) applying to intra-EU supplies of goods, intra-EU and non-EU supplies of services and to the import of all goods under the customs threshold of EUR 150 Option 4 builds on Option 3 but importantly includes significant simplification measures through the extension/evolution of the current MOSS system to the Mini One Stop Shop which would also apply to i) B2C intra-EU supplies of goods and ii) supplies of goods from suppliers outside the EU. Business will, however, be required to apply the rules of the Member State of identification in areas such as invoicing and to keep records for 10 years, and could be subject to individual audits from each of the Member States they supply to. For this option, based on the analysis under Option 3, a common threshold of EUR 10 000 was considered for intra-EU B2C supplies of goods and services. For the importation side, supplies from MOSS registered non-EU businesses will also benefit from a fast-track customs procedure (subject to safety and security checks) as the VAT due on the consignments will be pre-declared and no customs duties are due on such consignments. It is also proposed to allow 3rd parties such as postal operators, express couriers or market places to act as an intermediary and account for and declare the VAT through the MOSS. If VAT is not pre-declared under MOSS, the traditional route of accounting for VAT at importation will still be available using a simplified periodical declaration and paying the standard VAT rate in the Member State of importation. The general implementation date would be 2021 as this date aligns with changes to the treatment of parcels in the Union Customs Code and also to ensure that the MOSS system is adapted. This option (and for options 5 and 6) would propose to introduce in 2018 an intermediate threshold targeted at EU microbusiness and start-ups in respect of cross-border supplies of electronic services. In practice under this option and options 5 and 6, similarly to the current Mini One Stop Shop an EU business will be able to account for all supplies of goods and services to consumer in other Member States through a simplified quarterly return to its own tax administration. His tax administration will then transfer the taxes due to the relevant Member States of consumption. As is currently the case with electronic services, a non-EU business or an intermediary such as a platform/postal operator/express carrier will be able to account for taxes due through the MOSS established by a Member State of its choosing who will then transfer the taxes due to the Member State of consumption. 5.2.5.Option 5: Option 4 plus amendments to the Mini One Stop Shop (home country rules and home country control subject to applying the VAT rate of the Member State of Consumption, and a ‘soft landing’ for identifying the place where the customer is located) Option 5 is similar to option 4 in that there will be a MOSS to account for the tax due in other Member States and there will be an intra-EU threshold of EUR 10 000 but instead of applying the rules of the Member State of the consumer, the business applies the VAT rules which apply to his domestic transactions aside from the VAT rate which will be of the Member State of the consumer. In addition, further simplifications would be introduced to address the problems identified in the analysis of the 2015 changes such as in relation to corrections, currency conversion rules, amendment of returns etc. Unlike option 4, responsibility for the audit and control of a business will be with the Member State where the business is established in coordination with the Member States of consumption. Similarly to established practice in the field of customs, the Member State of identification will be entitled to retain a small percentage of the tax collected on behalf of other Member States to compensate IT build costs, ongoing maintenance costs and the resources spent controlling business established in that Member State with a view to ensuring full compliance. The objective of this option is that cross-border B2C transactions will be as similar as possible to domestic transactions with payment of the tax due in other Member States through the MOSS.

Option 6: Option 4 plus fully harmonised EU rules for Mini One Stop Shop, subject to applying the rates/exemption of the Member State of Consumption Option 6 is similar to Option 5 but instead of home country rules, a set of harmonised EU wide rules would be adopted for all the obligations a business faces when engaging in intra-EU B2C trade. Although, this would mean that one set of rules would apply for domestic transactions and a separate set of rules for intra-EU transactions. 5.2.6.Discarded option: VAT split payment – intervention of payment service providers in the VAT payment to the relevant tax authorities Another option that we also looked into was the possibility for banks, card issuers or other payment service providers to intervene in the collection mechanism for VAT (split payment). How the split payment would function: once a payment is made via the internet to purchase goods, the bank/payment service provider will have the liability to withhold the related VAT amount and remit it to a government bank account. Several problems were identified with this solution, such as: the payment service providers generally have limited information on the underlying transaction. If a payment is made in accordance with the unique identifier (i.e. IBAN) the payment is considered to be executed correctly. The payment service provider of the payer or of the beneficiary are not obliged to check the identity of the beneficiary or the nature of the underlying relationship between the payer and the beneficiary before the payment is executed. Imposing the liability of the payment service providers to withhold the equivalent of the VAT amount would imply knowing in detail the VAT rules applicable to that transaction in order to establish the