TABLE OF CONTENTS

Executive Summary Sheet............................................................................................................. 3

1........... Introduction.................................................................................................................... 7

2........... Procedural issues and consultation................................................................................... 9

2.1........ Studies........................................................................................................................... 9

2.2........ Consultation of stakeholders........................................................................................... 9

2.3........ Stakeholder views........................................................................................................ 10

3........... Problem Definition and Subsidiarity............................................................................... 11

3.1........ The starting point.......................................................................................................... 11

3.2........ The main cross-border drivers of the problem requiring action....................................... 14

3.3........ The main domestic drivers of the problem requiring action.............................................. 16

3.4........ Evolution of the problem............................................................................................... 17

3.5........ Analysis of subsidiarity.................................................................................................. 19

4........... Objectives.................................................................................................................... 21

4.1........ General policy objectives.............................................................................................. 21

4.1.1..... Main policy objectives.................................................................................................. 21

4.1.2..... Specific objectives........................................................................................................ 22

4.2........ Consistency of objectives with other EU policies........................................................... 23

5........... Policy Options.............................................................................................................. 25

5.1........ Possible options............................................................................................................ 25

5.1.1..... No EU action (benchmark)........................................................................................... 25

5.1.2..... Non-regulatory option (discarded)................................................................................ 25

5.1.3..... Legislative approach in the context of extending the mini-one-stop-shop (discarded)...... 26

5.1.4..... Stand-alone legislative approach (pursued further)......................................................... 26

5.2........ Options (with sub-options) retained............................................................................... 26

5.2.1..... Type of legislation......................................................................................................... 26

5.2.2..... Implementation timing................................................................................................... 27

5.2.3..... Scope of a standardised VAT declaration..................................................................... 27

5.2.4..... Contents of the standard VAT declaration..................................................................... 28

5.2.5..... Periodicity and due date................................................................................................ 28

5.2.6..... Annual VAT return....................................................................................................... 28

5.2.7..... Other issues (E-filing, corrections)................................................................................. 29

5.3........ Options considered....................................................................................................... 29

6........... Assessment of Impacts................................................................................................. 31

6.1........ Background figures characterising the baseline (Option A)............................................. 31

6.2........ Basic characteristics of the retained options................................................................... 32

6.3........ Administrative burden for businesses – including for SMEs............................................ 34

6.4........ Costs of managing VAT returns for Member States....................................................... 37

6.5........ Integration within the Single Market............................................................................... 40

6.6........ Macro-economic and employment effects..................................................................... 41

6.7........ Other impacts............................................................................................................... 41

6.8........ Potential obstacles........................................................................................................ 43

7........... Comparison of Options................................................................................................. 44

7.1........ How impacts have been weighted................................................................................. 44

7.2........ Trade-offs with each option.......................................................................................... 46

7.3........ Ranking of the options for the various evaluation criteria................................................. 46

7.4........ Preferred option........................................................................................................... 47

8........... Monitoring and Evaluation............................................................................................. 47

9........... Annexes....................................................................................................................... 49

9.1........ Agenda planning........................................................................................................... 49

9.2........ Links to external studies................................................................................................ 51

9.3........ Stakeholder groups and consultations............................................................................ 52

9.4........ Business and Member State views................................................................................ 53

9.5........ Standard VAT declaration (PwC model)....................................................................... 57

9.6........ Administrative burdens.................................................................................................. 59

9.6.1..... Recurring cost.............................................................................................................. 60

9.6.2..... Set up costs.................................................................................................................. 63

9.6.3..... Summary of cost savings............................................................................................... 64

9.6.4..... Periodicity savings........................................................................................................ 66

9.7........ Background figures....................................................................................................... 67

9.8........ Preferred option E........................................................................................................ 70

Executive Summary Sheet

Impact assessment on a proposal amending Directive 2006/112/EC on the common system of value added tax (VAT Directive) as regards a standard VAT return.

A. Need for action

Why? What is the problem being addressed?

The main difficulty businesses face in completing VAT returns in different Member States is the complexity. This comes from providing different information, the information not having consistent definitions, the lack of good guidance in how to complete the VAT return, different rules and procedures for the submission, and the need to complete it in the national language. This also comes from the level of information required, which in several Member States, is very demanding. Moreover, the lack of clear and concise information on how to submit the VAT return, the information that should be completed for each box and having that information in an understandable language all add to the complexity for business. This complexity in turn leads to the following two main problems. 1. Restricts cross border trade 2. Increase in burdens on business

What is this initiative expected to achieve?

The objective of the proposal is twofold; first to reduce obstacles to cross border trade by standardising information requirements and second to ease the burden on business, and specifically on SMEs and micro-businesses, by simplifying obligations. Indirect benefits may also result in: · Reducing the VAT gap by improving the exchange of information between Member States' tax authorities. · Improving the accuracy and timeliness of VAT declarations · Facilitating the broadening of the scope of the mini-OSS

What is the value added of action at the EU level?

As Member States would not voluntarily move to align their VAT returns, a common VAT return is unachievable through their actions alone. Consequently no changes, either positive or negative, can be envisaged in respect of meeting the primary targets of reducing both obstacles to cross border trade and administrative burdens in the short term. Longer term a lack of action may have a higher negative impact on cross border trade. Increasingly as EU trade grows and specifically that of cross border e-commerce, disparate VAT returns may, as an obstacle to cross border trade, have a higher negative impact in the future.

B. Solutions

What legislative and non-legislative policy options have been considered? Is there a preferred choice or not? Why?

The following policy options have been considered and one option discarded. 1. No EU action (benchmark) 2. Non-regulatory option (discarded) 3. Legislative approach In a legislative approach 4 options have been considered. a) Compulsory standard EU VAT declaration (business and Member States) b) Standard VAT declaration optional for all business (compulsory for Member States) c) Standard VAT declaration optional for those businesses submitting VAT returns in more than 1 Member State (compulsory for Member States) d) Compulsory standard VAT declaration with limited flexibility for Member States to determine the information from a standardised list The preferred option is legislation for a compulsory standard VAT declaration with limited flexibility for Member States to determine the information from a standardised list. This approach is selected because it best satisfies the trade-off between more flexibility for business which reduces cross border obstacles to trade and administrative burdens against the cost and complexity for Member States or providing that change.

Who supports which option?

Business is very supportive of standard VAT return. In Member States with a lot of VAT return boxes they prefer a single mandatory VAT return in all Member States. In Member States with simple national VAT returns an optional standard VAT return is preferred. A mandatory standard VAT return with flexibility for Member States to reduce the reporting information is supported as a second best solution. Doing nothing or limiting the standard VAT return to businesses submitting VAT returns in more than one Member State was not preferred. Member States are in most cases supportive of a standard VAT return but mindful of the impact in terms of having to change their national VAT return and the cost that will entail. It is crucial for them to have only one VAT return as the cost to implement and manage a double scheme would be prohibitive, and there needs to be scope to take on board different levels of information needed for risk analysis and control.

C. Impacts of the preferred option

What are the benefits of the preferred option (if any, otherwise main ones)?

The beneficial economic impacts were measured against meeting the main objectives of removing obstacles to cross border trade and reducing administrative burdens on business. There are other secondary benefits including economic, social and environmental impact. The benefits accrue to business. Removing obstacles to cross border trade: EUR 3 to 6 billion Reducing administrative burdens: EUR 9 billion Social impact: Small improvement in overall employment Environmental impact: No significant impact

What are the costs of the preferred option (if any, otherwise main ones)?

The cost of the standard VAT declaration is borne by Member States. Those providing information suggest the cost of implementing a standard VAT declaration is between EUR 150 000 to EUR 120 million with the average of replies being EUR 30.5 million. For businesses they will incur set-up costs of changing from national VAT returns to the standard VAT declaration. This is estimated at EUR 2.9 to 4.25 billion and would take between 8 months and 2.5 and 4 months to recover set-up costs through lower administrative burdens.

How will businesses, SMEs and micro-enterprises be affected?

The VAT system generally requires businesses to apply VAT and submit and pay it through a VAT return. As the standard VAT declaration would see estimated benefits to businesses of up to EUR 15 billion there is no specific need to target additional measures at SMEs. However, for micro enterprises they should be allowed less frequent VAT return filing, which can reduce compliance costs further as submitting a quarterly VAT return is not three times more burdensome than submitting a monthly VAT return. These savings are EUR 1.8 billion.

Will there be significant impacts on national budgets and administrations?

The costs for Member States of implementing the standard VAT declaration are estimated on average to be EUR 30.5 million. There should be beneficial effects on Member States tax receipts through a reduction in the VAT gap (around 12% of VAT is uncollected) as the proposal would: · Improve the exchange of information between Member States' tax authorities to help tackle fraud and evasion · Improve the accuracy and timeliness of VAT declarations through standardisation and easier compliance

Will there be other significant impacts?

There may be other impacts although less significant than reducing obstacles to cross border trade and administrative burdens. These impacts may include: · Facilitate the broadening of the scope of the mini-OSS by establishing a standard VAT return (longer term solution for facilitating e-commerce) · Improve competitiveness of business as "red tape" is reduced · Attract non-EU businesses through simpler EU standardised rules

D. Follow up

When will the policy be reviewed?

