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COM (83) 748 
 
 
 
 
Vol. 1983/0 264 
  
 
Disclaimer  
Conformém ent au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983 
concernant l'ouverture au public des archives historiques de la Communauté économique 
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, 
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003 
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents 
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit 
règlem ent. 
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 
concerning the opening to the public of the historical archives of the European Econom ic 
Communit y and the European Atom ic Energy Communit y (OJ L 43, 15.2.1983, p. 1), as 
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243, 
27.9.2003, p. 1 ), this file is open to the public. Where necessary, classified documents in this 
file have been declassified in conformity with Article 5 of the aforementioned regulation.  
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom  1. 
Februar 1983 über die Freigabe der historischen Archive der Europäischen  
Wirtschaftsgemeinschaft und der Europäischen Atomgem einschaft (ABI. L 43 vom  15.2.1983,  
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. Septem ber 2003  
(ABI. L 2 43 vom  27.9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit  
erforderlich, wurden die Verschlusssachen in dieser Datei in Übereinstimmung m it Artikel 5  
der genannten Verordnung freigegeben.  
COMMISSION OF THE EUROPEAN COMMUNITIES
COM(83) 7^8 final
Brussels, 15 December 1983
REPORT FROM THE COMMISSION TO THE COUNCIL
submitted in accordance with Article 2k, paragraph 8  
of the 6th Council Directive of 17 May 1977
(Harmonization of laws relating to turnover taxes)
Description, analysis and suggestions  
for the harmonization of national schemes  
for small undertakings  
(Situation as at 31*12.1982)

COMMISSION OF THE EUROPEAN COMMUNITIES
COM( 8 3) 7^8 final 
Brussels, 15 December 1983
.  REPORT FROM THE COMMISSION TO THE COUNCIL
submitted in accordance with Article 2k% paragraph 8 
of the 6th Council Directive of 17 May 1977
(Harmonization of laws relating to turnover taxes)
Description, analysis and suggestions  
for the harmonization of national schemes  
for small undertakings  
(Situation as at 31*12.1982)
COM(83)  7^8 final

Part one:  Analysis of the different exemption schemes operating in
Member States
1. - The exemption limits vary enormously between
Member States p. 4
2. - The invoicing of and the right to deduct VAT are
treated differently, depending on whether the
exemption scheme in question is based on turnover
or on the amount of tax p. 9
Part two: Analysis of the different flat-rate schemes operating in
Member States
1. - The collective flat-rate amounts p. 11
2. - The individual flat-rate amounts p. 15
Part three: Conclusions and proposals for a special harmonized scheme
for small undertakings
1. - Conclusions in respect of the existing schemes p. 19
2. - Proposal for a harmonized exemption ceiling p. 20
3. - Proposal for a substantially simplified scheme for
small businesses P‘
Annexes: Description of special schemes applicable in Member States
I. Exemption schemes applicable in Member States p. 25
II. Flat-rate schemes
A. Collective flat-rate amounts p. 33
B. Individual flat-rate amounts p. 42

-  2 -
Tables:
I. Table comparing the exemptions and graduated tax relief  
in the different Member States
II. Table comparing the changes in the limits set under
the special schemes for small undertakings since entry  
into force of a VAT scheme.
III. Résumé of the application in Member States of the  
provision under which a turnover of less than
10,000 ECU is not taken into account in determining  
VAT own resources
IV Belgian scheme
V Table comparing the exemptions in the different  
Member States No. V
. Collective flat-rate amounts  
.  Individual flat-rate amounts

INTRODUCTION
Article 24(8) of the Sixth Directive (1) stipulates that  
"at four-yearly intervals, and for the first time on 1 January 1982,  
and after consultation of the Member States, the Commission shall  
report to the Council on the application of the provisions of this  
Article" and the same paragraph also required the attachment of proposals  
for improvements and for the adaptation of national schemes.
This report reviews the present situation with regard to  
national schemes for small undertakings and proposes measures intended  
to bring about the convergence of these systems.
The special schemes for small undertakings are described in the  
annexes: exemption schemes (except in the case of Italy and Belgium,  
where no such schemes apply) and flat-rate schemes (except in the case  
of the United Kingdom, Luxembourg, the Netherlands and Denmark, which  
do not operate such schemes).
An analysis of the different systems of exemption and flat-rate  
schemes respectively, are the subjects of the first two parts.
Proposals for improvement and harmonization based on some  
practical conclusions for simplification are the object of the third  
part. Those have been elaborated in the perspective of bringing a  
simplification at the level of the administration as well as for the  
taxable persons themselves, both at the level of control and of incidence  
of the tax, at the same time preserving the economic neutrality of —-
specific systems retained for small enterprises.
(1) Sixth Council Directive of 17 May 1977 on the harmonization of the  
laws of the Member States relating to turnover taxes - Common system  
of value added tax: uniform basis of assessment.

PART ONE
ANALYSIS OF THE DIFFERENT EXEMPTION SCHEMES OPERATING IN MEMBER STATES
These schemes are described in Annex I (pp. 25 to 32).
Seven Member States have introduced exemption schemes (Germany, Denmark,  
France, the United Kingdom, IreLand and the Netherlands), with Belgium  
and Italy applying flat-rate schemes only.
A comparative analysis of the different schemes provides the following  
insights:
1. The exemption limits vary enormously between Member States
a) The situation can be easily assessed where the limit is fixed by  
reference to turnover. Denmark, for example, has the lowest  
exemption limit (equal to 1,220 ECU)(1) and does not grant any graduated  
tax relief or operate any flat-rate scheme for small undertakings.
The Danish authorities do not know how many undertakings are  
involved or the exact size of their turnover, but the fact that  
their turnover is small means that its practical incidence must be  
practically zero, except perhaps where purely ancillary activities  
are concerned.
At the other extreme, Ireland applies an exemption for sales of  
goods equal to 43,760 ECU for undertakings of whose activities  
90 % at least consists in the sale of taxable goods. There are
9,000 exempt undertakings in the country out of a total of 78,500 
registered undertakings (2), representing more than 10 % of taxable  
persons. The turnover limit for supplies of services qualifying for  
exemption is much lower (21,880 ECU), with the turnover taken being  
that recorded in the current period.
Some way behind Ireland comes the United Kingdom, albeit with a very  
generous exemption too (30,700 ECU). No exact figures are available  
on the number of undertakings concerned or on the turnover achieved  
by them. The total of 1,383,000  registered undertakings includes  
about 350,000 undertakings whose turnover is below the exemption  
limit. These undertakings represent 25 per cent of total taxable  
persons. The exemption arrangements in the United Kingdom do not  
feature any graduated tax relief mechanism or any flat-rate scheme.
(1) In this report, the conversion into ECU's was made on the basis of its value at 1.7.1982
(2) Subject to the normal VAT scheme

- 5 -
The turnover Limit is the same for sales of goods, manufacturing  
activities and supplies of services.
Next in the rankings come two Member States with turnover limits  
roughly equal to the ceiling of 5,000 ECU laid down in Article 24 of  
the Sixth Directive:
Luxembourg applies an exemption of LFr 200,000 exclusive of tax  
(4,000 ECU) and makes no distinction between sales of goods and  
supplies of services. Even so, the graduated tax relief mechanism,  
which has a limit of LFr 1,000,000 (20,000  ECU), permits a maximum  
reduction in tax of only LFr 8,000.
350 undertakings are covered by the exemption and 1,700 by the gradu­
ated tax relief representing in total a shortfall of 7 million LFr or  
0.1 % of VAT receipts in 1980.
The turnover taken in setting the limit, which is calculated pro rata  
temporis, is that achieved the preceding year.
Germany is the only country in which the limit, established by reference 
to turnover, is VAT-inclusive (20,000 DM = 8,400  ECU). Given a standard 
VAT rate of 13 %, this is equal to a tax-exclusive figure of 7,500 ECU.
The turnover taken into consideration in determining whether an under­
taking qualifies for exemption or for graduated tax relief is the  
turnover in the preceding year, claculated pro rata temporis. In  
addition, however, an undertaking satisfying this condition must not  
expect to achieve a turnover in excesscfthis figure, a small under­
taking may, under the "average-rates" scheme, calculate a flat-rate  
amount for deductible input tax. The graduated tax relief ceiling  
(DM 60,000 or 25,400  ECU) exclusive of VAT is virtually the same as  
in Luxembourg (LFr 1,000,000 or 20,000  ECU).
A total of 9,000 (1) small undertakings are covered by the exemption  
schemes representing a shortfall of DM 2,000,000  in total VAT receipts  
of DM 93,448 million. Graduated tax relief is enjoyed by 359,000 (1) 
undertakings, representing a shortfall of DM 305 million or 0,3 % of  
total VAT receipts in 1980 (2). *
b) The two schemes with exemption limits fixed by reference to the net  
amount of tax payable annually, applied by France and the Netherlands,  
do not enable a direct assessment to be made for the purposes of  
comparison with the other Member States.
(1) This does not include the unknown number of undertakings with a turnover of less than  
DM 12,000.
(2) Provisional calculation for 1980. Based on the statistic in respect of turnover tax, which  
are still incomplete, the shortfall would be considerably less.

-  6 -
The reference to the net amount of tax payable annually makes it  
virtually impossible to compute the corresponding turnover unless  
information based on a specific breakdown at the level of exempt  
undertakings' returns is made available. Starting from hypotheses  
based on the margins charged and taking net VAT, an attempt can,  
however, be made to compute approximately the turnover corresponding  
to the maximum exemption.
In France, for example, if an undertaking is eligible for the maximum  
annual exemption of FF 1,350 (200  Ecu), this means that the tax chargeable  
on its value added as defined for tax purposes amounts to FF 1,350.
(i) Assuming that its activities are chargeable to VAT at the standard  
rate of 18.60 %, its computed value added would be :
1'3· 5- 0-^ - 100 - FF 7,260
18.6
If we then assume that its value added represents 30 % of its turn­
over, the latter would be equal to :
7r26Q x .I.00 = fF_24,200 (3,700  Ecu)
30
(ii) With a reduced VAT rate of 5.5 , the same calculation would yield  
a value added equal to :
1,350 x 100 _ Fp 24,545  
5.5
If value added represents 30 % of turnover, the latter would be  
equal to :
24/5- 45·  X 100 = FF 81,800  (12,500 Ecu)
30
To be entirely accurate, we would need to take account of the fact that  
the exemption limit of FF 1,350 is determined prior to deduction of  
input tax on investments paid by small undertakings eligible for this  
scheme. However, the figures yielded provide an acceptable order of  
magnitude for the purposes of comparison with those Member States ope­
rating exemption schemes based on turnover.