required VAT amount. Such payment service providers usually have no access to commercial information (status and place of vendor, status and place of customer, VAT rate). To be noted that any additional obligations in the field of electronic payments could only be introduced by amending the Payment Services Directive (PSD). The role of the payment service providers is basically to confirm the validity of the payment method used for the respective transaction and this is done automatically without any human intervention. In fact, under PSD payments have to be executed within one business day. In the near future, instant payments will become the norms. Imposing an obligation on the payment service provider to enter into the nature of the underlying (contractual) obligations of the payer vis-à-vis the payee for VAT purposes would seriously hamper the possibility of payment service providers to participate in instantaneous payments schemes. Imposing a fragmented payment would also interfere with Article 67 of the PSD according to which a payment service provider is obliged to transfer the full amount of the payment transaction and to refrain from deducting charges from the amount transferred. Account taken of the above, this option was discarded. Going forward, this impact assessment will only focus on the first 6 options described above. 5.3.Key features of the Options The table below provides an overview of the key features of the different Policy Options. Features Option1 Option2 Option3 Option4 Option5 Option6 General requirement to register and account for tax in the Member State of Consumption. ✓ ✓ ✓ ✓ ✓ ✓ Availability of a the current MOSS for EU and non-EU B2C supplies of electronic services. ✓ ✓ ✓ ✓ ✓ ✓ Distance selling thresholds for goods ✓ VAT exemption for the importation of small consignments ✓ Intermediate cross-border threshold in 2018 for electronic services covered by the 2015 changes. ✓ ✓ ✓ Harmonised cross-border threshold for Intra-EU supplies of goods and services. ✓ ✓ ✓ ✓ The availability of the for intra-EU supplies of goods and services ✓ ✓ ✓ The availability of the for non-EU supplies of goods and services ✓ ✓ ✓ Fast-track customs arrangements for VAT pre-declared goods to be imported ✓ ✓ ✓ Primary responsibility for audit with the Member State of Consumption (Multiple MS can undertake audits). ✓ ✓ ✓ ✓ Primary responsibility for audit with the Member State of Identification. ✓ ✓ VAT obligations for the business dependent on the Member State of Consumption (Business operates to the rules in each market they supply to – potentially 28 systems) ✓ ✓ ✓ ✓ VAT obligations of the Member State of identification for business supplying intra-EU cross-border. (Domestic VAT obligations except for rates) ✓ Harmonised EU rules for business supplying cross-border. ✓ 6.What are the impacts of the different policy options and who will be affected? 6.1.Methodology This analysis of the policy options requires inputs from both the business and government perspective. To achieve this analysis, it was necessary to both quantitative and qualitative information. In terms of the economic impacts, it was necessary to utilise a range of methodological tools using a micro-oriented approach combined with a macro-oriented approach. A detailed annex describing the overall methodology used, the key assumptions and the CGE model used is described in Annex 4. Table 4 – Summary of methodology used

Impact Approach used Tools for analysis Key assumptions Key sources Impacts for Member States’ revenues, costs and benefits for Member States to implement the Option Quantitative analysis Qualitative analysis Standard Cost model (SCM) Costs similar to the MOSS Different scenarios for e-Commerce growth Compliance monitoring based on risk profiling Member States’ interviews and questionnaires) Stakeholder workshops Desk research Member States’ interviews Impacts on administrative burden for businesses Quantitative analysis SCM Impacts of OSS similar to those of MOSS Number of businesses Number and behaviour of micro-businesses engaged in cross-border e-Commerce Businesses interviews Stakeholder workshops Business online survey Impacts on competition and growth Quantitative analysis CGE model Different scenarios for e-Commerce growth Number of businesses Number and behaviour of micro-businesses engaged in cross-border e-Commerce Consumer survey SCM Desk research Impacts on compliance Quantitative analysis Qualitative analysis Projections Different scenarios for e-Commerce growth Member States’ interviews and questionnaires Stakeholder workshops Desk research Mock purchases 6.2.Analysis of the impacts of each of the options 6.2.1.Option 1 – Status Quo Section 2 outlines in detail the problems and the problem drivers of the status quo. In summary, the main problems are: 1.Cross-border compliance costs – these costs are estimated as EUR 4.2 billion annually. They will continue to act as a barrier for business wishing to access the single market. 2.Lack of neutrality/distortions – These distortions include non-EU business gaining a legitimate advantage through the exemption for the importation of small consignments in addition to the vast number of non-compliant transactions as noted in the recent Copenhagen Economics study which found that 65% of purchases made from non-EU sellers through the public postal services are non-compliant. In addition, the distance selling thresholds put both domestic E-Commerce sellers and businesses in the traditional economy at a disadvantage due to the exploitation of VAT rate differentials and the lack of control of these thresholds. It is clear that theses existing distortions faced by EU business will magnify as e-commerce transactions continue to grow. 3.VAT revenue losses – Revenues for cross-border e-commerce are projected to be EUR 137 billion from e-commerce in 2020. It is estimated in 2020 that the VAT foregone for the small consignments exemption will be EUR 1.3 billion and compliance losses will be EUR 6.7 billion. The conclusions of the Commission expert group on the taxation of the digital economy are clear that the status quo is not an option. The analysis undertaken in the Study and in this impact assessment fully supports this assertion, and therefore the option of taking no action is not feasible. There is also broad support by Member States and business, in particular the e-commerce representative organisations, that there is a need to modernise VAT for cross-border e-commerce. 