EUROPEAN COMMISSION Brussels, 8.12.2022 SWD(2022) 393 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the documents Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC as regards VAT rules for the digital age









Proposal for a COUNCIL REGULATION amending Regulation (EU) No 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital age









Proposal for a COUNCIL IMPLEMENTING REGULATION amending Implementing Regulation (EU) No 282/2011 as regards information requirements for certain VAT schemes

{COM(2022) 701 final} - {COM(2022) 703 final} - {COM(2022) 704 final} - {SEC(2022) 433 final} - {SWD(2022) 394 final}



Table of contents 1. Introduction: Political and legal context 2. Problem definition 2.1. What are the problems? 2.2. What are the problem drivers? 2.3. How likely is the problem to persist? 3. Why should the EU act? 3.1. Legal basis 3.2. Subsidiarity: Necessity of EU action 3.3. Subsidiarity: Added value of EU action 4. Objectives: What is to be achieved? 4.1. General objectives 4.2. Specific objectives 5. What are the available policy options? 5.1. What is the baseline from which options are assessed? 5.2. Description of the policy options 5.3. Options discarded at an early stage 6. What are the impacts of the policy options? 6.1. Description of impacts

6.2. Impacts by VAT area 6.2.1. Impacts on SMEs of the digital reporting (SME test) 6.2.2. Impacts on SMEs of the platform economy 6.2.3. Impacts on SMEs of the VAT registration 6.3. Stakeholders’ views on the options 6.4. Policy intervention – gradual approach 7. How do the options compare? 7.1. Evaluation criteria and the gradual approach 7.2. Policy comparison 8. Preferred option(s) 8.1. REFIT (simplification and improved efficiency) 9. How will actual impacts be monitored and evaluated? 9.1. Monitoring structures 9.2. Evaluation 10. Figures and Tables Overview 11. Annex 1: Procedural information 11.1. Lead DG, Decide Planning/CWP references 11.1.1. Organisation and timing 11.1.2. Consultation of the RSB 11.1.3. Evidence, sources and quality

12. Annex 2: Stakeholder consultation (Synopsis report) 12.1. Targeted consultation 12.2. Call for Evidence 12.3. Public consultation 12.3.1. Overview 12.3.2. About the respondents 12.3.3. VAT reporting (Digital Reporting Requirements) 12.3.4. VAT treatment of the Platform economy 12.3.5. VAT registration 13. Annex 3: Who is affected and how? 13.1. Practical implications of the initiative 13.1.1. Businesses (taxpayers) 13.1.2. Member States 13.1.3. Citizens 13.2. Summary of costs and benefits 13.3. Relevant sustainable development goals 14. Annex 4: Analytical methods 14.1. Econometric Model (estimate the DRR impact on VAT compliance) 14.2. Net impacts on businesses’ administrative burdens by category and type of firm (Table 12) 14.3. VAT liability simulation model

14.4. Standard Cost Model (SCM) 14.5. Comparative analysis 14.6. Qualitative assessment of legal certainty and other regulatory costs 14.7. Methodology to assess the revenue shift in platform economy 14.8. Parameters, assumptions and calculations 15. Annex 5: other initiatives 16. Annex 6: e-commerce evaluation 16.1. Introduction 16.2. What was the expected outcome of the intervention? 16.2.1. Description of the intervention and its objectives 16.2.2. Point(s) of comparison 16.3. How has the situation evolved over the evaluation period? 16.3.1. Implementation 16.3.2. Growth and evolution of e-commerce 16.3.3. Actions taken 16.3.4. Identified issues 16.4. Evaluation findings (analytical part) 16.4.1. To what extent was the intervention successful and why? 16.4.2. How did the EU intervention make a difference? 16.4.3. Is the intervention still relevant?

16.5. What are the conclusions?



Glossary of acronyms Term or acronym Meaning or definition B2B Business-to-Business B2C Business-to-Consumer B2G Business-to-Government B&B Bed and Breakfast CBA Cost-benefit analysis CTC Continuous Transaction Control DAC7 Council Directive 2011/16/EU DRR Digital Reporting Requirement EU European Union EU27 European Union without the United Kingdom ESS Electronically Supplied Service GDP Gross domestic product IOSS Import-One-Stop Shop IT Information technology MNCs Multinational Companies MS Member States MTIC fraud Missing Trader Intra-Community fraud OSS One Stop Shop PTC Periodic Transaction Control SAF-T Standard Audit File for Tax SME Small and Medium-sized Enterprise(s) STR Short-term accommodation rental services TA Tax Authorities TBE Telecommunications, Broadcasting and Electronic VAT Value-Added Tax VIES VAT Information Exchange System



Glossary of Terms Chain transactions This is the situation in which successive supplies of the same goods are made between different businesses, with the goods being transported from the first supplier to the final customer. Deemed supplier Whereas in most transactions it is the supplier of the goods or services who accounts for the VAT due on the transaction, in certain cases another person can be deemed to have received and supplied those goods or services themselves, and they would therefore be liable to account for the VAT on the sales. Under the deemed supplier regime option proposed in the ‘VAT Treatment of the Platform Economy’ element of the initiative, where the underlying supplier using a platform does not charge VAT (because they are a natural person, for example, or a taxable person using the SME scheme) the platform would account for the VAT in their place. This means that the underlying supplier would not be required to register and account for the VAT themselves. Digital platform For the purposes of this exercise, the definition of a digital platform is taken from the ‘VAT in the Digital Age’ supporting study and is as follows: ‘Platform economy’ is the term used to describe a multi-sided model of transactions, where there are three or more parties involved. In these transactions, the role of the ‘online/digital platform’ is to facilitate the connection between two or more distinct but interdependent sets of users (whether firms or individuals, whether carrying out an economic activity or not) who interact via electronic means. In these interactions, one of the parties to the platform offers access to or transfers assets, resources, time and/or skills, goods and/or services to the other party, in return for monetary consideration or, in certain cases, by barter/non-monetary exchanges. In most of these cases, these users could be named as ‘providers’ and ‘consumers’, respectively. A platform usually charges a fee for the facilitation of the transaction.’ It should be noted that the ‘VAT treatment of the platform economy’ element of this package only relates to the supply of services via a platform. Supplies of goods via platforms have their own set of e-commerce rules. E-invoicing ‘Electronic invoice’ means an invoice that has been issued, transmitted and received in a structured electronic format which allows for its automatic and electronic processing. Union One-Stop-Shop (Union OSS) and Import-One-Stop-Shop (IOSS)

The Union One Stop-Shop (OSS) is an optional simplification measure that traders established in the EU can use to declare and pay the VAT due on all their cross-border supplies of services to non-taxable persons taking place in the EU, as well as all their intra-Community distance sales of goods. Exceptionally, Electronic Interfaces (EIs) who become the ‘deemed’ supplier for certain supplies of goods within the EU can also declare certain domestic supplies of goods in the Union OSS. Traders that opt to use this simplification do not need to register for VAT in each Member State in which their eligible supplies of goods and services to consumers take place. Instead, the VAT due on those supplies is declared via a single quarterly electronic VAT OSS return, followed by a single quarterly payment, which are submitted to their Member State of identification. The Import One Stop-Shop (IOSS) is an optional simplification used for the declaration and payment of VAT due on distance sales of low value goods imported into the EU with an intrinsic value not exceeding EUR 150, excluding excisable goods. Where a trader registers to use IOSS, their supplies of eligible goods are effectively taxed at the time of purchase. Consequently, these low value goods are exempt from import VAT upon importation into the EU. The VAT due on eligible supplies of low value imported goods can be declared via a single monthly electronic IOSS VAT return, accompanied by a single payment to the Member State of identification. Suppliers and electronic interfaces who are not established in the EU need to appoint an intermediary to be able to use the import scheme, unless they are established in a third country with which the EU has concluded a VAT mutual assistance agreement which is similar in scope to EU legal acts in that area. Place of supply The place of supply is the Member State in which the VAT is due. Under that general rules, the place of supply of goods is where those goods are located at the time of the supply, or if they are transported, where the goods are located when the transport begins. For services, the place of supply is the Member State of the customer for B2B supplies, and the supplier for B2C supplies. However, there are a number of exceptions to these rules, for example relating to services connected to immoveable property (where the place of supply is where the property is located), and electronically supplied services (where the recipient is established in both B2B and B2C cases). Recapitulative statement When a business sells goods or services to a business in another Member State, it is obliged to submit a recapitulative statement to its Member State detailing the business to whom it has made the supply, and the total amount of supplies to that business. This information is submitted monthly, although Member States may allow for quarterly submission where the value of supplies does not exceed EUR 50,000 per quarter. The information is shared between Member States, and is used to help ensure compliance (for example, Member States can check whether the business acquiring the goods or services has made a domestic supply in their own Member State). Reverse charge When a business makes certain supplies of services or goods to a business in another Member State and the place of supply is the Member State of the customer, that business would be required to register in the Member State of the customer in order the account for the VAT. In order to avoid this, the business can use the reverse charge. This is a system by which the supplier does not account for the VAT on its invoice, and instead the customer accounts for the VAT in its VAT return. The supplier should clearly indicate on its invoice that the reverse charge applies. SAF-T A SAF-T is a file containing reliable accounting data exportable from an original accounting system, for a specific time period and easily readable by virtue of its standardisation of layout and format that can be used by revenue authority staff for compliance checking purposes. One of its possible uses is the reporting of transaction data. SME scheme VAT is, in essence, applied to every taxable transaction by a taxable person. This means that small and micro enterprises should account for VAT on every transaction. However, due to the historical difficulties of a) ensuring compliance on these small businesses, and b) the relatively high administrative burdens VAT registration would impose on these businesses, the VAT Directive contains an optional SME scheme, where Member States allow for small businesses to eschew some or all of the burdens imposed on a business. In practice, this means that, where the SME scheme applies, businesses are not required to account for VAT on their sales, but neither can they deduct VAT on their purchases. The eligibility of a business to use a SME scheme is based on their annual turnover, with thresholds differing across Member States, ranging from EUR 5,000 to EUR 88,500. Value Added Tax (VAT) and VAT system The Value Added Tax (VAT) is a general tax on consumption. The term ‘general’ refers to the fact that the tax is paid on most goods and services, with relatively few exceptions (e.g. medical treatment, teaching). Purchasers pay a percentage-based tax on what they buy, based on the value and the nature of the product. VAT is collected fractionally by businesses who pay it on to the government. The term ‘fractional’ refers to the fact that each business only pays for the added value on its turnover, i.e. the difference between its sales (output) and purchases (inputs). In practice this is done by charging VAT fully on each sale but granting businesses the right to recover (deduct) the VAT they themselves paid on their purchases. An exception to that rule is that businesses whose sales are lower than a certain threshold are allowed to stay out the system and not pay VAT; however, if they do so they are not entitled to any reimbursement of the VAT (SME scheme). This exemption system has the advantage of sparing micro-enterprises from red tape but can create some distortions. The VAT Directive is the main piece of EU VAT legislation. Recitals 4 and 5 of this Directive provide: “A VAT system achieves the highest degree of simplicity and of neutrality when the tax is levied in as general a manner as possible and when its scope covers all stages of production and distribution, as well as the supply of services. (…) It is therefore necessary to achieve such harmonisation of legislation on turnover taxes by means of a system of value added tax (VAT), such as will eliminate, as far as possible, factors which may distort conditions of competition, whether at national or Community level”. In brief: in order to work as intended, the VAT rules need to be harmonised and applied uniformly by the Member States.