TAXUD is looking at establishing a methodology to measure tax compliance. Any adopted proposal can be evaluated within that tax compliance study, say two years after the standard VAT declaration enters into force.

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

Proposal for a Council Directive

amending Directive 2006/112/EC on the common system of value added tax as regards a standard VAT return

1. Introduction

The common EU VAT system is a valuable and growing source of revenue which contributed 22% of total taxes for Member States in 2010, a rise of 3.4 percentage points since 1995. It is a consumption tax to be borne by the final consumer but whose collection is falling on businesses, which act as the "unpaid tax collector" of the Treasury.

However, it is also a complicated system with more than half of the 400 plus articles of the VAT Directive dealing with derogations and sector or product-specific exemptions or special rates and schemes. Also, while tax legislation through its design features might be able to encourage voluntary compliance, it cannot guarantee voluntary compliance. Thus, and given the enormous sums at stake, compliance must be enforced and monitored.

So, it should not be a surprise that the VAT scheme is seen as burdensome by both tax payers and tax authorities. On the one side, over the last decades there might have been a tendency of piling up additional information requests by tax authorities while on the other side the cost-saving potential of new information and communication technologies might have been overlooked to some extent by both tax payers and tax authorities.

Indeed, when having tried to identify unnecessary reporting and information requirements in the context of the Commission's Action Programme for Reducing Administrative Burdens in the European Union, VAT related burdens ranked at the top. Of the 13 legislative areas covered, VAT obligations represented 2/3rd of the administrative costs (EUR 79 billion out of EUR 124 billion) as measured in a 2009 report[1].

Of the EUR 79 billion annually of administrative costs for VAT, EUR 69 billion were classified as administrative burdens[2]. Of this, three areas represented more than 80% of the VAT administrative burden; VAT bookkeeping, returns and invoicing. As regards the administrative burden on completing VAT returns in the EU, these were estimated at EUR 19 billion.

The target of the Commission's Action Programme was to reduce the administrative burden stemming from EU legislation by 25% by 2012 and this has been fully achieved. Of the measures taken the VAT Directive on invoicing accounted for burden reductions of EUR 18 billion in the medium term for businesses. However, it was highlighted by the High Level Group on Administrative Burdens (the so-called "Stoiber" group), that more work was needed particularly in the tax area.

For this reason the suggestions from the Stoiber group concerning burden reduction measures were included in the public consultation on the Green Paper on the future of VAT[3]. They were also covered in the accompanying recommendation from a study[4] for the Stoiber Group on reducing administrative costs from VAT returns for businesses; namely "consideration could be given to implementing a uniform VAT return throughout all 27 Member States".

This recommendation was suggested as the VAT Directive on the common system of VAT, while requiring taxable persons to submit a VAT return, currently allows the Members States to determine the content and submission. This results in 27 very different periodic VAT returns with anything from less than 10 boxes to 100 boxes to be completed and for small businesses and those businesses submitting VAT returns in more than one Member State it is considered particularly burdensome.

Importantly the "Retrospective evaluation of the elements of the VAT system"[5] estimates that a reduction of 10% in the dissimilarity of the general VAT administrative procedures between countries could yield a rise of 3.7% in intra-EU trade, while real GDP and consumption would increase by 0.4% and 0.3%, respectively. Thus, a standardised VAT return could have real positive effects on the EU economy.

The Stoiber Group and its report on the baseline measurement of administrative burdens formed the basis of the review of VAT obligations included in the Green Paper on the future of VAT[6]. It is from this fundamental review on the future of VAT towards a simpler, more robust and efficient VAT system that the need to reduce burdens on business and particularly in terms of the obligation to submit VAT returns was confirmed.

The Commission therefore committed itself, in its Communication on the future of VAT[7], to put forward a legislative proposal in 2013, so that a standard VAT declaration "is available in all languages and optional for business across the EU".

The objective of the present proposal is twofold; first to reduce obstacles to cross border trade by standardising information requirements and second to ease the burden on business, and specifically on small and medium sized enterprises (SMEs) and micro-businesses, by simplifying obligations.

This Impact Assessment looks at the possible options and how they respectively meet these two objectives. Moreover, it is also in line with the ECOFIN conclusions[8] of May 2012 and given the current imperative of fiscal consolidation, minimizes costs on Member States and also business for the implementation and management of the required changes.

It has been redrafted in line with the opinion of the Impact Assessment Board. In particular the problem definition has been clarified in respect to the cross border and national problems of submitting VAT returns, the links to the One Stop Shop and e-filing have been further explained as well as why action is needed at EU level and more information has been provided on the impacts on Member States although this still remains limited given the general lack of replies for quantitative information.

2. Procedural issues and consultation

DG TAXUD is the lead Directorate General. Other DGs were consulted through an Impact Assessment Steering Group that included DG MARKT, DG ENTR, DG CNECT, SG and OLAF. In addition the Legal Service and ESTAT were kept informed although they did not participate in the Steering Group.

The Steering Group met on four occasions between 3 July 2012 and 23 May 2013.

The details of the agenda planning are included in Annex 9.1.

2.1. Studies

Two studies of note have been completed on VAT returns and an evaluation of the VAT system is also of relevance (see Annex 9.2 for links).

a) Deloitte study (2009)

This study was completed for the Stoiber Group and was the initial study measuring burdens associated with VAT returns.

b) PwC study (2013)

This study was focused on the feasibility, the scope, the comprehensiveness and impact of a common EU standard VAT return. The focus was on the definition of the information needed for a standard VAT declaration and guidance on how to complete the declaration, including how, when and how often the standard VAT declaration should be submitted and how corrections could be made.

c) Institute of Fiscal Studies (2011)

The retrospective evaluation of elements of the EU VAT system provides a broad evaluation of the EU VAT system including estimates of the administrative burden and compliance cost for fulfilling VAT obligations with particular attention to the effects of the dissimilarities between the Member States. Extensive analysis was done comparing a harmonised EU VAT system and the present system with Member States given flexibility to apply the VAT system differently in terms of for instance VAT obligations.

2.2. Consultation of stakeholders

The following types of stakeholders have been consulted. More details of the stakeholder groups can be found in the Annex 9.4.

i) All stakeholders (Member States, business, tax practitioners, citizens, academics etc.)

All stakeholders were consulted initially through a public consultation on the Green paper on the future of VAT[9] which included an accompanying staff working document. Section 9.7 of the staff working document[10] raised the specific point of a standardised EU VAT declaration.

The public consultation was launched on 1 December 2010 and closed on 31 May 2011.

ii) Business

Business was consulted not only through the public consultation but through workshops held to define the standard VAT declaration during the PwC study. The business consultation in the study was undertaken approximately from January 2012 until June 2012. The result of the business quantitative and qualitative information is contained in the PwC final report.

Following the final report from PwC, business was again consulted through the VAT Expert group[11] set up by Commission Decision[12]. This met on 25 January 2013.

SMEs were also consulted specifically at a Small Business Act follow up meeting held on 17 April 2013 (10 SME business organisations were present).

iii) Member States

Member States' tax authorities were consulted through a Fiscalis seminar held by Portugal on 2-4 October 2012. Information from Member States was included were appropriate in the study by PwC.

As well Member States were consulted through the Group on the Future of VAT (GFV) following publication of the PwC final report. The GFV meeting was held on 28 January 2013.

2.3. Stakeholder views

Business views

The views of business came from four sources; the Green paper on the future of VAT public consultation, the PwC study, Small Business Act meeting (SMEs) and the VAT Expert group.

In summary, business is very supportive of standard VAT return[13]. In general businesses from Member States where the VAT return includes a lot of boxes to complete prefer the same mandatory VAT return in all Member States. For businesses in Member States with simple national VAT returns an optional standard VAT return is preferred with the option to continue using the national VAT return.

Business would also welcome a mandatory standard VAT return with flexibility for Member States to reduce the reporting information. This was seen as a second best solution.

The options of doing nothing or limiting the standard VAT return to businesses submitting VAT returns in more than one Member State was not preferred.

SMEs unanimously endorsed the idea of a standard VAT declaration, while at the same time being consciousness of the need to reduce the frequency of VAT returns for smaller businesses.

Member States' views

The views of Member States were received initially from the ECOFIN conclusions of 15 May 2012, and then subsequently from the Fiscalis seminar in October in Portugal and finally through a Group on the Future of VAT meeting.

Member States[14] are generally open to the idea of standard VAT declaration. Two Member States were expressly against a standard VAT declaration because they considered it would prevent them from collecting the information they need. Several other Member States had a cautious approach and stressed the impact in terms of having to change their national VAT return and the cost that it will entail.

Two elements seem however crucial for all Member States; firstly there should only be one type of VAT return as the cost to implement and manage a double scheme (European and national) would be prohibitive, and secondly there needs to be scope to take on board different levels of information needed for risk analysis and control.