6.2.2.Option 2 - Removal of the distance selling thresholds and the small consignment exemption (with no simplification measure) Summary – the extent to which the specific policy objectives will be met Overall - Objectives not met 1.Minimising burdens attached to cross-border e-Commerce arising from different VAT regimes – Not met 2.Providing a level playing field for EU businesses – Partially met if sufficient controls in place to monitor small consignments and distance selling 3.Facilitating the monitoring of compliance and the fight against fraud for Member States’ authorities. – Partially met if sufficient controls in place to monitor small consignments and distance selling 4.Ensuring that VAT revenues accrue to the Member State of the consumer – Partially met if sufficient controls in place to monitor small consignments and distance selling Economic Impacts and competitiveness Impact on business EU Business In comparison with the Status Quo, this Option leads to a 12% increase of the administrative burden on businesses selling cross-border as a result of the removal of the distance selling and import thresholds, without any simplification being introduced. This figure however is based on low compliance by businesses, as well as impossibility of authorities to monitor the increasing number of transactions. While some distortions will be addressed through the removal of the small consignments exemption, the increase in administrative burdens due to the lack of any simplification measures and a cross-border threshold will be negative for business overall. The impact for domestic operators and those who are already registered for VAT in other Member States is likely to be positive as in theory there should be a more level playing field arising from the removal of the small consignments exemption. Non-EU Business Non-EU business and EU based importers will, in theory, be negatively affected by this option as EU customers will be charged VAT on importation of all consignments and the related compliance burden to clear customs will be high in the absence of any simplification. As a result, the attractiveness of VAT free consignments will cease. However, in practice, there would be difficulties in enforcing the removal of small consignments exemption (see also below under Tax Administration and Tax Compliance). SMEs and micro-business Due to the increase in the administrative burdens which will disproportionately affect small and micro business, only a small minority of micro-businesses will be likely to comply with the new obligations, while the remaining of micro-businesses will be likely to cease trading cross-border or will fail to register for VAT (i.e. be non-compliant). There should be some positive impacts for business operating at domestic level due to the removal of the small consignments exemption and the distance selling thresholds. However, any positive impact is minimal due to the increase in non-compliance. Postal operators and couriers The impact on postal operators and couriers is overall negative. The removal of the small consignments exemption will mean that they will have to process a significant larger number of packages through customs with no simplification measures. It is estimated that an additional 150 million parcels will be subject to a VAT declaration, generating a total administrative cost of EUR 1.7 billion, instead of EUR 0.7 million under the baseline scenario (increase by 143%). Impact on Member States VAT revenues VAT revenues for Member States are expected to decrease by EUR 0.05 billion a year Tax Administration and Tax Compliance The removal of the small consignments exemption will increase substantially the number of packages which are required to be cleared by customs authorities. The removal of distance selling threshold simplifies the VAT system and should be expected to facilitate the compliance control by tax authorities, reducing the VAT fraud on distance selling. The removal of small consignment exemption simplifies the VAT system and should enable slightly more efficient compliance controls (e.g. by reviewed risk assessment). However, as the volume of parcels subject to VAT increases, there is higher motivation for non-EU suppliers to undervalue and mislabel the parcels to reduce their VAT cost. Evidence on the high level of non-compliance where the small consignment exemption cannot be applied can be found in a recent French Senate report (France does not apply small consignment exemption to mail orders). Therefore the level of non-compliance is expected to increase in this Option. Impact on e-Commerce market and competitiveness Medium growth Scenario At a broader economic level, there is likely to be a small negative impact on cross-border e-Commerce. In terms of values, compared to the base line total e-commerce (domestic and cross-border) is expected to increase by 0.3%, a decrease of 0.9% is expected in cross-border e-commerce representing a 0.5% increase in intra-EU e-commerce and a decrease of 4.7% in non-EU to EU cross-border e-commerce. Prices are due to increase but this effect is primarily due to the effect on current EU prices arising from VAT free supplies into the EU. There are negligible differences under the DSM scenario. Table 5 - Medium growth scenario Regional Impact Given the lack of a simplification measure, it is unlikely that there will be any significant regional impacts. However, Member