1.Introduction: Political and legal context VAT is a major source of revenue for Member States’ budgets, representing approximately 7% of gross domestic product (GDP). In 2019, the VAT revenue for the 27 Member States (EU-27) amounted to over one trillion euro. Moreover, VAT revenues contribute to the EU budget, since 0.3 percent of VAT collected at domestic level is transferred to the EU as own resources, representing 12% of the total EU budget. However, the VAT system has not kept pace with the digitalisation of the economy, which poses new challenges to tax authorities and the VAT system due to, for example, the emergence of new business models and the increasing amount of data with which tax authorities need to deal. Nevertheless, digitalisation also creates opportunities, providing new digital tools and solutions to help tax authorities cope with their tasks while allowing for the simplification of tax compliance and reducing its costs. This initiative thus seeks to adapt the EU VAT framework to the digital era, in line with one of the six top priorities of the Commission, “A Europe fit for the digital age”.

The Commission announced this initiative as part of its Action Plan for fair and simple taxation supporting the recovery (hereafter “Tax Action Plan”) and is included in the 2022 Commission work programme. The objectives of this initiative, as indicated in several actions of the Tax Action Plan, are as follows: -Modernising VAT reporting obligations (Action A4), -Addressing the challenges of the platform economy (Action A23), and -Avoiding the need for multiple VAT registrations in the EU and improving the functioning of the tool implemented to declare and pay the VAT due for distance sales of goods imported from outside the EU (Actions A1 and A5). Following the announcement of the Commission’s Tax Action Plan, the Council stated that it “supports the Commission’s suggestion to clarify, simplify and modernise the EU VAT rules”, “welcomes the initiative announced by the Commission to modernise reporting obligations for cross-border transactions (…) and the Commission’s intention to examine the need to adapt the VAT framework to the platform economy”. The European Parliament resolutions generally support initiatives to fight VAT fraud. Further, the Parliament mentioned its explicit support for the initiative in that it “looks forward to the legislative proposal for modernising VAT reporting obligations”. More recently, the European Parliament adopted a resolution noting the potential of data and digital tools to reduce red tape and simplify various taxpayer obligations, in particular in the area of VAT returns and recapitulative statements, (…) and welcoming the Commission's proposal to modernise, simplify and harmonise VAT requirements, using transaction-based real-time reporting and e-invoicing. Moreover, the resolution underlines that the diversity of the Member States’ tax regulations constitutes a cumbersome challenge and, while endorsing the Union One Stop Shop (OSS), asks to broaden its scope to encompass a wider range of services. By exploiting digital technologies, the current initiative offers a huge potential in the fight against VAT fraud, in particular missing trader intra-Community (MTIC) fraud, estimated in the range of EUR 40-60 billion, which is a significant part of the ‘VAT Gap’, which itself was recently estimated at EUR 134 billion in the VAT Gap Study. In the same study, the underlying reasons for the VAT Gap were grouped into four broad categories that include (i) VAT fraud and VAT evasion, (ii) VAT avoidance practices and optimisation, (iii) bankruptcies and financial insolvencies and (iv) administrative errors. Since VAT fraud is part of the VAT gap, even if the exact size of the VAT fraud is difficult to measure, the VAT gap still offers a useful and unique EU-wide indicator of the fraud. MTIC fraud is linked to the way cross-border EU transactions are taxed under the current VAT regime, which dates from 1993 and was intended to be a transitional system. While several Member States have made significant technological investments to improve risk assessment and tax control processes, the possibilities offered by new technologies have not yet been reflected in the VAT Directive, whose mechanism to report intra-Community transactions, the recapitulative statements, is outdated compared to the digital reporting systems implemented by Member States. The Commission tabled in 2018 a proposal for a definitive VAT system for the taxation of trade between Member States, which is still under discussion in Council. This proposal aimed to replace the transitional system referred above by treating intra-Community transactions in the same way as domestic ones. VAT would be due in the Member State of destination of the goods at the rate of that Member State but would be charged and collected by the supplier in its own Member State. The VAT in the Digital Age initiative has the potential to strengthen both the current and the definitive VAT system. In addition, over recent years, issues relating to the taxation of the digital economy have become the subject of discussions regarding possible changes to fiscal policies. The growing importance of the platform economy in the collection of VAT was recognised, notably the potential for digital platforms to significantly enhance the effectiveness of VAT collection given their role in generating or facilitating online sales. This is particularly relevant considering the large number of natural persons and small businesses who operate on these platforms, many of whom are unaware of their potential VAT obligations. The VAT in the Digital Age initiative runs alongside further Commission initiatives relating to the Digital Economy, such as the recently adopted Digital Services Act, the recent proposal for a Directive to improve working conditions in platform work, or the ongoing work relating to Short Term Rental. Under these initiatives the general direction of travel is to make platforms more responsible and play a greater role in the regulatory framework. Furthermore, from 1 July 2021, the VAT rules on cross-border business-to-consumer (B2C) e-commerce activities changed to address challenges arising from the VAT regimes for distance sales of goods and for the importation of low value consignments. Online sellers, including online marketplaces/platforms can register in a single Member State using the One Stop Shop (OSS) for the declaration and payment of VAT on their distance sales of goods and cross-border supplies of services to customers within the EU and the Import One Stop Shop (IOSS) for goods coming from outside of EU. An evaluation of the first six months since the entry into application of these new rules can be found in Annex 6. Improvements to the current schemes will be considered in this initiative. Moreover, an e-commerce study focussing on the import process as well as an evaluation of the Union Customs Code is currently being carried out and could impact on the IOSS extension. The initiative supports the EU’s sustainable growth strategy that refers to better tax collection, the reduction of tax fraud, avoidance and evasion and the reduction of administrative burdens and compliance costs for business, individuals, and tax administrations. Improvement of the taxation systems to favour more sustainable and fairer economic activity is also included in the EU’s competitive sustainability’s agenda.



2.Problem definition The causes and consequences of the problems to be tackled by the Commission initiative are summarised in the Problem Tree. Figure 1 – Problem tree ________________ * i) Some transactions are not covered by the OSS and IOSS schemes and ii) the SME simplification scheme reduces VAT equality and neutrality in the platform economy

