REPORT ON THE VENDOR CONTROL SYSTEMS APPLIED BY THE MEMBER STATES
Date: 1996-07-26
Institutions: European Commission
Subjects: duty-free sale, intra-EU trade, retail outlet, tax exemption, tax inspection

COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

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Brussels,  26.07.1996 
COM(96)  245  final 

REPORT ON THE VENDOR 
CONTROL SYSTEMS APPLIED 
BY THE MEMBER STATES 

(presented by the Commission) 

TABLE OF CONTENTS 

INTRODUCTION 

. 

CHAPTER 1  BACKGROUND  OF TAX-FREE  SALES 

IN 

INTRA-

COMMUNITY  TRAFFIC  UNTIL 30 JUNE  1999 

Section  1.  The situation before  1993 

5 

7 

.....7 

Section 2.  Abolition of customs controls and traveller's allowances. 

8 

Section 3.  Council  decision 

to  maintain 

tax-free  sales 

in 

intra-

Community trade until 30 June 1999 

Section 4.  Control aspects 

Section 5. 

Increase  in the value allowance 

CHAPTER  2  THE  VENDOR  CONTROL  SYSTEM  AND 

ITS 

APPLICATION  IN THE MEMBER STATES 

Section  1.  Preliminary  remarks 

Section 2. 

The Council guidelines 

~ 

Section 3.  Control by the vendor  in the different  Member  States 

•  At airports 

•  On board aircraft 

•  On board vessels 

8 

10 

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13 

13 

13 

14 

15 

16 

16 

Section 4.  Description of control mechanisms  in Member States 

•  At airports 

•  On board aircraft 

•  On board vessels 

•  General observations 

, 

Section  5. 

Evaluation 

•  At airports 

•  On board aircraft 

•  On board vessels 

•  General observations 

CHAPTER  3 

INTRA-COMMUNITY TAX-FREE SAIES  SINCE 1993 

Section  1.  Preliminary  remarks 

Section 2.  General  development:  Tax-free  sales  from  1992  to  1993  in 

ECU 

Section 3. 

Economic  assessment:  tax-free  sales  in  1992  and  1993  in  _ 
national  currency  and in ECU 

Section 4. 

Evaluation 

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24 

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25 

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CONCLUSIONS 

ANNEX  1 

QUESTIONNAIRE  ON  THE  NATIONAL  CONTROL 
MEASURES  ON  TAX-FREE  SALES 
INTRA-
COMMUNITY TRAVEL 

IN 

ANNEX  2 

ARTICLES  OF COMMUNITY  LEGISLATION  PERTINENT 
TO TAX-FREE  SALES 

ANNEX  3 

"GUIDELINES  FOR  THE  CONTROL  OF  TAX-FREE 
SALES  IN  THE  COMMUNITY"  AS  AGREED  BY  THE 
COUNCIL OF MINISTERS ON 14 DECEMBER  1992 

ANNEX 4 

DATA  SHEETS  ASKING  FOR  STATISTICAL  DATA  ON 
TAX-FREE  SALES 

ANNEX  5 

THE  VENDOR  CONTROL  SYSTEMS  APPLIED  IN  THE 
VARIOUS  MEMBER  STATES  ACCORDING  TO  THE 
REPLIES TO THE COMMISSION  QUESTIONNAIRE 

ANNEX  6 

THE  VENDOR  CONTROL  SYSTEMS  APPLIED  IN  THE 
VARIOUS  MEMBER  STATES  ACCORDING  TO  THE 
COMMISSION'S  SERVICES'  MISSIONS  TO  MEMBER 
STATES 

ANNEX 7 

RESULTS  OF 
RESEARCH 
ASSESSING  MEMBER  STATES'  RETURNS  TO  THE 
APPROPRIATE  DATA SHEETS 

THE  STATISTICAL 

m 

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33 

39 

45 

51 

61 

75 

95 

3 -H 

INTRODUCTION 

1.  The  establishment  of  the  internal  market  on  1 January  1993  was  accompanied  by the 
abolition  of all tax controls  at the internal  borders of the European  Community.  Goods 
moving  between Member  States  are no longer  subject  to  a taxable  event  by the  simple 
fact  of  being  introduced  into  the territory  of  another Member  State.  Consequently,  all 
kinds  of  travellers  allowances  have  been  abolished,  with  the  exception  of  certain 
derogations concerning  excisable goods brought  into Denmark,  Finland and  Sweden. In 
principle,  every  citizen  of  the  European  Union  is  entitled  to  purchase  any  good  for 
personal  use  wherever  in  the  Community  he  so  chooses.  VAT  and  excise  duties  will 
normally be paid in the country where the goods are acquired (although special rules still 
apply to  distance sales,  e.g.  mail-order purchases,  and in these cases the tax is normally 
paid in the Member State of the purchaser). 

2. 

3. 