States in which SMEs make up a greater contribution to e-commerce would be expected to be disproportionately impacted as those businesses would no longer benefit from the distance selling thresholds. Consumers and households The impact on consumers is likely to be negative overall as less business are engaging in intra-EU trade. Hence consumer choice is down, which would make a decrease of prices less likely. Macroeconomic impact Negligible. Environmental and Social Impacts No significant impacts 6.2.3.Option 3 - Option 2 but with the introduction of a new common VAT threshold for EU cross-border sales of both goods and services Summary - Impact on the policy objectives Overall – Objectives not met 1.Minimising burdens attached to cross-border e-Commerce arising from different VAT regimes – Not met 2.Providing a level playing field for EU businesses – Partially met if sufficient controls in place to monitor small consignments and distance selling 3.Facilitating the monitoring of compliance and the fight against fraud for Member States’ authorities – Partially met if sufficient controls in place to monitor small consignments and distance selling 4.Ensuring that VAT revenues accrue to the Member State of the consumer – Partially met if sufficient controls in place to monitor small consignments and distance selling Economic Impacts Impact on business EU Business EU businesses will benefit from a clearer legislative framework applying throughout the EU. Despite the introduction of new thresholds, the absence of any other simplification has a negative impact on administrative costs. If the threshold is set at EUR 10 000, the costs are expected to increase by 7%. The lack of any simplification measures will be negative for business overall through an increase in administrative burdens. On the positive side, some distortions have been addressed through the removal of the small consignments exemption and micro-business will be able to avail of a threshold. The impact for domestic e-commerce operators and those who are already registered for VAT in other Member States is likely to be positive as there should be a more level playing field arising from the removal of the small consignments exemption. The negative is the increase in compliance costs due to the lack of simplification measures. Non-EU Business Similar to Option 2. SMEs and micro-business The introduction of a threshold is likely to be positive for micro-business in particular but the lack of simplification measures i.e. a MOSS is negative for SMEs overall as they will still experience high costs for registering and declaring VAT in other Member States. This also means that there is a significant dis-incentive for micro and smaller businesses to grow as they will face a cliff in terms of administrative costs once the threshold is exceeded. With the common VAT threshold at EUR 10 000, it is estimated that 430 000 micro-businesses (or 97% of the total) are below the EUR 10 000 threshold. In terms of potential distortions, a threshold of EUR 10 000 would tax at origin respectively 3.9% of the transactions. Also, as with Option 2 there should be some positive impacts for business operating at domestic level due to the removal of the small consignments exemption and the distance selling thresholds. Postal operators and couriers Similar to Option 2. Impact on Member States VAT revenues Under this option total VAT revenues for Member States are expected to increase by EUR 0.45 billion a year. Tax Administration and Tax compliance Similar to Option 2 except that there will be a reduction in the number of businesses required to register for tax in other Member States arising from the introduction of a threshold and therefore this should increase EU compliance compared to Option 2 for the reason that there are less businesses required to register in other Member States and therefore resources can be better targeted. Impact on e-Commerce market and competitiveness Medium Growth Scenario At a broader economic level (based on a EUR 10 000 threshold), there is likely to be a small negative impact on cross-border e-Commerce. In terms of values, total e-commerce (domestic and cross-border) is expected to increase by 0.3%. A decrease of 0.7% is expected in cross-border e-commerce representing a 0.5% increase in intra-EU e-commerce and a decrease of 4.1% in non-EU to EU cross-border e-commerce. Prices are expected to increase but this effect is primarily due to the effect on current EU prices arising from VAT free supplies into the EU. The removal of the exemption will substantially increase the average price of imports, leading to a shift from imports to domestic and intra-EU sales. The shift to intra-EU sales will however be smaller than expected due to the removal of the distance selling thresholds without a MOSS which may lead to smaller firms exiting the market. Table 6 – Medium growth scenario Option 3 Source: Study DSM Scenario Regional Impact Similar to option 2, but the availability of a cross-border threshold should mean that Member States with a high proportion of SMEs engaging in e-commerce should not be as disproportionately affected as under Option 2. Consumers and households Similar to Option 2. Macroeconomic impact Negligible. Environmental and Social Impacts No significant impacts 6.2.4.Sub-option – Level of the Cross-border threshold for goods and services The type of threshold which has been studied is one under which businesses would apply domestic rules only. A threshold under which cross-border supplies would be VAT exempt has been disregarded because almost all Member States expressed themselves against it in the Dublin Conference but also because it would increase administrative burdens for small businesses (who could be taxed at a domestic level and exempt abroad – leading to complex apportionment schemes for the right of deduction). To estimate the optimal level of the cross-border threshold to be targeted at