- 7 -
If the exemption applies to suppliers of services, who have a higher  
value added (say, 70 %), the corresponding turnover is much smaller.
With a VAT rate of 17.6 %, it works out at:
7,260^ 100 _ pF 10/350 (1,580 ECU)
while a rate of 5.5 % gives a turnover equal to:
24,545 x 100 = ?f 35^000 (5,350 ECU) ‘
There are 98,000 exempt firms out of a total of 2,200,000 taxable  
persons, or around 4.5 % while 435,000 undertakings qualify for relief  
("d6cote")(1). Together, they account for 3 % of taxable turnover in France  
and represent a shortfall of 8,500 million FF or 5.5 % of total receipts  
in 1979.
In the Netherlands, which applies an exemption of HFL 2,050 and a  
standard VAT rate of 18 %, value added computed on the basis of the  
same assumptions as above amounts to:
2'05°8X 100 = HFL 11,390
If value added represents 30 % of turnover, the corresponding turnover  
amounts to:
11,390 x 100 _ HFL 37,960 (14,550 ECU)
AT a reduced rate of 4 %, value added is equal to:
2,050^x 100 _ HFl_ 51,250
/
and turnover equal to:
51,250 x 100 = HpL 170, 830 (65,450 ECU)
In the case of suppliers of services with a value added of 70 %, as in  
our hypthesis, computed turnover (at the 18 % rate) amounts to:
11 390 x 1001 . x.  '. H H = HFL 16,270 (6,230 ECU)
(1) graduated tax relief

-  8 -
This approach shows just how difficult it is to determine turnover  
where exemptions are calculated by reference to the amount of tax.  
While the exemption in France may not yield a maximum turnover all  
that different from the limits applicable in other Member States, the  
same is not true of the exemption in the Netherlands for small under­
takings chargeable to tax at the 4 % rate and with a low value added:  
assuming a value added of 30 % (1), some of these undertakings would  
have a turnover equal to 65,450 ECU (cf. the figure of 12,500 ECU for  
the same value added in France, page 6), which is much higher than the  
most generous exemptions applied in Ireland and the United Kingdom.
These examples also bring to light the wide disparities that may, if  
the amount of the exemption is not adjusted, exist between the  
different activities carried on where the exemption is fixed by  
reference to the amount of tax: e.g. sales with fairly high margins,  
whether sales of goods or supplies of services. Depending on the rates  
applied, the size of exempt undertakings may also vary enormously:  
in the Dutch example, turnover ranges from HFL 16,000 (6,230 ECU) to  
HFL 170,000 (65,450 ECU).
In the Netherlands, 103,000 undertakings qualify for the exemption  
calculated by reference to the amount of tax or for graduated tax  
relief. Of these undertakings, 10,000 have a turnover in excess of
10,000 ECU. There are 416,000 taxable persons in the Netherlands.
The shortfall arising from these schemes represented 0.5 % of VAT  
receipts in 1979.
(1) That is to say, 30 % of total sales

- 9 -
2. The invoicing of and the right to deduct VAT are treated differently,  
depending on whether the exemption scheme in question is based on  
turnover or on the amount of tax
Two exemption schemes are currently in force that differ in terms of  
the rules governing the invoicing of VAT by small undertakings and  
their right to deduct VAT.
Under the schemes where the exemption is determined by reference to  
turnover, small undertakings are not entitled to invoice VAT or to  
deduct input tax. This mechanism is in keeping with Article 24(5),  
the principle being that, in exchange for the exemption from tax  
in respect of its value added, a small undertaking is not permitted  
to deduct input tax or to invoice VAT to customers who are taxable  
persons, with an element of residual tax thus being created by these  
customers' non-deductible purchases from small undertakings.
By contrast, under the schemes where the exemption is determined by  
reference to the amount of tax (the schemes operating in France and,  
to some extent, those operating in the Netherlands), the inevitable  
effect of the mechanism for calculating the exemption by reference  
to the net amount of tax payable annually is that small undertakings  
rank as taxable persons invoicing VAT in the normal way and deducting  
VAT charged on their purchases. Indeed, it is on the basis of net  
tax payable, i.e. the difference between invoiced VAT (outputs) and  
deductible VAT (inputs), that undertakings are able to establish at  
the end of the year whether they qualify for the exemption (which  
then consists in a straightforward full remission of tax) or for '  
graduated tax relief (i.e. a partial remission).
In France and the Netherlands, purchases by exempt undertakings do  
not give rise to any residual tax vis-a-vis customers who are taxable  
persons since small undertakings invoice VAT in the normal way to  
such customers.

-  10  -
In France, the exemption of FF 1,350 (200 ECU) is applied to the amount  
of tax payable annually by imputing against gross output tax, input tax  
charged exclusively on goods and services other than those relating to  
fixed assets. In addition, refund of VAT charged on fixed assets is  
limited to the amount exceeding the exemption. As a result, small  
undertakings that qualify for exemption and that are entitled to deduct  
in respect of fixed assets VAT amounting to not more than FF 1,350 (i.e.  
the amount of the exemption) are no longer eligible for exemption. By  
contrast, undertakings which have not made any investments may retain  
the full amount of net VAT chargeable up to that limit.
In the Netherlands, small undertakings which are exempt and which are in  
a tax credit position do not receive reimbursement unless it exceeds  
the amount of the exemption, thus losing the benefit in such cases.
If small undertakings decide not to fulfil their obligations in respect  
of bookkeeping and the making of returns, they may pass on VAT in their  
prices but are no longer entitled to show it separately on their  
invoices.

PART II: ANALYSIS OF THE DIFFERENT FLAT-RATE SCHEMES OPERATING IN MEMBER STATES
These schemes are described in pages 33 to 46 of Annex II.
Analysis of the flat-rate schemes introduced under Article 24 of the Sixth  
Directive reveals two approaches to the matter of simplification that go  
beyond mere adjust ments to the operating rules and necessitate a critical  
assessment of the special flat-rate schemes operating in Member States.
1. The first approach is based on the idea that certain activities that are  
sufficiently uniform either in terms of the composition of their inputs  
or in terms of the normal profit margin can be identified with a view to  
fixing, in agreement with the professional organizations concerned, flat-  
rate percentages or coefficients for calculating input tax or output tax  
without it being necessary to make any special adjustments in the flat-  
rate scheme to cater for individual small undertakings.
In theory, there is thought to be less risk of tax evasion where arrange­
ments for computing turnover are concerned since they take as their  
starting point known or recorded purchases (applied in Belgium and known  
as equalization tax). By contrast, under flat-rate schemes for  
determining deductible VAT, sales are declared without any systematic  
check being carried out.
These collective flat-rate schemes necessarily apply to rather limited  
activities normally carried on at the retail stage and, in the case of  
the services sector, by the artisanat or by professional people.
Whether they involve a collective flat-rate amount for calculating  
deductible input tax (Germany, Italy) or turnover and gross VAT paid  
(Belgium), these mechanisms genuinely simplify matters, materially and  
psychologically, not only for the authorities, who do not need to contact  
individual small taxpayers directly, but also for the small undertakings  
themselves, which are required simply to keep records of their purchases  
or receipts and to apply a percentage or coefficient that will enable  
them to determine the amount they may deduct or the amount they have  
collected for the account of the Treasury.
a) It should be noted, however, that of the different collective flat-  
rate schemes those for calculating turnover are more difficult to  
apply. Such schemes exist only in Belgium, where they take two quite  
different forms: one involving an equalization tax and the other  
flat-rate amounts for the different sectors of activity.

-  12  -
1) Where small retailers are concerned, the advantage of the equalization  
tax is that it relieves both the administration and the traders them­
selves of any administrative work (the burden of which is, however,  
shifted onto the shoulders of the supplier). To the extent that charging  
of the tax entails the responsibility of a third party, i.e. the supplier  
of the "equalized" trader, it is not as easy for a small retailer to  
commit fraud - an offence which is, in any case, sometimes difficult to  
detect when perpetrated by a small retailer - since it requires the  
supplier's collusion. The flat-rate amount is here directly applicable to  
a small undertaking's value added, with no account being taken of the two  
items entering into the calculation, viz. input and output. In fact, the  
amount of tax (which is supposed to fall directly on the value added (1)  
by the "equalized" undertaking) represents a standard percentage of  
purchases made. Consequently, this scheme is practicable only in the case  
of a very limited number of business engaged in selling goods where  
margins are much the same and where no services are involved. Otherwise,  
the higher the individual margin, the lower the actual burden of the  
equalization tax.
The main drawback of the equalization tax is that it does not accurately  
reflect the amount of value added, and as a result its scope is extremely  
Limited but none the less covers a wide range of activities. It applies,  
for example, to the food sector (2) but not to businesses specializing  
in poultry and game, fish, confectionery, fruit and vegetables, wines,  
spirits and other beverages. Under no circumstances does it apply to  
suppliers of services or to those who sell goods produced and processed  
by themselves, e.g. pastry makers, bakers, butchers, tailors and dress­
makers.
Application of the equalization tax thus rests on the assumption of  
uniform margins. If this is not the case in practice, undertakings
subject to this scheme may be treated as if they fell outside the scope  
of VAT and were liable to a special tax. However taxable persons applying  
this scheme may, at any time, opt for the normal VAT system. They are
14,000 such undertakings generating less than 0.2 % of VAT receipts.
By way of conclusion, it is reasonable to say that this hybrid scheme  
could not be applied as a general scheme for small undertakings. It was,  
in any case, designed only as a transitional scheme to bridge the gap
(1) Excluding capital goods m
(2) And also to retail businesses selling shoes, fabrics, table and household  
linen, haberdashery, headwear, wedding outfits, ready-to-wear-clothing,  
furnishing fabrics, hardware (including cleaning products and paint), books  
and newspapers.

- 13 -
until small traders had adjusted to the VAT regime. It would appear that  
this adjustment period is now over.
2) Collective flat-rate amounts (general or special) reflect the actual
situation more closely; they make it possible to compute flat-rate turn­
over by applying to purchases coefficients adjusted for each sector of  
activity so as to take account of the value added realised by small  
undertakings. The margins charged in the sectors concerned need to be  
fairly uniform if the collective flat-rate amounts for determining turn­
over on the basis of purchases are to be applied accurately. As a result,  
only certain sectors are eligible, and only then on condition that the  
taxable persons concerned carry on their activities under normal,  
comparable conditions. Collective flat-rate amounts are based either on  
profit margins ("flat-rate on margins") or on returns ("flat-rate on  
returns") or on a combination of the two. For the flat-rate on margins  
the "margin" customarily applied is determined by reference to the pur­
chase price of the goods. For the flat-rate on returns the coefficient  
to be applied is calculated on the cost price of the services supplied  
on the goods produced. Furthermore the small undertakings being required  
to calculate their own amount of deductible input tax. As a result, the  
figures arrived at are more precise than in the case of the equalization  
tax scheme, which tends to involve a direct calculation of value added  
but does not take into account, as does the collective flat-rate scheme,  
changes in input tax at the level of individual small undertakings.
This uniformity requirement means that:
- in Belgium, these flat-rate amounts are applied only to a limited  
number of activities (1) (some of which are, and some of which are not,  
covered by the equalization tax) involving 69,000 undertakings (or 12.7 %  
of taxable persons) that generate 1.5 % of VAT receipts;
- the predetermined flat-rate bases need to be adjusted whenever any  
significant changes take place in the components during the course  
of the year;
- the flat-rate taxpayer is required to show separately any purchases  
on special terms, to work out the additional profit arising out of  
such sales and in this connection to deduct rebates granted by him.
(1) The activities in question are those carried on by retailers in the  
general food sector, retailers of milk and milk products, retailers of  
poultry and game, retail fishmongers, itinerant fishmongers, butchers  
(including pork butchers), bakers/pastry makers, footwear retailers,  
retailers of textile products, ironmongers, dealers in hardware (including  
cleaning products and paint), pharmacists, doctors who, in addition, sell  
medicines, newsagents, stationers, cafe proprietors, hairdressers, shoe  
repairers, ice-cream sellers and retailers of manufactured tobacco.