2.1.What are the problems? Two main problems were identified in the supporting study: 1.Sub-optimal VAT collection and control – the EU VAT legislative framework is not fully adapted to deal with the new digital reality and is prone to fraud. 2.Excessive burdens and compliance costs – the digital economy and the development of new business models create new challenges and costs for tax administrations and businesses. The challenges and potential benefits of digitalisation in terms of control/fight against fraud (related to problem 1) and burden reduction (related to problem 2) are not fully seized. The problems are especially visible in three areas: §VAT reporting (including digital reporting), §VAT administration (treatment) of the platform economy, and §VAT registration. VAT reporting and digital reporting requirements (DRR) The VAT Directive ( Directive 2006/112/EC ), which is the main piece of EU legislation in the field of VAT, dates from the 1970s and, as such, the default reporting requirements are not digital. However, the Directive grants Member States a wide discretion to introduce the obligations they deem necessary to ensure the correct collection of the tax and to prevent evasion. Taking advantage of this possibility, several Member States have introduced various types of digital reporting requirements (DRR) which have proven successful in increasing tax collection, thanks to both the improvements to tax control and the deterrent effect on non-compliance. Different types of DRRs are currently in place in several Member States: clearance e-invoicing (Italy), real-time reporting (Hungary, Spain), SAF-T reporting (Lithuania, Poland, Portugal), VAT listing (Bulgaria, Croatia, Czechia, Estonia, Latvia, Slovak Republic) – see Box 1 and Annex 4: Analytical methods . In addition, some Member States have requested a derogation to introduce obligatory e-invoicing (France, Romania, Poland) or announced upcoming reporting requirements (Greece), while mentioning in the targeted consultation that they prefer to wait for an EU solution before introducing a unilateral solution. Other Member States (Belgium and Denmark) have announced their intention to apply mandatory e-invoicing, even though they are not linked to a reporting obligation yet. Germany has also confirmed its intention to implement mandatory e-invoicing for B2B transactions. This shows the high degree of complexity generated by the lack of EU regulation in the field, and how the situation, far from being settled, continues to evolve, and requires increasing administrative and adaptation costs for businesses. An econometric model based on a panel regression method with fixed effects was used to estimate the impact on VAT revenue associated with the introduction of DRR solutions. The model looked at the development of VAT revenue in Member States which had introduced DRRs as opposed to a control group which had not. The assessment of the changes to VAT revenues has been done by means of an econometric analysis based on panel-data, to determine whether and to what extent the existing DRRs have resulted in an increase in VAT compliance in the Member States concerned. The increase in VAT revenue during the 2014-2019 period is estimated to be between EUR 19 and EUR 28 billion in the Member States which have introduced DRRs in this period, corresponding to an annual increase of VAT revenue of between 2.6% and 3.5%. Several Member States (Belgium, Denmark, Germany, Ireland, Cyprus, Luxembourg, Malta, Netherlands, Austria, Slovenia, Finland, and Sweden) have not yet introduced DRRs. The decision appears to be mainly driven by their relative lower level of VAT fraud (the 2016-2019 average VAT Gap of the Member States currently having or announcing to adopt DRRs is 15.2% compared with an average of 8.6% for the ones who do not yet have DRRs in place). There are other aspects that may influence the decision on whether to introduce or not DRRs, such as the IT-related ones (e.g. the particularities of the national IT systems), the adoption of similar requirements in other Member States (e.g. a neighbouring/important trade partner Member State takes the decision to introduce DRR), or other local particularities (e.g. the general readiness of the business population for such measures or the administrative organisation). None of the Member States that have implemented DRRs had recorded a VAT Gap lower than 10% prior to their introduction, except for Spain (where the VAT Gap was 6.5% in 2016) and the top Member States constantly registering the highest VAT gaps (Romania, Greece, Lithuania, and Italy) are among those that have introduced or announced the introduction of DRRs. As can be seen, the DRRs adopted, which provide information to tax authorities on a transaction-by-transaction basis, vary substantially from one Member State to the other. They can consist in the transmission of monthly reports of business transactions, submissions of invoices in real-time, the transmission of invoice data in real or quasi-real time, or the submission of tax and accounting data or VAT records. Further, other Member States have implemented non-digital tools for reporting of transactions, such as listings which do not provide data at transactional level, but only the values of sales or purchases per customer or supplier (listings of suppliers and customers). All these requirements are additional to the submission of VAT returns. The global trend shows a move from traditional VAT compliance (i.e. filing forms with periodic aggregate data) towards real-time sharing of transaction-based data with the tax administration (generally based on e-invoicing). However, the VAT Directive represents a significant barrier towards the adoption of e-invoicing requirements, due to the need for Member States to obtain an explicit derogation to adopt digital reporting requirements based on e-invoicing requirements. This has also influenced both the adoption and the design of national digital reporting requirements. The importance of this problem and the need to act has been confirmed by stakeholders during the public consultation: “the rapid introduction of divergent digital VAT requirements (…) since the adoption of modifications to Article 273 of the VAT Directive via Directive 2010/45 have shown that it is important not only that Member States formally go along with a consensus, but are actually committed to harmonization”. The resulting fragmented regulatory framework brings additional compliance costs for businesses operating in different Member States that have to comply with diverse local requirements and creates barriers within the Single Market. With an increasing number of Member States implementing different models of digital reporting obligations, the costs of fragmentation for multinational companies (MNCs) are significant, estimated at about EUR 1.6 billion per year EU-wide, of which 1.2 billion are borne by small-scale and 0.4 billion by large-scale MNCs.

Further, the current reporting system of intra-Community transactions (referred to in the VAT Directive as “recapitulative statements”) does not allow Member States to effectively tackle VAT fraud linked to these transactions. It should be noted that the current recapitulative statements date from 1993 and have not substantially changed since then. They are ill-prepared for the digital economy and can hardly be compared to the much more modern digital reporting systems implemented by the Member States for domestic transactions. Among other shortcomings, recapitulative statements provide aggregated data for each taxable person, and not transaction-by-transaction data. They do not allow cross-matching of the data from supplies with that of acquisitions, as the VAT Directive leaves optional for Member States the reporting of intra-Community acquisitions and less than half Member States have introduced this obligation. Further, due to time-reporting differences across Member States, the data may be available to tax authorities in other Member States too late, not only because of the filing frequency, but also because of the time it takes for local tax authorities to upload data on the system. Such shortcomings were rightfully noticed by almost two-thirds of informed stakeholders publicly consulted (also see Figure 4 specific to tax administrations) who totally or partly agree that recapitulative statements would be more effective in fighting intra-EU fraud if data is collected on a transaction-by-basis and closer to the moment of the transaction. It is worth noting that the reform of the reporting of cross-border transactions inevitably entails changes to administrative cooperation and exchange of data between the competent authorities of the Member States and the VAT Information Exchange System (VIES) . The Tax Action Plan also mentions the “reinforcement of verifications of cross-border transactions”, and a 2023 proposal for VIES 2.0 is expected to complement the current initiative. Figure 2 – VAT reporting: stakeholders’ views on current situation Concerning the identified problem, stakeholders in different groups (private individuals – ‘PI’; business organisation/federation – ‘BF’; economic operators – ‘EO’; service providers – ‘SP’; and others, non-specific – ‘O’) agree on the negative impacts stemming from the current situation with regards to DRRs. During targeted interviews, Member States also validated the problem. In conclusion, while the EU legislation leaves substantial freedom to Member States to implement reporting systems, without providing guidance or a common framework, it still remains difficult for Member States to apply mandatory e-invoicing. Consequently, businesses operating cross-border are confronted with completely divergent systems which in addition cannot be used to exchange information between tax authorities of different Member States. Therefore, Member States cannot address cross border fraud effectively, and in particular MTIC fraud, which is a fraud specifically deriving from the way the VAT rules deal with intra-Community trade. That is why it is necessary to reform the VAT framework right now both to avoid the proliferation of divergent digital reporting systems, preventing unnecessary costs for businesses and to have a common digital transaction-based reporting of intra-Community transactions to tackle cross-border VAT fraud. VAT treatment of the platform economy Under the VAT rules a taxable person means any person (natural or legal) who, independently, carries out any economic activity. Such a taxable person is normally required to register for VAT and charge VAT on its sales. Individuals, acting in their private capacity, i.e. not involved in an independent economic activity, are not therefore considered as taxable persons. In addition, the VAT Directive allows for various simplification measures, in particular the special scheme for small enterprises (see glossary) which was introduced in order to a) remove the need to tax administrations to ensure the compliance of a large number of small businesses, and b) reduce the administrative burdens on these businesses. In the past, these businesses were not considered to have any impact on market competition with VAT registered businesses. The platform economy has, however, introduced new business models in which an indefinite number of private individuals and small businesses can provide their services via a platform. Here the economies of scale and network effect means that these providers are now in direct competition with traditional VAT registered suppliers. For the accommodation sector, for example, over 50% of users of a particular accommodation platform specifically access the offer of the platform over a traditional hotel, and, in Europe, the cost of accommodation offered via the accommodation platform can be, on average, some 8% to 17% cheaper than a regional hotel’s average daily rate. The traditional hotel can be competing with a large number of short-term accommodation providers (for example, in Barcelona, one platform alone provides over 15,000 listings (rooms/apartments/houses etc. for rent), which represents around 50% of the total hotel rooms in the city). The information provided by the supporting study indicates that the number of underlying suppliers who are not registered for VAT, whilst varying depending on the type of platform, can be up to 70%. This means that, for example, a hotel in Barcelona could be competing with over 10,000 accommodation listings which do not charge VAT on their services. During the public consultation, more than 70% of respondents having an opinion on the issue said they experience distortions of competition with other domestic firms offering the same services via platforms due to very uneven or uneven treatment of similar services and providers in their Member States. This experience was reported most strongly by business federations. On another hand, the platforms themselves did not see distortions due to uneven treatment at all. The transport and accommodation sectors have been explicitly identified by the supporting study as sectors in which a) the VAT inequality is at its most apparent (in that the accommodation platform model is competing directly with the hotel sector direct distribution model, and the transportation platform model is competing directly with private taxi firms); and b) these are the two largest sectors of the platform economy, behind e-commerce, which has its own rules regarding the supply of goods. The transport and accommodation sectors together are accounting for more than half of the total value of the platform economy and, by contrast, financial services represent a far smaller sector whose supplies are mostly VAT exempt (See Table 4 ). Other sectors include a variety of areas which suffer less from distortions of competition (e.g. hairdressers, swimming instructors), thus the issue of VAT inequality is not that manifest. In addressing the distortions of competition in the transport and accommodation sectors, attention should be paid not to impose new obligations on SMEs and natural persons. A system should be found to resolve the existing distortions by looking at the role platforms could play in the collection of VAT, while not imposing disproportionate burden on them. Furthermore, there are various rules in the VAT Directive which have been applied differently by Member States. For example, the treatment of the facilitation service charged by the platform – in some Member States this is regarded as an electronically supplied service, whilst in others it is regarded as an intermediary service. This is relevant because it can lead to different places of supply, which can subsequently lead to double or non-taxation. Therefore, clarification of these rules is necessary. Platforms also face difficulties relating to the establishment of the taxable status of the provider of the service. This is because whether the provider is a taxable person or not influences how the platform accounts for the VAT on its facilitation service (for example, if the provider is established in a different Member State to the platform, the platform could use the One Stop Shop for a non-taxable person, or the reverse charge for a taxable person). Often the platform does not have sufficient information to establish this tax status. Finally, under Article 242a of the VAT Directive, platforms are required to keep certain information relating to supplies made via the platform and to make it available on request to Member States. Platforms can sometimes find it difficult to obtain that information from the underlying supplier. In addition, they find that they are supplying information which they have already supplied to the tax authorities (for example, under DAC 7 regulations relating to direct taxes). Therefore, it is necessary to look at the information obligations required by platforms to find synergies with other legislation where possible, and consider other means of facilitating record keeping obligations, such as standardising the format in which the records should be made available to Member States, and the frequency with which the records are made available. Such an approach was strongly suggested and supported by the stakeholders during consultations. During the public consultation, a majority of 161 informed respondents (excluding “do not know” answers) considers ensuring a level-playing field between traditional and platform economy (equal treatment) as very important (107) and important (47) For a minority it is either not important (4) or not so important (2). In conclusion, the main issue with the platform economy is the inadequacy of the current VAT legal framework to ensure a level playing field with traditional businesses, specifically in the transport and accommodation sectors. Supplies made by small underlying suppliers via a platform are not taxed and the facilitation services made by platforms are taxed differently in different Member States. This leads to difficulties for the platforms, suppliers, and Member States. The business models of the platform economy in particular expose the legislative weaknesses of the VAT Directive with some Member States applying challenging joint and several liability rules on platforms, for example, or treating the supply of short-term accommodation differently depending on arbitrary elements such as the supply of towels etc. Uniform rules are therefore not only required, but also demanded by traditional businesses which are suffering from distorted competition. VAT registration requirements in the EU