Tax-free  shopping is not compatible with  these basic  elements  of  an internal  market. In 
particular, tax-free shopping may cause serious distortions of competition between shops 
selling  tax-free  goods  and  those  selling  goods  inclusive  of tax.  Consequently,  Member 
States  have  not  allowed  tax-free  shopping  within their  own  territory  if no  assurance  is 
given  that  the  goods  bought  are  leaving  this  territory.  This  is  the  reason  why  tax-free 
shops  are  generally  situated  at  the  border  or  at  the  point  of  departure  of  a  means  of 
transport leaving the country directly. 

Under these  circumstances,  the goods  were  considered  to  be purchased  for  exportation 
and a tax  exemption  was  compatible with the general  tax  relief granted  on  exportation. 
One  has  to  recall,  however,  that  the  Member  State  of  importation  had  a right to  tax 
goods purchased tax-free if they exceeded certain value or quantity limits. With abolition 
of frontier controls being one of the key features of the internal market, the possibility of 
taxing  goods  on  importation  has  disappeared;  consequently,  controls  can  no  longer be 
carried out at the border to check the value or quantity limits. 

4.  Nevertheless, the Council of Ministers judged that it would be inappropriate to end intra-
Community  tax-free  shopping  immediately  on  1  January  1993.  A  number  of  reasons 
where behind this decision, including the need to finance necessary changes at airports to 
permit  separation  of  international flights from  domestic  or intra-Community  flights  and 
the need to help finance  ferry companies sailing important  routes.  The Council  therefore 
granted  a  transitional  period  until  30  June  1999,  by  which  date  all  business  sectors 
involved  in  tax-free  shopping  should  have  made  preparations  for  the  new  situation. 
Technically,  the  Council  had to  define  who  should  be  entitled  to  benefit  from  tax-free 
shopping,  how  this  could  be  done  in the  absence  of border  controls  and,  finally,  what 
kind  of  control  mechanisms  could  be  implemented  in  order  to  limit  distortions  of 
competition. 

5.  As  the  intention  was  only  to  grant  a  transitional  period  and  not  to  create  new 
opportunities  for  tax-free  shopping,  the  Council  sought  simply  to  prolong  existing 
arrangements. Accordingly it authorized Member States to exempt supplies made by tax-
free  shops  to  passengers  traveling  on  intra-Community  flights  or  undertaking  sea 
crossings to other Member States and carrying with them the goods purchased.  In order 
to ensure equal treatment with the ferries, the Council also authorized  exempted  supplies 
of goods in either of the two Channel-tunnel  terminals. The exact arrangements for VAT 

and excise duties are laid down in Directives 91/680/EEC (incorporating  Article 28k into 
Directive 77/388/EEC) and 92/12/EEC (Article 28) respectively. 

6.  With  regard  to  control,  in the  absence  of  any possible  control  of  the  passenger  in  the 
Member  State  of  arrival,  a completely  new mechanism  had to  be  invented.  Indeed,  the 
only person who might be able to control the correct application  of the tax exemption is 
the vendor himself,  even if one has to acknowledge that the vendor also has an interest in 
selling as much as possible. In principle, tax control measures have always been left  to a 
very  large  extent  to  the  Member  States  themselves.  The  Council  therefore  simply 
reached  a  political  agreement  on  a  certain  minimum  standard  of  control  which  the 
Member States should observe and which is based on control by the vendor himself and 
on subsequent control  of the vendor by the tax administration.  In any event,  the control 
mechanisms must  ensure  compliance  with the value  and quantity limits  in force  for the 
overall  exemptions  per  journey  and  per  passenger.  The  Council  urged  on  the 
Commission  to  present  a  report  on  the  proper  functioning  of  this  so  called  vendor 
control system in the Member States. This report is in response to that request. 

7. 

The  Council  of  Ministers  returned  to  the  issue  of  tax-free  shopping  in  1994  when 
amending  the  allowances  for  travellers  coming  from  third  countries.  In  fact,  these 
allowances  had  served  as  a  reference  framework  in  defining  the  limits  of  the  tax 
exemptions  applicable  for  intra-Community  tax-free  shopping.  By  increasing  the  third-
country  allowances  from  ECU  45  to  ECU  175,  the  intra-Community  limit  would  have 
been  increased  automatically  as well.  With regard  to  the  intention  only  to  maintain but 
not  to  promote  tax-free  shopping,  but also  taking  into  account  that  a limit  of ECU  45 
may  not  be  sufficient  to  maintain  in  real  terms  the  level  of  tax-free  shopping  which 
existed  before  1993,  the  Council  decided  to  raise  this  limit  to  ECU  90.  This  increase 
came into  force  on  1 April  1994.  The Council  also  asked the  Commission  to  report  on 
the implementation  of this new limit  and on the possible  need  to  adapt  this  limit  in the 
future.  As  this  request  clearly  relates  to  the  functioning  of  the  control  mechanisms  as 
applied by the Member States, the Commission examines both matters in this report. 

8. 