- 14 -
Although there is, therefore, no individual flat-rate amount proper,  
special adjustments have to be made once any specific business conditions  
are introduced, even if they relate to ancillary transactions. In this 
case, small undertakings are once again caught by the obligation to keep  
fairly complicated accounts, and this brings with it the risk of making  
mistakes. The intended benefit of simplicity is thus nullified, both for  
the taxpayer, who has to make a fairly complicated return (cf. the  
attached sheet for calculating the flat-rate amount)(2), and for the  
administration, which must carry out the necessary checks.
b) The other types of collective flat-rate schemes involving deduction of  
input tax are operated in Germany and Italy.
The main advantage of these schemes is the ease with which the amount of —
deductible VAT can be calculated by small undertakings and monitored by  
the administration. The flat-rate approach enables small traders, the  
artisanat and certain suppliers of services (a total of 508,000 undei 
takings are covered by this scheme in Italy) to calculate the total amount  
of deductible VAT, the basic principle being that all input components  
(purchases as well as overheads and investments) are uniform in each sector.
In Germany (1), however, a number of occupations (shown on list B of the
annex to the rules relating to turnover tax) which do not display the same degree
of uniformity operate a mixed scheme: they only calculate at a flat-rate
the proportion of deductible VAT relating to overheads and investments in
fixed assets and deduct separately the VAT actually invoiced for expenditure
that varies in line with the activity in question (goods intended for
resale, property investments including rents).
This flat-rate scheme for determining deductible VAT has certain advantages:  
it is much less of a burden for the small taxpayer to apply the principle  
of deductibility in that he now has simply to apply a particular per­
centage in order to know the precise amount he is entitled to deduct,  
and it does not presuppose a uniform amount of value added since the  
small taxpayer is required to record his receipts in the normal way
(1) In Germany, the following occupations are allowed to apply an average rate  
for calculating at a flat-rate the total amount of input tax: building  
contractors, ready-made clothing, bakers, printers, binders, farriers/  
blacksmiths, hairdressers, gardeners, garage proprietors, certain trades­
people in the food sector and in the clothing and textile sector, electri­
cians, dealers in hardware (including cleaning products and paint), florists,  
newspaper vendors, taxi and car-rental operators, cleaners, café proprietors,  
ice-cream sellers and certain professional people (artists, professors,  
journalists and writers).
The following apply average rates that enable them to calculate only a  
proportion of input tax: architects, Lawyers, patent agents and business  
consultants.
(2) See table IV

- 15 -
in order to determine gross V A T  paid.. The aim of simplifying the 
arrangements without distorting V A T  mechanisms would thus seem to have 
been achieved particularly since, as in the practice for certain cases 
in Germany, this flat-rate calculation can include a deduction in 
respect of specific inputs (such as certain types of investment).
In conclusion it will be observed that the main advantage of this first 
flat-rate approach is that it is a genuinely simplified scheme and 
makes it easier for the small taxpayer to comply with V A T  bookkeeping 
obligations. In addition, the administration does not need to carry out 
numerous costly checks. Against this, unduly approximate figures are 
sometimes produced if different percentages are not applied for 
different sectors.
2. The second approach is, by contrast, based on an individual discussion 
with each taxable person, the aim being to yield data that give the truest 
possible picture of the real position. It uses quite detailed particulars 
which are provided by taxable persons and which the administration com ­
pares with standard business profiles for the activity in question. This 
scheme applies automatically in France to a ll small undertakings (except 
those carrying on certain very specific activities - cf. A nnex II, p. 43). 
The fact that information compiled by the undertaking itse lf is taken into 
account in determining the annual flat-rate amount calls for quite 
detailed accounts making it possible to record at least purchases and V A T  
charged on them, receipts and gross V A T , and a stock inventory. This 
requires a breakdown of these figures by V A T  rate or by type of goods and 
service and a return listing investments m ade and the corresponding amount 
of V A T , together with the amount of V A T  charged in respect of overheads.
In Belgium, an individual flat-rate scheme akin to the flat-rate scheme 
operating in France applies exceptionally where it is found that the 
collective flat-rate amounts referred to. above cannot be applied to a 
particular activity.
Although individual flat-rate schemes m ake for som e refinement of the 
particulars contained in the standard business profiles and used in 
connection with the collective flat-rate schemes and although they 
provide a truer picture of the real situation, the drawback is that they 
generate a significant amount of work for the administration, which has 
to examine each file individually in order to determine in discussions
(2)

- 16 -
with the taxpayer, what the flat-rate amount should be in each case; even 
though such discussions take place only every two years as in France, 
som e 1,000,000 individual files have to be examined. Moreover, it would 
appear that, for the small taxpayer, it is only the administrative 
formalities that are simplified: he is required to submit only one return 
each year and makes payments on account but, in order to answer the 
questions set out in the annual return, he has in fact to keep genuine 
accounts which, in the final analysis, would enable him to complete a 
return equivalent to that required under the normal scheme. The reduction 
in the amount of paperwork is not necessarily the prime factor in the 
small taxpayer's decision to remain within the flat-rate scheme. His 
decision might be prompted by the fact that, in view of the approximate 
nature of calculations under even the individual flat-rate schemes, he 
believes that he might pay less tax than if he opted for the normal scheme 
(not to mention the normally definitive calculation of the amount of V A T  
payable, further checks only being carried out where a new  economic factor 
has arisenor where the taxpayer has supplied incorrect details).
Flat-rate breakdown of receipts by rate
The other individual flat-rate schemes mentioned in Table V  (Italy and 
Ireland) do not constitute genuine flat-rate schemes for determining 
input tax, turnover or - in a direct manner - value added as defined for 
tax purposes. W here they are liable to several V A T  rates, small under­
takings are allowed simply to apply to their sales the weighted average 
rate charged on their purchases (and determined using one of the 
calculation methods indicated). This does, of course, simplify matters, 
albeit only where determining the basis of the appropriate V A T  rate is 
concerned. These flat-rate schemes are just som e of the schemes that 
simplify the w ay in which the components entering into the calculation of 
the taxable amount are determined. However, they are not geared specifi­
cally to the needs of small undertakings since other undertakings are 
(with certain modifications) eligible in each M em ber State for similar 
treatment where several tax rates apply.

- 17 -
P A R T  T H R E E
Conclusions and proposals for harmonizing the special scheme for small 
undertakings
1. The wide disparities between the exemptions allowed in the various 
M em ber States indicate that the exemption limits should be brought closer 
together.
Nevertheless, w e  must examine whether there is actually a need to 
retain an exemption mechanism if a scheme comprising genuine technical 
simplifications were to be introduced for small businesses: purely from 
the taxation point of view, all businesses would then be on the same 
footing vis-à-vis the final consumer; no element of residual taxation would 
remain, so that neutrality would be complete; in the context of ow n 
resources, the discontinuation of exemption would put an end to the d iffi­
cult problems caused by disregarding the transactions performed by taxable 
persons whose annual turnover does not exceed the exemption ceiling, and 
would at the same time broaden the ow n resources base; lastly, taking a 
purely practical view, the extremely low  turnover ceilings in D enm ark 
(1220 ECU ), Luxembourg (4000 ECU ), the Federal Republic of Germany (7500 E C U ) 
and France (200 E C U  in tax) m ean that the exemption can apply only to 
ancillary activities; in Ireland and the United Kingdom, the two M em ber 
States in which the exemption ceilings are higher, the ending of exemptions 
would remove the temptation for businesses to restrict their activities in 
order to remain within the exemption limits, or to evade V A T ; this temptation 
probably exists where turnover is approaching the limits, and is increased 
by the lack of a graduated tax relief mechanism.
However, despite these considerations of principle, w e  must not lose 
sight of the problems involved for the national authorities in having to 
handle a very large number of small cases; this is liable to cost more than 
the revenue such cases would generate if the exemption were withdrawn. 
Retention of a m inim um  exemption limit is therefore advisable so that this 
difficulty can be avoided.

- 18 -
W ith regard to the co m m o n  exemption system, the two objectives of 
simplification for small businesses and the tax authorities and of ending 
the distortions in the calculation of ow n resources would seem to be best 
achieved by retention of a ceiling based on turnover, together with non­
entitlement to invoice V A T  or to deduct input V A T , i.e . s tric t compliance 
with the provisions of Article 24 of the Sixth V A T  Directive.
The simplicity essential in this area is not provided by a mechanism 
which defines the exemption by reference to the amount of tax: it obliges 
small businesses to keep accounts recording the V A T  deductible on purchases 
and the V A T  invoiced on receipts and, at the same time, requires the 
authorities to m ake the calculations necessary to determine the net tax: 
however, if this is below the exemption ceiling it is not recovered.
2. Analysis of the different flat-rate systems in force in the M em ber 
States reveals the disadvantages of schemes which compute turnover on a 
flat-rate basis either by applying percentages to types of purchases, or 
by making a calculation for each business: they lack precision and must 
therefore be applied very sparingly, or are cumbersome to implement and 
hence unattractive.
The advantages of collective schemes which calculate the deductible 
V A T  on a flat-rate basis seem more real, making them the type of system 
which could be applied more widely.
3. The political principle that V A T  should also apply to small tax­
payers, accepted on adoption of the Sixth V A T  Directive, and the desire 
to reduce the administrative burden of managing and monitoring such small 
files require the introduction of a flat-rate scheme and a simplified 
normal taxation scheme which draw on the experience of ten years of 
applying V A T  in the M em ber States.
O n  the basis of the analysis of the various exemption and flat-rate 
schemes in force in the M em ber States and the conclusions which have just 
been drawn, the Commission considers that the Council should adopt the 
following proposals:

- 19 -
(1) A n  exemption scheme, which inevitably creates distortions of 
competition and problems of residual tax, should be retained 
only in order to eliminate small files which would cost the 
tax authorities more to administer than they would be expected 
to produce in revenue if the exemption were withdrawn.
The aim should therefore be the harmonization of the exemption 
in the M em ber States at the same level, based solely on the 
average cost to the authorities. So as to m ake this match the 
level which was chosen for the collection of V A T  ow n resources 
and to put an end to the technical difficulties involved in 
reconstituting a harmonized base in this area, the limit should 
be set in itially  at 10 000 E C U . It could be raised in line with 
administrative costs, on the basis of parameters chosen for this 
purpose. The M em ber States which have no exemption (Italy and 
Belgium) or those where the exemption is 10 000 E C U  or less 
(the Federal Republic of Germany, Denmark, France, Luxembourg 
and the Netherlands in certain cases) could adjust to the 
10 000 E C U  figure as soon as the new  harmonization arrangement 
w as introduced. The M em ber States in which exemption n o w  stands 
at a higher level (United Kingdom, Ireland and the Netherlands 
in certain cases) could freeze that level until the Community 
ceiling had caught up as a result of increases in administrative 
costs.