3. Problem Definition and Subsidiarity

3.1. The starting point

The VAT Directive lays down the rules by which Member States must require a VAT return from their taxable persons. Those rules are contained in Chapter 5 of Title XI and they require every taxable person to "submit a VAT return setting out all the information needed to calculate the tax that has become chargeable and the deductions to be made…".

These VAT declarations are a core tool of managing payment and revenue streams and they are having legal status by defining the financial liability positions of companies vis-à-vis the Member State to which they are submitting the returns. Subsequent auditing is then benchmarked against declarations in the VAT returns submitted.

Save for some details regarding supplies of goods to other Member States, Member States are free to set the type of information they deem necessary for the calculation of the VAT that is due according to the VAT Directive. For the periodic VAT return (typically monthly or quarterly) this may vary from 6 boxes in Ireland to up to 99 boxes of information in Hungary to be completed (see table 9.7.1 for more details). In addition summary annual VAT returns are required in eight Member States (Austria, Germany, Greece, Italy, Luxemburg, Malta, Portugal, Spain), and in certain Member States this can include 200 or more boxes to be completed (see table 9.7.1 for more details).

The same goes for the periodicity of VAT returns for which Member States have implemented different rules. Most require monthly returns although for Cyprus, Malta and the UK it is quarterly reporting. All Member States except Bulgaria and Estonia allow micro enterprises to file at longer periods than monthly (see table 9.7.1 for more details).

The study by PwC (2013) identified eight Member States (EU8) where the businesses would not opt for an EU standard VAT declaration as the national return was deemed easier[15]. These Member States are Cyprus, Denmark, Finland, Ireland, Malta, Netherlands, Sweden and the UK. For the other Member States (EU19) the standard VAT declaration is deemed easier.

In most cases returns can only be filled in in the local language (the Commission does not interfere with Member States right to use their national language), which represents a specific burden for non-established businesses or shared service centres established outside the country.

The effect of VAT return obligations generally falls disproportionately on SMEs. Indeed even the requirement to submit a VAT return is more administratively costly on an SME that generally does not have the sufficient resources or knowledge to deal with tax matters in comparison to a large business with more detailed internal controls and staff dedicated to taxation issues. Thus, SMEs have to purchase specialised services on the market which could be more costly and definitely have a negative cash-flow implication.

VAT return and VAT Gap

Certain Member States seem driven by the assumption "the more information we ask the higher will be the compliance by tax payers". This assumption is, however, not supported by evidence, as there is for example, no apparent negative correlation between the number of boxes to be filled out in a VAT return and the VAT gap in a given country.

Indeed, there seems even to be a slight positive correlation between the level of fraud (as measured by the VAT gap) in a particular Member State and the number of boxes on a national VAT return. The more complex a VAT return the higher the VAT gap, which seems to suggest that national approaches based on complex VAT returns are not very effective.

Figure 1 below shows the number of boxes on a VAT return plotted against the percentage of VAT gap for the Member States (Italy is excluded). This highlights there is a slight positive correlation between the number of boxes on a VAT return and the VAT gap.

Figure 1: Correlation between the number of boxes on a VAT return and the VAT gap by Member State

Source: VAT Gap – Reckon Study 2009, N° boxes on VAT returns – PwC Study 2013

First it should be stressed that such a positive correlation does not mean that more VAT return boxes is a factor which increases the VAT gap. Nevertheless it does mean that increasing the number of boxes is totally ineffective in reducing the VAT gap.

This positive correlation might be explained by the following reasons:

- it might be that the more complex the returns are the more taxable persons, notably small companies or companies linked to economic activities more exposed to the risk of shadow economy, might shy away from declaring properly.

- it might be that Member States confronted with more fraud have a tendency to ask for more information to address the problem.

- it could be that Member States with poorer risk management systems, based more on return information than on other sources (registration information, information from other administrations) are less effective in tacking VAT fraud.

Of course the VAT Gap does not just measure fraud. It measures the difference between the theoretical VAT receipts that could be collected based on a country’s VAT regime applied to household consumption against actual VAT receipts collected. It therefore includes fraud, errors, tax planning, insolvencies as well as cross border shopping.

In looking at Luxembourg for instance, with a very low VAT gap but a high number of boxes on its VAT return (an apparent outliner), the low VAT gap is in part due to VAT receipts being high because of the inclusion of, for instance, e-service providers being located in Luxembourg for cross border shopping and therefore inflating Luxembourg VAT receipts. It is not that a large number of VAT return boxes necessarily reduces fraud.

Lack of EU dimension

Member States have designed their VAT returns for purely domestic control, organisational and risk management purposes and therefore there is no EU dimension playing a role. The result is different systems, different rules and therefore overall a high burden in terms of compliance costs in the Internal Market. Certain Member States have minimised information requirements on the VAT return but are relying more on information through registration or other third party reliable sources, whereas others have designed a risk management system which is largely based on detailed VAT returns. The difference in approach is large as seen by national VAT returns.

Member States have little incentive in trying to reduce national differences in VAT returns or create a standard VAT return. Left to their own devices the differences between VAT returns and their complexities would at best remain the same.

There is a cross-border dimension to the problem affecting both large and small businesses as well as a more domestic dimension to the problem, mainly affecting SMEs and micro enterprises. However, as more and more domestically-oriented small businesses are expected to go international in the coming years (notably in the Eurozone as there is no longer an exchange-rate risk involved), tackling today the domestic problem for SMEs would also have positive knock-on effects and would facilitate them going international and, thus, strengthen the effectiveness of the Single Market.

3.2. The main cross-border drivers of the problem requiring action

The main difficulty businesses face in completing VAT returns in different Member States is the complexity and different language regimes[16]. This comes from having to provide different information, the information not having consistent definitions, the lack of good guidance in how to complete the VAT return, different rules and procedures for the submission, and the need to complete it in the national language. This complexity also comes from the level of information required, which in several Member States, is very demanding.

This complexity in turn leads to the following two main problems:

1. It restricts cross border trade

The public consultation on the Green paper on the future of VAT found that "certain sectors encounter specific problems with cross-border transactions which they considered an obstacle to the single market. This is the case for companies involved in distance sales, resulting in VAT registrations and subsequent VAT obligations in several Member States. It has been pointed out that because of this traders often may not offer internet or mail-order business to customers from other Member States."

For SMEs, when doing business cross border, the problem is magnified for two clear reasons.

i) There is less financial capacity to set up local companies with local staff to submit VAT returns in another Member State.

ii) There is less financial capacity to hire specialised staff or pay outside consultants with knowledge of foreign rules and languages necessary to complete a VAT return in another Member State.

The result is that there is a specific barrier to trade and many SMEs simply don't trade cross border for these reasons. In the recent top 10 inquiry about SME's concerns in relation to regulatory burdens, SMEs tell us that "the system is very complex, with different national procedural rules and the lack of a simple, uniform VAT declaration. This discourages SMEs from trading across borders."

This is particularly true in relation to electronic commerce, for which different VAT rules are often an obstacle to selling beyond the domestic market, although no estimate is available to measure this obstacle.

Removing this barrier could increase business expansion in the internal market and it may also increase the choice of consumers and strengthen price competition particularly in on-line shopping.

As estimated in the "Retrospective evaluation of the elements of the VAT system" a reduction of 10% in the dissimilarity of the general VAT administrative procedures between countries could yield a rise of 3.7% in intra-EU trade, while real GDP and consumption would increase by 0.4% and 0.3%, respectively.

Thus businesses have through consultations stated to the Commission that completing VAT obligations in different Member States is a barrier to cross border trade and thereafter the economic evaluation of the VAT system has indeed confirmed this to be the case showing increases in trade and growth with a more harmonised VAT system.

2. It increases the burden of doing business across borders

In terms of assessing the number of businesses affected and the associated cost, there are an estimated 29,8 million businesses completing VAT returns in the EU with about 3,8 million of those submitting VAT returns in more than one Member State.

A detailed analysis of the businesses submitting VAT returns in more than one Member State is set out in Figure 2 (those affected are highlighted in grey: non-established 0.3 million, branch 0.3 million, subsidiary 3.2 million).

Figure 2: Number of businesses submitting VAT returns in more than one Member State

Source: PwC study (2013)[17]

Although figures are not available for non-established businesses or branches, of the 3.2 million businesses that are subsidiaries of a group company around 56% are SMEs and 44% are large companies[18].

Even assuming the cost for completing VAT returns domestically was the same as that for completing VAT returns in another Member State, it could be estimated that VAT returns would cost at least annually EUR 4 billion for business being active across borders in the single market (13% of EUR 30 billion – see Annex 9.6, table 9.6.2). In fact the PwC study estimates that the cost for non-established businesses is much higher[19] and therefore for all businesses submitting VAT returns in more than one Member State (non-established, branches and subsidiaries) a conservative figure of 2 to 3 times higher than EUR 4 billion could be assumed.

The increase in cross border costs is not in contradiction with the PwC study (2013) finding that 54% of large businesses do not think the standard VAT return would reduce their costs[20]. This statistic represents business views in cases where the national VAT return is seen as simpler or much the same as the standard VAT return and therefore use of the standard VAT declaration provides no or little benefit. It does not represent the benefits of cross border standardisation nor advantages through reduced frequency of submission or abolition of the annual VAT return.