Micro-business and start-ups, an analysis was undertaken for possible thresholds of EUR 5 000, EUR 10 000 and EUR 100 000. This analysis identified the number of business eligible at each threshold level and the distortionary effect using the proxy of taxation at origin. If an EU business has annual EU cross-border sales below this threshold they shall be deemed to be domestic transactions and therefore they would not be required to register and account for these taxes in the other Member State – either directly or through the MOSS. Table 7 - Analysis of thresholds It is estimated that 400 000 businesses of micro-businesses (90% of the total) will be below the common VAT threshold (set at EUR 5 000). With the common VAT threshold at EUR 10 000, it is estimated that 430 000 micro-businesses (or 97% of the total) are below the EUR 10 000 threshold. In terms of potential distortions, a threshold of EUR 5 000 and EUR 10 000 would tax at origin respectively 3.7% and 3.9% of the trade. Significantly a threshold of EUR 100 000 would only exclude an additional 80,000 businesses but would lead to increased distortions of approximately10%. Based on the analysis under this option, it is considered that a EUR 10 000 threshold would be optimal given that it excludes 430,000 businesses from the scheme with a minimal amount of distortions to the single market. This also ensures that the proposal will largely stay consistent with existing Commission policy as well as international practice that consumption taxes like VAT should be taxed in the country where the consumer is based. In addition, one must also be cognisant of the political considerations particularly as unanimity will be required in Council. In the stakeholder consultation, representatives from most Member States indicated that they are either not in favour of a threshold, or a very low threshold.

6.2.5.Option 4 - Option 3 plus Mini One Stop Shop applying to intra-EU supplies of goods and services and to the import of all goods under the customs threshold of EUR 150 Summary - Impact on the policy objectives Overall – Meets the objectives (Positive overall) 1.Minimising burdens attached to cross-border e-Commerce arising from different VAT regimes – Partially met 2.Providing a level playing field for EU businesses – Met 3.Facilitating the monitoring of compliance and the fight against fraud for Member States’ authorities – Partially met 4.Ensuring that VAT revenues accrue to the Member State of the consumer – Met Economic Impacts and competitiveness Impact on business EU Business EU businesses will benefit from a clearer legislative framework applying throughout the EU. In addition to a new threshold for micro-business, a simplified scheme (the Mini One Stop Shop) will be available and will substantially reduce administrative costs. Option 4 is therefore likely to reduce the administrative burden for EU businesses by 42% (by EUR 1.8 billion) compared to the status quo. Overall the impacts are positive particularly in terms of the competitiveness of EU business. Business benefits from intra-EU thresholds as well as the simplification measures. It is estimated that about 83% of businesses engaged in cross-border e-Commerce and above the EUR 10 000 threshold will register to the MOSS. The impact for e-Commerce operators is generally positive. Those businesses which are already registered for VAT in other Member States will reduce their annual compliance costs by approximately 90% with the availability of the MOSS, while those which are not yet registered and are growing their intra-EU sales can avail of the intra-EU cross-border threshold. It is not envisaged that there should be substantial costs for EU business to adapt their systems to use the MOSS given the simplicity of the system. Non-EU Business This option is likely to have a positive impact for non-EU business wishing to supply to the EU. This will also be positive for EU based importers supply B2C. While they will no longer be able to supply VAT free consignments to EU customers, they will be able to charge VAT at the point of sale to give a final price to EU customers, including for parcels between EUR 22 and 150 for which a full customs declaration is today required. They can then benefit from the fast-track customs procedure of consignments where VAT is pre-declared. Overall, administrative costs linked to these importations will be reduced by 72% (EUR 173 million instead of EUR 625 million a year), mainly because it will move from high per transaction burdens to simplified compliance for all sales during a period. This option will also have a negative impact on non-compliant non-EU business as Member States can free up resources to target the abuse. SMEs and micro-business The introduction of a threshold is likely to be positive for micro-business and SMEs generally as they will firstly benefit from a threshold and then, as their intra-EU sales increase, they can use the MOSS. Traditional economy and domestic E-Commerce suppliers will benefit from the level playing field and higher compliance rates. Postal operators and couriers Postal operators and couriers will need to develop/adapt their information systems in order for them to make sure that they receive, in advance of Customs clearance, electronic information indicating whether VAT on consignments up to EUR 150 has been pre-declared or not through MOSS (under Options 4, 5 and 6). Such a system is essential in order for postal operators and couriers to automatically distinguish parcels for which a declaration and payment are required and therefore to avail of the reduced processing costs which the MOSS will offer. Different implementation modalities for customs administrations can be envisaged. It could be based on the MOSS registration number that may either be included in the Customs Early Notification System (compulsory on all consignments, including postal ones, as of 2020) or also implemented outside the ENS. Providing