-  20  -
The harmonized exemption scheme should be accompanied 
by the introduction of a simplified normal scheme for 
small businesses which would be designed to simplify 
the structure of the tax without distorting it so that 
it could be extended to a large number of small taxpayers 
at no real extra cost.
- The basis for determining V A T  should be the bookkeeping 
procedures used by small businesses and tradesmen, 
namely cash accounts which record purchases w hen they 
are invoiced and receipts w hen payment is made.
This means redefining the chargeable event for small 
businesses by derogating from the delivery rule and 
replacing it with the payment and cash receipt rule.
O f course, if this is to be a genuine simplification, 
it should be accompanied by similar measures for the 
determination of taxable profit and of direct tax 
liab ility .
- A n  effort should be m ade to simplify the rules for 
deducting input V A T . This would be practicable only 
if the rules governing the deductibility of input V A T  
are not subject to numerous exceptions which are d iffi­
cult to interpret and necessitate specialist assistance. 
Similarly, rules such as the deferment of deduction of 
input tax for one month as s till applied in one M em ber 
State should disappear under this simplified scheme.
W ith a view to simplifying these rules, a flat-rate 
scheme could be introduced for businesses whose activities 
were relatively homogeneous, so that the amount of 
deductible input V A T  could be calculated at a flat-rate, 
directly proportionate to turnover.

-  21  -
- Return procedures should also be simplified. Hence, small 
businesses would have to m ake an annual return, designed 
to summarize the transactions of the past calendar year.
Even at the risk of loss of certain statistica l data, the 
return shoiid contain only the information strictly  necessary 
for calculation of the V A T  payable (turnover broken dow n
by rates, the corresponding V A T  received, and the total 
input tax deductible).
- Lastly, the procedures for paying the tax should be simplified. 
Since the return would be m ade once a year only, advance 
payments would have to be m ade monthly or quarterly, representing, 
for example, one twelfth or one quarter of the V A T  paid for
the preceding calendar year. The advance payments would be set 
against the amount of the tax calculated in the annual return.
In certain M em ber States, the quarterly payment of V A T  m ay  
perhaps favour small taxpayers as they will keep the V A T  collected 
on behalf of the Treasury for a longer period, but this advantage 
will in fact be limited because of the small sum s involved.
Examination of the various schemes specific to small businesses in 
the M em ber States has revealed that they vary widely owing to the 
freedom left to M em ber States by the wording of Article 24 of the 
Sixth Directive.
Because the Sixth Directive sets no Community ceiling for the 
exemption, the gap between the limits imposed by the M em ber States ~ ~  
has widened.

-  22  -
It is important to harmonize the special scheme for small 
businesses in order to establish a competitive situation for such 
businesses; it is also the Commission's intention to put an end 
to the adjustment difficulties, created by the present disparities, 
in calculating V A T  ow n resources; the Commission therefore recommends 
the introduction of uniform techniques for determining the tax base 
for small businesses which are taxable persons for the purpose of 
value added tax.
Furthermore, harmonization of the scheme for small businesses 
will be an indispensable basis of reference upon accession of the 
new  M em ber States in which the small business sector predominates.

- 23 -
ANNEXES
Description of the special schemes existing in M em ber States
Annex I - Exemption schemes applicable in M em ber States
Annex II - Flat-rate schèmes applicable in M em ber States 
A  - Collective flat-rate amounts 
B  - Individual flat-rate amounts

- 24 -
Arrangements introduced in M em ber States in connection with the special 
schemes for small undertakings adopted pursuant to the Sixth Directive
The different schemes applicable in M em ber States are classified below 
according to three types of tax mechanism intended specifically for 
small undertakings:
1. The exemption, which is determined on the basis of:
- either annual turnover;
- or the amount of tax due annually;
2. The collective flat-rate amount, which is a simplified method:
- either for computing deductible V A T ;
- or for determining turnover;
3. The individual flat-rate amount, based on individual changes to 
business profiles, which are used to compile turnover on the 
basis of goods purchased or hours worked.

- 25 -
A N N E X  I
Exemption schemes applicable in M em ber States 
The different schemes fall into two categories:
A . The exemption and/or graduated tax relief is subject to a ceiling 
fixed according to the turnover of small undertakings
This is the situation in Germany, Denmark, the United Kingdom,
Ireland and Luxembourg.
G E R M A N Y  (Article 19(1) of the Turnover Tax L aw )
The exemption applies to undertakings with a turnover in the preceding 
year of not more than D M  20.000 (8 400 E C U ) and with an expected turnover 
in the current year of not more than D M  100.000 (42 300 ECU ). A  pro-rata 
temporis arrangement is applicable, where appropriate, to the tax-inclusive 
turnover in respect of transactions for which payment has been received.
A n  undertaking qualifying for exemption m ay not include V A T  on its 
invoices; it does not, therefore, transfer the right to deduct to 
customers w h o  are taxable persons. It m ay  not deduct input tax charged 
on its purchases.
W here bookkeeping is concerned, small undertakings are required merely 
to keep a purchases day book and receipts book. For most of them, there 
is no obligation to draw up a balance sheet.
Small undertakings which have no V A T  to pay in theory are also exempted 
from making V A T  returns.
A t the beginning of each calendar year, an exempt undertaking m ay  decide 
to opt for the normal scheme, but for avperiod of not less than five 
years. It then qualifies for the graduated relief and the flat-rate scheme 
of "average rates" discussed below (cf. A nnex II).
9 000 undertakings qualify for exemption which represents 2  million D M  
in V A T  lost (not counting those undertakings whose turnover is less than 
12.000 D M  and, which are not know n to the administration).

- 26 -
Graduated tax relief is available to small undertakings whose turnover in 
the current calendar year does not exceed D M  60.000 (25 400 E C U ) exclusive 
of tax, and w h o  do not request exemption because they have opted for the 
normal scheme. The current year can be taken because undertakings submit 
provisional monthly or quarterly returns during the year and a definitive 
summary return at the end of the year. The basis for the calculation is 
the turnover for which payment has been received.
A n  allowance is m ade against the amount of tax due less input tax and is 
equal to:
i) 80 %  for a turnover of between D M  20.500 (8 600 E C U ) and 
D M  20.500 (8 600 E C U );
ii) 80 %  less 1  %  for each tranche of D M  500 ( 200 E C U ) for 
a turnover of more than D M  20.500 (8 600 EC U ).
In the case of graduated tax relief, small undertakings invoice V A T  and 
transfer the right to deduct to customers w ho are taxable persons.
The turnover to be taken into account includes turnover for operations 
realized abroad.
All activities qualify for the above arrangements.
Generally speaking, small taxpayers w ho paid net V A T  of not more than 
D M  6.000 in respect of the preceding year m ake provisional quarterly 
(and not monthly) returns during the current year. W here the amount of 
V A T  due in respect of the current year is not expected to exceed D M  600, 
they are not required to submit any provisional quarterly returns or to 
m ake any provisional payments on account. They simply submit annual returns 
and m ake a one-off payment. There are 359 000 undertakings which qualify, 
resulting in a V A T  loss of 305 million D M  i.e . 0.3 %  of the total V A T  
receipts (1).
D E N M A R K
Denmark operates an exemption scheme only. There is no graduated tax 
relief scheme or flat-rate scheme.
The exemption applies to firms with a twelve-month turnover of not more 
than D K R  10 000 (1  250 EC U ).
(1) Estimated figures for 1980. According to the turnover tax statistics, 
which are s till incomplete in respect of 1980, the shortfall would be 
considerably Lower.

- 27 -
Exempt undertakings are not allowed to invoice V A T  or to deduct input tax.
All activities (sales and supplies of services) qualify for exemption 
(with the exception of agricultural activ ities).
There is no statutory right to opt for the normal scheme.
Exempt undertakings are not registered and are not therefore required to 
m ake any returns. They are not know n to the administration, which is not 
aware of the number of undertakings involved or the total turnover and 
shortfall arising. A s  regards bookkeeping, small undertakings are required 
to keep their purchase and sales invoices for five years.
U N IT E D  K I N G D O M
The United Kingdom  operates an exemption scheme only. There is no graduated 
tax relief scheme or flat-rate scheme.
The exemption scheme applies to all undertakings, regardless of their 
activity, which have a turnover of not more than £ 17,000 (30 700 EC U ), the 
basis for the calculation being the turnover exclusive of tax forecast for 
the current year.
The exemption also applies to undertakings which, in the preceding quarter 
or 4 quarters, have achieved a taxable turnover not exceeding £ 6,000 
(10 800 E C U ) or £ 17,000 (30 700 E C U ) respectively.
These undertakings are not registered and are not, therefore, know n to the 
administration. It is know n however that 34,000 undertakings, having a 
turnover of between £ 6,500 and £ 13,500 were exempted in 1980, involving 
a loss of potential V A T  of £ 15 million, or 0.1 %  of V A T  receipts. They are 
not subject to any obligations in respect of bookkeeping or the making of 
returns. There are no statistics concerning the number of undertakings 
involved. A  very rough estimate, based on a comparison of the number of 
registered undertakings in the United Kingdom  (1,090,000) would seem to 
indicate that there are around 1  million non-registered undertakings in 
the United Kingdom.
They can neither invoice V A T  nor deduct their input tax.
The extent of turnover taken into account, in ascertaining whether an 
undertaking comes within the exemption limit, includes exports.

- 28 -
IR E L A N D
Ireland operates an exemption scheme (see A nnex II) and a flat-rate scheme 
(but does not apply graduated tax relief).
There are two turnover ceilings, depending on the activity carried on:
i) £lr 30 000 (43 760 E C U ) per year for traders at least 90 %  
of whose activity consists in selling taxable goods;
ii) £lr 15.000 (21 880 E C U ) per year for other traders.
9 000 undertakings qualify for this scheme out of 87 000 taxable persons. 
However, the recent increase of the ceiling for exemption could have 
increased the numbers qualifying in 1982 by 500.
Both ceilings apply to turnover exclusive of tax.
Non-registered undertakings are not allowed to invoice V A T  or to deduct 
input tax.
Undertakings can choose to be treated as taxable persons under either the 
exemption scheme or the normal scheme at the start of each 2  months tax 
period.
Exempt undertakings are required to keep all their sales invoices. 
L U X E M B O U R G
Small undertakings in Luxembourg qualify for an exemption and a graduated 
tax relief scheme. For the moment, there is no flat-rate scheme in 
Luxembourg although the principle of such a scheme is contained in 
Luxembourg legislation.
The exemption is granted to undertakings with a turnover in the preceding 
year of not more than L F R  200 000 (4 800 E C U ) exclusive of tax.
Such undertakings are not required to m ake periodic returns but must keep 
records which the authorities can check.

