No C 237/14 Official Journal of the European Communities 12. 9. 88 
4.9. Article 6: Fees 
The Article should add that the fees should be pub­
lished. 
4.10. Article 7: Contracts with subscribers 
The termination notice should be a minimum of 
3 months and a maximum of 3 years (which is consistent 
with ECAC, although the latter does not specify a 
minimum contract period). 
4.11. Article 8: Commissions 
The Committee supports this clause but believes airlines 
should have the right to take action against subscribers 
to safeguard their integrity by, for example, refusing to 
allow ticketing or pay commissions to unscrupulous 
agents. 4.12. Article 10 (iv) 
A parent carrier should have reciprocal rights to partici­
pation in competing CRS. The Commission should 
make clear that failure to allow such rights would 
be an 'objective and legitimate reason' for refusal to 
participate in a competing CRS. 
4.13. Additional Article (perhaps after Article 2) 
It should be made clear that all data relating to a 
participating carrier should be passed on to a parent 
carrier only on the same terms as they are made avail­
able to all participating carriers except that data relating 
to any individual should be made available only to the 
carriers involved in the booked journey. 
Done at Brussels, 6 July 1988. 
The Chairman 
of the Economic and Social Committee 
Alfons MARGOT 
Opinion on the completion of the internal market: Approximation of indirect tax rates and 
harmonization of indirect tax structure (Global communication from the Commission) 
(88/C 237/05) 
On 11 September 1987 the Council decided to consult the Economic and Social Committee 
under Article 198 of the Treaty establishing the European Economic Community, on the 
abovementioned communication. 
The Section for Economic, Financial and Monetary Questions, which was responsible for 
preparing the Committee's work on the subject, adopted its Opinion on 11 and 12 April 
1988. The rapporteur was Mrs Robinson. 
At its 257th plenary session (meeting of 7 July 1988), the Economic and Social Committee 
adopted the following Opinion by 112 votes to 8 with 11 abstentions. 
1. Introduction 
The Commission's proposals can be summarized as 
follows: the creation of an internal market will promote 
economic growth; this requires (among other things) 
the abolition of fiscal frontiers and to this end the 
Commission proposes that the concept of imports and 
exports between the Member States should end and that value added tax (VAT) on sales between Member 
States should be as on domestic sales. A clearing house 
should be established to ensure a proper distribution of 
VAT revenues. In order to present distortions of trade 
and competition following the removal of border 
adjustments for VAT the Commission proposes an 
approximation of VAT rates. Two rates of VAT are 
proposed with individual countries allowed a band of 
12. 9. 88 Official Journal of the European Communities No C 237/15 
between 14 and 20% standards rate and 4 to 9% 
reduced rate. The bases of excise duties on cigarettes, 
tobacco, alcohol and mineral oils are to be standardi­
zed, and the rates equalized. Member States are free to 
choose their own routes to this goal provided that it is 
attained by 31 December 1992. 
2. General comments 
2.1. The Commission has argued that abolition of 
'fiscal frontiers' will have a regenerative effect on the 
economy of the European Community and provide 
economic growth, but it has presented little indication 
on the totality of benefits and disadvantages that may 
be expected. The Commission has not yet collected and 
collated evidence from Member States on the costs 
(budgetary, social and economic) to them of the current 
proposals for harmonization/approximation of indirect 
taxation. The Commission should, as matter of 
urgency, require the Member States to submit the 
requested reports on the effects of the proposed 
changes, and should draw up an account of the benefits 
and the costs of the proposals for fiscal harmonization. 
2.2. In view of the necessity to make arrangements 
for the removal of fiscal frontiers, the Committee greets 
with great interest the Commission's detailed proposals 
for approximation of indirect tax rates and harmoniza­
tion of indirect tax structures outlined in the global 
communication under consideration [doc. COM(87) 
320 final]. 
2.3. The Committee has already stated in earlier 
Opinions that it supports fully the objective of the 
creation of the internal market. It is necessary, if this 
objective is to be achieved, that border checks related 
to fiscal adjustments are eliminated by 1992. 
2.4. The Committee fully endorses the aim of remov­
ing all frontiers and all border checks by 1 January 
1993 including those checks now made for the collection 
of indirect taxes due (VAT and excise duties). The 
concepts of 'export' and 'import' shall cease to apply 
to intra-Community trade. The Committee agrees that 
this change is necessary to permit free movement of 
goods and services within the Community (see the 
ESC Opinion on doc. COM(87) 322, Removal of fiscal 
frontiers). 
2.5. The Committee accepts that it may be desirable 
to create some of compensation system such as a clear­
ing house to assign VAT revenues to Member States. It considers that this proposal still requires further 
study, as it raises complex problems which are not 
adequately solved by the Commission proposals in their 
present form. 