3.3. The main domestic drivers of the problem requiring action

The cost of submitting VAT returns (e.g. time to record and collate information, filling in VAT return boxes, submission, etc.), while substantial for large businesses in absolute terms because they have a larger number of transactions, more complex VAT issues and more extensive internal controls, are, as a percentage of annual turnover, significantly higher for SMEs.

In the Communication on Smart regulation - Responding to the needs of small and medium - sized enterprises[21], the findings show that VAT legislation is seen by individual SME businesses as the most burdensome area of EU legislation. The burden for all businesses was evaluated as part of the Stoiber Group’s work on reducing administrative burdens and was estimated at around EUR 69 billion annually, of which VAT returns are EUR 19 billion[22].

The study for the Stoiber Group, in measuring the cost of VAT returns in six Member States, found that Hungary with the highest number of VAT return boxes required the most amount of time to submit the VAT return. For comparison, in Hungary (99 boxes) large businesses spent 2 044 minutes completing the VAT return whereas in Cyprus (11 boxes) and the lowest number of boxes of the sample countries it took 369 minutes (5 ½ times less).

The number of boxes it concluded was a key factor in businesses spending more time, and by consequence having a higher burden.

Furthermore, the Deloitte Study (2009) for the Stoiber Group, based on recommendations from stakeholder consultations, provided suggestions for burden reduction in 4 areas:

a) harmonising frequency and thresholds for the submission of VAT returns

b) discarding the need for nil returns

c) uniform VAT return

d) eGovernment solutions using easier applications (i.e. easier, more interoperable e-filing solutions)

The annual VAT return was not part of the study since this is an option in the VAT Directive and only VAT Directive obligations imposed on Member States were evaluated. However, with the online and offline consultations that helped form the High Level Group opinion businesses cited the annual VAT return as burdensome.

Of the measures mentioned by the Stoiber Group, they are all considered except the nil-filing because of the risk of fraud. This suggestion is too risky as the difference between a missing trader and one not trading has huge implications for fraud.

3.4. Evolution of the problem

Underlying market developments

The past decades have seen a dramatic change in the international division of labour triggering an intensified international fragmentation of value chains, including SMEs and mid-cap companies. This also holds for Europe where trade in goods and services has intensified and more and more SMEs discover and make use of supplies and demand across national borders. This has been largely facilitated by the intensified approximation of laws within the European Union and the emergence of an ever growing Eurozone evaporating exchange-rate risks within this zone. Thus, more and more companies will be exposed to having to fill in VAT returns in more than one Member State.

Changing legislative environment at the European level

i) One Stop Shop

At EU level the Commission is working with Member States towards the implementation of a mini-One Stop Shop (MOSS) in 2015 and this, should it be enlarged, could help non-established businesses. As planned it will allow businesses supplying telecoms, broadcasting and electronic services to private individuals to declare and pay the VAT due in other Member States through the Member State where the business is established. The details for the declaration of the MOSS has been harmonised through a Commission Implementing Regulation[23].

The mini-One Stop Shop has a targeted population which is at the very maximum the 1% (307 654 companies[24]) of enterprises registered for VAT as non-established in another Member State increased by a further 2% as a result of the place of supply changes from 2015 (so 3% in total).

A full One Stop Shop, under a system of taxing supplies cross border at the rate in the Member State of destination, could include up to 1,2 million business that are required to submit recapitulative statements in the EU for their cross border transactions.

However, the implementation of a full One Stop Shop must be seen as a long term goal. First the mini-One Stop Shop needs to be evaluated in the years after 2015. This review could be completed in 2017 and accompanied by a Commission proposal for an enlarged One Stop Shop to all Business to Consumer (B2C) supplies. Agreement needed in Council and the time required for implementation by Member States could see an effective start date of 2020. Difficulties to address for Business to Business (B2B) supplies, involving issues such as the right to deduct, would probably mean a much later introduction of a full One Stop Shop.

Nevertheless, the One Stop Shop only addresses cross border trade for non-established businesses. A business established in several Member States (branches or subsidiaries) would still be required to submit national VAT returns in each Member State of establishment. Most of the targeted population would therefore in any case be excluded from such a simplification.

ii) e-filing

The Stoiber Group in its May 2009 opinion[25] on taxation, based on stakeholder suggestions, stated that in relation to VAT obligations there was a need “to facilitate and promote the fully electronic interaction between businesses and tax authorities, to make the respective e-government solutions simple and to create incentives for businesses to use them”.

Findings from the Deloitte study (2009) had quantified burden reduction at EUR 3.4 billion if Member States introduced simple, easy to use, time-saving e-government solutions for this purpose. Of course, the e-filing of VAT returns are only a part of the potential saving.

Furthermore, electronic solutions in other Commission proposals, such as e-invoicing in public procurement[26] can dovetail with electronic VAT reporting. The Impact Assessment on e-invoicing in public procurement states that “if e-invoicing is integrated with tax reporting, it can reduce administrative burden, as tax declarations can be generated automatically.”

Thus businesses see a need for exploiting electronic solutions and doing so has been quantified as reducing burdens on business. Any initiative on a standard VAT return should therefore look to address this issue of e-filing. In the end, a common standard for electronic returns (single signature to e-sign different declarations or a standard alternative solution accepted by all Member States) would enable companies to fully exploit the benefit of e-filing.

3.5. Analysis of subsidiarity

Article 113 of the Treaty on the Functioning of the European Union (TFEU) provides that:

"The Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition."

The national VAT returns can be seen, due to the differing amounts of information to be provided in the national language, as adding complexity for businesses which in turn create barriers for businesses supplying goods or services cross border and thereby hampering the functioning of the internal market.

It is therefore necessary to legislate in this area at EU level to remove these barriers and ensure a smooth functioning of the internal market.

Subsidiarity principle

The objectives cannot be sufficiently achieved by the Member States. Standardisation of the VAT return obligation can only be achieved through the EU's legislative process by amending the VAT Directive which sets out general rules on the VAT return.

The current VAT Directive already includes rules on returns (articles 250 to 261). It is these rules which provide Member States with only minimum requirements and offer them the option to add national requirements. This initiative is therefore not about creating new rules in the VAT Directive but simply about amending those existing rules.

On the other hand, reducing the frequency of filling in VAT returns, notably for micro enterprises, could be decided at the national level. However, for micro enterprises it is justified to provide a common reporting period so there is legal certainty when submitting VAT returns in different Member States as to those rules. To require different national filing periods to those standardised at EU level would add unnecessary complexity and undermine the very objective of this initiative.

Likewise, allowing Member States to retain an annual summarising VAT return would equally undermine the legal certainty for businesses and undermine the objective of creating a common standard since this would lead to divergent approaches and information requirements by Member States. Moreover, as at present certain Member States require more information on annual VAT returns over that contained in a periodic VAT return there is a risk that standard information is circumvented with additional information required on annual VAT returns.

Also, past experience has shown that Member States, if it was left to their own individual initiative, do not show an appetite to reduce the frequency and comprehensiveness of the VAT returns they require from their business community. Over the last two decades, and despite all the good intentions for a reduction in administrative burden, there were few incidences reported to the Commission where a Member State has decided to reduce the frequency of VAT returns (e.g. for micro-enterprises) or to reduce the scope of VAT returns themselves.

Thus, changes for simplification and the reduction in administrative burden must be initiated at the European level. Indeed Member States have been broadly supportive of an EU initiative. This has the benefit of being a coordinated and agreed approach by all Member States requiring changes to be implemented at a given date.

However, concerns from those Member States with few boxes on their VAT returns have made it clear that administrative burdens should not increase through a harmonised EU VAT return with more boxes. The aim though is not harmonisation but the setting of minimum standards above which Member States may introduce or keep simplification measures that go beyond the standard EU VAT return. For instance, quarterly filing for micro enterprises could be extended to SMEs or even all businesses and a common EU e-filing solution can be supplemented by other e-filing solutions. Thus flexibility will continue for Member States.

It remains of course that for those Member States currently requiring more boxes on their national return than the new standard VAT return, important changes will be needed in terms of risk management, information collection and information exchanges between administrations. This will require time and some assistance, which can be offered through exchanges of best practices financed by the Fiscalis programme. For this reason, time will be needed between the entry into force and implementation of the new rules.

At the same time certain minimum standards are needed for simplification to achieve its objective of reducing barriers to cross border trade and administrative burdens on business and this will entail some restriction on Member States. For instance, without a ceiling on the number of possible boxes on a VAT return the complexities for a business to report in different Member States would remain so high as to continue to restrict cross border trade.

Nevertheless any reduction for some Member States on the number of VAT return boxes will not adversely affect their ability to tackle fraud. No evidence has been found to suggest any correlation, and certainly no causality, between limiting the number of boxes on a VAT return and the VAT Gap increasing. In fact there is a slight positive correlation suggesting those Member States with fewer VAT return boxes have a lower VAT Gap.