a robust estimate of such one-off costs is difficult as for some operators it may only be a matter of making relatively minor adjustments to the existing systems which are very well developed due to the full integration of the process from the exporting country until the place of final destination. However, it should be recognised that other operators, particularly postal operators, may need to build new systems – e.g. based on agreements with foreign stakeholders. In considering the costs that postal operators and couriers will face in either developing new information systems or adapting existing systems it is important to recognise that the recent changes of the Union Customs Code have put security-related obligations on both postal operators and couriers in respect of the advanced information they will all need to provide by 2021 anyway to EU customs administrations in advance of clearance (end of the remaining waivers). There may be scope to coordinate system developments in respect of requirements for information in respect of VAT with the customs information. This may reduce development costs for the couriers and postal operators. It could also bring benefits to Customs administrations as the necessity to ensure that VAT has been pre-declared can be integrated into the general clearance process rather than having a separate process only for VAT. It is also relevant to highlight that a specific simplification regime will be put in place for consignments which are not declared through the MOSS. Postal operators will be able to account for taxes in one simplified monthly return rather than the alternative of a declaration for each consignment. Such a "fallback" procedure may also be very useful in the very first days of the new legal framework where the uptake of the MOSS by non-EU vendors might not be at full speed. One has also to remember that the ongoing security threats will unavoidably lead to more requirements for proper identification of all types of packages and letters sent either on the postal or courier environments. The envisaged EU VAT changes should aim to link as much as possible to such changes needed for security purposes. Impact on Member States VAT revenues VAT revenues for Member States are expected to increase overall by EUR 7 billion a year under this option. Tax Administration and Tax compliance This option is expected to substantially improve both voluntary compliance and compliance control on intra-EU cross border trade in goods and services other than electronic services. The MOSS would facilitate the monitoring of compliance and the fight against fraud for Member States due to increased exchange of information and closer administrative cooperation, similarly to the current MOSS system for electronic services. Option 4 is expected to further improve both voluntary compliance and compliance control on the import of goods with a value up to EUR 150. The Option would also support reduce the fight against fraud opportunities by sustaining the reduction of undervaluation and incorrect labelling of the goods. The use of MOSS on imports has a potential to also improve compliance controls of compliant companies, as the non-EU supplier would become VAT registered in the EU, therefore having a closer connection with the EU tax authorities. Furthermore, Member States will be able to redirect risk analysis and anti-fraud strategies to companies which will not opt for the MOSS on imports. Therefore, option 4 has potential to reduce fraud, provided there is an effective administrative cooperation between tax administrations of Member States and with third parties A negative impact for many Member States is the possibility of being involved in a multiplicity of different audits on the same companies within their jurisdiction as primary control for auditing will lie with the Member State of consumption. This could lead to an inefficient use of scarce resources. IT Set-up costs Member States will be required to adapt the existing MOSS systems, however, as this is an evolution of an existing system rather than building a new system, it is envisaged that the costs would not be significant. Most IT development costs will concern the non-EU element of the scheme as well as developing risk analysis systems to process advance information Impact on e-Commerce market Medium Growth Scenario The introduction of the MOSS is expected to have a positive impact. Total e-commerce value is expected to increase by EUR 3.8 billion (0.33%) with intra-EU e-commerce increasing by EUR 1.5 billion (1.1%) and a decrease of EUR 2.2 billion (4.2%) in e-commerce from non-EU suppliers. EU cross-border prices marginally decrease. Source: Study DSM scenario When considering the impact of the DSM scenario on cross-border e-Commerce within the EU, Option 4 is estimated to have a relatively more positive impact on EU cross-border e-Commerce than non-EU e-Commerce. EU cross-border e-commerce values increase by EUR 2.3 billion (1.2%). In terms of prices, the DSM scenario is associated with greater downward pressure on prices thanks to more firms entering the market and more competition. The effect on the value of total e-Commerce (Domestic and cross-border) is also more positive under the DSM scenario, both in absolute and percentage terms (increase of EUR 7.9 billion or 0.5%). Regional Impact The overall VAT revenue from (intra-EU) cross-border e-Commerce transactions is estimated to increase notably under Options 4, 5 and 6, as an effect of higher compliance and of the positive impacts of such options on intra-EU e-Commerce volume and value. The share of such increased revenues obtained by Member States however will vary by country, depending on a number of factors: I.Contribution to cross-border e-Commerce, by origin: countries that account for a larger share of cross-border online trade relative to population are expected to see a greater impact from the policy options since a larger proportion