2.6. The Committee's views on the Commission's 
proposals for excise duties are set out in the Opinions 
on the convergence of rates [COM(87) 324 final], excise 
duties on alcohol [COM(87) 328 final] and excise duties 
on mineral oils [COM(87) 327 final]. It is regretted that 
the Commission has not yet brought forward its views 
on the operation of the bonded warehouse system. 
3. VAT and competition 
3.1. The provision that VAT on sales between Mem­
ber States should be charged on exactly the same basis 
as on domestic sales removes the need for border checks 
in respect of trade between VAT-registered businesses. 
3.2. If Member States were left free to set their 
own rates of VAT there would be no distorsion of 
competition between VAT-registered business. The 
VAT rate would be that prevailing in the country of 
consumption whether a good was home-produced or 
purchased in another Member State. But there would 
be a problem with cross-border shopping by those not 
registered for VAT, i.e. consumers, and, more generally, 
the problem of trade between Member States by non-
VAT registered businesses such as banks and insurance 
companies, public bodies, and some small firms and 
farmers. 
It must be ensured, however, that the removal of border 
checks does not seriously disrupt the operation of the 
single market, as the present situation guarantees strict 
equality between countries and products as regards 
competition. 
3.3. If VAT rates were completely harmonized there 
would be no distortion of competition between regis­
tered businesses. Also tax advantages of cross-border 
shopping by non-registered persons would be elimin­
ated. But complete harmonization would create the 
maximum difficulties for Governments. They would 
lose all control over indirect taxes. Some Member States 
would face acute revenue problems; and Member States 
could no longer pursue their own social objectives or 
reflect their national traditions through their indirect 
tax rates. 
3.4. The Commission has proposed a pragmatic 
scheme which represents an intermediate position 
No C 237/16 Official Journal of the European Communities 12. 9. 88 
between total freedom and complete harmonization of 
rates. It may be argued that the Commission's proposals 
are move restrictive on Member States than is necessary 
to attain the desired objective. The Commission's pro­
posals restrict considerably Member States' freedom to 
use indirect taxes for revenue or social purposes; they 
create severe revenue problems for some countries such 
as Ireland and Denmark and conflict with the social 
objectives of other counries such as the United Kingdom 
and Portugal. Tax structures and the pattern of govern­
ment finance would also be thrown into complete disar­
ray, as will happen in the Grand Duchy of Luxembourg. 
3.5. The extent of cross-border shopping by non-
registered persons rests very much on geographical con­
siderations. Modifications or derogations, ought to be 
permitted if they do not impede the attainment of the 
objective of removing border controls without distort­
ing competition. For example, the United Kingdom 
and Ireland have no land borders with Member States 
except each other. If both retained zero rating for 
foodstuffs it seems unlikely that this would generate 
distorsion from cross-border shopping. Similarly, it is 
difficult to see how different VAT rates (including zero) 
on goods and services of an essentially social character 
and principally traded internally within Member States' 
own borders, would distort competition. 
3.6. The Committee therefore urges the Commission 
to examine alternatives to its present proposals. It 
should look, in particular, at where and in what prod­
ucts cross-border shopping for goods and services by 
non-registered persons might constitute a serious prob­
lem. As an alternative it should also examine methods, 
such as user taxes, which might be adopted to counter 
the problem. 
4. Excise duties and competition 
The existing structures and rates of excise duties vary 
greatly, and the products subject to excise duty have a 
high unit value. Consequently, after 1992 the cross-
border purchasing power of non-VAT registered indi­
viduals and traders and the potential for thwarting 
the fiscal regulations (smuggling) or for fraud will be 
considerable. This could lead to a serious loss of rev­
enue over the Community as a whole. At all events, the 
harmonization of excise duty structures and rates will 
cause serious problems for some Member States. 5. Detailed comments 
5.1. Since the Commission's proposals concerning 
VAT and excise duties present many difficulties for 
Member States, the Commission should present further 
proposals to eliminate, or as far as possible attenuate, 
such difficulties by means of adequate measures affect­
ing budget and social policies and facilitating the trans­
port of goods and persons. 
5.2. The combined effect of a certain number of the 
Commission's various detailed proposals will cause a 
substantial increase in fares for intra-Community air 
and sea passenger transport. This will weaken the com­
petitiveness of the Community's internal market in 
tourism. The Commission should take these factors 
into account when preparing the proposed separate 
Directive on passenger transport. 
5.3. Other aspects of the taxation and social security 
contributions system may be at least as distorting to 
competition as differences in VAT. 
6. Conclusion 
6.1. The Committee welcomes the Commission's 
pragmatic approach in its proposal on the approxi­
mation of indirect tax rates and harminization of 
indirect tax structure whereby fiscal frontiers will be 
able to be abolished by 1992. 