Despite this it would seem business at national level have been unsuccessful at pushing the tax authorities to reduce administrative burdens on VAT returns. In part this may be down to the fact that as most businesses only submit one VAT return in the Member State where they are established they have become accustomed to the local rules and accept them as they are. It may in part be because the dialogue between business and tax authorities does not allow business to assert their views to draw change. Or perhaps businesses see change in the common VAT system being more appropriately addressed at EU level and it is through this avenue that they have made their views known through the various consultations.

Proportionality principle

To remove obstacles to the proper functioning of the internal market and to reduce burdens on business, limiting the information requirements to that needed for the control and collection of VAT by Member States would be necessary. This would need to be done through amendments to the VAT Directive 2006/112/EC aiming at a standardisation of VAT returns.

A proposal would therefore comply with the proportionality principle.

4. Objectives

4.1. General policy objectives

4.1.1. Main policy objectives

a) Reduce obstacles to cross border trade

Under the country of destination principle, certain supplies are taxable in the Member State where the supply to a consumer takes place and require the supplier to register and declare the VAT in that Member State. This is the case for Business to Consumers (B2C) cross border supplies of goods above the distance selling threshold (distance sales) as well as certain B2C supplies of services e.g. short term hiring of cars (place where the car is put at the disposal of the customer), property (location of property), and cultural, artistic sporting etc. events (where the event takes place).

Should the EU VAT system move to taxing all cross border supplies at the rate applicable in the Member State of destination, then obstacles to cross border trade would increase significantly without a One Stop Shop having a standard VAT declaration.

Without the simplification of a One Stop Shop (OSS) where the supplier could submit his VAT declaration in his own Member State for supplies taxable in another Member State, the supplier is required to submit a VAT declaration direct to the Member State where the tax is due. Clearly, this is a significant administrative burden to the supplier in terms of providing a different set of information in possibly a different language, and it discourages cross border sales. This acts as a barrier to the internal market, which is particularly worrying in the context of promoting e-commerce.

The problem exists too for businesses which have an establishment in more than one Member State, for instance an EU or foreign business with branches or subsidiaries in different Member States. It would be easier to expand EU businesses or attract inward investment in the EU if those businesses were faced with the same VAT declaration in each Member State where they had an obligation to submit a VAT return rather than different VAT returns in each Member State.

Equally important, both for foreign businesses as well as EU businesses that trade in different Member States, is the ability to exploit cost savings through shared service centres[27]. These typically large businesses could save money through economies of scale by having a shared service centre which would complete the VAT obligation of submitting the same VAT return for all Member States. The differences and hence the complexity of the national VAT returns discourages the setting up of an EU wide shared service centre.

Allowing businesses to complete a standard VAT declaration in all Member States where they would normally have to complete a national VAT declaration would reduce an obstacle to cross border trade and promote trade in the single market.

b) Reduce burdens on domestic businesses in order to support growth and competitiveness

The standard VAT declaration is a key action point of the strategy for the future of VAT by helping move towards a simpler VAT system and thereby reducing compliance costs for business. As such it helps reduce burdens on business, an important element of the Better Regulation Agenda, and helps improve the competiveness of EU businesses and thereby stimulate growth and jobs.

Indeed, administrative burdens on businesses for submitting VAT declarations have already been estimated in two studies[28], one by Deloitte (2009) at EUR 19 billion and another by PwC (2013) at EUR 39 billion. This administrative burden can be significantly reduced by a standard VAT return allowing the development of standard reporting and automation of processes.

Furthermore, given that 99% of businesses are classified as SME in the EU the administrative burden reduction will principally affect these smaller businesses.

4.1.2. Specific objectives

Growth friendly fiscal consolidation[29] is one of the five priorities of the Annual Growth Survey 2013[30]. As VAT represents around 21% of national tax revenues[31], and with 12% of VAT receipts uncollected[32], a more efficient fraud proof VAT system is needed. The exchange of timely information between Member States is a key element in reducing fraud and improving compliance.

A standard VAT declaration should facilitate cooperation of tax authorities across borders by making it easier for all Member States to know when, how and what information has been declared by businesses in all Member States. This should facilitate a better sharing of information between the tax administrations.

Voluntary compliance should be facilitated as the differences between the VAT declarations in different Member States as well as the complexity of national returns in individual Member States presently leads to errors and mistakes when submitting VAT declarations nationally or in different Member States. Consequently Member States do not receive the correct amount of VAT at the correct time, and this is in part reflected in the VAT gap (12% of VAT due is uncollected).

The broadening of the scope of the mini-OSS to allow VAT registration, declaration and payment of VAT in the Member State where the business is established will in the long term help to reduce burdens on business involved in cross border trade. The OSS could utilise the agreement of a standard VAT declaration as the basis for the OSS VAT declaration. The standard VAT declaration could prepare for smoother future reforms of the VAT system.

4.2. Consistency of objectives with other EU policies

Communication on the future of VAT

On 6 December 2011 the Commission adopted a Communication on the future of VAT setting out the fundamental characteristics that must underlie the new VAT regime. It lists the priority actions that are needed in the coming years to create a simpler, more efficient and more robust VAT system in the EU tailored to the single market.

The Communication follows the Green paper on the future of VAT which was itself followed by an extensive six month public consultation on how the EU VAT system can be strengthened and improved to the benefit of all stakeholders. The Commission received 1 726 replies from businesses, academics, citizens and tax authorities, a record response to a tax consultation.

The European Parliament (EP), the European Economic and Social Committee (EESC) and the Tax Policy Group (who are the personal representatives of the EU's finance ministers) welcomed the Green Paper and confirmed the need to reform the VAT system.

The Communication sets out the commitment under the move towards a simpler VAT system to "propose in 2013 that a standard VAT declaration should be available in all languages and optional for business across the EU".

It is also a key element in satisfying the wishes of Member States through the ECOFIN conclusions of 15 May 2012 that any proposal is preceded by consulting all stakeholders and identifying the advantages and disadvantages of all options concerned.

Action Programme for Reducing Administrative Burdens in the EU

The Commission's Action Programme for Reducing Administrative Burdens in the EU aims at reducing the administrative burden stemming from EU legislation by 25% by 2012.

VAT legislation is a key area for further burden reduction and the Communication on the future of VAT mentions that compliance costs for business represent 2% to 8% of VAT receipts. The compliance costs are significantly higher when businesses are involved in cross border trade. Furthermore compliance costs are disproportionately higher for small businesses.

The Final Report on the measurement and reduction of administrative costs in relation to the Tax Law (VAT) of 5 March 2009 makes recommendations on how administrative burdens can be reduced for VAT declarations. In addition to harmonising the frequency and the threshold for submission, as mentioned by the Stoiber Group, it suggests that consideration should also be given to "implementing a uniform VAT return throughout all 27 Member States".

Single Market Act II

Recent economic developments in the EU have further emphasized the need for a new growth initiative aimed at further deepening, modernizing and strengthening the Single Market. This initiative has been in particular called for by the Spring European Council. The Commission presented a Communication on the Single Market Act II[33] entitled "Together for new growth" on 3 October 2012. One of the initiatives mentioned in the Single Market Act II was the proposal for a standard VAT declaration as a means to further improve the business environment.

Annual Growth Survey 2012

The deepening of the Single Market was also recommended in the Annual Growth Survey 2012[34] in the section on "Growth Friendly Tax Policies in Member States and Better Tax Coordination in the EU" through the revamping of the VAT Directive, as presented in the Communication on the Future of VAT, which includes the proposal for a standard VAT declaration.

Digital agenda

A standard VAT declaration would look to increase the efficiencies of using technology to deal with tax authorities by setting a minimum standard for the use of electronic submissions. This should be flexible enough to provide for submission either through a web portal hosted by the Member States or by allowing electronic file transfers.

Equally the standard VAT declaration should build on work undertaken by DG CNECT on the interoperability of advanced electronic signatures. A solution to electronic filing of VAT returns throughout the EU could be based on electronic signatures whereby an electronic signature authorised in one Member State can be used to submit VAT returns in all Member States.

Tackling fraud and evasion

At the March 2012 European Council, Member States asked the Commission "to rapidly develop concrete ways to improve the fight against tax fraud and tax evasion, including in relation to third countries and to report by June 2012". The Commission issued a Communication to the Council on concrete ways to reinforce the fight against tax fraud and tax evasion in readiness to the EU Summit at the end of June and pledged to publish an Action Plan[35] before the end of 2012.

The Communication on an Action Plan to strengthen the fight against tax fraud and tax evasion mentions giving Member States' tax administrations direct access to relevant areas of each other's national data bases together with an extension of the scope of automated access in the VAT area should also be envisaged. The standard VAT declaration can provide a basis for which an easier exchange of information is possible. This is notably due to the fact that all Member States will collect from all business standardised information, which will be comparable from one Member State to another.

Communication on Smart Regulation

In the Communication on Smart Regulation – How to respond better to the needs of small and medium-sized enterprises, the Commission sets out the areas where EU legislation is most burdensome for SMEs, action that has been taken to address those burdens and the future priority files in the Commission Legislative Work Programme (CLWP) 2013 to help reduce red tape for SMEs. This should especially hold for micro enterprises.