- 29 -
A L L  activities (saLes and supplies of services) qualify for the exemption 
(with the exception of agricultural activ ities).
A  pro rata temporis arrangement applies where appropriate.
Exem pt undertakings are not allowed to invoice V A T  or to deduct input tax.
Undertakings m ay opt for the normal scheme, an option which applies for 
a m inim um  of 5  years, except in exceptional circumstances.
550 small undertakings qualify for exemption resulting in a shortfall of 
L F R  2.3 million in 1980.
Graduated tax relief applies to small undertakings with a turnover of 
between L F R  200 000 (4 000 E C U ) and L F R  1  000 000 (20 000). exclusive of 
tax. It consists in a 1  %  allowance on the difference between L F R  1  000 000 
and actual turnover. The resulting remission of tax m ay not exceed 
L F R  8 000 (160 EC U ).
I 700 small undertakings qualify for graduated tax relief resulting in a 
shortfall of L F R  4.7 million in 1980 or 0.07 %  of V A T  receipts in 1980.
II %  of taxable undertakings are involved with the graduated relief scheme. 
Small undertakings in this category are allowed to invoice V A T  and to 
deduct input tax.
B. The ceilings on the exemption and on graduated tax relief are fixed 
according to the amount of net tax payable annually by small 
undertakings
This is the situation in France and the Netherlands.
F R A N C E
The exemption scheme and the graduated tax relief scheme are reserved for 
small undertakings subject to the flat-rate scheme. In other words, their 
turnover inclusive of tax must not exceed F F  500 000 (76 300 E C U ) for sales 
of goods and in the hotel trade or F F  150 000 (23 900 E C U ) for supplies of 
services. Since import transactions, property transactions, the letting of 
goods or equipment and occasional transactions are excluded from the fla t- 
rate scheme, they do not qualify for exemption or for graduated tax relief.

- 30 -
Exemption
The exemption consists in a remission of tax payable by small undertakings, 
which thus rank as fully fledged taxable persons, i.e . they invoice in the 
normal w ay V A T  charged on goods and services supplied by them, transfer a 
right to deduct to their customers provided they are taxable persons and 
deduct input tax.
W here the amount of annual net tax assessed by the administration for the 
purpose of the flat-rate scheme does not exceed F F  1  350 (200 E C U ) before 
deduction of input tax charged on fixed assets, the taxable person is exempt 
from payment. B y  contrast, he will obtain a refund of input tax charged on _ _ _  
his fixed assets only if the latter exceeds the amount of the exemption for 
which he qualifies.
This ceiling figure m ay be reduced pro rata temporis if the activity in 
question is carried on for only part of the calendar year.
98 000 small undertakings qualify for exemption (4 %  of taxable persons) 
resulting in a shortfall of 81 million in 1979 (0.03 %  of V A T  receipts).
Small undertakings m ay opt for the normal (or simplified) scheme but m ay  
not subsequently revert to any other scheme:
Small undertakings qualifying for exemption are subject to the same book­
keeping obligations as flat-rate undertakings (keeping of a purchases book 
and, in the case of services, a receipts book).
They are required to m ake annual returns giving on both a tax-inclusive and 
a tax-exclusive basis the amount of their purchases, their turnover and the 
amount of their stocks.
Graduated tax relief
The French graduated tax relief scheme comprises two mechanisms:
1) General rebate
The general rebate is available to small undertakings satisfying the 
conditions governing exemption (i.e. they must be subject to the fla t- 
rate scheme, with the exception of certain activ ities).
Small undertakings qualify for partial relief in respect of annual net 
tax normally payable where it amounts to between F F  1  350 (200 E C U ) and 
F F  5  400 (820 E C U ) before deduction of input tax charged on fixed assets. 
The amount of tax actually paid is equal to:

- 3 1  -
. . .  5  400 - annual net taxannual net tax = ------------- ^---------------------
A  
pro rata temporis arrangement applies to the F F  5  400 ceiling where 
the undertaking carried on its activity for only part of the calendar 
year.
(2) Special rebate for the artisanat
The special rebate is confined to persons working in the artisanat for 
w h o m  remuneration of their labour accounts for at least 35 %  of their 
turnover.
Small undertakings in the artisanat qualify for partial relief in respect 
of the amount of annual net tax payable before deduction of input tax 
charged on fixed assets where that amount is between F F  1  350 (220 E C U ) 
and F F  20 000 (3 050 ECU ). The amount of tax actually paid is equal to:
-i _ annual net tax - 1  350annual net tax 20 000 _ 1  350
435,000 undertakings qualify for a rebate (18 %  of taxable persons) 
resulting in a shortfall of F F  1  246 million in 1979 (0.5 %  of V A T  
receipts).
Undertakings qualifying for either form of rebate are subject to the 
same bookkeeping obligations as flat-rate undertakings (see Annex II).
They are required to m ake annual returns showing their turnover and 
the amount of their purchases (on both a tax-inclusive and a tax- 
exclusive basis), their fixed assets and their overheads (giving for 
the latter the amount of deductible V A T  invoiced by suppliers).
N E T H E R L A N D S
The Netherlands operates an exemption scheme and a graduated tax 
relief scheme for small undertakings.
The exemption takes the form of a remission of the amount of tax due 
each year where this is less than H F L  2  050 (790 ECU). Small undertakings 
rank as fully fledged taxable persons. They thus invoice V A T  on their 
sales and services in the normal way, transfer a right to deduct to 
their customers provided these are taxable persons and deduct input tax 
charged on their ow n purchases, their overheads and their fixed assets. 
However, they obtain a refund of input tax only where it exceeds the 
amount of the exemption for which they qualify.

- 32 -
A s  a general rule, they are subject to the same obligations in respect 
of bookkeeping and the making of returns as taxable persons subject to 
the normal scheme. Exem pt undertakings though m ay  ask for authorization 
to retain purchase invoices only. In this case, however, they are no 
longer entitled to enter V A T  on their sales or service invoices, or to 
be refunded any tax credit.
The graduated tax relief scheme consists in reducing the amount of 
V A T  due annually by:
i) H F L  2  050 (790 E C U ) where the tax payable amounts to 
between H F L  2  050 (790 E C U ) and H F L  2  500 (960 E C U );
ii) the difference between the amount of tax payable and 
a figure of H F L  4 150 (1  600 E C U ) where the tax itse lf 
exceeds H F L  2  500.
Small undertakings are subject to the same obligations in respect of 
bookkeeping and the making of returns as taxable persons covered by 
the normal scheme.
28 000 small undertakings qualify for exemption (7 % )  and 75 000 for 
the graduated tax relief (18 %  of taxable persons).
This scheme is restricted to activities carried out by individuals.

- 33 -
ANNEX II
Flat-rate schemes applicable in Member States
The different schemes fall into two categories:
(i) collective flat-rate amounts, the purpose of which is either to com­
pute the amount of deductible input tax or to calculate a taxable  
person’s turnover on the basis of his purchase^ to v/hich are applied  
the average profit—margin coefficients worked out for the entire  
sector of activity under consideration}
(ii) individual flat-rate amounts, the purpose of which is to compute
turnover from the input components and from the margins by means of a  
calculation for each small undertaking based on standard business  
profiles.
A detailed examination of the schemes in force in each country will enable
us to identify their similarities and dissimilarities.
A. COLLECTIVE FLAT-RATE AMOUNTS
Three Member States (Germany, Italy and Belgium) apply collective flat-rate
schemes, the purpose of which is:
(i) either to calculate at a flat rate the amount of deductible input tax
(ii) or to determine at a flat rate a taxable person’s turnover and the  
gross VAT collected by him.
I. Flat-rate amounts for determining deductible input tax
GERMANY
1. Mechanism (Article 23 of the Turnover Tax Law, Articles 69 and 70 of the 
rules of application).
Collective flat-rate amounts enable specific categories of taxable  
persons (small undertakings doing business in the same field) to cal­
culate the amount of deductible input tax by applying a given percentage  
to their turnover (Article 65 of the implementing Decree).
These "average rates of deduction" are exclusive of any other deduction  
in respect of artisanat activities, retailing, cleaning activities or  
passenger transport and certain of the liberal professions.

- 34 -
Only input tax charged on certain items of expenditure can be determined:  
overheads, fixed assets other than property assets in the case of the  
professions (architects, patent agents, lawyers, consultants and account­
ants) and certain other activities (home-based ribbon makers, chimney­
sweeps). These taxable persons deduct input tax charged on their purchases  
for resale and on their property assets (including rents).
2. Scope
This scheme is applied optionally for a period of one calendar year. If  
waived, the right of option for the flat-rate scheme may not be exercised  
again for a period of five years.
This flat-rate scheme for calculating input tax does not apply to:
(i) undertakings with a turnover in the preceding year of more than  
DM 100 000 (Article 69(3) of the implementing Decree)}
(ii) to certain activities (banking, insurance, property transactions)}
(iii) the calculation of deductible input tax charged on purchases at
the time of importation (Article 69(2) of the implementing Decree).
3· Basis for calculating the flat-rate amount
The turnover taken as the basis for the flat-rate calculation of input  
tax consists of receipts exclusive of tax.
4. Obligations incumbent upon taxable persons  
(i) Bookkeeping
Flat-rate undertakings benefitting from the scheme for the flat-rate 
calculation of input tax are not obliged to show  in their records 
the amount of their purchases and input tax charged.
(ii) VAT returns
Plat-rate undertakings have to make the same returns as taxable  
persons subject to the normal scheme.

- 35 -
(iii) Payment of tax
The arrantements are exactly the same as those under the 
normal scheme.
(iv) Invoi ci ng
V A T  is invoiced in the normal w ay and mentioned on invoices.
This "average-rate" deduction scheme is the only flat-rate 
scheme operative in Germany for small undertakings.
IT A L Y
In essence, the flat-rate scheme for small undertakings falls into this 
category of schemes for determining input tax on a flat-rate basis. In 
addition, there is a simplified flat-rate scheme for apportioning 
turnover receipts that enables small retailers to determine output tax 
where their sales are subject to a variety of rates. A  similar 
simplified scheme is applicable to other taxable persons whose trans­
actions are chargeable at several rates, with different procedures in 
each case. The specific apportionment scheme for small undertakings is 
discussed, together with the flat-rate amounts for determining output 
tax in Section II. This is, in any case, a simplified accounting 
technique and not a proper flat-rate scheme for small undertakings.
1. Mechanism
The amount of deductible input tax is calculated on a flat-rate basis 
by applying the following percentages to turnover exclusive of tax^
(a) the artisanat in general; transport and related 
activ ities, hotel trade, provision of food and drink
in public places and in company canteens, sea fishing ................  50 %
(b
) retail trade, including travelling salesmen ......................................  70 %

- 36 -
(c) commercial intermediaries and representatives ... 25%
(d) artists and the professions ........ ..........  20%
No
 other deduction is possible.
2. Scope (Article 31 of Decree No 633 of 26 October 1972 and  
subsequent amendments)
The following qualify automatically for this flat-rate scheme: artisanat  
undertakings, undertakings authorized to engage in retailing, to provide  
hotel services and to sell food and drink in public places and in  
company canteens, commercial intermediaries and representatives excluding  
commission agents, person engaged in sea fishing, artists and persons  
exercising a profession whose turnover does not exceed LIT 6 000 000  
( 4 520 ECU).
Undertakings which so wish may opt for the normalVAT scheme, instead of  
this flat-rate scheme for calculating input tax.
3. Simplified obligations incumbent upon flat-rate undertakings
(a) As regards bookkeeping, flat-rate undertakings:
(i) are required ■  to keep a register of the goods and services they  
supply;
(ii) may not issue invoices on which VAT is mentioned;
(iii) are not required to keep a book.
In addition to these simplified arrangements for small undertakings  
with a turnover of not more than LIT 6 000 000 (4 520 ECU),  
undertakings with a turnover of less than LIT 4^0 000 000 may,  
instead of issuing and recording invoices, keep a counterfoil and  
leaf book.
(b) Undertakings with a turnover of not more than LIT 480 000 000 may  
make quarterly payments and, where the tax payable does not exoeed  
LIT 50 000, payment may be combined with that for the following  
quarter.