of businesses will be affected. II.Contribution to e-Commerce flows, by destination: countries that account for a disproportionately large share of inward e-Commerce flows are estimated to see a greater revenue impact as a result of a greater share of transactions falling within the scope of VAT. III.Change in the level of thresholds: countries that experience a greater monetary reduction from the existing distance selling threshold to the new Intra-EU will also see a greater increase in VAT revenues, since the change in policy will make a larger impact in these markets. Overall, the size of the domestic market may insulate larger European economies (such as Germany and France) from the potentially adverse effects on cross-border trade deriving from being major countries of origin. In addition, countries such as the UK and Spain would be expected to capture an above-average share of additional VAT revenues, given that spending on cross-border e-Commerce relative to the size of the economy, is higher in these markets. The impact in the UK is likely to be particularly pronounced since the current distance selling threshold for EU businesses is approximately EUR 100,000. Thus the reduction in the intra-EU threshold may significantly increase the share of spending that is subject to VAT. Germany, Luxembourg and the Netherlands also have distance selling thresholds of EUR 100,000 and may therefore see a greater than average impact on tax revenues. The introduction of an intra-EU cross-border threshold together with the MOSS should ensure that there is not a disproportionate effect on Member States with a large number of SMEs. Consumers and households The overall impact is likely to be positive as the availability of the Mini One Stop Shop will make geo-blocking no longer justified from a VAT point of view. As a result, there will be more choice for consumers. Overall the impact on prices is a slight increase reflecting the fact that there would be a 5% increase in non-EU supplies mainly down to the application of VAT on transactions which were formally exempt on importation. This increase is mitigated by a decrease in process for intra-EU e-commerce as a result of increased competition and the levelling of the playing field for EU business. Macroeconomic impact Increase in VAT revenues will have benefits for Member State budgets. The positive impact on the EU's competitiveness should have a positive impact on the GDP, although no figure is available. This impact is expected to be limited as the measures in scope of this impact assessment only affect one sector of the economy. Environmental and Social Impacts A positive impact on employment is expected due to an increase of e-commerce and the improvement of the competitiveness of the EU e-commerce sector. No figure is available on this impact although it is likely to be relatively small. No significant impact on the environment. 6.2.6.Option 5 - Option 4 plus amendments to the Mini One Stop Shop (home country legislation and home country control, subject to applying rate/exemptions of the Member State of Consumption) Summary - Impact on the policy objectives Overall – Objectives met (very positive overall) 1.Minimising burdens attached to cross-border e-Commerce arising from different VAT regimes – Met 2.Providing a level playing field for EU businesses – Met 3.Facilitating the monitoring of compliance and the fight against fraud for Member States’ authorities – Met 4.Ensuring that VAT revenues accrue to the Member State of the consumer - Met Economic Impacts and competitiveness Impact on business Business compliance costs In addition to the new simplifications already available under option 4 (Mini One Stop Shop and new intra-EU thresholds), further simplifications (notably home country legislation) will bring administrative costs further down. As a result, the overall administrative burden for businesses is estimated to decrease by 55% (EUR 2.3 billion annually) compared to the status quo (the reduction is estimated of 42% under Option 4). EU Business Overall the impacts are positive particularly in terms of the competitiveness of EU business. Business benefits from new intra-EU thresholds as well as the simplification measures. The increase in compliance rates will benefit EU business through levelling the playing field. The impact for e-Commerce operators is generally positive. Those businesses which are already registered for VAT in other Member States will reduce their annual compliance costs by approximately 95% with the availability of the MOSS (compared to 90% under option 4), while those who are not yet registered and are growing their intra-EU sales can take advantage of the threshold. Operators in the MOSS will be able to benefit from additional simplifications under this option which further reduce administrative costs. Non-EU Business Similar to Option 4 with certain increased burden reduction from additional simplification of the compliance. SMEs and micro-business Similar to option 4 but these businesses will benefit proportionately more with the additional simplifications as in many cases trading cross-border will be similar to domestic transactions if in the MOSS, and in fact will be easier in many cases the MOSS VAT return is simpler than most national returns. Postal operators and couriers Similar to Option 4. Impact on Member States VAT revenues Similar to Option 4 Tax Administration and Tax compliance The compliance impact of Option 5 would be very similar to Option 4. However, Option 5 is expected to further increase voluntary compliance by providing additional simplification to the MOSS in the form of application of home country legislation. Option 5 also has potential to further improve compliance controls and reduce fraud, focusing controls on companies outside the MOSS, provided there is an effective administrative cooperation between tax administrations of Member States and with third parties. IT Set-up