31.12. 90 Official Journal of the European Communities No C 332/121 
Opinion on the proposal from the Commission to die Council on transitional arrangements 
for taxation with a view to establishment of the Internal Market (*) 
(90/C 332/34) 
On 17 July 1990 the Council decided to consult the Economic and Social Committee, 
under Article 198 of the Treaty establishing the European Economic Community, on the 
abovementioned proposal. 
The Section for Economic, Financial and Monetary Questions, which was responsible for 
preparing the Committee's work on the subject, drew up its Opinion on 11 September 1990 
in the light of the report by Mr Delia Croce. 
At its 279th plenary session (meeting of 19 September 1990) the Economic and Social 
Committee adopted the following Opinion by a large majority, with 6 dissenting votes and 
6 abstentions. 
1. Introduction 
1.1. The present proposal represents a change of 
stance by the Commission following the negative reac­
tions of the Council and Member State Governments 
to its previous proposals. 
1.2. In 1987, the Commission had submitted a pro­
posal for a common Value Added Tax (VAT) mechan­
ism with a view to completion of the Internal Market 
and the removal of tax frontiers (2). 
1.3. The aim was to harmonize VAT by reducing 
the number of rates to two and fixing them within 
bands of upper and lower limits. The proposal also 
introduced the principe of 'taxation in the country of 
origin', whereby intra-Community sales and purchases 
of goods would be afforded the same treatment as 
transactions within Member States. 
1.4. The Economic and Social Committee adopted 
an Opinion on the Commission proposal (CES 740/88), 
which should be mentioned here(3). 
1.5. The Council subsequently said it was unable to 
endorse the Commission's approach, partly because a 
number of Member States had in the meantime 
expressed clear opposition to the proposals. 
1.6. On 14 June 1989 the Commission therefore sent 
a communication (4) to the Council and the European 
Parliament, proposing that a transitional phase be 
established at the earliest opportunity, lasting until 
31 December 1992, so that the necessary adjustments 
(J) OJ No C 176,17. 7. 1990, p. 8. 
(2) COM(87) 322 final - OJ No C 252, 22. 9. 1987. 
(3) CES 740/88 - OJ No C 237,12. 9. 1988, p. 19. 
(4) COM(89) 260 final. could be made. At the same time, it proposed a mini­
mum standard VAT rate instead of a band, special 
arrangements for certain transactions and a clearing 
system based on statistics. 
1.7. The Economic and Social Committee Opinion 
was highly critical of the communication (5). 
1.8. On 9 October 1989, the Council said it did not 
believe a general agreement could be reached before 1 
January 1993. It did, however, approve—for a limited 
period—the principe of charging VAT in the country 
of destination with differential treatment for certain 
classes of transaction. 
1.9. On 13 November 1989 the Council stressed that 
taxes should be levied in the country of origin, and 
considered this a medium-term objective. It did, how­
ever recognize that VAT on transactions between tax­
able persons in different Member States would have to 
be charged in the country of destination, according to 
the rates and conditions obtaining in that country, in 
order for VAT arrangements to operate properly. 
The Council and the Commission also agreed to carry 
out a comprehensive study by 31 December 1996 at the 
latest with a view to deciding how and when to intro­
duce the definitive, uniform VAT system after the tran­
sitional period. 
2. The Commission proposal 
2.1. Consequently, whilst reiterating that tax fron­
tiers are to be dismantled once and for all and that the 
(5) OJ No C 62,12. 3. 1990, p. 8. 
No C 332/122 Official Journal of the European Communities 31. 12. 90 
ultimate objective is to levy taxes in the country of 
origin, the Commission is now making a number of 
changes to its previous proposals and is proposing to 
introduce transitional arrangements. 
2.2. Under the proposals, the following transactions 
would continue to be taxed at the rates and under the 
conditions obtaining in the Member State of desti­
nation: 
— sales to institutional non-taxable persons and to 
fully exempt taxable persons, 
— mail-order sales to private individuals where the 
seller's annual turnover from mail-order sales in 
other Member States exceeds 1 million ECU, 
— sales of new passenger vehicles [subject to the con­
ditions laid down in Article 2(6)]. 
23. During a transitional period 1 from January 
1993 to 31 December 1996 (at the latest), goods traded 
between one Member State and another on the basis of 
transactions other than those listed in paragraph 2.2 
above will be taxed in the country of destination. 
In other words, sales of goods destinated for another 
EC Member State will exempt of VAT, whereas acqui­
sitions will be liable to VAT (payable by the person 
making the acquisition) in the country of destination. 
2.4. VAT will be paid when regular returns are 
made, rather than when goods are actually imported. 
