12. 3. 90 Official Journal of the European Communities No C 62/17 
consider an amendment — now essential — of the Treaty 
provisions covering the implementation of a healthy 
competition policy within the Common Market. 
4.2. In this context, the Committee would ask the 
Commission to take up and implement the suggestions and 
practical proposals contained in this Opinion. 
4.3. It is therefore important for the Commission to ask 
the Council to give it the resources needed to ensure that its 
departments are in a position — both in terms of 
Done at Brussels, 19 December 1989. 
1. Introduction 
1.1. The Commission's purpose is to amend its 
Communication of 4 August 1987 and the accompanying 
draft Directives [COM(87) 320-328] relating to completion 
of the internal market through the approximation of 
indirect tax rates and structural harmonization. 
The 1987 proposals had prompted considerable doubts and 
concern in the Council and the Member States and within 
various specialist study groups. 
1.2. In this connection, reference should be made to the 
eight ESC Opinions adopted on 7 July 1988 0). The 
Opinions broadly endorse the idea of harmonizing indirect 
tax rates while highlighting the shortcomings of the 
proposals and stressing the need for substantial changes. 
(!) OJ No C 237, 12. 9. 1988. manpower and work organization — to achieve this 
objective. 
4.4. The Committee takes the view that the maximum 
effort must be made to strengthen competition policy 
within the EEC, so that a state of competition may be 
perpetuated both within the Community and in relation to 
third countries which will contribute to the prosperity of 
all. The future growth of the Community's prosperity and 
that of its citizens will depend to some extent on the success 
of Community competition policy. 
The Chairman 
of the Economic and Social Committee 
Alberto MASPRONE 
The Commission Communication implicitly takes account 
of these ESC Opinions but contains no specific reference. 
1.3. Attention is also drawn to the Committee's 
statement in Opinion CES 739/88 on the Commission's 
Global Communication on Completion of the Internal 
Market that it 'fully endorses the aim of removing all 
frontiers and all border checks by 1 January 1993'. 
This Opinion held that tax convergence in the broad sense, 
i.e. encompassing direct taxes and parafiscal charges, could 
not be considered as an absolute prerequisite for the 
establishment of the Single Market but only as one 
component of a global strategy embracing, for instance, 
macroeconomic back-up policies. 
It is also clear that the current wide differences in VAT rates 
could generate sharp distortions of competition in a Opinion on the communication from the Commission to the Council and to the European 
Parliament on completion of the internal market and approximation of indirect taxes 
(90/C 62/08) 
On 23 October 1989 the Commission decided, in accordance with Article 198 of the Treaty 
establishing the European Economic Community, to ask the Economic and Social Committee for 
an Opinion on the communication from the Commisson to the Council and to the European 
Parliament on completion of the internal market and approximation of indirect taxes. 
The Section for Economic, Financial and Monetary Questions, which was responsible for the 
preparatory work on the matter, adopted its Opinion on 5 December 1989. The Rapporteur was 
Mr Delia Croce. 
At its 272nd Plenary Session (meeting of 19 December 1989), the Economic and Social Committee 
adopted the following Opinion by a substantial majority, with three dissenting votes and 
11 abstentions: 
No C 62/18 Official Journal of the European Communities 12. 3. 90 
Community with wide-open frontiers. This point is dealt 
with in more detail under point 3.2. 
1.4. The new Communication provides for: 
(a) a transitional convergence phase running until the end 
of 1992; 
(b) the adoption of a minimum standard VAT rate instead 
of the band system; 
(c) the introduction of specific arrangements for certain 
commercial operations; 
(d) a mechanism for refunding VAT balances in trade 
among the Member States, to be based exclusively on a 
macro-economic analysis of statistics; 
(e) substantial amendments to the proposals relating to 
excise duties, geared entirely to long-term targets; 
(f) continued zero rating for a very limited number of 
products currently subject to the reduced rate, provided 
that (i) this does not pose any risks of distortion of 
competition for the other Member States and (ii) the 
Council takes a decision on the respective coverage of 
the standard rate and the reduced rate. 
2. General comments 
2.1. The new proposal is generally an improvement on 
the previous one since it takes greater account of existing 
conditions and incorporates a number of the proposals 
contained in the relevant ESC Opinions. The concern 
expressed by several Member States is also heeded. 
2.2. In particular, it allows for a considerable measure 
of flexibility. 