Whatever decisions are finally made should permit as 
much flexibility to the Member States (to reflect their 
revenue, social and economic objectives) as is compat­
ible with the attainment of free competition in the 
internal market. The Commission should reconsider 
the need for approximation of VAT rates on goods and 
services which are not normally traded across borders 
by non-VAT-registered persons and where different 
VAT rates within the Community will not distort com­
petition. In determining precisely what margin of flexi­
bility might be permitted to Member States, the Com­
mission should consider alternatives to their calculation 
based on the current rates prevailing. 
6.2. It may be necessary to adopt measures to obtain 
agreement form Member States, in particular dero­
gations for zero-rating or for higher rates in countries 
with particular revenue needs. Although there is a case 
for an extended time period, it is generally desirable to 
work to the 1992 deadline. 
The Committee regrets that the Commission has not 
found a solution to a whole array of technical problems 
(supervision of the actual collection of VAT in trade, 
budget and social problems, clearing system, etc.) which 
give rise to concern about whether the planned abolo-
12. 9. 88 Official Journal of the European Communities No C 237/17 
tion of tax frontiers would actually be an improvement 
on the present situation, which is one of rigorous 
observance of equal competition in Community trade. 
6.3. Greater attention should be given to the need 
to improve monitoring, control and coordination of 
national revenue departments to bring technical stan­
dards up to the highest levels so as to eliminate the 
possibilities for fraud and tax evasion. Control may 
prove easier once centred on local administrations freed 
from the necessity to concern themselves with intra-
Community trade flows. Furthermore, once Member 
States no longer have to employ customs staff to deal 
with intra-Community trade, a far more effective ser­
vice can be created to deal with trade with, and the 
movement of citizens to and from, third countries, 
the movement of animals and agricultural products 
to prevent the spread of disease, drug smuggling and 
terrorism. 
6.4. It is important that public support be generated 
for proposals to complete the internal market. Political 
leaders in the Member States should be engaged in 
Done at Brussels, 7 July 1988. stressing the economic benefits which will arise follow­
ing the completion of the internal market. 
6.5. The Committee also considers that the pro­
posals on indirect taxation will in some cases give rise 
to significant changes in the structure of government 
budgets in the EEC. 
The palnned White Paper on direct taxation should be 
published as rapidly as possible and should be the 
subject of a specific Committee Opinion. 
6.6. Quite independently of any criticisms of the 
various micro-economic proposals submitted by the 
Commission, tax convergence, which clearly must also 
include direct taxes and parafiscal charges, cannot be 
considered as an absolute prerequisite for the establish­
ment of the single market. This will require a global 
strategy aimed (a) at the parallel elimination of techni­
cal, physical, tax and administrative barriers, and (b) 
embracing essential macro-economic back-up policies. 
1992 is not the end of this process, but marks a new 
and significant phase along the way. 
The Chairman 
of the Economic and Social Committee 
Alfons MARGOT 
No C 237/18 Official Journal of the European Communities 12. 9. 88 
APPENDIX 
to the Opinion of the Economic and Social Committee 
The following amendments, which were supported by at least a quarter of the votes cast, were defeated 
during the debate: 
Point 3.6. 
Add at the end of 3.6: 
'The Commission should also consider whether the tax of the country of destination could be used, instead 
of that of the country of origin. The fact that this would make matters slightly more complicated would be 
far outweighed by the elimination of any serious VAT-related distortion of competition. This system could 
at least be applied, in the form of a derogation and possibly on a temporary basis, to the most problematic 
cases: public contracts, mail order and the sale of registered vehicles.' 
Reasons 
Certain Member States have protested vigorously about the distortions of competition created by the 
Commission and the cost to these Member States' budgets of eliminating them. In the light of this, it seems 
extraordinary that the Commission has not sought ways of solving the problem. The proposed amendment 
puts forward what seems the most effective solution. 
Voting 
For: 35, against: 62, abstentions: 17. 
Point 6.1. 
Add a new paragraph: 
'The Commission should propose appropriate compensatory measures when the loss of excise revenue in 
any Member State is so significant that it creates serious revenue needs, as a direct result of tax harmonization, 
as well as social and economic difficulties which could lead to wider disparities between the regions of the 
Community.' 
Reason 
Self-explanatory. 
Voting 
For: 35, against: 50, abstentions: 21. 
Point 6.2. 
At the end of the first sentence of 6.2 after the words '... with particular revenue needs' add: 
'and derogations for the VAT system to be used in the case of non-VAT-registered persons.' 
Reasons 
Certain Member States have protested vigorously about the distortions of competition created by the 
Commission and the cost to these Member States' budget of eliminating them. In the light of this, it seems 
extraordinary that the Commission has not sought ways of solving the problem. The proposed amendment 
puts forward what seems the most effective solution. 
Voting 
For: 33, against: 59, abstentions: 20.