2.5. Tax on purchases by institutional persons not 
liable to VAT and by fully exempt persons will be 
payable in the country of origin provided the total 
volume, in other words the total amount of goods 
acquired in a Member State other than that of desti­
nation, net of VAT, does not exceed 35 000 ECU 
(70 000 ECU from 1 Januari 1995) during the calendar 
year. 
2.6. Intra-Community transactions by smaller firms 
will benefit from the exemptions arrangements that 
already apply to domestic transactions in some Member 
States. 
2.7. There will be not restrictions on acquisitions by 
private individuals where tax is paid to the country 
where the acquisition takes place. Mail-order purchases 
by private individuals will be taxed in the country of 
destination (see paragraph 2.2). 
2.8. According to the Commission, the new system 
will reduce the administrative burden and costs to be 
borne by firms, as intra-Community transactions will 
be subject to the same checks as domestic transactions, 
based on normal trade documents, particularly invoices. 2.9. The only additional obligation will be the 
breakdown of the amount relating to intra-Community 
transactions. 
3. Comments 
3.1. The Committee would start by pointing out that 
the Commission's latest proposal is the direct result of 
intense political discussions in all Member States, and 
follows a number of specific statements made by the 
Council. 
3.2. This is an important point since the Council 
must reach its final decisions as soon as possible— 
1 January 1993 is fast approaching and it would be 
advisable to have a clear set of rules beforehand. 
3.3. It is worth repeating that tax policy as a whole 
is an essential component of all economic policy. It is 
crucial to achieving economic and social cohesion in the 
Community, improving living conditions in a balanced 
way ironing out regional disparities. 
3.4. On the other hand, the arguments raised during 
the political debate should not be forgotten or played 
down. The basic reasoning in the Opinions adopted by 
the Committee since 1988 on VAT and excise duties 
should also be kept in mind. 
3.5. There is a clear need for a transitional period, 
as advocated by the Committee in its Opinion of 19 
December 1989 (CES 1368/89), during which sales of 
goods continue to be taxed in the country of desti­
nation. Member States must however be allowed suf­
ficient time to prepare for definitive arrangements. 
3.6. All aspects of the final arrangements must be 
clearly spelled out in all measures taken to help Member 
States adapt to the new system without incurring new 
budget problems or harming the competitiveness of 
their economies. 
3.7. When indirect taxation is finally harmonized, it 
should be harmonized sufficiently closely and steps 
taken to prevent any harmful effects on the Member 
States' budget, economic and social policies, so as not to 
jeopardize the introduction of Economic and Monetary 
Union (EMU) in the Community. 
3.8. The Commission's efforts to persuade the 
Council to simultaneously approve the transitional pha­
se and the definitive arrangements therefore deserve 
support. 
31. 12. 90 Official Journal of the European Communities No C 332/123 
3.9. The definitive rates which will be applied or 
authorized should be made known as soon as possible, 
a clearing system should be defined, whereby taxes are 
systematically levied in the country of consumption, 
and measures to prevent fraud and tax evasion need to 
be spelled out. 
3.10 The Commission's proposed transitional period 
is to run from 1 Januari 1993 until 31 December 1996. 
The Commission therefore believes that the final objec­
tive can be achieved within a period of four years 
(possibly less). Although it is extremely to judge wheth­
er the transitional period is adequate, it must be pointed 
out that the length of the period will depend on the 
ability and determination of Member States to use it in 
order to approximate their VAT rates and take all the 
measures needed to comply with commitments arising 
from the final system. Measures to suppress fraud and 
tax evasion will play an important part. 
3.11. It is important for VAT rates to be aligned, in 
stages, before the single European Market comes into 
force. In past Opinions the Committee has called for 
mandatory convergence of Member States' national 
rates within a fixed band. Mandatory convergence was 
not provided for in the Commission proposal set out in 
the communication of 14 June 1989, mentioned above. 
Unless a schedule for convergence is drawn up, and 
individual Member States are given assistance as speci­
fied in paragraph 3.6, we are likely to find ourselves in 
exactly the same situation at the end of 1996 as we are 
in now, making it impossible for the new system to 
come into operation. 
3.12. Given that the proposal for transitional 
arrangements stems from the realization that the social, 
economic and political conditions needed to implement 
a definitive system do not exist at present, our first 
concern must be to ensure that the right conditions do 
prevail by the end of the transitional period. Major 
decisions will therefore have to be taken in all areas of 
taxation, not only indirect taxation. Action will also 
have to be taken to adapt the economic and social 
situations in the various Member States, which have 
hitherto developed independently of each other, in the 
light of the way of life, the culture and the traditions 
of their citizens. 
It would certainly be advisable to keep open the option 
of extending the transitional period in case a significant 
number of the decisions involved have not been taken 
by 31 December 1996. It will be easier to extend the 
transitional period in this way once it has been seen to 
work successfully in practice. 3.13. The special arrangements outlined in the pro­
posal also raise certain questions and need to be more 
clearly defined. 