2.3. The overall Commission approach is highly 
pragmatic, and takes account of the difficulties that various 
proposals have encountered in the past and will most likely 
encounter in the future. However, the Commission 
communication can be regarded as a declaration of intent 
and, as such, is very broad. A more detailed general 
appraisal will not be possible until the proposed provisions 
of the Directives are published. 
2.4. For the time being, it can be pointed out that the 
complexity of the problems connected with implemen­
tation of a Single Market encompassing many different 
economies rooted in differing monetary and taxation 
systems is perhaps not sufficiently realized. 
2.5. The need to promote greater cohesion, alleviate 
regional imbalances and ensure genuine freedom of 
competition in a broad economic growth process militates 
for neutral taxation and parafiscal systems. With this in mind, the Community must encourage the Member States 
to push ahead without delay with harmonization and 
alignment. 
2.6. The most significant change, compared with the 
previous proposal, is the indication merely of a minimum 
standard VAT rate, leaving Member States at liberty to 
exceed this level. 
However, there is a risk that differing rates will persist 
indefinitely and cause disruption, unless market and 
competition forces are more effective than regulations in 
speeding up alignment. 
2.7. It is true that the 'toning down' of the initial 
Commission proposals solves a number of practical 
problems and that the suggested alternatives deserve 
careful consideration. There is, however, good reason to 
fear that the new approach could delay the alignment of 
VAT and excise rates, with potentially damaging con­
sequences. 
2.8. The Commission provides for a transition phase 
expiring at the end of 1992 in order to facilitate 
implementation of the reform but continues to insist on the 
abolition of border checks. 
The definition of this transitional phase is to be 'ac­
companied by steps to give practical shape to Member 
States' commitment to complete the internal market in the 
field of indirect taxation, especially as regards the 
approximation of VAT rates by the end of 1992.' 
This vague statement prompts some doubts, especially as 
to the precise form in which Member States' commitment 
should be expressed and their willingness to enter into any 
meaningful form of undertaking. 
2.9. One positive feature of the transitional phase is the 
gradual, predetermined increase in tax-free allowances. 
Specific comments 
3. VAT 
3.1. The Commission does not suggest any changes in 
the originally proposed reduced VAT rate. The ESC would 
therefore refer to the views expressed in Opinion CES 741/ 
88, in particular point 2.7. 
A list of the products covered by this reduced rate is both 
advisable and important and the principle of neutral 
taxation of competing products must also be respected. 
The Member States should be closely consulted prior to 
compilation of this list. 
12. 3.. 90 Official Journal of the European Communities No C 62/19 
3.2. The substitution of a single minimum limit for the 
standard VAT rate band recommended in the previous 
proposals prompts some criticism and concern. 
Opinion CES 741/88 called for closer convergence between 
the rates proposed by the Commission (14 % to 20 % rate 
band) and states that 'if the aim is to be that VAT on goods 
and services in an internal market free of tax barriers 
should be neutral, a reduction in the differences between 
rates to around three percentage points would normally be 
likely to make tax-related distortions of competition 
bearable'. 
The Commission itself acknowledges that the previously 
proposed range was 'often regarded as excessive and likely 
to bring about distortions of competition'. 
Since the fixing of this minimum limit could lead — at any 
rate in theory — to wider divergencies than the rate band, 
there is a clear inconsistency. 
The Commission's shift in position can be considered 
warranted, in view of the genuine problems experienced by 
the previous proposal. 
The fixing of a single minimum rate would leave the 
Member States at liberty to adopt higher rates, but it is fair 
to assume that they will attempt to stay close to the 
minimum rate in order not to undermine their competi­
tiveness. 
3.3. The idea of allowing adjoining Member States to 
settle problems likely to arise in frontier regions by bilateral 
agreements must be regarded as incompatible with a 
Community approach. Further, it seems unrealistic since 
the sharpest contrasts actually occur between neighbouring 
countries with significantly different VAT rates. 
3.4. As regards the controversial issue of zero-rating, 
this proposal seems acceptable, but only on condition that 
such derogations are available to all Member States. The 
present situation should not be allowed to persist; 
derogations should be authorized for all Member States, 
for a very limited number of products and for a transitional 
period. 
This proposal seems acceptable, but only on condition that 
such derogations are available for all Member States. 
4. Clearing mechanism 
4.1. The original proposal regarding the clearing 
mechanism for trade among the Member States is to be 
radically changed by the introduction of specific arrange­
ments for certain operations (mail-order sales, sales of cars, 
sales to institutional non-taxable persons and exempt-
taxable persons, transactions carried out by enterprises 
within the same group). Treatment of other transactions 
between taxable persons is to be calculated on the basis of external trade statistics, viz. a macroeconomic approach to 
compensation. 