Where businesses perform cross-border transactions which are taxed in other Member States, they face considerable compliance burdens and costs, as presented in the table below. Table 1 – Minimum VAT-related costs of cross-border trade for businesses (EUR) Business type Per MS Minimum costs of VAT registration (one-off) Average business 1,200 SME 1,200 Minimum annual VAT compliance costs of doing cross-border trade - implying VAT registration (ongoing) Average business 8,000 SME 2,400 Source: elaboration based on the targeted consultation and Deloitte “VAT Aspects of cross-border e-commerce report” (2015) From this table, it is to be concluded that the minimum one-off cost of obtaining a VAT registration in another Member State is EUR 1,200. The minimum ongoing cost, on a yearly basis, for VAT compliance in another Member State is EUR 8,000 for an average business and EUR 2,400 for a SME. In fact, being registered in another Member State entails ongoing reporting and other obligations in that Member State (such as the obligation to complete and submit VAT returns or listings, to pay the VAT due, or to request VAT refunds) which are included in the annual VAT compliance costs. The VAT e-commerce package introduced a number of simplification schemes including the One Stop Shop (OSS) and the Import One Stop Shop (IOSS), which have alleviated the registration burden for non-established business carrying out transactions in other Member States. These optional schemes simplify compliance by avoiding the potential VAT registration obligations of the supplier/deemed supplier in each Member State of establishment of the customer. They cover cross-border supplies of services and intra-EU distance sales of goods (OSS) and the distance sales of imported goods to the EU from a third country/territory in consignments not exceeding EUR 150 (IOSS). As expected, minimising the need for taxable persons to hold multiple VAT registrations was considered as important/very important by stakeholders participating in the public consultation, only less than 2% (3 out 197 answers) seeing it as “not important”. The implementation of the OSS and IOSS has proven to be a great success as shown by the evaluation of the e-commerce package (see Annex 6). Almost EUR 8 billion in VAT in the first 6 months of application of the new rules was collected via the OSS and the IOSS. The removal of the EUR 22 VAT exemption on imported goods allowed for the collection of a significant amount (EUR 0.7 billion) of VAT on previously exempted transactions. At the same time, the costs of implementation represent only 0.01% of that EUR 8 billion. In addition, the common EU-wide threshold that replaced the previously disparate VAT rules reduced the risk of non-compliance while new record keeping obligations for traders, including for platforms, support tax audits carried out by tax administrations. The success of the VAT e-commerce package was also confirmed by Member States at the Council Working Party on Taxation in January 2022 and further endorsed by the March ECOFIN. A large majority of respondents to the public consultation (75%) acknowledged the progress made by the OSS in minimising the need for taxable persons to hold multiple VAT registrations, with only 2% (4 out of 193 answers) seeing “no progress” and 23% not expressing their opinion. While this success has been recognised, a number of operational improvements (see Annex 6) have nevertheless been identified as a result of the evaluation. These improvements will be addressed in this initiative. There are some remaining B2C transactions which are not covered by these simplification schemes. These include certain types of supplies of goods that, even though they may have a cross-border aspect, do not fall within the definition of intra-EU distance sales of goods and are not covered by the OSS. This is also the case, for instance, in the distance sale of goods imported with an intrinsic value exceeding EUR 150, or the supply of goods subject to excise duties (i.e. alcohol, tobacco and energy), which are not under the current scope of the IOSS. Certain B2B transactions that are also triggering registration in another Member States are also assessed. The type and prevalence of these transactions are depicted in the table below. Table 2 – Transactions requiring non-established businesses to VAT register (1 July 2021) Type of transaction Prevalence B2C GOODS Domestic supply •Domestic B2C supplies of goods made by suppliers not established in the Member State of taxation, including: supplies with installation and assembly; supplies of goods made on board means of transport; supplies of gas, electricity, heat or cooling energy; supplies of goods on a weekly market by a vendor; supplies of goods made by vendor when participating in an exhibition, trade fair or similar event. Specific market segments Second-hand goods (Margin scheme supplies) •Second-hand movable goods sold by a supplier not established in the Member State of the customer, including: certain works of art, collectors’ items and antiques. Specific market segments Distance sales of imported goods by the supplier from a third country/ territory •B2C Distance sales of imported goods by the supplier from a third country/territory with an intrinsic value exceeding €150, or products subject to excise duties. Specific market segments B2B GOODS Domestic supplies B2B where the reverse charge does not apply •Domestic B2B supplies where the reverse charge does not apply, including: local supplies of goods after import; supplies of fuel; supplies of goods with installation or assembly; supplies of goods previously rented or leased in the Member State of taxation. Specific market segments Transfer of own goods cross-border ·Transfer of own goods cross-border: Transfer of own stock to be stored and sold in a Member State closer to the customer, or the transfer made by an electronic interface on behalf of the owner where the goods are being sold using the electronic interface . Widespread (representing significant parts of business turnover) SERVICES Domestic supplies of services where the reverse charge does not apply •B2B supplies of services under Articles 47-48, 53, 55-57 if Article 194 does not apply (Member State and/or transaction specific), including: services connected with immovable property; passenger transport services; services in respect of admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events, such as fairs and exhibitions, and of ancillary services related to the admission; restaurant and catering services; short-term hiring of means of transport. Specific market segments Source: own elaboration With the IOSS being currently optional, its impact on the need for multiple VAT registrations is limited and the complexity of import process is not reduced to the optimum level possible. The risk of undervaluation of the economic value of goods declared for importation is mitigated where the IOSS is used because the VAT is paid upfront at the time of purchase. Potential undervaluation remains a significant risk if the IOSS remains optional as VAT is only collected at the time of import, not at the time of purchase. At present, imports of goods in the EU below the threshold of EUR 150 are not subject to customs duties. However, there is no similar VAT exemption. As a result, the declared value of B2C shipments is frequently inaccurate, often intentionally falling under EUR 150 in order to fraudulently benefit from the Customs duties exemption. These misdeclarations of value affect not only the assessment of customs duties but also the VAT to be collected on those goods. Despite the introduction of the OSS and the IOSS, 124 respondents to the public consultation (90% of those providing an opinion on the matter) thought that the requirement to obtain and maintain multiple VAT registrations continues to be a problem, at least to some extent. Over two-thirds thought it is a problem to a large or even very large extent. Figure 3 – Current situation: the need of multiple VAT registrations is still an issue In general, regarding VAT registration, the problem resides in the scope of the existing EU One Stop Shop mechanism that was recently expanded but is still not covering specific transactions. Driven by the recognised success of the latest improvements, businesses and Member States have strongly advocated for an immediate expansion of the simplification measures to include the missing transactions. Moreover, in order to establish equal treatment, stakeholders suggested making the IOSS mandatory for all deemed suppliers. 2.2.What are the problem drivers? Some of the drivers generating problems are exogenous to the VAT framework (i.e. the evolving technology and business models, value chains and trading practices), whilst others are about the VAT framework itself (i.e. the complex and fragmented regulatory environment). Businesses operating in multiple Member States are especially impacted. The drivers in both categories combine exposing the discrepancy between the 30 year-old rules and the current digital reality to create the two-faceted problem regarding the sub-optimal VAT collection and control and administrative burden.