- 37 -
(c) Invoicing of VAT
As stated above, small undertakings qualifying under this scheme  
for a deduction equal to a particular percentage of their turnover  
may not issue invoices mentioning VAT even where they sell to  
taxable persons.
Collective flat-rate amounts for determining the amount of VAT  
payable
Another type of collective flat-rate scheme consists in compiling,  
on the basis of purchases that have to be recorded, the amount of  
net tax payable. This type of scheme exists in Belgium in the form  
of an equalization tax and in the form of general and special  
flat-rate amounts.
a) The equalization tax
(Article 56(2) of the VAT Code and Royal Decree No 19 of 20 July 1970)
1. . . Mechanism
VAT payable by small retailers is levied at a flat rate by their  
suppliers, who invoice, over and above the VAT normally invoiced  
on their supplies, an equalization tax intended to represent the  
net VAT that small retailers would be required to pay to the  
Treasury, thereby relieving them of most of the obligations  
incumbent upon taxable persons. Collection of VAT payable by  
small retailers is thus shifted to the stage preceding final  
consumption and is calculated at a flat rate. The equalization tax  
is levied as a percentage of the amount of VAT plus, where  
appropriate, the special tax on luxuries, which is normally  
invoiced by the supplier. The percentages axe as follows:

- 38 -
15$ for goods chargeable to VAT at 6$, for margarine and for  
beverages (1) with the exception of spirits (chargeable at 17%  or 25 % , 
depending on the product);
33$ for other goods.
The equalization tax is applied to all purchases and imports effected  
by small retailers and to all supplies ranking as overheads,  
excluding services and purchases of capital goods.
In exchange for this "calculation at source" of net VAT, small  
retailers do not enjoy any right to deduct other than in respect of  
input tax on their investments, which, at their request, is on a  
quarterly basis by the tax administration.
2. Scope
The equalization tax is applicable to natural persons and to  
partnerships (including private limited companies) engaged in selling  
goods in the unaltered state at the retail stage. Certain customary  
operations in the retail trade (cutting up, etc.) and occasional  
sales to traders (restaurants, canteens, etc.) do not, however,  
result in loss of entitlement to this scheme.
Retailers are deemed to be traders whose annual purchases exclusive  
of tax during the preceding year and intended for resale do not exceed  
BFR 4 500 000 ( 91 600 ECU) in the general food sector and  
BER 2  500 000 ( 50 900ECU) in other sectors.
Lastly, this scheme applies only to certain specific retail sectors,  
namely:
general foodstuffs;
- footwear;
fabrics, table and household linen, haberdashery, headgear,  
wedding outfits, ready-to-wear clothing and for furnishing  
fabrics;
hardware and cleaning products, and paint;
- books and newspapers.
---- ./.
(1
) including fruit and vegetable juices and bottled mineral water.

- 39 -
Small retailers are, however, allowed to carry on an ancillary  
activity provided purchases made in that connection do not exceed  
30% of total purchases.
3. Obligations in respect of bookkeeping and the making of returns
Since the equalization tax is deemed to be equal to the amount of tax  
small retailers would have had to pay on their value added, they are  
not required to keep accounts, to submit VAT returns or to pay the  
tax.
They are required simply to enter an identification code on their  
invoices (the letter "E", whioh signifies that they are taxable  
persons for VAT purposes where they purchase goods from other taxable  
persons, who are then required to invoice the equalization tax). They  
must submit a refund application if they wish to reoover VAT charged  
on their investments.
Small retailers may, however, invoice VAT in the normal way to their  
customers who are taxable persons. In so doing, they do not give rise  
to any residual tax.
Small retailers may opt for the collective flat-rate scheme where it  
iB applicable to their sector of activity or for the normal scheme.
The decision to exercise this option cannot be reversed.
Some 14 000 small •undertakings (2.6$ of taxable persons) are liable to  
the equalization tax, although their number has been falling steadily  
each year.
Alongside this specific equalization-tax scheme, Belgium operates  
general flat-rate amounts for certain sectors of activity and special  
flat-rate amounts for certain individual activities.
b) General flat-rate amounts for certain sectors of activity
Artiole 56(l) of the VAT Code and Royal Decree No 2 of 7 November 1 9 6 9)
These mechanisms for determining taxable amounts for small undertakings  
are automatically applicable in certain seotors of activity where this  
is possible by virtue of the uniform nature of the margins applied.
M)

- 40 -
1, Mechanism of collective flat-rate amounts for determining taxable  
amounts
In Belgium, a distinction is drawn Between "general" and "special"  
collective flat-rate amounts. The particular nature of the aotivity  
in question determines which arrangement is applicable.
The administration, in agreement with the trade organizations concerned,  
fixes each year the taxable amounts for each activity. These amounts are  
used for the purposes of both VAT and personal income tax. They are not  
definitive and may be adjusted to reflect any significant change (an  
increase of more than 2$ in the flat-rate turnover applied initially)  
that takes place during the relevant year.
These business profiles are drawn up by computing turnover from  
purchases and gross profit margins exclusive of tax. For example, the  
following margins were applied in 1979 io purchases in the following  
areas:
By estimating average quantities sold or the number of hours worked by  
suppliers of services, it is possible to determine flat-rate turnover  
on the basis of purchases made and margins applied.
Gross VAT is then calculated from this flat-rate turnover. Input tax  
is imputed in order to work out the net amount of VAT payable.
2. Scope of the collective flat-rate scheme
This scheme applies to undertakings in certain specific sectors of  
activity (retailing and services) which have a turnover of not more  
than BFR 15 000 000 exclusive of tax (305 400 ECU) and which sell  
primarily to private individuals (at least 75$ of their turnover) and  
are not, therefore, required to issue invoices.(i) foodstuffs:
(ii) textiles, fabrics, haberdashery:
(iii) hardware and cleaning products, and paint:  
(iv) books, periodicals :1.52 $
1.52 $  
1.41 $

- 41
This scheme applies to ow n  account undertakings as well as partnerships 
(including limited liability partnerships but excluding limited companies).
When one of the above conditions is no longer met, the trader automati­
cally becomes subject to the normal scheme.
A flat-rate undertaking may opt for the normal scheme, but for a minimum  
period of two years.
Only the taxable amount is calculated at a flat-rate. The flat-rate  
undertaking, however, ranks as a taxable person subject to the normal  
scheme where the invoicing of VAT to its customers who are taxable persons  
is concerned (as mentioned above, the latter must not account for more  
than 25io of its turnover).
It sets off deductible input tax; against gross VAT calculated on the  
basis of its flat-rate turnover.
Under the flat-rate scheme, a taxable person is deemed to have supplied  
by the end of the tax year all the goods purchased by him. As a result,  
stocks are not taken into account in determining the flat-rate amount.
The taxable person may, however, draw up an inventory of stocks received  
and of stocks issued and may request that purchases consumed be taken  
into account in calculating the flat-rate turnover.
3.  Qbligations incumbent upon flat-rate undertakings
Bookkeeping: Plat-rate undertakings must keep a standardized record  
of their purchases and, also a record of their sales if they supply 
to taxable persons. They must supply a breakdown of any additional 
profits arising out of sales on terms other than those used in deter­
mining the flat-rate margin.
Returns:  Plat-rate undertakings must submit quarterly together with 
a calculation slip on which turnover is calculated on the basis of 
their purchases to which the coefficients for their particular acti­
vity have been applied.

- 42 -
Payment:  Plat-rate undertakings make monthly payments on account  
equal to one third of the VAT paid the preceding quarter and  
regularize their posistion when they send in their quarterly returns  
hy settling the difference.
“ Iftvoicing:  Plat-rate undertakings are required to issue to their  
customers who are taxable persons invoices mentioning the amount of  
VAT charged. In such cases, they must also produce each year a  
statement of sales to taxable persons and of the amounts of VAT  
invoiced and must keep a sales journal.
There are 69 000 flat-rate undertakings in Belgium (i.e. 12.7%
taxable person).
B. INDIVIDUAL· FLAT-RATE AMOUNTS
Pour Member States apply individual flat-rate schemes under whioh:
— either the turnover realized by each small undertaking in particular  
is calculated at a flat rate (Belgium and Prance),
- or a simplified, flat-rate apportionment of turnover can be carried  
out for each tax rate where several rates are chargeable (Italy  
and Ireland).
I. Individual flat-rate amounts for computing the turnover of small  
undertakings
BELGIUM
Certain small undertakings whose activity would in the normal course  
of events, render them liable to the collective flat—rate scheme but  
is carried on under conditions that prevent application of collective  
flat-rate taxable amounts are, at the request of the taxable persm,  
taxed under an individual flat—rate scheme. However, such undertakings  
may always opt for application of the normal scheme.
Plat—rate taxable amounts are determined by the administration on the  
basis of returns made by taxable persons under arrangements similar  
to those in force in Prance and giving details of purchases and sales.

- 43 -
The conditions governing elig ib ility  for this scheme are the same as those 
for the collective flat-rate scheme (turnover of not more than 
B F R  15 000 000 exclusive of tax, and sales effected primarily to private 
individuals).
F R A N C E
The individual flat-rate scheme applies automatically to small undertakings 
with an annual turnover inclusive of tax of not more than:
- F F  500 000 (76 300 E C U ) in the case of sales activities 
and the supply of accomodation;
- F F  150 000 (22 900 E C U ) for other services
- F F  175 000 (26 700 E C U ) for the professions.
Property transactions, the letting of goods or equipment and any activity 
engaged in by a company liable to corporation tax or by members of the 
professions w ho are subject to the system of controlled returns for direct 
taxation purposes do not qualify for this scheme and are subject to the 
normal scheme.
1. Mechanism for fixing the flat-rate amount
Under the individual flat-rate scheme, the net amount of V A T  payable 
is fixed for two years possibly for different amounts on the basis of 
the returns m ade by the taxable person (amount of purchases, amount of 
sales) after discussion of the flat-rate amount with the administration. 
The amount of input tax normally deductible is taken into account in 
determining the amount of V A T  payable.
If, once the flat-rate amount has been calculated, the net annual^ 
amount of V A T  payable does not exceed the exemption (FF 1  350, 
i.e . 220 ECU ), the taxpayer is exempt from payment of the tax.
Graduated tax relief applies where the amount of tax payable is 
between F F  1  350 and F F  5  400 (or F F  20 000 in the case of an 
artisan) (1). Over and above F F  5  400, V A T  calculated under the 
flat-rate scheme is payable in the normal w ay by the flat-rate 
taxable person.
A t the beginning of the year, flat-rate undertakings m ay opt for the 
simplified scheme or for the normal scheme, with any such decision 
being final.
(1) For further details, see Annex I (Exemption schemes)

- 44 -
They invoice V A T  to their customers w ho are taxable persons in 
the normal w ay without giving rise to any residual tax.
2. Obligations
a) Bookkeeping: Flat-rate undertakings are required:
- to keep their invoices;
- to keep a record of purchases where their business 
involves them in selling goods;
- to keep a receipts day book in respect of services supplied;
- to keep a stock book.
b) Returns: Flat-rate undertakings are required to m ake annual 
returns giving their turnover and the corresponding amount of 
V A T , their purchases and input tax, and their overheads and 
corresponding input tax. The return is m ade on the same form as 
that used for declaring taxable amounts for the purposes of 
personal income tax.
c) Payment: Each month, flat-rate undertakings pay one twelfth of 
the tax calculated at a flat-rate (or one quarter every three 
months where the amount payable monthly is less than F F  800).
3. There are som e 931 000 flat-rate undertakings in France out of a 
total of 2  350 000 taxable persons (i.e . 40 Z). They generate 4 Z  
of total V A T  receipts, the annual turnover for over half of them 
being less than 10 000 E C U .
Flat-rate methods for apportioning the receipts of small undertakings 
liable to several rates of tax
Each M em ber State operates arrangements under which receipts can be 
apportioned empirically am ong different tax rates. A s a rule, these 
arrangements are not linked to the size of the undertaking and were 
introduced to cater for retail sales to private individuals, for 
which invoices are not needed.
However, w e  shall take a look at som e of these arrangements, since 
two M em ber States have introduced them specifically for small 
undertakings even though they also operate flat-rate schemes for 
larger retail undertakings.