4.2. The new proposal is undoubtedly simpler — and 
consequently more readily acceptable — but many of the 
ESC's previous reservations continue to hold good (see 
points 3.7, 3.8, 3.11, and 3.13 of Opinion CES 742/88). 
4.3. The Committee also wishes to point out one serious 
defect of the mechanism, which jeopardizes its viability. 
In the case of cross-border transactions, VAT will be 
chargeable in one Member State and reclaimed, where 
appropriate, in another Member State. There are two risks 
here: 
— an increase in 'taxi' operations, where false VAT bills 
are issued in one country and the VAT is then refunded 
in another. 
These transactions can be halted fairly quickly when they 
occur in one and the same country and involve only one tax 
authority. There is a danger that they may persist on an 
increasingly wide scale if they can only be detected through 
joint action by two tax authorities, as long as there is no 
Community taxation 'super-authority'. 
— It has hitherto been impossible, in the case of products 
manufactured under the 'black' economy in one 
Member State and sold in another, to recover unpaid 
VAT in the latter country. Under the Commission 
scheme, a bill could be obtained for refundable (though 
unpaid) VAT, thereby reducing the tax-free sale price 
and acting as a powerful incentive to trade in such 
products. 
4.4. It is also worth reiterating the need to establish 
proper statistical arrangements [see Opinion CES 552/89 
— SYN 181 (Rapporteur: Mr Giacomelli] (*). 
4.5. There is also an urgent need for effective arrange­
ments to prevent and punish fraud. 
4.6. Fraud already exists on a considerable scale but new 
forms could emerge as a result of the scope afforded by the 
abolition of frontiers. 
There is also a risk that some operators will fail to declare 
sales in other Member States. Yet it would be in the 
interests of their national authority not to rectify such 
(!) OJ No C 159, 26. 6. 1989, p. 16. 
No C 62/20 Official Journal of the European Communities 12. 3. 90 
errors as they would then have to pay more to the clearing 
fund. 
The basis of the clearing mechanism is therefore precarious 
and the fiscal use made of trade statistics could even 
undermine their monitoring, and hence reliability. The 
Committee urges the Commission to supplement its 
proposals on fraud prevention and sanctions so as to 
achieve a truly effective impact. 
5. Specific arrangements 
5.1. Mail-order sales. The Commission is prepared to 
propose that such sales should be taxed under the rules in 
force in the country of destination of the goods. It adds that 
specialized operators would be liable for such taxes but it is 
not clear exactly what rules would apply. 
However, the system should be devised to ensure that 
conditions are not more stringent than those governing 
sales from non-member countries. 
Some concern must be expressed about the additional 
administrative burdens that will be placed on the mail 
order industry. 
Further, it should be noted that this problem affects all 
'distance' selling, since firms could be set up for the purpose 
of transporting products they sell to purchasers in other 
Member States in the latter's name. 
Private persons should therefore be able to pay VAT in the 
country of sale, only if they themselves transport the goods. 
However, here again monitoring would be far from easy. 
5.2. Sales of cars. Here the Commission's solution, viz. 
that VAT should be payable at the place of registration 
rather than the place of supply, seems satisfactory. 
However the term 'cars' should be clearly defined. 
Further, as the rules on registration differ from country to 
country, proper legislation for VAT and other taxes must 
be framed in order to avoid disparities leaving the way open 
for fraud. This also applies in the case of subsequent 
registrations. 
5.3. Sales to institutional non-taxable persons and 
exempt taxable persons. Here the Commission suggests a 
number of possible solutions, such as a self-supply 
arrangement or the introduction of a tax on the VAT 
difference. Without clarification, any assessment of the above 
arrangements is impossible. However, once again monitor­
ing would seem to be particularly difficult. 
5.4. Transactions between enterprises linked within the 
same group. The Commission proposes that payment of 
VAT be suspended pending resale to a non-associated 
purchaser. 
This formula seems feasible, provided that precise rules 
and monitoring arrangements are worked out. 
To leave the individual Member States free to authorize 
such treatment on a case-by-case basis could generate 
difficulties and discrimination. 
The Committee would, however, point out that: 
— the proposed scheme discriminates between undertak­
ings (particularly as regards cash flow). Small and 
medium-sized businesses would be hit particularly 
hard; 
— the differing national definitions of categories of 
undertakings could cause serious problems. 