costs Similar to Option 4 Impact on e-Commerce market Source: Study Regional Impact Similar to Option 4 Consumers and households Similar to Option 4 Macroeconomic impact Similar to Option 4 Environmental and Social Impacts Similar to Option 4 6.2.7.Option 6 - Option 4 plus fully harmonised EU rules for Mini One Stop Shop, subject to applying the rates/exemption of the Member State of Consumption Summary - Impact on the policy objectives Overall – Meets the objectives (Very positive overall) 1.Minimising burdens attached to cross-border e-Commerce arising from different VAT regimes – Partially met 2.Providing a level playing field for EU businesses – Met 3.Facilitating the monitoring of compliance and the fight against fraud for Member States’ authorities – Met 4.Ensuring that VAT revenues accrue to the Member State of the consumer – Met Economic Impacts and competiveness Impact on business Business compliance costs In addition to the new simplifications already available under option 4 (Mini One Stop Shop and new thresholds), further simplifications (notably harmonised rules) will bring administrative costs further down. As a result, the overall administrative burden for businesses is expected to decrease by 51% (EUR 2.1 billion annually) compared to the status quo (as compared to 42% under Option 4 and 55% under Option 5). EU businesses will benefit from a clearer legislative framework applying throughout the EU. EU Business Overall the impacts are positive particularly in terms of the competitiveness of EU business. Business benefits from new intra-EU thresholds as well as the simplification measures. Compliance rates increase benefits EU business through a level playing field. The impact for e-Commerce operators is generally positive. Those businesses which are already registered for VAT in other Member States will reduce their annual compliance costs by approximately 92% (as compared to 90% under option 4) with the availability of the MOSS, while those who are not yet registered and are growing their intra-EU sales can avail of the threshold. Non-EU Business Similar to Option 4 SMEs and micro-business Similar to option 4 but unlike Option 5, micro-businesses and SMEs which are above the threshold and in MOSS will need to apply two separate rules – domestic and the harmonised EU rules. Harmonisation in areas such as this has invariably led to the highest standards in an EU Member State applying to all business, e.g. the 10 year record keeping requirement under the MOSS, hence increased burdens. Postal operators and couriers Similar to Option 4. Impact on Member States VAT revenues Similar to Option 4 Tax Administration and Tax compliance The compliance impact of Option 6 would be very similar to Option 4. Option 6 also has potential to further improve compliance controls and reduce fraud, focussing on companies outside the MOSS and provided there is an effective administrative cooperation between tax administrations of Member States and with third parties. IT Set-up costs Similar to Option 4 Impact on e-Commerce market Similar to Option 4 Source: Study Regional Impact Similar to Option 4 Consumers and households Similar to Option 4 Macroeconomic impact Similar to Option 4 Environmental and Social Impacts Similar to Option 4 7.How do the options compare? 7.1.Summary assessment of the impacts A summary assessment of the options is presented below. Option 2 This option reduces VAT revenues and increases business compliance costs. High levels of con-compliance mean that distortions remain. In terms of the public consultation, this option does not meet the overall orientation expressed in as there are no simplification options proposed. Postal service providers have strong concerns in respect of their ability to collect taxes on small consignments with the removal of the VAT exemption. Option 3 While this option offers some relief for micro-business, there is a negligible effect on VAT revenues and a reduction in costs for business. In terms of the consultation, the introduction of a threshold is seen as positive for the smallest of business but businesses over the threshold or who expect to grow will face onerous cross-border burdens without further simplification. Option 4 There is a positive impact on VAT revenues and it substantially decreases compliance cost for business vs. status quo. This option is broadly compatible with the results of the consultation although a drawback of this option for business is the requirement to deal with 28 sets of rules and subject to audit by the Member States it makes supplies to. Postal operators are concerned by the impact of the removal of the small consignments exemption (as with options 5 and 6) although the availability of the MOSS for imports and special simplifications when MOSS is not used should mitigate against these concerns. Option 5 This option has a material effect on the overall compliance costs for business reducing these by EUR 500 m compared to option 4. The reason for this is that business will only face one set of rules as opposed to 28 sets of rules in option 4 and 2 sets (domestic and harmonised EU) in Option 6. Further this option is intended to improve identified deficiencies in the 2015 MOSS such as the means to correct past returns and extending the period to file the tax by 10 days. This option is compatible with the general results of the consultation and was the preferred option for business at the Dublin seminar. Option 6

This option is less desirable in terms of the reduction of business compliance costs compared to option 5, but is more positive than Option 4. Similarly to option 5, this option is broadly compatible with the results of the consultation but concern was expressed that harmonised EU rules would be overly complicated. Table 11 analyses and evaluates the key impacts across the 6 options. Table 11 – Summary analysis of impacts Key impacts Option1 Option2 Option3 Option4 Option5 Option6 A – Econ