Table 3 – Overview of the drivers EXOGENOUS DRIVERS (outside of the VAT framework) INTRINSIC DRIVERS (related to the VAT rules and their application) Increasing scale of the platform economy and e-commerce Multiplicity and complexity of the new business models driven by technological changes Fragmented regulatory framework Outdated reporting mechanism for intracommunity transactions Scope of the application of the simplification schemes a) VAT reporting ☒ ☒ ☒ ☒ ☐ b) VAT treatment of the platform economy ☒ ☒ ☒ ☐ ☒ c) VAT registration ☒ ☒ ☒ ☐ ☒ I.Increasing scale of the platform economy and e-commerce This driver generally affects all three VAT areas. Over 1,500 digital platforms have a significant presence in the EU27 (about 1,800 including the UK). Overall, in 2019 the revenue of the digital platforms in the EU27 market reached EUR 66.9 billion. The revenue of their providers is estimated at about three times the platform revenue, at EUR 191.1 billion. The value of VAT revenue from the digital platform ecosystem is estimated at about EUR 25.7 billion per year for the EU27, i.e. 2.6 percent of total VAT revenue. Table 4 – Scale of platform economy operation, by sectors (EU27, EUR billion, 2019) Sector Revenue of digital platforms (EU27) Revenue of platforms’ providers (EU27) Ecosystem value (EU27) Accommodation 6.3 36.9 43.2 Advertising* 32.8 n.a. 32.8 E-Commerce 16.6 93.8 110.4 Finance 0.6 6.7 7.3 Household and Professional Services 1.4 7.1 8.5 Real Estate 0.7 3.8 4.5 Transportation 7.2 31.0 38.2 Other 1.3 11.8 13.1 TOTAL 66.9 191.1 258.0 Source: Targeted consultation. *Revenue of digital platforms only. The numbers may not add up perfectly due to rounding. Additionally, and importantly, the scale of the platform economy has increased rapidly over the last years. Considering the aggregate growth rate of the seven sectors involved, platforms’ revenue grew three times, or 32 percent per year between 2015 and 2019. The increasing scale and prevalence of the platform economy and e-commerce naturally magnifies the consequences of any VAT problem but in particular those identified in the three areas under examination. More transactions under the platform economy and in e-commerce means an incremental increase in the problems linked to the VAT registration and the administration of the rules and puts also additional pressure on the outdated VAT reporting system. II.Multiplicity and complexity of the new business models driven by technological changes This driver generally affects all three VAT areas. The multi-sided nature (where there are three or more parties involved) and complexity of the business models have become a ‘difficult fit’ for the VAT rules which were developed when these business models were unknown. For example, the distinction between a consumer and a supplier is becoming blurred, as one party can be both whilst operating via a platform. Also, the explosion in e-commerce has led to exponential increases in cross-border trade and an increased complexity of business models of the marketplaces (for example goods being sold from fulfilment centres rather than directly from the underlying supplier) for which the VAT system is ill-suited. Again this intensifies the problems linked to the VAT registration, the administration of the rules and the VAT reporting system. III.Fragmented regulatory framework (divergent requirements) The wide discretion afforded to Member States by the VAT Directive in imposing reporting obligations and the need to apply the existing VAT rules to new business models has led to a divergence of the rules applicable within the EU as well as to differing interpretations of the existing rules. This affects differently the VAT areas as follows: a) VAT reporting There are 12 Member States which have in place digital reporting requirements, while three more are considering or have taken the first steps for their introduction. These reporting requirements differ over several dimensions, including: ·Frequency. The main distinction is between periodic and real-time reporting. This can be further differentiated according to the exact frequency (either jointly with the VAT return or monthly), and “how real-time” real-time requirements are (within four days in Spain, daily in Hungary and before the invoice is issued in Italy). ·Scope – Taxpayers. National rules can include a turnover threshold below which VAT-registered taxable persons are not subject to the reporting obligations, and can exclude certain sectors or specific VAT regimes from these obligations. Furthermore, requirements can apply to resident entities only or to all registered taxable persons. ·Scope – Transactions. In a number of countries, only transactions above a certain value threshold are to be reported in detail. Besides, the reporting systems can differ in whether they cover (i) purchase and/or sale transactions; (ii) domestic, intra-EU or extra-EU transactions; and (iii) B2B, B2G or B2C transactions. ·Data content and format. The various systems differ in terms of the type and amount of data extracted from taxpayers, the format of submission as well as the communication architecture.

This lack of harmonisation of digital reporting requirements across the EU results in legal uncertainty and additional administrative burdens and compliance costs for companies with fixed establishments or VAT registrations in different Member States. b) VAT treatment of the platform economy Member States have different views on the treatment of the facilitation service of a platform - whether to regard this as an electronically supplied service or an intermediary service which in turn leads to a different place of supply. c) VAT Registration The VAT Directive provides the rules for determining in which Member State the VAT on a transaction is due, and the person liable to pay and report it. These rules are complex and depend on numerous factors, which differ according to the type of transaction, where suppliers and customers are based, and the Member States involved. The complexity increases when the taxable person carrying out a supply is not established in the Member State where the tax is due. Thus, the fragmentation in VAT registration area should actually read as the need to register in multiple Member States. IV.Outdated system for the reporting of intracommunity transactions VAT reporting This driver specifically affects the area of VAT reporting. The current VAT rules for the taxation of cross-border trade between Member States date back to 1993, just after the creation of the Single Market and the abolition of “fiscal frontiers”. At the time, they were meant to be transitional, but they are still in place. The rules do not take account of the last 30 years of technological developments, changes in business models or the globalisation of the economy. These rules divide each EU Business-to-Business cross-border supply of goods into two transactions - a) an exempt intra-Community supply in the Member State of departure and b) a taxable intra-Community acquisition in the Member State of arrival of the goods. As a result, taxable persons acquire goods cross-border without having to pay VAT . The fact that goods can be acquired free of VAT creates a big incentive for fraud. Fraudsters acquire goods from other Member States, without paying VAT, and sell them on the domestic market charging VAT without remitting it to the treasury (basic fraud scheme) or pass them through a chain of transactions possibly involving several Member States (more sophisticated and typically referred to as MTIC fraud) where in the end no VAT is paid to the treasury. The result is that the acquirers of these goods can deduct the VAT charged while the fraudsters disappear without paying that VAT to the treasury. In order to help detect and react to this fraud, a mechanism for reporting intra-Community trade flows (the recapitulative statements ) is in place. However, while business and also fraud models evolved and became more complex and technologically driven, the recapitulative statements have remained basically unchanged since the pre-digital age. They are outdated and not adapted to the current reality, with the relevant data reaching the tax administration between two to four months after the transaction date, thus often too late to prevent VAT loss and fraud. Recapitulative statements provide aggregated information to national tax administrations about the supplies of goods and services made to their territory from other Member States. They allow tax administrations to follow the flow of goods and services in order to help fight intra-EU fraud. However, they are regarded as rather ineffective by the majority of Member States interviewed on this subject. During the interview carried out as part of the supporting study, out of 12 tax authorities that replied, eleven provided a negative assessment of this reporting mechanism to tackle intra-EU VAT fraud (see Figure 4 ). Figure 4 – Effectiveness of recapitulative statements against MTIC fraud (Member States) Source: elaboration based on the targeted consultation; views from tax authorities questioned whether the recapitulative statements are effective to tackle intra-EU Fraud The reasons for such a widely held negative assessment are largely coherent across Member States, who unanimously criticize: §The lack of data granularity, since data are not available at transaction level but aggregated; §The inadequate timeframe of data exchange, further amplified by time reporting differences across Member States, as data can be filed monthly or quarterly and also because of the time it takes for local tax authorities to upload the data that will be later exchanged with other Member States; §The partial scope of the tool, which mandatorily covers only intra-Community supplies (data on acquisitions are not automatically exchanged between Member States). In this regard, reporting of intra-Community acquisitions is not required by the VAT Directive and less than half Member States have introduced this obligation; and §The poor quality of the data reported. The shortcomings of the current system to address intra-Community VAT fraud have also been stressed by the European Court of Auditors.

As a result, crosschecks of intra-Community trade data and VAT anti-fraud controls are not as comprehensive, effective and as real-time as they should be to tackle fraud linked to intra-Community transactions. V.The scope of the application of the simplification schemes This mainly affects the VAT areas as follows: a) VAT treatment of platform economy SMEs using the SME simplification scheme do not charge VAT whilst enjoying the economies of scale and network effects offered by platforms. As outlined in the study, this gives them a competitive advantage over traditional VAT registered businesses making similar or identical supplies. In the past this competitive advantage was minimal because of the limited outreach and resources of SMEs, but platforms have allowed SMEs access to global markets, therefore allowing them to directly compete with traditional businesses without charging VAT or facing the regulatory or compliance burden of being a VAT registered business. b) VAT registration Some transactions are not covered by OSS and IOSS schemes - The complex and fragmented regulatory environment creates costs and hassle for businesses operating in multiple Member States. The newly introduced One Stop Shop (OSS) helps businesses by reducing the instances in which registration in another Member State is required. However, the implementation of the OSS and IOSS schemes has not totally addressed the problem. A number of cross-border transactions still trigger the need for registration in another Member State forcing the businesses to face costs and burden associated with the VAT obligations in different Member States. Table 2 is providing the typology of these transactions constituting the framework for assessing the magnitude of the problem. 2.3.How likely is the problem to persist? VAT Reporting Member States will continue to adopt national Digital Reporting Requirements (DDR) over the next decade, worsening the fragmentation and the administrative burden. The main trend is represented by the Member States considering the introduction of mandatory e-invoicing. The problem of intra-EU fraud is not addressed at all, therefore it will persist. VAT treatment of the platform economy Member States are expected to introduce additional rules and guidelines concerning the status of the provider and the nature of supplies facilitated by platforms, but to do so in an uncoordinated fashion, as with reporting obligations. These additional rules and guidelines are expected to increase the administrative burdens and will not solve the level-playing field issue. VAT Registration Some key sectors, such as the fuel cards sector, and the supply of gas and electricity, construction works in another Member State etc. will continue to face the burden of multiple VAT registrations when supplying goods and/or services in other Member States.