3.14. The special arrangements for mail-order sales 
cover only orders from catalogues. 
Goods can be advertised in other ways however (e.g. 
door-to-door leaflets, television, newspapers and maga­
zines), with the same results as catalogues; they should 
also be taken into consideration. 
The Commission seems to be aiming to restrict the 
scope of mail-order sales under the terms of the special 
arrangements, whereas in fact it should be extended to 
all distance sales, although they should be governed 
by comprehensive legislation other than that under 
discussion here. 
The limit of 1 million ECU on mail-order turnover also 
seems somewhat arbitrary. 
3.15. Arrangements applicable to small and medium-
sized firms and exempt taxable persons warrant special 
attention. First and foremost, Member States must be 
asked to harmonize their present systems. The new 
rules must then be set out more clearly than in the 
present proposal. The new system must in any event 
avoid distorsions of competition. 
3.16. The combination of free purchasing arrange­
ments for private persons, taxation in the country of 
origin for institutional persons not liable to VAT and 
fully exempt persons and the threshold for mail-order 
sales (firms with a turnover of less than 1 million ECU 
could have a significant effect on the tax revenue of net 
importing countries. 
4. Conclusions 
4.1. The Commission proposal offers a way round 
the numerous problems besetting the harmonization of 
indirect taxation at the present time, and as such meets 
with the Committee's approval. This, however, is on 
the understanding that its suggestions and comments, 
particurly in section 3, are taken on board. 
4.2. This is an important proposal, as it has major 
repercussions on the entire economies of the countries 
concerned and in some cases call for substantial revision 
of tax arrangements. The final arrangements are not 
therefore confined to indirect taxation: the whole sys­
tem of taxation will have to be reformed if it is to be 
uniform and fair. 
4.3. Member States which are net importers from the 
Community may also experience budgetary difficulties 
during the transition period: the Commission and the 
Council should therefore take the necessary steps to 
deal with problems which may ensue. It should also be 
remembered that an appropriate offset system will have 
No C 332/124 Official Journal of the European Communities 31.12. 90 
to operate when the definitive arrangements are in 
place. 
4.4. Priority should be geven to minimizing the scope 
for fraud. 
Done at Brussels, 19 September 1990. 
1. Introduction 
The Committee (Section) approves the content of the 
present proposal which seeks, in line with the con­
clusions of the ECOFIN Council meeting held on 13 
November 1989, to create a specific Community legal 
instrument for improving the effectiveness of adminis­
trative cooperation on indirect taxation (Value Added 
Tax (VAT) and excise duties). The Committee's (Sec­
tion's) approval is nevertheless subject to the following 
provisos: (a) the formalities falling on firms must be 
reduced, (b) checks must be even-handed and not 
excessively meticulous and (c) the legal basis and form 
of the Commission proposal must be revised. The argu­
ments for a directive rather than a regulation are set 
out further on. 
2. Introductory comments and explanations 
2.1. The case for the Commission proposal 
2.1.1. The proposed amendment to the draft Council 
directive supplementing the common system of VAT 4.5. The proposal for transitional arrangements 
should therefore be closely linked with the proposal 
for administrative cooperation in the field of indirect 
taxation. 
The Chairman 
of the Economic and Social Committee 
Alberto MASPRONE 
and amending Directive 77/388/EEC provides for the 
establishment of a transitional VAT-based taxation 
scheme. The Commission argues that this and the pre­
sent proposal are warranted by the creation of the 
internal market and the abolition, of fiscal frontiers. 
The present proposal can, moreover, be viewed as a 
corollary of the first one. 
2.1.2. Both proposals seek to abolish checks on intra-
Community cross-border traffic as of 1 January 1993. 
The first proposal, which will be dealt with separately, 
is principally designed to maintain, with some changes, 
VAT-based taxation in the country of destination, 
although it does confirm the medium-term aim of 
changing VAT in the country of origin. The second 
proposal concerns a Regulation (rather than a Direc­
tive) which would be directly applicable in every Mem­
ber State; the explanatory memorandum and the draft 
Regulation proper indicate that the proposal springs 
from the need of strengthen existing provisions for 
administrative cooperation or mutual assistance in mat-Opinion on the proposal for a Council Regulation (EEC) concerning administrative cooper­
ation in the field of indirect taxation 
(90/C 332/35) 
On 17 July 1990 the Council decided to consult the Economic and Social Committee, 
under Article 100 A of the Treaty establishing the European Economic Community, on the 
abovementioned proposal. 
The Committee instructed the Section for Economic, Financial and Monetary Question to 
prepare its work on the subject. When work was in progress, Mr Giacomelli was appointed 
Rapporteur-General. 
At its 279th plenary session (meeting of 19 September 1990) the Economic and Social 
Committee adopted the following Opinion nem. con. with one abstention.