As far as individual SMEs replying to the questionnaire are concerned, VAT is the most burdensome EU legislation for them. A key measure included in the CLWP to reduce burdens on business is a proposal for a standard VAT declaration.

5. Policy Options

5.1. Possible options

The following policy options have been considered. However, some of them have been discarded at an early stage.

5.1.1. No EU action (benchmark)

Member States would continue to require a national VAT return for the information they would set and with their own rules for submission. This means that large divergences between the 27 different national VAT returns will continue to apply, meaning the complexity for businesses and the associated administrative burden would not diminish. At the same time, and as a consequence of the foreseeable intensification of cross-border activities in a further globalising world, more and more companies, including SMEs and mid-cap companies would be confronted with a plethora of different requirements for filling in non-approximated VAT returns.

In the limited area of cross border supplies of telecom, broadcasting and e-services to private consumers the mini-One Stop Shop has a standard exchange between Member States of VAT return information[36].

5.1.2. Non-regulatory option (discarded)

The EU could consider as well making Member States aware of their differing information requirements on VAT returns and look to agree through an exchange of best practices on a standard VAT declaration by means of working groups in the Fiscalis programme.

Indeed Member States have already acknowledged that large differences exist between their national VAT returns and this was highlighted recently at the Fiscalis seminar in Portugal in October 2012. Nevertheless, Member States gave no indication that they would be willing to move towards a common VAT return through their own initiatives but rather each defended their national returns.

What is difficult to overcome in a non-regulatory action is the incentive or the driver for change. At present each Member State designs its VAT return, including the content, submission and corrections, based on national considerations such as how internal control is organised, the structure of businesses (large or small, trade classification, etc.) and risk management systems.

Typically, the design of the returns has been "path dependent", i.e. whenever new information needs occurred they were simply added without checking for the necessity of old information requests to be maintained or not. The EU dimension, as well as the specific needs of foreign companies, has so far not been a relevant factor influencing the design of national VAT returns.

This leads to divergences that only legislation at EU level can address. In fact the problem today is exactly that the EU legislation clearly leaves the option open to all Member States to design national VAT returns based on national characteristics and preferences, and there does not seem to exist any incentive to check whether all the information requests imposed on businesses are still fit for purpose or serving any longer any purpose at all.

For these reasons, it is unlikely that any "soft law" would be successful; the option has thus been discarded already at this stage.

5.1.3. Legislative approach in the context of extending the mini-one-stop-shop (discarded)

In principle, when extending the mini-OSS (MOSS) to all other sectors, there would be a need to agree on a standard declaration as well. However, there are two drawbacks to achieving a standard VAT declaration through an extended MOSS.

The first is that Member States would not agree to any enlargement before first being able to evaluate the MOSS and so any changes would be unlikely before 2020 to allow a two year evaluation of the MOSS, a further year for a Commission proposal and adoption by Council, and then two more years for the necessary IT changes before businesses could begin using an enlarged MOSS.

Secondly, the scope of the One Stop Shop is essentially only concerned with businesses involved in selling goods or services in other Member States. Thus it addresses situations in which the business is not established in the Member State where the tax is due but does not address the national VAT return. Consequently, two distinct VAT returns could possibly co-exist, a national VAT return for businesses established in the Member State where the tax is due and a One Stop Shop VAT return for non-established businesses.

5.1.4. Stand-alone legislative approach (pursued further)

In the light of the above, the only option that could really deliver on simplification and administrative-burden reduction within an acceptable timeframe would, thus, be a stand-alone legislative approach prescribing a simplified and standardised VAT declaration at the EU level.

5.2. Options (with sub-options) retained

There are various options to consider in a legislative approach such as in which areas legislation is needed and how the proposal is framed. The VAT Directive already covers some areas such as the information required, as well as the period of the VAT return, the due date and when the corresponding payment is made, and electronic submission. It does not cover how corrections should be made.

5.2.1. Type of legislation

The following legislative changes could be proposed.

VAT Directive

• The VAT directive could be amended to require Member States to offer the standard VAT declaration

Implementing Regulation (to the VAT Directive)

• It can set out the detailed information for the standard VAT declaration

• It can determine how corrections, etc. should be treated

• It could define electronic submission methods

The Implementing Regulation would be proposed only once agreement was reached on the amendment to a VAT Directive.

5.2.2. Implementation timing

Time will be needed between the entry into force and implementation in order to adopt the necessary secondary legislation, but also for Member States to adapt their IT systems as well as their collection and control methods.

5.2.3. Scope of a standardised VAT declaration

There seem essentially four options that can be considered. The options a) to c) have been considered in the PwC study, and following discussions with business stakeholders and Member States on these options a further option d) has been developed.

a) Compulsory standard EU VAT declaration (for both business and Member States)

All Member States and all businesses would be required to use the standard VAT declaration and any national VAT return would be abolished.

b) Standard VAT declaration optional for all business (compulsory for Member States)

An alternative to a compulsory use of the standard VAT declaration would be to allow businesses (domestic and international) the choice between this declaration and the national VAT return. Not opting for the standard VAT declaration could be advantageous for businesses who for instance only submit one national VAT return which is less burdensome to complete than the standard VAT declaration. Opting in would only be possible for the standard EU VAT declaration. Once a company has opted in it would no longer be allowed to switch back to the national model. Under this system, Member States would be obliged to keep in parallel procedures and infrastructures in place for both their traditional national VAT return and for the new standardised return.

c) Standard VAT declaration optional for those businesses submitting VAT returns in more than 1 Member State (compulsory for Member States)

As a variant of the previous option it could be considered to restrict the standard VAT declaration to only those businesses that have a need for a common VAT return because they submit VAT returns in different Member States. This option therefore focuses solely on the single market aspect and would offer no simplification for purely domestic businesses.

d) Compulsory standard VAT declaration with limited flexibility for Member States to determine the information from a standardised list

This is an alternative based on a compulsory standard VAT return in which the standard VAT declaration is obligatory for both businesses and Member States but the level of information is determined by the Member States with the maximum of information required limited by the standardised return. There is a standard list of boxes with some optional for the Member State not to require. Having this additional flexibility would mainly be attractive for Member States and businesses in Member States that already have a more simplified return in place to the one proposed as the standard model.

5.2.4. Contents of the standard VAT declaration

Various options could be considered. One could be to choose an existing simple VAT return, such as the Irish VAT return which has the fewest number of boxes or that of Finland considered easy by business to complete. At the other extreme the content could be a compilation of all the information required on all VAT returns, leading to a VAT return with substantially more than 100 boxes to be filled in. These have been discarded in favour of the approach of starting without any preconceptions.

The method suggested in the PwC study was to provide information to help business self-assess the VAT due and to provide Member States information for risk and control. This model was then proposed to both the business community and Member States for comments and suggestions. The idea had been to find a good balance between the preferences of business to reduce administrative burden and the need of Member States to receive information for proper tax collection and effectively fighting tax fraud, and, thus, to learn from best practices applied in Member States. This approach resulted in a draft VAT declaration consisting of 36 boxes to be filled in. The model standard VAT return of PwC is in Annex 9.5.

In terms of analysing the impact the model designed by PwC has been used as the comparison with national VAT returns.

5.2.5. Periodicity and due date

Again various options could be considered. All current national legislation could remain allowing Member States to set the return period at one month or any longer period up to one year. Alternatively, it could be harmonised at a set period, say calendar months or quarters, or longer periods for smaller businesses.

The maximum time for submitting the VAT return is currently set in the VAT Directive at a maximum two months after the end of the return period. This flexibility could continue, be extended or standardised at a set maximum time for all businesses with additional flexibility for smaller businesses.

The approach suggested in the PwC study and being at the core of this impact assessment is a standardised period of one month with micro enterprises allowed quarterly filing, and payment required on submission of the VAT return. The impact of periodicity is nevertheless evaluated separately.

5.2.6. Annual VAT return

The annual summarising VAT return could be kept, abolished or standardised.

However, any decision on the annual VAT return should consider its purpose. The annual summarising VAT return, as set out in Article 261 of the VAT Directive, provides the periodic information already submitted aggregated for the year to allow annual adjustments to be made. Given the standard VAT return, as devised by PwC, provides a box for adjustments any annual VAT return is redundant.

Moreover, current practices of Member States requiring an annual VAT return are to typically demand more information. This circumvents the objective of creating a standard VAT return.

Thus, given the content of the standard VAT return and the need to establish a common standard the option would be to abolish the annual VAT return.

5.2.7. Other issues (E-filing, corrections)

The VAT Directive requires all Member States to allow e-filing and provides that it can be made mandatory. There is no rule on the format of e-filing.

Options could include keeping the current rules, making e-filing compulsory or requiring Member States to require a minimum format e.g. XML. A common security measure, such as a logon and password or e-signatures could be considered.

No rules currently exist on how VAT returns should be corrected. Examples of options chosen by Member States include re-submitting the VAT return, providing a separate form detailing the changes or making adjustments on subsequent VAT returns. The method chosen can affect any penalties or interest that may be due.