3.Why should the EU act? 3.1.Legal basis According to the principle of subsidiarity, action at EU level may only be taken if the envisaged aims cannot be achieved sufficiently by the Member States alone and can be better achieved by the EU. The VAT rules for cross-border EU trade involve more than one Member State by nature and VAT is a tax harmonised at EU level. The problems identified in Section 2 are embedded in the rules of the VAT Directive. Therefore, any initiative to change the VAT system as regards intra-EU trade requires amending the VAT Directive. The Treaty on the Functioning of the European Union, Article 113, gives the EU the right to act and adopt provisions to harmonise legislation in the area of indirect taxation, including value added tax. In addition, since net VAT revenue collected by each Member State is used to determine the harmonised base, the loss of VAT impacts both Member States’ revenue and the EU’s VAT own resource amounts. 3.2.Subsidiarity: Necessity of EU action

The legislative proposal must be adopted at Union level, as it amends the existing common system of value added tax governed by the VAT Directive (Directive 2006/112/EC). Given the need to modify the VAT Directive, the objectives sought by the present initiative cannot be achieved by the Member States themselves. Therefore, it is necessary for the Commission, which has responsibility for ensuring the smooth functioning of the internal market and for promoting the general interest of the European Union, to propose action to improve the situation. Moreover, the VAT rules have the potential for distorting intra-EU trade if introduced in an uncoordinated way. 3.3.Subsidiarity: Added value of EU action The Commission is responsible for ensuring the correct application of the harmonised VAT assessment base. Each Member State is responsible for the transposition of the VAT provisions into national legislation and their correct application within its territory. Member States implement common rules set out in the VAT Directive into their national legislation, thus the practical application and the administrative practices of each Member State vary. However, the intra-EU dimension of VAT fraud requires EU intervention regarding reporting obligations. In addition, for several Member States the size of the VAT gap (and its persistence over time) indicates that national instruments are not sufficient to fight cross-border and e-commerce fraud, as shown by the estimated levels of MTIC fraud, which can only be fought efficiently and effectively by coordinated action at EU level. The harmonised VAT rules are needed to help businesses benefit from the potential of the internal market. In the targeted consultation, businesses doing cross-border trading repeatedly stated their preference to have VAT rules applied uniformly at EU level than to comply with different reporting or registration obligations at national level. This can only be ensured by EU action.

§ 4.Objectives: What is to be achieved? 4.1.General objectives The general objectives of the VAT in the Digital Age initiative are related to the modernisation of the VAT system. The general objectives address each of the two main identified problems: General objectives are directly linked to the treaty-based goal of establishing a functional internal market and reflect the Commission priorities and EU strategic agenda for 2019-2024. In this respect, the VAT in the Digital Age initiative aims to render the VAT rules more proportionate, effective and efficient by updating the 30-year old VAT system to the current realities of the digital age. 4.2.Specific objectives The two general policy objectives will be achieved by pursuing five specific objectives in VAT reporting, VAT treatment of platform economy and VAT registration: 1.Improve reporting requirements to unlock the opportunities provided by digitalisation The VAT reporting specific objective intends to improve reporting requirements by optimising the use of digital technologies, notably by utilising digital reporting to fight VAT fraud, and in particular MTIC fraud. This specific objective is linked with and supports an effective and fair VAT system (3rd specific objective), helping the fight against VAT fraud and reducing the taxpayers’ administrative burden and compliance costs (4th specific objective) by allowing tax authorities the provision of additional services to taxpayers and the removal of other compliance obligations. 2. Promote convergence and interoperability of IT systems

Besides the complications the digital evolution brings, it also provides opportunities linked to IT systems, business automation and digitalisation. Businesses, Member States and the Commission have up and running IT systems that must be enhanced and at the same time be made compatible with each other. Thus, this specific objective, common to both VAT registration and VAT reporting, aims to promote the convergence and interoperability of existing IT systems and support the necessary developments. It covers both adapting the Commission’s IT environment (e.g. for exchanges of information between Member States on cross-borders transactions, for IOSS/OSS registration) and providing guidelines to Member States and businesses for preparing their IT systems in the short to medium term. 3.Create a level-playing field for businesses, regardless of the business model The specific objective aims to provide a level-playing field for EU businesses by imposing similar VAT liabilities regardless of the traditional or digital business model, their location or their engagement in domestic or cross-border transactions. 4.Reduce burdens, regulatory fragmentation and associated costs The specific objective is expected to contribute to the simplification and modernisation of the VAT rules by reducing regulatory fragmentation, and to increase legal certainty, by reducing the multiplicity of the existing national frameworks. 5.Minimise the need for multiple VAT registrations in the EU Minimising the need for multiple VAT registrations will not only reduce the costs for businesses but also allow authorities to better focus their control activities.

5.What are the available policy options? 5.1.What is the baseline from which options are assessed? VAT Reporting Based on the supporting study, the available information regarding the existing and planned introductions of DRRs can be summarised as following: ·as of September 2021, DRRs had been introduced in 12 Member States (Bulgaria, Croatia, Czechia, Estonia, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Slovak Republic and Spain); ·between 2021 and 2023, Greece and France will also introduce DRRs; ·public acts were adopted or official announcements were made in Romania towards the introduction of SAF-T and in Bulgaria, Croatia, Hungary, Poland, Spain and the Slovak Republic towards the introduction of mandatory e-invoicing;

·a study has been launched in Finland on the possible adoption of DRRs, but no public act has been adopted by the government; ·given the amount of time necessary to deploy the national systems after the decision to introduce them, countries that have not taken steps in that direction so far are unlikely to be able to adopt their own DRRs within the next five years. If the above information provides a sufficient degree of certainty for the short-term, i.e. the next five years, in terms of the countries which are likely to adopt or update domestic DRRs, as well as of those which are not going to do so, reasoned probabilistic incremental scenarios need to be built for the medium term. In the dynamic baseline scenario underpinning this Impact Assessment, Member States will continue to adopt national digital reporting requirements over the next decade. Table 5 – Medium-term adoption scenarios Scenario Description New adopters Likelihood No adoption The adoption of national DRRs has reached its peak and the remaining countries do not adopt any national reporting mechanism, except for Finland where preparatory work has already started. Czechia opts for e-invoicing, in line with its neighbouring countries. Finland 10% Central-Eastern Slovenia, the only Central-Eastern Member State without a DRR, adopts one. Finland, Slovenia 20% Evolution of existing obligations Belgium, Austria, and Luxembourg, which already have annual listing or SAF-T on demand systems, adopt a DRR. Austria, Belgium, Finland, Luxembourg, Slovenia 40% Southern Malta and Cyprus, the only Southern Member States without a DRR, adopt one. Austria, Belgium, Cyprus, Finland, Luxembourg, Malta, Slovenia 20% All National DRRs are adopted in all Member States Austria, Belgium, Cyprus, Denmark, Finland, Germany, Ireland, Luxembourg, Malta, the Netherlands, Slovenia, Sweden 10% Based on the available information and the above scenarios, the dynamic baseline regarding the adoption of DRRs is presented in the table below. Table 6 – Dynamic baseline: adoption of Digital Reporting Requirements (2023 – 2028) Year Time for the analysis Number of Member States with DRR Type of DRR Adopters 2023 T0 14 (Domestic) VAT listing BG, CZ, EE, HR, LV, SK SAF-T LT, PL, PT Real-time ES, EL, HU E-invoicing IT, FR 2025 T2 15 VAT listing CZ, EE, LV SAF-T LT, PT, RO Real-time EL E-invoicing BG, ES, HR, HU, IT, FR, PL, SK 2028 T5 20.1* VAT listing BE, CY, DE, DK, EE, FI, IE, LV, MT, NL, SE, SI SAF-T AT, LT, LU, PT, RO Real-time EL E-invoicing BG, CZ, ES, HR, HU, IT, FR, PL, SK * weighted average across scenarios. Tax control efficiency and effectiveness is also expected to increase with the introduction of various DRRs, and whilst this will help fight fraud at national level, it will not solve the problem of intra-EU fraud. Furthermore, since no harmonisation measure is introduced, fragmentation costs would grow as more numerous and divergent DRRs are introduced. Confidentiality risks will increase as a result of more transactional data being exchanged. The current trend of Member States considering the introduction of mandatory e-invoicing would further spur business process automation. VAT revenue and burdens Environment Tax control Business automation Data confidentiality More MS adopt national DRRs. This will result in overall positive net impacts, due to the higher base for VAT revenues No impact Tax control efficiency and effectiveness is expected to increase with the diffusion of DRRs. The current trend of MS considering the introduction of e-invoicing would spur further business automation The diffusion of DRRs would mean that more data are exchanged; this increases confidentiality risks The sections assessing the current situation regarding Member States and taxpayers (domestic and multinational companies) in the supporting study are based on both information from the targeted consultation of public authorities and data collected during targeted consultation activities with economic operators, VAT practitioners and service providers, as well as information from secondary sources, VAT revenue statistics, and studies at national levels. As mentioned in the problem section, the quantification of the DRRs’ outcomes on tax control activities and fraud detection is based on the comparison of data before and after the introduction of these requirements. Since the VAT Gap represents the difference between the theoretical VAT liability and the VAT revenues accrued, more revenues are a clear sign of improved compliance where the liability does not change. The assessment of changes to VAT revenues has been done by means of an econometric analysis based on panel-data (See Annex 4: Analytical methods ), to determine whether and to what extent the existing DRRs have resulted in increased revenues, thus a decrease in VAT non-compliance in the adopting Member States. Both costs and benefits are expected to grow over the 2023-2032 period; however, benefits will remain higher than costs (EUR 371 billion vs. EUR 121 billion) and will grow faster, resulting EUR 250.7 billion in positive net impacts: Costs Benefits Administrative burden for businesses Implementation cost tax authorities Fragmentation costs Environmental benefits Savings pre-filled VAT returns Removal of recapitulative statements benefits E-invoicing benefits VAT collection/ C-efficiency Max. VAT Gap reduction Dynamic baseline (cost and benefits) EUR 79.1 billion EUR 1.7 billion EUR 40.4 billion EUR 0.03 billion EUR 30.7 billion 0 EUR 5.6 billion EUR 335.6 billion -3 p.p. EUR 250.7 billion net benefits EUR 121.2 billion total costs EUR 371.9 billion total benefits The VAT collection is measured using the C-efficiency model as the base model. The impacts of DRRs are estimated on two dependent variables: the VAT Gap and C-efficiency. C-efficiency is the ratio of the actual VAT revenue to the theoretical revenue derived from the product of the VAT standard rate and the aggregate final consumption. Thus, it measures the departure of a country’s actual VAT system from a perfectly enforced tax levied at a single rate on all consumption. This ratio takes a value lower than one for various reasons: the application of VAT reduced rates and exemptions, as well as less-than-perfect compliance. In other words, the C-efficiency is an intensive measure, i.e. expressed in relation to the tax base, of both the level of VAT compliance as well as VAT policy choices, such as the adoption of differentiated rates and exemptions. The VAT Gap is defined as the difference between the expected VAT revenue (i.e. the VAT Total Tax Liability, VTTL) and the amount of VAT actually collected over the same period. It includes aspects that are directly influenced by the introduction of reporting obligations, such as VAT fraud and evasion, as well as other elements which are not impacted (e.g. insolvencies, bankruptcies, legal tax optimisation). The VAT Gap directly links with the level of VAT compliance in a country. Since the VAT Gap model relies on annual data, while the C-efficiency model relies on quarterly data, thus providing larger number of observations and degrees of freedom, the latter was retained as the base model and is being used to fundament this impact assessment. Nevertheless, for reasons of transparency, both the base model based on C-efficiency and the alternative model based on VAT Gap data are presented in the Annex 4: Analytical methods . In terms of other ongoing initiatives reflected in the baseline, the EU Directive on electronic invoicing in public procurement (B2G) currently in place has the goal of facilitating the use of a common European Standard on electronic invoicing across Member States to promote interoperability and convergence at EU level (See Annex 5: other initiative s ). In the baseline scenario, the IT platform used to handle B2G transactions is often leveraged by the tax authorities for handling and reporting B2B transactions.