- 45 -
The special arrangements in Italy and in Ireland are discussed "below  
in order to round off the survey of measures peculiar to the VAT  
scheme for small undertakings, although they rank more as implement­
ing provisions of an accounting nature than as fundamental measures  
distinguishing the scheme for small undertakings from the normal  
scheme applicable to taxable persons generally.
ITALY
Small undertakings whioh are authorized to engage in retailing gnH  
which are subject to different rates in respect of their sales may  
calculate the amount of VAT payable by applying to their total  
receipts a weighted average rate of VAT calculated on the basis of  
the VAT charged on their purchases.
This average rate is, in fact, equal to the value of the purchases  
divided by the amount of input tax charged on them.
Gross VAT can be worked out using this rate, with net VAT being  
calculated by imputing the flat-rate deduction equal to 70% of gross  
VAT applied by retailers (for further details, see the Italian flat-  
rate scheme described in Section A.I.).
IRELAND
Simplified arrangements are applied in Ireland for apportioning the  
receipts accruing to small retailers liable to several rates of tax  
that vary depending on the amount of turnover.
1. Where turnover is less than Llr 100 00Q receipts are apportioned  
according to the breakdown of purchases by the different rates, and  
no aocount is taken of the possible differences in margins on the  
different products (Mechanism l).
This arrangement is identical to that operated in Italy for small  
retailers.
Small undertakings in this category may also opt for one of the  
mechanisms described below.

- 46 -
W here turnover is between t lr  100 000 and tlr  300 000, apportionment 
of receipts from purchases charged at the normal rate and at the re­
duced rate is based on the purchases charged at these rates plus the 
average margin applied. The difference between these receipts and 
total receipts gives the receipts from zero-rated purchases (Mechanism
These are simplified arrangements in that, as distinct from the arran­
gement for apportioning the receipts of undertakings with a turnover 
of more than t lr  300 000 (Mechanism 4), no account is taken of changes 
in stocks. However, even for undertakings falling into that category, 
a method can be applied that does not take account of such changes.
Consequently, these accounting mechanisms for the retail trade are 
not mechanisms intended specifically for small undertakings.

TABLE I
NETHERLANDSA. CEILINGS IN TERMS OF TURHOVcH
FEDERAL REPUBLIC 
OF GERMANY
UNITED KINGDOM*3?' 20 000 ( 8 400 ECU) inclusive 
of tax in preceding year 
(7 500 ECU exclusive of tax)
DM 100 000 (42 300 ECU) 
inclusive of tax (expected 
turnover in current year 
DJCl 10 000 (1 220 ECU) 
exclusive of tax per 
12-month period 
Expected turnover in current 
year of L 17 000 (30 700 ECU) 
exclusive of tax 
Depending on activity, 
turnover in current period of: 
(i) U r  30 000 (43 760 ECU) 
exclusive of tax} /
(ii) U r  15 000 (21 880 ECU) 
exclusive of tax·
Turnover in preceding year of 
L?R 200 000 (4 000 ECU) 
exclusive of taxGraduated tax relief
Turnover in current year up to 
CM 60 000 <25 400 ECU)
Turnover of between 
LFR 200 000 and 
L?R 1 OOO 000 (4 000 ECU 
and 20 000 ECU), with 
maximum tax remission 
of LFR 8 000
B. CEILINGS IN TliHHS OF TAX DUE 
FP 1 300 per year (200 ECU) 
before imputation of VAT 
charged on fixed assets
H5L 2 050 per year 
(790 ECU)(i) General rebate: amount 
of tax payable of between 
FF 1 350 and FF 5 400 
(200 ECU and 820 ECU)
(ii) Special rebate: amount
of tax payable of between 
FF 1 350 and FF 20 000 
(2 0 0 ECU and 3 050 ECU 
before imputation of VAT 
on.fixed assets 
Between HFL 2 050 and 
HFL 4 150 (790 ECU and 
1 600 ECU)EXEMPTIONS AND GRADUATED TAX R.ELIBF
Activities concerned
All activities: sales and 
supplies
including agricultural 
activities on option
All activities: sales and 
supplies
Taxable su p p lies o f goods 
and se rv ic e s
(i) Sales of goods at 
zero or reduced 
rata
(ii) Supplies of 
services
All activities: salec and 
supplies
Including a g ric u ltu ra l 
a c t i v i t i e s
Activities subject to 
flat-rate scheme, excluding 
property transactions, the 
letting of equipment or 
goods, imports and 
occasional transactions and 
activities carried opt by 
companies liable to coapany 
tax.Right to 
deduct 
input tax
Exemption: m 
Graduated ta: 
relief: yesT ra n sfe r of 
rig h t to  deduct 
to  cu sto aers 
who a re  ta x a b le  
personsBookkeeping
obligations•Country not operating a flat-rate scheme
Number of small 
undertakings
Exemption: no 
Graduated tax 
relief: yesTee, fo r et  teas» 
5 y earsExemption: no 
Graduated tax 
relief: yesExemption : note o f 
ta k in g s, graduated tax 
r e l i e f  : normal o b lig a-Kumber of under­
takings subject 
to normal scheme
Monthly, quarterly 
or annually, 
depending on the 
amount of tax 
payable
Purohase and sales 
invoices to be kept 
for 5 yearsExemption: 9 000 exclud-. 1 690 000
log w d e rta k in g s whose ( d e lu d in g  f l a t - r a t e
tu rn o v er <. 12 000 0* farm ers)
graduated tax
r* H e f : 359 000 I
Exemption: 
not known
Exemption: no 
Graduated tax 
relief: yesPurchase Invoices
Exemption: no 
Graduated tax 
relief: yeeYes 5 ye|rs Exemption: no 
Graduated tax 
relief: yes
All activities: sales and 
supplies
carried out by individualsSame as foi
flat-rate
schemeExemption : none 
G raduated tax 
r e l i e f  : yes
annual
!  Same as for 
i  flat-rate
i  schemeExemption: not known
Exemption: 9  000 
which 3 400 ^ 1 0 OOO ECUS
Exemption : 550 
3.5 X
Graduated tax  
R e lie f : 1  735 11 X1 093 000
87 000
Exemption: 93 q00 
Relief: 436 000
Y es, except fir 
d isp en satio n  
re s u ltin g  in 
lo ss of rig h t 
to  invoice V A TNormal obligations, '  
except for
dispensation result- !Exemntion: afi 0 00
ing in loss of i  
to invoice VATightSame as for 
normal
scheme except fo r s ’  Graduated tut* 
d isp e n sa tio n  r e s u lt-  relief: 7* O O O  fifi <1 
ing in  lo ss o f rig h t v w
to  Invoice V A T416 000

CHANGES IN THE LIMITS S'~ UNDER THE SPECIAL SCHEMES FOR SMALL 'NDERTAKINGS SINCE ENTRY IN FORCE
OF A VAT SCHEME
Date Exemption Limit Limit for graduated tax 
reliefFlat-rate limit
GERMANY 1.1.68
1.1.80 (date of entry 
into force of the Sixth 
DirectiveDM 12,000 (cascade tax 
scheme)
DM 20,000 (turnover of 
previous year inclusive 
of VAT)DM 60,000 (cumulative 
system rate of tax 4 %) 
DM 60,000 (turnover of 
current year)DM 100,000 (turnover of previous 
year) for certain undertakings and 
types of activity.
BELGIUM
1.4.73
1.4.78
1.1.76
1.4.78not relevant not relevantEqualization tax :
BFr 2,000,000 or 3,000,000)  depending 
BFr 2,500,000 or ) on 
BFr 4,500.000  ) activity
Flat-rate amount :  BFr 10,000,000 
BFr 15,000,000
FRANCE prior to 1.1.78 
1.1.78 
no change FF 1,350 in terms of 
amount of taxFF 1,350 to FF 3,500 or 
13,500 (in terms of tax) 
FF 1,350 to FF 5,400 or
FF 20.000 in terms.of tax depending on activityFF 150,000, FF 175,000 or FF500,000 
depending on activity.
IRELAND 3.9.73
1.3.79 (Sixth Directive 
1.1.82b 12,000 - 6,000 or 
b 1,800, depending on 
activity
b 18,000 - 9,000 or 
b 3,000, depending on
b 15.000-"-not relevant not relevant
UNITED KINGDOM prior to Sixth Directive 
1.4.78 (Sixth Directive)
2 S ± S 8-11.3 8110.3.82____________b 
7,500 
b 7,500 
b 10,000 b 13^5001Mnot relevant not relevant
LUXEMBOURG 1.1.72
1.1.80 (Sixth Directive)LFr 100,000 
LFr 200,000100,000 - 1,000,000 
200,000 - 1,000,000not relevant
NETHERLANDS 1.1.77
1.1.79 (Sixth Directive)HFl 2,050 in terms of tax 
unchangedHFl 2,050 - HFl 4,150 
unchangedflofc ps-l&vant
DENMARK 1.7.73
1.10.78 (Sixth Directive)DKr 5,000 
DKr 10,000not relevant not relevant
ITALY 1.1.78
1.1.79 (Sixth Directive)hot relevant not relevantL,it 6,000,000 
unchanged