In the area of corrections further work on a common standard is needed through implementing rules.

5.3. Options considered

In the light of the above, 4 main options have been developed, with sub-options e.g. periodicity, annual VAT returns, that are all having in common that the content of the standard VAT declaration is based on the model developed by PwC, after consultation with businesses and Member States. The options also have in common that they foresee more use is made of e-filing and common rules will be developed for submission and corrections.

However, the four options first differ in terms of the scope along the scenarios presented under section 5.2.3. Moreover, for each of these four options two sub-options are analysed: one, where the frequency for the submission by micro-enterprises is not altered and a second one where it is assumed that the frequency of submission by micro-enterprises is limited to a quarterly submission in those countries where it is not the case yet.[37] In this second sub-option there can exist once again different sub-options, e.g. whether this reduction to quarterly submissions is mandatory or voluntary and whether quarterly submissions are accompanied by monthly interim payments or not. Also, these four options differ with respect to the need or not to also submit an annual VAT return on top of the monthly and quarterly returns.

Nevertheless, all these options have in common in their basic version that the "standardisation" consists of three elements:

· a simplification and standardisation of the content of the VAT return itself,

· a standardisation of monthly returns with the option of quarterly periodicity for micro-enterprises so as to make sure that the benefits of the standardisation element is not partially lost in having different periodicities throughout the EU,

· an abolishment of the summarising annual VAT return so as to avoid that the simplification and standardisation achieved on the normal monthly and quarterly VAT returns will be offset by non-standardised and more complicated annual VAT returns.

It should also be stressed that the two last elements are for each option only "offered" to those businesses for which the declaration is the new standardised one, as they are closely linked to the first element (the standardisation one).

The analysis in chapter 6 will, however, break down cost and cost savings for each individual element so that policy makers could make an informed choice in case they wanted to opt for variants of the different options.

Table 5.3.1: Summary description of the various options

Option || Description || Member States || Business

A || Do nothing || No change || No change

B || Compulsory standard EU VAT declaration || Compulsory (instead of national) || Compulsory for all

C || Standard VAT declaration optional for all business || Compulsory (on top of national) || Opt-in for all

D || Standard VAT declaration optional for those businesses submitting VAT returns in more than 1 Member State || Compulsory (on top of national) || Opt-in for international businesses only

E || Compulsory standard VAT declaration (option B) with flexibility for Member States to determine the information from a standardised list || Compulsory (instead of national) || Compulsory for all

As can be seen from the above table all four legislative options would oblige Member States to provide a standard VAT declaration. This is because experience has shown (see section 2.3) for the options B to E, if Member States were given the option whether or not to apply the standard VAT declaration the result would be the same as option A and there would be little or no change.

6. Assessment of Impacts[38]

6.1. Background figures characterising the baseline (Option A)

There are about 30 million companies in the EU that are obliged to fill in national VAT returns. About 0.2% of these companies are large companies, 1.1% are so-called medium-sized companies, 6.5% are small companies and the vast majority, and 92.2% are micro-enterprises with an annual turnover of less than EUR 2 million (and with an average gross value added of less than EUR 70 000). Around 65% of all companies declare an annual turnover of less than EUR 100 000 and contribute less than 2% to all VAT revenue collected. This group also comprises a large number of companies that in individual Member States would have benefited from the SME exemption applicable but prefer to submit VAT returns either because their net VAT liability is negative, i.e. they get higher refunds from VAT paid on their purchased inputs than they have to pay on their taxable output, or their customers are fully taxable so can recover any VAT charged. About 13% of all companies have to submit VAT returns in several Member States of the EU as they are economically active (in VAT terms) in more than one Member State.

These 30 million companies are submitting almost 150 million VAT returns annually, of which the vast majority (more than 130 million[39]) have to be submitted by micro-enterprises. At the same time, VAT revenues paid by these micro-enterprises are a small percentage of total VAT revenues collected.

Two studies, Deloitte (2009) and PwC (2013), have quantified the annual cost for businesses submitting VAT returns in the EU; the former study estimated the cost at EUR 20 billion and the latter at EUR 39 billion (EUR 43 billion including annual summary VAT returns). The difference between these two studies is explained in Table 9.6.1 in Annex 9.6 and is largely due to the underrepresentation of SMEs in the PWC sample (of the 19 completed questionnaires for the standard cost model 18 were by large businesses and 1 was by an SME).

For the purposes of this Impact Assessment the figures for large businesses are based on the PwC study as this forms the basis of their sample and for SMEs the figures from Deloitte are taken adjusted for the wage level used by PwC. It was possible to use the Deloitte study, which is clearly not outdated in this field, as there has been little change to the relevant national legislation and as the outcome of the two studies in average number of minutes to complete a declaration are very close to each other.

The costs for submitting these 150 million VAT returns are very significant, and are estimated to sum up to about EUR 30 billion annually.[40] This corresponds to about 3.5% of annual VAT revenues and 0.25% of the GDP of EU27. These costs consist of in-house recurring cost (such as gathering information, preparing the VAT return, answering to questions from tax authorities etc.) for submitting monthly or quarterly VAT returns, consultancy fees for purchasing expertise and one-off cost such as the summarising annual VAT returns.

Of these EUR 30.65 billion annually about EUR 0.48 billion (EUR 0.26 billion recurring, EUR 0.18 billion consultancy fees and EUR 0.04 billion for annual VAT returns) fall on large businesses, about EUR 5.98 billion (EUR 3.21 billion recurring, EUR 2.23 billion consultancy fees and EUR 0.54 billion for annual VAT returns) on SMEs and about EUR 24.19 billion (EUR 12.97 billion recurring, EUR 9.03 billion consultancy fees and EUR 2.19 billion for annual VAT returns) on micro-enterprises.[41]

The cost for the 27 Member States to manage these 150 million VAT returns consists of recurring costs (such as verifying consistency and plausibility of information provided, gathering additional information, etc.) and one-off cost (such as IT, training verifying annual returns). They are, however, impossible to quantify, given that Member States do not provide information on the cost-breakdown by such activities.

However, information from the UK is available through the Annual Report and Accounts (2010-11) published by HM Revenue & Customs[42] on the general cost of VAT collection. For each £1 of VAT receipts the UK estimates it spends 0.70 pence in collection costs. In the financial year 2010-11 the UK had VAT receipts of £90.3 billion, and therefore VAT collection costs of £65 million.

It is though difficult to know whether the UK is typical of the EU as a whole. If this was the case then total EU VAT receipts of EUR 860 billion in 2010 would equate to total VAT collection costs of EUR 6 billion (EUR 860 billion x 0.007%).

6.2. Basic characteristics of the retained options

The four options retained all take as a starting point that agreement is found on the content of a standard VAT declaration requiring (a maximum of) 36 fields to be filled in. This is based on the standard developed by PWC, which is suggested as the one which should be included in the proposal. Although implementing rules will set the technical details of the form, the level of information required will be set in the directive. In case Council would adopt a final directive with more or less boxes, all estimates would of course vary accordingly.

The question as regards the scope of the use of this standardised VAT return is answered differently in the four scenarios:

Under option B, all 27 Member States and all 30 million companies submitting VAT returns would have to switch to using the new standardised VAT return. Old national VAT returns would cease to exist.

Under option C, all 27 Member States would be obliged to accept both the new standardised VAT return and the old national VAT returns. Businesses would then be able to opt for one of them. In consequence, Member States would have to offer and manage both forms for their taxable persons. It can be expected that only businesses for which the cost of the baseline scenario (recurring cost of national VAT returns plus – where applicable - cost of the summarising annual VAT return) are higher than the cost of the standardised VAT return would switch. This is assumed to be the case in 19 out of the 27 Member States that have more complicated VAT returns, so that switching would make economic sense also for purely domestically oriented businesses.

It is first assumed that all of the internationally active businesses from all Member States will switch to the new system. However, as a result of inertia or because they consider one-off switching costs are higher than longer lasting savings in recurring costs, only 80% of the purely domestically oriented businesses in these countries will opt for the new system, while none of the domestically oriented businesses in the other 8 countries will do so.

Under option D, all 27 Member States would be obliged to accept both the new standardised VAT return as well as their old national one. On the business side, however, only those companies submitting VAT returns in more than one Member State (so-called "target companies" in the PwC study) would be allowed to opt for the standardised VAT return. It is assumed that in principle all companies with multiple VAT registration will opt for the common EU standard VAT return because they will gain from standardisation and they can achieve economies of scale at group level. However, it might also be safe to assume that some (20%) of the companies located in one of the 8 Member States already presently having simpler VAT returns than the one proposed as an EU standard might be reluctant to switch.

Under option E, all 27 Member States and all 30 million companies submitting VAT returns would have to switch to using the new standardised VAT return. Old national VAT returns would cease to exist. However, as compared to option B, Member States would not be obliged to request from their companies to fill in all 36 boxes and to process this information. Instead, they might want to opt for a return only comprising of a subset of these 36 boxes. This might be attractive for those 8 Member States that already process simpler VAT returns. It is assumed that all 8 Member States will limit the information requests through the VAT declaration to those pieces of information that they collect today.