In addition, the work on the proposal for a definitive regime that is still to be adopted was used as a starting point to identify the problems of cross-border VAT fraud. It already reflected the magnitude of the fraud derived from the way intra-Community transactions were taxed, and how the existing tools, including the recapitulative statements, were not sufficient to tackle it. The definitive regime was seen as a solution to address the risk of VAT fraud (MTIC fraud) that is linked to the current VAT rules build common ground for possible digital solutions such as the DRRs. VAT treatment of the Platform economy Under the dynamic baseline scenario, the growth of the platform economy will increase VAT revenue in both absolute and relative terms. However, Member States are expected to introduce additional rules and guidelines concerning the status of the provider and the nature of supplies facilitated by platforms, but will do so in an uncoordinated fashion, as with reporting obligations. These additional rules and guidelines are expected to increase the administrative burdens for businesses by EUR 1.9 billion. The distortion of competition will not be solved and will evolve in line with the development of the platform economy. VAT revenue Legal certainty and administrative burdens Competition / Internal Market EUR 410 billion EUR 1.9 billion No change to the tax treatment means no effect on market conditions (current distortion of competition persists) The scale of the platform economy was estimated by using financial data from Crunchbase and Dun & Bradstreet databases, web application download statistics from SEMrush, questionnaires for platform operators and tax administrations, previous reports, and Eurostat’s sectoral statistics. A VAT liability simulation model with two blocks (for platforms’ facilitation services and for the underlying services) was used in the sectoral analysis. The model is presented in Annex 4: Analytical methods and in the supporting study. The share of the VAT revenue from the platform economy is expected to increase between 0.19 and 0.35 percentage points per year reaching 3.7 percent in 2032. As the pace of growth of the platform economy will decline in the medium-term, the VAT revenue as a share of overall revenue will start stabilising in ca. 10 years’ time. In nominal terms, VAT revenue in the platform economy will grow to about EUR 57 billion in 2032. In addition to revenue growth resulting from the increase in tax base, the availability of information on transactions and providers in the platform economy resulting from reporting and record-keeping obligations is expected to increase the effectiveness of control activities and, as a result, VAT compliance. Though it is not possible to assess the magnitude of this enhancement, the improvements in compliance are expected to have a lower contribution to the VAT increase than the increase in tax base. In an increasingly digitalised world in which online platforms play a fundamental role, the P2B Regulation aims to protect, in this specific case, the business users of such services (See Annex 5: other initiatives ). It contains transparency rules and protection for business users’ accounts. The ‘DAC7’ extends the automatic exchange of information in the field of taxation. It creates an obligation for platforms to report annually the income earned by sellers and for the Member State where reporting takes place, to exchange this information automatically, thus being fully coherent - but complementary as an ex-post control tool - with the current initiative. In addition, the Digital Services Act (DSA) enhances the responsibility and transparency obligations for providers of online intermediary services, including online platforms. For instance, online platforms allowing the conclusion of contracts between traders and consumers will have to gather information on the identity of traders. The Digital Markets Act (DMA) will ensure fair markets in the digital sectors across the Union by addressing the unfair practices of certain undertakings. The DSA and the DMA covers services such as online intermediary services, including online marketplaces, online search engines, social networking, video sharing, operating systems, and cloud services, thus having an impact on the VAT in the Digital Age initiative, especially in the accommodation and transport sectors. The proposed Platform Workers Directive aims to ensure the legal employment status for the workers. This proposal may have an impact on the VAT in the Digital Age initiative, in that, if adopted, a number of platform workers may become employees, and therefore taken out of the scope of the measure concerning the VAT rules for platforms (because employees are not required to charge VAT on their services, instead this responsibility would fall on the platforms). VAT Registration Some key sectors, such as the fuel cards sector, and the supply of gas and electricity, construction works in another Member State etc. will continue to face the burden of multiple VAT registrations when supplying goods and/or services in other Member States. Some transactions requiring non-established businesses to VAT register (see Table 2 ), such as the transfer of own goods cross-border are mostly relevant within the context of distance sales made in the e-commerce sector. An estimate of 20,000 ‘average businesses’ and 280,000 SMEs are experiencing registration costs (see Table 1 ) associated with VAT registration in the EU in a Member State other than that of establishment. At the EU level, this translates in up to EUR 0.36 billion (one-off) and EUR 0.83 billion yearly VAT compliance costs of doing cross-border trade implying VAT registration. Administrative burdens VAT collection (revenue) and fraud Level playing field Burdens related to VAT registration in another Member State: EUR 0.36 billion (one-off) and EUR 0.83 billion (recurring annual costs) No sizable impact No change Distance sales of goods cross-border were estimated to amount to about EUR 72 billion across the EU-27 in 2020 (EUR 43 billion within the EU and EUR 29 billion from outside the EU – distance sales of imported goods). Moreover, in terms of the number of parcels, although it is difficult to estimate their volumes precisely, the order of magnitude is likely to be in the billions of units transferred cross-border across the EU every year. In addition to the significance of the scale of these transactions, the continued growth of e-commerce means they will become more so, exacerbating the problems if the status quo is left to continue. The existing burdens (and additional costs) in these specific sectors will persist if the status quo remains in place. 5.2.Description of the policy options An overview of the policy sub-options in the three areas can be found in the table below. Table 7 – Description of the policy sub-options by VAT area Sub-option VAT reporting area Sub-option 1 (Baseline) §No measure to harmonise the DRRs is introduced at EU level. §The introduction of mandatory e-invoicing remains subject to a derogation. §Recapitulative statements are not modified. Sub-option 2 (Recommendation & Removal) §The introduction of DRRs remains optional for Member States. §The core elements of the EU design are described in a non-binding Recommendation and their introduction is encouraged for those Member States with a significant VAT Gap. §The derogation currently needed to introduce mandatory B2B e-invoicing is removed. §Recapitulative statements are not modified. Sub-option 3 (Keep data with the taxpayers) §Taxpayers will be required to record transactional data according to a pre-determined format. The tax authority could access such records upon request. §Member States remain free to maintain (or introduce) national DRRs. §For the Member States which introduce a DRR, compliance with the reporting mechanism would also ensure compliance with the new obligation (hence, no duplication). Sub-option 4a (Partial harmonisation) §An EU DRR is introduced for intra-EU transactions and the recapitulative statements are abolished. §The derogation currently needed to introduce mandatory B2B e-invoicing is removed. §DRRs for domestic transactions remain optional for Member States. Member States wishing to introduce such mechanisms shall conform to the system used for intra-EU transactions. §Where DRRs for domestic transactions are already in place, ensure interoperability with EU system already in the short-term; national DRRs to converge to the EU DRR system in the medium-term (i.e. five to ten years). Sub-option 4b (Full harmonisation) §An EU DRR is introduced for intra-EU and domestic transactions alike. §The recapitulative statements are abolished. §The derogation currently needed to introduce mandatory B2B e-invoicing is removed. §For Member States where DRRs for domestic transactions are already in place, the interoperability clause applies in the short-term; then, national DRRs are required to converge to the EU DRR system in the medium-term (i.e. in five to ten years). VAT treatment of platform economy Sub-option A (Baseline) §Under this option, the Commission would produce no legislative initiatives in this area, with the possible result of increase fragmentation as Member States adopt unilateral legislative measures to deal with the platform economy. §In order to reduce this risk of fragmentation, the Commission could publish guidelines or recommendations. Sub-option B1 (Clarification of the nature of the service facilitated by the platform) §Currently Member States treat the facilitation service made by the platform as either an electronically supplied service or an intermediary service, with the corresponding impact on the place of supply. §A legislative amendment clarifying the nature of the services provided by the platform (intermediary or electronically-supplied services), and hence their place of supply will be introduced. Sub-option B2 (Clarification of the tax status of the provider) §One of the major difficulties for platforms is establishing the status of the supplier, that is whether they are a taxable person or not. This is important for platforms, as it allows them to know whether to apply the reverse charge or not on their facilitation services. §A rebuttable presumption whereby the platform could regard anyone who does not provide a VAT number as not being a taxable person is outlined. Sub-option B3 (Streamlining of record keeping obligations) §Amending the Administrative Cooperation Regulation, which would aim to harmonise the technical means by which platforms supply information required by Member States, and the frequency of requests. Sub-option C (The narrow deemed supplier) §Where the underlying supplier does not charge VAT, the platform will be deemed as the supplier (the functioning of the deemed supplier model is explained in the Box 2 below). §The platform will charge VAT on the supply. §Option C applies to certain accommodation and transport services (ride on demand and short term residential accommodation), which were identified by the study as having the largest negative impact on VAT equality and neutrality. Sub-option D (The sectoral deemed supplier) §As Option C, but applying to all accommodation and transport services. Sub-option E (The full/inclusive deemed supplier) §As Option C, but applying to all services supplied via platforms. VAT registration area – OSS (intra EU) Sub-option 1 (Baseline) Leave in place the VAT system as of 1 July 2021, with only minor refinements (e.g. additional guidance, quick fixes) to improve the implementation and use of the OSS. Sub-option 2 (Minimal OSS extension) §Extension of the OSS so that it covers all B2C supplies of goods by non-established suppliers. §Additional transactions covered (compared with status quo): odomestic supplies of B2C goods Sub-option 3 (Moderate OSS extension) §Includes sub-option 2. §Remove the obligation to register in case of transfer of (own) goods. §Additional transactions covered (compared with status quo): odomestic supplies of B2C goods, transfers of (own) goods cross-border Sub-option 4 (Reverse charge) §Introduce a mandatory reverse charge for B2B supplies by non-established persons. §Can accompany any other sub-options. VAT registration – IOSS (importation) Sub-option 1 (Baseline) §Leave in place the VAT system as of 1 July 2021, no changes regarding the IOSS. Sub-option 2 (removal of the current threshold) §Removal of the EUR 150 threshold for use of the IOSS and / or extension to excise goods. §Additional transactions covered: oB2C distance sales of goods imported by the supplier from a third country/territory with an intrinsic value exceeding EUR 150 and / or excise goods Sub-option 3a (IOSS mandatory for deemed suppliers) §Removal of the optional character of the IOSS for deemed suppliers. Sub-option 3b (IOSS mandatory above a threshold) §Removal of the optional character of the IOSS for taxable persons distance selling into the EU over a certain threshold. Sub-option 3c (IOSS mandatory - no threshold) §Removal of the optional character of the IOSS for all taxable persons making eligible distance sales into the EU.