TABLE III- 49 -
APPLICATION IN MEMBER STA .S OF THE PROVISION UNDER WHICH A TUF\ j\IER OF LESS THAN 10,000 ECU 
IS NOT TAKEN INTO ACCOUNT IN DETERMINING VAT OWN RESOURCES
MEMBER STATES APPLYING NO EXEMPTION
BELGIUM
ITALYALL SMALL UNDERTAKINGS ARE SUBJECT TO TAX (FLAT-RATE SCHEME OR EQUALIZATION TAX)
EXCLUSION ON THE BASIS OF RECEIPTS OF UNDERTAKINGS■< 10,000 ECU SELLING TO FINAL CONSUMERS.
MEMBER STATE APPLYING EXEMPTIONS 10,000 ECU DETERMINED BY REFERENCE TO TURNOVER
DENMARK THE IMPACT OF RESIDUAL TAX CREATED BY THE EXEMPTION <  10,000 ECU HAS BEEN DISREGARDED.
FOR THE PORTION BETWEEN THE EXEMPTION AND 10,000 ECU :  DEDUCTION OF VALUE ADDED CORRESPONDING TO SALES TO 
NON TAXABLE PERSONS.
MEMBER STATES APPLYING EXEMPTION DETERMINED BY REFERENCE TO AMOUNT OF TAX
FRANCE THE EXEMPTION IS DEEMED TO BE EQUAL TO 10,000 ECU. THERE IS NO RESIDUAL TAX -->N0 ADJUSTMENT TO BE MADE
NE
THERLANDSEXEMPTION WITH DEDUCTION AMD INVOICING OF VAT :NO RESIDUAL TAX. SMALL UNDERTAKINGS -=^10,000 ECU HAVE BEEN IDENTIFIED --* DEDUCTION OF VALUE ADDED CORRES-
PO
NDING TO SALES TO NON-TAXABLE PERSONSi
Exemption without deduction and without invoicing of vat = inpact of residual tax has been disregarded
MEMBER STATES APPLYING EXEMPTION 'p· 10,000 ECU
UNITED KINGDOM 
IRELANDCOMPENSATION FOR EXEMPTION >  10,000 ECU -—-> REINCORPORATION IN THE BASIS OF VALUE ADDED CORRESPONDING TO 
SALES TO NON-TAXABLE PERSONS - LESS THE RESIDUAL TAX CREATED BY SALES TO TAXABLE PERSONS. THE IMPACT OF 
RESIDUAL TAX CREATED BY THE EXEMPTION 10,000 ECU HAS BEEN DISREGARDED.
GERMANY FORTHE PORTION OF TURNOVER BETWEEN THE EXEMPTION AND 10,000 ECU COMPENSATION NOT REQUESTED.
LUXEMBOURG THEIMPACT OF RESIDUAL TAX CREATED BY THE EXEMPTION < 10,000 ECU HAS BEEN DISREGARDED.
N.B. :  Situation as in 1979 own resources returns, except in the case of Germany, Luxembourg, and Ireland, where returns 
for 1980 taken.

50 - Table IV
Administratives rules
Retailers subject to the flat-rate schem e are required to keep :
i) a  purchases journal modelled on the specimen annexed to the "Special 
provisions".
T he purchase price of goods m ust be broken d o w n  into its separate 
components and entered in the colum ns corresponding to the different 
categories of goods specified in the "Special provisions". T he 
colum n totals are carried over,  for each return period, into C o lu m n  3  
of the calculation sheet ;
ii) w here appropriate, a  detailed record of any additional profits arising 
out of special buying terms ;
iii) where appropriate,· a  sales journal in respect of supplies for which 
invoices are issued. A n y  rebates mentioned on such invoices are to 
be show n in a separate colum n for each category of goods chargeable 
at the sam e rate ;
iv) where appropriate, customer accounts or any other documents necessary 
for drawing u p  the annual return of goods supplied to other taxable 
persons (Article 50 (1)(5) of the C ode) ;
v) where necessary, a receipts journal for goods and services supplied 
to private individuals and not subject to the flat-rate scheme.
A  calculation sheet provided by the administration (cf. A nnex II) shall be 
attached to the regular return. It shall be completed in accordance with 
the instructions given in the "General provisions/73" and in the "Special 
provisions" relating to the sector to which the taxable person belongs.
Detailed record of additional profits arising out of special
buying terms
Date N o  of entry 
in purchases 
journalNature of 
special 
buying termsPurchase 
pri ceAdditional profits chargeable at :
6  % 1 7  % 2 5  %  ,+  „ 8  %  C  D ·
(1) Special luxury tax.

- 51 - Table IV
BELGIUM
(Identification label to be affixed here)
Name ... 
Address 
VAT No .CALCULATION SHEET 
FLAT-RATE SCHEMEAnnex to the return for the quarter 19.
Purchase
priceCoeffi­
cientsFlat-rate 
turnover 
(3 x 4)TotalSpecial Transac- 
buying tions witl
terms no ftat-
rate basi'To be
deducted:
RebatesTotal 
(6+7+8 
- 9)Taxable amounts iRate VAT payable 
(11x12)
8 1 0 11 1213
6 % 
rate
16%
rate11
12
13
14
31
32
33
34
35
41
42
43
44
49to be shown in 
box 01 of the 
return
x 6%
to be shown in bo* 
03 of the return
x 17%
to be shown in box 
04 of the return
x 25%
D x 8 %
Total A + B + C
to be shown in box 
12 of the returnto be shown in box 11 of the 
return
Read the instructions overleaf before complet '->g the calculation sheet.
1

COLLECTIVE
NATURE
1. Equalization 
tax: value added 
!  calculated at a 
!flat rate on the 
is of inputs.
2. General 
flat-rate amounts 
for each main
flat-rate amounto 
for specific 
activities.
.  Plat-rate 
:  deduction; 
"average rates" 
i  that vary 
‘ according to 
activity.
'  Plat-rate 
deductions that 
:  vary according 
.  to activity.ACTIVITIES CEILING
Certain small 
retailers 
selling goods 
in some state 
to consumers 
without any 
processing 
taking plaoo.
Limited 
activities: 
food, olothing, 
newspapers, 
cafe
proprietors,
hairdressers,
shoemakers
doctors,
dispensing
chemists.
Certain
activities:
intermediate
retailing,
artisanat,
professions.purobasec
of BPR 4 50 0 000 
or BER 2 500 000 
exclusive of 
tax (procoding 
year).
Turnover 
exclusive 
of tax of
BPR 15 000 000
Turnover in 
preceding 
year of 
less than 
DM 100 000
LIT 6 000 000OPTION
Automatic
scheme.
Definitiv·
option foj
flat-rate
normal
scheme.
:  Option for 
normal 
i  scheme for 
.  not less 
] than 2 years. 
Posaible 
option for 
■  return to 
flat-rate 
scherno.
Automatii 
scheme; 
option f< 
normal 
scheme.Special identification 
code. Application for 
refund of VAT charged 
on investments. 
Purchases journal and 
sales journal
Table of investments 
broken do\m by tax 
rate. Statement of 
additional profits. 
Receipts book for 
activities falling 
outside flat—rate 
scheme.
Sheet for calculating 
flat—rate turnover.
No rate of sales nor o‘  
Input tax.purchases.
One annual 
return for sale 
to taxable 
persons.
One annual 
return for 
flat-rate 
taxable amounts 
Annual list of 
customers who 
are taxable 
persons.
Annual (as 
under normal 
scheme).By the 
supplier
Quarterly 
payments 
on account.
As under nomai 
H  (monthly) 
possibly qoateriy 
if less than 
6000 1]K iq 
previous year
Quarterly.
INDIVIDUAL
Activities not Turnover
flat-rate amount standardized 
used to determine 
VAT due in the 
case of particu­
lar activitiesexolueive of tax
of BPR 15 000 000
Individual 
flat—rate amounts 
for determining 
VAT due 
(together with 
exemption and 
relief scheme 
below a certain 
amount of net 
tax)
Calculation of 
weighted average 
rate of VAT 
chargeable on 
purchases in the 
case of several 
tax rates; this 
average rate 
applied to 
receipts in 
order to 
determine 
gross VATAll activities, 
with the 
exception of 
imports, 
occasional 
transactions, 
property trans­
actions, letting 
of good 6 or 
equipment.7F 500 000 for 
sales and for 
hotel trade
PP 150 000 for 
the supply of
Retailers
onlyLIT 6 000 000
Calculation of 
weighted average 
rate of VAT 
chargeable on 
purchases; this 
average rate 
applied to 
receipts in the 
case of several 
tax rates in 
order to 
determine 
gross VATSeveral schemes 
exist depending 
on turnover:
- t 100 000
- t 300 000Scheme 
requested 
by the taxable 
person.
Option for 
normal scheme.
Automatic 
scheme; 
definitive 
option for 
normal 
scheme.Invoices to be kept. 
Register of purchases. 
Register of receipts 
in the case of
Automatic 
scheme; 
option for 
normal scheme.Register of purchases, 
and receipts.Annual return 
giving turnover, 
purchases, 
overheads and 
investments.
Qurterly or 
half-yearlyPLAT -  HATE AMOUNTS
Restricted to 
VAT charged on 
investments. 
Por the rest: 
value added 
ilncluded.
Yes, in the 
normal cours· 
of eventsNo, but
invoicing
of
equalization 
tax by 
customers 
who are 
taxable 
persons as 
requested by 
the supplier 
Yes, where 
sales to 
taxable 
persons
Yes: flat-rate 
deduction; real 
deduction for 
oertain expenses 
and certain 
taxable persons
I  Yes: flat-rate 
deduction· - !---LEGAL STATUS 
OP
BEN
EFICIARY 
Natural persons 
or partnerships, 
including 
private limited 
companies
Natural 
persons or 
partnerships 
(no limit)
All undertakings 
regardless of 
their le^l 
status (except 
craft saen)Presumed 
constant,
where 
inventory 
drawn up.MECHANISM
Percentage increase in 
purchases (including imports, 
excluding capital goods and 
services) invoiced by 
suppliers to small 
retailers.
Purchases or hours worked 
multiplied by margin 
coefficient. Breakdown 
by group necessary 
according to rates and 
margins. Adjustments to be 
made in the light of refunds 
or additional profits 
(direct purchases).
Input equal to standard 
percentage of turnover 
that varies according to 
activity.
Input equal to standard 
percentage of turnover 
that varies according to 
activity.BASIS FOR CALCULATION 
15^ of VAT invoiced at 6% 
of VAT invoiced at 17/£
Coefficients laid down, in 
agreement with trade 
organizations, in annual 
profiles applied to 
purchases in order to 
obtain flat-rate turnover.
Turnover recorded in proper 
manner by small 
undertakings.
Turnover r· 
manner by 1«sided in proper 
all undertakings
FLAT -  RATE AMOUNTS
Y e s  ;  Y e s
Y e s  Y e sNatural persons 
or
partnershipsPossible, whore 
inventory taken
Natural persons Possible, where 
inventory taken
partnerships
Natural persons 1 Presumed 
and cofjenles. constant
Yes Yes Yes, under 
certainDetermination on an individual 
basis by the administration 
for 2 years of net VAT payable 
on the basis of taxpayer's 
returns and profiles.
Individual calculation of 
average rate in order to 
obtain gross VAT, then 
inputation of flat-rate 
deduction of input tax. 
Apportionment of turnover 
calculated on the basi 6 of 
purchases broken down by tax 
rate takes no account of 
changes in margins depending
Apportionment of turnover by 
different tax rates based 
on breakdown of purchases 
inclusive of tax:
- either disregarding changes 
in margin depending on rates;
— or taking aocount of such 
changes.(i)
(Ü)
(iii)
(iv)Calculation of turnover 
and gross VAT.
Deduction of estimated 
VAT charged on purchases 
and overheads.
Possible application of 
exemption or relief. 
Assessment of VAT charged 
on investments.
Average rate- 
Input tax charged c
purchases 
This rate is applied to 
receipts exclusive of tax 
in order to determine 
output tax.