6. Excise duties 
6.1. The Commission is proposing gradual approxim­
ation in order to achieve reference values in the form of 
long-term targets, introducing minimum values for a 
transitional period. 
6.2. Gradual approximation is acceptable in view of the 
sharp divergences in local conditions, partly influenced by 
objective traditional factors and differing national prac­
tices and customs. 
However, the target deadline must be established and 
details of the approximation process determined in 
advance. 
On reference values, the comments set out in the 1988 ESC 
Opinions (CES 744/88, 745/88, 746/88) are fully ap­
plicable. 
Flexibility should entail the introduction of aligned rate 
bands instead of minimum and reference values. 
6.3. Here a precise assessment is impossible as the 
Commission has not put forward tangible proposals. 
7. Conclusions 
7.1. Given the Communication's very general format it 
should be reiterated that the Committee is unable to deliver 
12.^.90 Official]ournal of the European Communities NoC^21 
a specific Opinion but can merely question various points 
andunderhne the reservations expressed above. 
7.2. Inaddition, theCommittee isfully aware of the 
progress of discussions within the Community institutions, 
in particular the conclusions of the Ecofin Council 
meetings on90ctoberandl^November 1989. 
7m5 Itwould therefore point out that^lUecember 1992 
is too tightadeadlmefor themtroductionof ageneral 
system of taxation in the country of origin.Atransitional 
arrangement, running froml]anuary!99^ for as shorta 
period as possible, whereby transactions carried out by 
interested parties will be ta^ed in the country of 
destination,should thereforebe introduced. 
Done at Brussels, 19 Decemberl989. 
C^enerai comments 
1. d^he Committee approves the Commission^sproposal 
in general and approves the increased allocation offunds to 
the ErdPASS programme in particular. 
2. Lhe Committee recalls that the original demonst 
ration project set up under what became the EldEASS 
programme took the collection of accident statistics from 
hospitals as its starting pomt.Lhe objective was to provide 
information and analyses of suchaccidents, including an 
assessmentonatnalanderrorbasis,ofthefailuresand 
successes of the system. 
2.1. rhe new proposal covers an extension of the 
hospital data collection and the carrying out of ^sup 
plementarystudies^ofdataobtamedfromother inform 
ation sources. 7B1. It should alsoberememberedthat administrative 
formalities must be kept toamimmumtoavoidunmstified 
increases in firms^costs,which ultimately hitthe consumer. 
7.^. Onder the new rules border checks will anyway 
havetobescrappedinfavourof ta^control withmthe 
Member States, backedbysuitable forms of cooperation 
and exchange of information between the ta^ authorities. 
7.^. Ereedom of movement and purchases by private 
individuals will also have to be guaranteed by lifting 
restrictions on dutyfree allowances. Here far reaching 
alignment of rates isdesirabletoavert significant distortion 
ofcompetition. 
^. d^he Committee would refer to its Opinions) on the 
original proposal which was adopted as Council Decision 
8^1^8^EEC of 22 April 198(^^, setting up the EPIEASS 
project. 
^. ddie Committeedraws attention once again to the 
necessity for the EldEASS programme to be integrated into 
other Community actions^referred to in paragraph 1.7.^3 of 
its original Opinion),such as ESPE^ir,l^^eD,and the new 
mpproaclPontechnicalharmoni^ation and standards. 
^t.l. As an extension of this concept the Committee 
would like to see the EldEASS programme more fully 
integrated into the various consumer information actions 
recently adopted or currently under consideration, e.g. 
EeapidE^change of Information on Consumer Products, Opinion on the proposal foraC^onncd Decision amending Decision 8^1^8^EECconcerninga 
demonstration project withaview to introdncingaCommnnity system of information on 
accidents involving consumer products and filing the financial allocation for the last two 
years of its operations) 
(90BC^2B09) 
On9Novemberl989 the Council decided to consult the Economic and Social Committee,under 
Article 198oftheLreaty establishing the European Economic Community,on theabovementioned 
proposal. 
rhe Committee instructed its Section for Protection of the Environment, Public Health and 
Consumer Affairs to prepare its work on the matter. Mrs Williams was appointed 
^.apporteurOeneral by the Committee in the course of its work. 
At its 272nd Plenary Session (meeting of 20 Decemberl989) the Economic and Social Committee 
unammouslyadopted the following Opinions 
^oie^e^,^mm^,^7