Box 1 Types of DRR (also see the Annex 4: Analytical methods - Mapping of digital reporting requirements) Two types of DRR can be distinguished based on the time at which information is to be submitted: ·Periodic Transaction Controls (PTCs), in which transactional data are reported to tax authorities at regular intervals. ·Continuous Transaction Controls (CTCs), in which transactional data are submitted electronically to tax authorities just before, during or shortly after the actual exchange of such data between the parties. Among PTCs, the most common models are VAT listing and SAF-T requirements. The former requires the periodic transmission of transactional data to be compiled and transmitted according to a nationally defined format, while the latter relies on the national specification of an OECD standard, i.e. the Standard Audit File for Tax. Among CTCs, the two possibilities are real-time and e-invoicing systems. Under a real-time system, the taxpayer should submit certain data shortly after carrying out a transaction but does not need to mandatorily use and share e-invoices with the tax administration. Under an e-invoicing system, the taxable person is mandated to use for his transactions a structured e-invoice according to a pre-determined and machine-readable format, allowing them to automatically share the whole invoice or a subset of the data with the tax administration. What type of DRR is optimal for VAT reporting? Interoperability, complexity, costs and benefits From a taxation point of view, interoperability would be ensured by accepting invoices issued according to the European e-invoicing standard that is already in place, and the best solution is to combine flexibility with standardisation. Businesses could have the freedom to use the electronic invoice system they prefer, while the standardisation will refer to the data file to be submitted to the tax administration. That transmission of the data will be done directly by the taxpayer or by a service provider on its behalf. Given that the data in the invoice will be machine-readable, this system will avoid interference with the way invoices are exchanged between businesses while facilitating the reporting through the automation of the process, avoiding mistakes and manipulation of the data. This approach strongly points out the e-invoicing to be the most suitable option for digital reporting. A standardised reporting based on the e-invoice, without a central clearance that is perceived by most MSs and business representatives as unnecessary and intrusive, is the solution preferred by vast majority of the Group on the Future of VAT and the VAT Expert Group. In addition, after conducting a feasibility study in consultation with the Member States, a Central System with data fed by Member States also appears to be the most future-proved solution.The main features of such system are: -the freedom for the taxpayers to adopt the e-invoicing solution that they prefer -reporting of a subset of the data and not of the whole invoice, -harmonised subset of data to be reported for intra-Community transactions, -reporting in real-time and on a transaction-by-transaction basis, -reporting by the taxpayer or by a third party on his behalf, -the possibility for the taxpayer to always use the European standard, while Member States can put at the disposal of the taxpayer additional possibilities for reporting. However, no final decision has been taken yet and technical specifications for the exchange of data between tax administrations will be further analysed and developed. The administrative burdens for businesses and implementation costs for tax administrations closely reflect the complexity of the DRRs: costs are higher for real-time requirements, and lower for VAT listing, with SAF-T systems in between. Since the quantitative analysis did not provide solid findings on the impact of the choice of the type of DRR, a qualitative analysis (See Table 31 ) was performed to indicate e-invoice as a possible choice for an EU DRR. Moreover, since real-time reporting requirements and e-invoicing are the most costly and complex types of digital reporting requirements, the e-invoicing was further considered in this impact assessment, especially to fundament the cost-effectiveness analysis. In addition, during the public and targeted consultation, businesses expressed a clear preference in favour of an e-invoicing solution because it can easily be used for their internal automation and not limited to tax-related reporting, as it is the case with VAT listings or SAF-T. Moreover, e-invoicing appears to be the most future-proof digital reporting requirement, and Member States have also expressed a preference for e-invoicing during the targeted consultation. This further supports the conservative approach that was taken to consider the costs derived from the most complex option, e-invoicing when analysing the impacts of different options in Sections 6 and 7. Box 2 The deemed supplier model The “deemed supplier” model is a simplification measure intended to facilitate the collection of VAT in specific situations. This is typically the case when the intermediary in a transaction (in the envisaged initiative, a platform) is for some reasons better placed than the “real” supplier (i.e. the underlying supplier) to ensure the collection of the VAT due on this transaction. The reasons are either because it would be too burdensome for this underlying supplier to collect the VAT (e.g. when the underlying supplier is a natural person or a taxable person using special schemes for small enterprises), or because it is more secure to collect it from this intermediary (when the underlying supplier is not established /VAT registered in the EU). In a practical sense, when a supplier (the underlying supplier) uses a platform and does not provide the platform with a VAT number, the platform will adopt the role of the deemed supplier, and add the VAT to the price of the supply. If the customer pays the amount directly to the platform, the platform will pass the VAT amount due on the transaction of the supplier onto the tax authority (via their existing VAT return), and the rest (minus their facilitation fee) will be passed to the supplier. Where the customer makes the payment directly to the supplier, that supplier will be required to pass the VAT to the platform. Where the supplier does provide a VAT number to the platform, the deemed supplier regime will, ordinarily not apply, and the supplier will charge and account for the VAT via their VAT returns. However, there are certain situations where the underlying supplier will have a VAT number, but will not charge the VAT (for example, some Member States allocate VAT numbers to businesses using the special scheme for small enterprises). In such cases, the supplier will be required to identify themselves as such to the platform, and the deemed supplier model will apply. 5.3.Options discarded at an early stage Certain options have been discarded at an early stage as inconsistent with the EU legal framework or the objectives of this initiative. Other options were discarded because of their technical unfeasibility or considering their clearly inferior impacts. 1.VAT reporting a.Adopting different designs for EU and domestic transactions. It would be inappropriate to design a different DRR for domestic and intra-EU transactions. From the analysis, no evidence emerged suggesting that domestic and intra-EU transactions require a different reporting mechanism, and this choice would duplicate costs without any significant benefit for tax authorities and taxpayers. However, the possibility of introducing a DRR only for intra-EU transactions is considered among the policy options. This could, for example, allow substituting the ineffective recapitulative statements and thus reducing intra-Community VAT fraud, while limiting compliance costs for taxpayers that only operate domestically. b.Harmonising existing DRRs in the short-term. Any policy proposal on an EU DRR does not work on a tabula rasa, given that national mechanisms have been introduced or adopted in a majority of Member States. Therefore, any proposal needs to incorporate a strategy for dealing with the existing requirements. Expecting to immediately retrofit all these systems into a new EU system would be politically very complex, and, most importantly, would generate duplicated burdens, since the investment in IT solutions and know-how borne by tax authorities and taxpayers in these Member States would become sunk costs. 2.VAT treatment of platform economy a.Adding a common simplified VAT scheme for persons providing their services via platforms by applying a flat VAT rate without input tax deduction. Under this option, a new special scheme would be introduced for providers supplying services using a platform, subjecting them to a flat VAT rate without input tax deduction. The additional complexity in the VAT system and the limited impact on VAT equality and neutrality are the main factors for discarding the option. Also, it would be difficult to apply, considering that a number of underlying supplies may be exempt (e.g. provision of real estate services). Accordingly, the option received little support from both platform operators and tax authorities consulted. b.A system whereby the provider becomes a taxable person upon exceeding a set turnover threshold. The enforcement of such an option presents significant feasibility problems. In particular, it would not be possible for platforms to monitor the revenue obtained over other platforms and sub-platforms. Also, it would lead to certain problematic characterisations of the provider. E.g. an individual may provide occasional supplies in different sectors (fo