Moreover, for each of the above four scenarios two sub-scenarios are analysed with respect to the periodicity of having to submit a VAT return:

In each sub-scenario it is assumed that the periodicity for micro-enterprises is reduced – where applicable – to a quarterly submission instead of a monthly submission. This would reduce the annual number of VAT returns from about 150 million to about 120 million , as presently almost all Member States (with the exception of Denmark, Italy, Malta, Spain, Sweden and the UK ) request from at least a part of their micro-enterprises the filing of VAT returns on a monthly basis. In this scenario, it is also assumed that the periodicity of the filing of VAT returns is synchronised with the periodicity of the payment/reimbursement of VAT.

In each sub-scenario it is assumed that the periodicity does not change as compared to the status quo.

Finally, as regards the filing of summarising annual VAT returns also the option is analysed where businesses in those seven Member States that request the submission of such returns[43] would no longer have to do so.

6.3. Administrative burden for businesses – including for SMEs[44]

Under Option B all 27 Member States and all businesses, be they simply domestically active or internationally active would switch to the Standard VAT return where 36 boxes would have to be filled in. Monthly VAT returns for micro-enterprises would – where applicable – replaced by quarterly returns and the summarising annual VAT return would – where applicable - be abolished. When not taking set-up and switching cost into account, this would trigger annual gross benefits (estimated at EUR 15 billion[45] - including quarterly filing for micro enterprises and abolishing annual VAT returns) linked to the management of these returns for all businesses in EU19. These benefits would be triggered by time savings generated by having to fill out less complicated returns standardised (across borders) and by a reduced need to "buy in" consultancy services. Also, internationally active businesses could benefit from some economies of scale where they concentrated the tasks in an in-house coordination centre. On the other hand, for domestically oriented businesses in EU8 that presently benefit from even simpler VAT returns annual administrative costs would increase somewhat (estimated at EUR 3 billion). The net saving would therefore be at EU level EUR 12 billion.

However, these benefits (and costs) do not come for free in all instances, as at least some switching cost for businesses in all 27 Member States can be expected. Some of these switching costs can be assumed to be absorbed in the context of normal updates of software or other regular adjustments of procedures, while other costs might be assumed by Member States themselves when providing the necessary IT tools for VAT returns for free to their clients. When assuming additional set-up and switching costs at about EUR 150 per company overall once-off set-up and switching costs for the entire population of 30 million companies would add up to EUR 4.25 billion[46].

In a variant of Option B it is foreseen that only the VAT return is standardised and that all micro enterprises that presently have to submit VAT returns on a monthly basis would continue to do so (no option for quarterly filing for all micro enterprises). This would affect about 4.3 million micro enterprises[47] in 20 Member States. If 80% of those eligible would do so (while the other 20% might prefer to continue submitting their VAT returns on a monthly basis as they expect refunds) this could trigger lost cost savings in the order of magnitude of EUR 1.8 billion[48].

In another variant of Option B it is foreseen that the obligation of submitting summarising annual VAT returns would not be abolished for all companies in those countries requiring such returns. This variant would generate additional lost annual cost savings for affected businesses in the order of magnitude of EUR 2.8 billion[49].

Under Option C only those businesses would switch to the standard return for which the combined costs of switching and of recurrent costs were lower than the benefits accruing from time savings, standardisation (across borders) and less need to consult outside experts. As it is assumed that all of internationally active businesses (about 3.8 million) and about 80% of those businesses that are registered in EU19 with more complicated VAT returns will switch to the standard return, the expected cost savings for recurrent expenditure would amount to EUR 7.2 billion[50], of which EUR 4.5 billion would accrue to the internationally active businesses. Including savings from consultancy costs (EUR 5.6 billion[51]) and abolishing the annual VAT return (EUR 1.9 billion[52]) the total savings are in the order of EUR 15 billion. These benefits would be triggered by time savings generated by having to fill out less complicated returns standardised across borders, harvesting economies of scale and by a reduced need to "buy in" consultancy services.

However, also under Option C these benefits (and costs) do not come for free in all instances, as at least some switching cost can be expected. Under the same cost assumptions as for Option B, but applied to a smaller population of businesses, overall set-up and switching costs for the affected business population of 20.4 million companies (0.4 million large businesses, 1.4 million SMEs and 18.6 million micro enterprises) would add up to EUR 2.9 billion.

In a variant of Option C it is foreseen that all micro enterprises that presently have to submit VAT returns on a monthly basis would have to continue to do so. This would represent about EUR 1.8 billion in lost savings.

In another variant of Option C it is foreseen that also the obligation of submitting summarising annual VAT returns would not be abolished for all companies in those countries requiring such returns. This variant would generate additional lost annual cost savings for affected businesses lower than those in scenario B, i.e. about EUR 1.9 billion.

Under Option D only internationally active business would be allowed to switch to the standard declaration, and they would benefit – where applicable – from having to submit returns only on a quarterly basis and from no longer having to submit the summarising annual return. For the business not being active internationally, nothing would change under Option D. As it is assumed that all of the internationally active businesses (about 3 million) will switch to the standard return, the expected cost savings for recurrent expenditure (for these enterprises) would amount to EUR 6 billion only. These benefits would once again be triggered by time savings generated by having to fill out less complicated returns standardised across borders, harvesting economies of scale, by a reduced need to "buy in" consultancy services and by (where applicable) no longer having to submit monthly and annual returns. In this scenario, the switching cost would then be limited to EUR 500 million[53].

In a variant of Option D it is foreseen that all micro enterprises that are being offered the standard declaration that presently have to submit VAT returns on a monthly basis would have to continue to do so. This would represent about EUR 0.8 billion[54] in lost savings compared to the EUR 6 billion. Another variant of option D would be on the contrary to offer the reduced periodicity to all micro-companies (even to those not benefitting from the standard declaration), the additional saving compared to the EUR 6 billion would then be of EUR 1 billion[55].

In a last variant of Option D it is foreseen that also the obligation of submitting summarising annual VAT returns would be abolished for all companies in those countries requiring such returns. This would represent about EUR 0.8 billion[56] in lost savings.

Under Option E all 27 Member States and all businesses, be they simply domestically active or internationally active would switch to the standard VAT return where (up to) 36 boxes would have to be filled in. When not taking set-up and switching cost into account, this would trigger annual gross benefits (estimated at EUR 15 billion) linked to the management of these returns for all businesses in EU19. These benefits would be triggered by time savings generated by having to fill out less complicated returns standardised across borders and by a reduced need to "buy in" consultancy services. Thus, this part of the cost savings would be similar to those under option B. Moreover, and in contrast to option B, for businesses in EU8 that presently benefit from even simpler VAT returns annual administrative costs would under this scenario (contrary to option B) not increase as it is assumed that their countries of establishment would simply ask to fill in those boxes that they would be obliged to fill in already under the existing national forms.

Under this option, once-off switching costs for the entire population of 30 million companies would at first glance – as in scenario B - add up to EUR 4.25 billion. However, as measurable switching cost might not occur in those countries that had simply requested the same information (although under a standardised format) as before, overall switching cost under this scenario might remain limited to EUR 2.9 billion[57].

In two variants of Option E it is – as under the other options - foreseen that all micro enterprises that presently have to submit VAT returns on a monthly basis would continue to do so and/or also the obligation of submitting summarising annual VAT returns for all companies in those countries requiring such returns. These two variants would generate additional annual cost savings for affected businesses in the order of magnitude of EUR 1.8 billion and EUR 2.8 billion respectively.

The below table summarises and compares the effects of the different options and sub-options on administrative burdens on the business community in the entire EU, and broken down by size class of companies.

Table 6.3.1: Administrative burden for businesses (billion €)

Option || A || B || C || D || E (with max savings)

|| || || || ||

Total annual cost || 30 || 18 || 15 || 24 || 15

|| || || || ||

Total annual net saving (*) || 0 || 12 || 15 || 6(**) || 15

|| || || || ||

Split per size || || || || ||

Large || 0 || 0.1 || 0.1 || 0.1 || 0.1

SMEs || 0 || 1.3 || 1.5 || 0.7 || 1.5

Micro || 0 || 11 || 13 || 5.8 || 13

Total annual net saving (rounded) || 0 || 12 || 15 || 6 || 15

|| || || || ||

Split per type of business || || || || ||

With activity in 1 MS || || || || ||

- in simple MS (EU 8) || 0 || -3 || 0 || 0 || 0

- in complex MS (EU 19) || 0 || 9 || 9 || 0 || 9

With activity in several MSs || 0 || 6 || 6 || 6 || 6

Total annual net saving || 0 || 12 || 15 || 6 || 15

|| || || || ||

Split per type of cost || || || || ||

Regular return, including periodicity, simpler and standardised return || 0 || 4.4 (1.8 for periodicity micro) || 7.2 (1.8 for periodicity micro) || 4.5 (0.8 for periodicity micro) || 7.4 (1.8 for per