In preparing this report, the Commission has used the following  sources of information: 

•  Member States' replies to a questionnaire drawn up by the Commission (Annex 1); 

•  fact-finding  missions  in  the  Member  States  undertaken  by  Commission  officials  in 

collaboration with the competent national authorities; 

__ 

•  statistical  data  on  tax-free  sales  provided  by  Member  States  at  the  request  of  the 

Commission; 

•  submissions by the associations representing operators of tax-free shops. 

9.  Most of this information has been discussed on several occasions with the delegations  of 

the Member States in a Commission ad hoc working group. 

10.  As  most  of  the  relevant  information  was  gathered  before  1995,  this  report  does  not 
address the  situation  in the three  new Member  States,  although  they  will  be  invited  to 
comment explicitly on the contents of this report. 

CHAPTER 1 
BACKGROUND OFTAX-FREE SALES IN INTRA-COMMUNITY 
TRAFFIC UNTIL 30 JUNE 1999 

Section 1. 

The situation before 1993 

11.  Before  1993  Council  Directive  69/169/EEC  on  the  harmonisation  of  provisions  laid 
down by law, regulation or administrative action relating to exemption from turnover tax 
and  excise  duty  on  imports  in international  travel  set  out  the  framework  for  traveller's' 
tax-free  purchases.  A  distinction  was  made  between  travellers  coming  from  third 
countries and those arriving from  another Member  State. 

12.  Higher  tax  relieves were granted  to  intra-Community  travellers  who  had  bought  goods, 
inclusive  of all taxes,  in  another  Member  State.  Lower  exemptions  were  introduced  for 
goods acquired  in third countries. This distinction reflected  the higher level of integration 
between  the  Member  States  of  the  Community  and  took  particular  account  of  the  fact 
that,  broadly  speaking,  all  Member  States  apply  similar  indirect  taxes,  whereas  this 
cannot be assumed in the case of third  countries. 

13.  Purchases  in  a  so-called  duty-free  shop  situated  in  another  Member  State  (literally)  do 
not  fall  into  any  of  these  two  categories.  In  this  case,  the  goods  have  been  acquired 
without  payment  of  taxes,  but  not  in  a  third  country.  In  order  not  to  disadvantage  a 
traveller  coming  from  another  Member  State  as  compared  with  a  traveller  from  a  third 
country  who  could  also  have  purchased  goods  tax-free,  the  European  Court  of  Justice 
confirmed  in several  rulings that the third-country  allowance  should  also  apply to  goods 
bought tax-free  in the Community. 

14.  For  tax  purposes,  tax-free  shopping  was  based  on  the  concepts  of  importation"  and 
exportation".  Indeed,  sales were exempted  from  tax where the goods were intended  for 
exportation.  This  exemption  did  not  even  have  to  be  supported  by  documentation 
because the circumstances  of the purchase (in the international  area of airports,  on board 
ferries,  etc.)  already  suggested  that  the  purchaser  was  leaving  the  country  with  the 
goods.  However,  this concept  was basically the same as that  applying  (and  still  applying 
with  regard  to  third  countries)  to tax-free  sales by  shops  situated  within  the  country  but 
selling to  travellers  leaving  the  country.  The  only  difference  was  that,  irrthe  latter  case, 
the traveller had to provide a written proof of exportation generally  stamped  by customs. 
On  entering  another Member  State, the traveller  had  to  declare  all goods  he intended  to 
import  and, in principle, to pay tax on all imported  goods. At that  moment,  the traveller's 
allowance  was  applied  and  tax-free  importation  within  the  limits  laid  down  was 
permitted. 

15.  The functioning  of this system required  a taxable event  on importation  and the possibility 

for  customs  to carry out checks to verify  an import declaration by the traveller. 

Section 2.  Abolition  of  customs  controls  and 

traveller's 

allowances 

16.  One of the basic achievements  of the internal market was the abolition  of controls  at  the 
internal borders  of the Community.  In the tax field, this spelled  the end  for  the  concepts 
of importation"  and exportation" between Member  States. Thus, the simple  movement 
of goods  between  two  Member  States no  longer  has automatic  consequences  in the  tax 
sphere. 

17.  Accordingly,  one  major  objective  was  achieved:  private  persons  may  buy  goods  for 
personal use in any Member  State and carry with them the goods purchased  in any other 
Member  State without having to  declare these goods  at the border  or to  pay tax. In that 
respect,  the  principle  of  taxation  in  the  country  of  origin  was  translated  into  practice. 
Admittedly,  some  exceptions  do  exist,  such  as  transitional  arrangements  for  Denmark, 
Sweden  and  Finland,  and  the  rules  for  taxation  of  new  cars  or  some  distance-selling 
arrangements,  but  they  do  not  call  into  question  the  principle  as  such.  Only  where 
purchases are made not for  personal but for  commercial  reasons do tax rules continue  to 
provide  for  taxation  in  the  Member  State  of  destination,  where  final  consumption  will 
probably take place. 

18. 

In  this  new  situation,  where  taxation  on  importation  can  no  longer  arise  within  the 
Community, 
longer  appropriate. 
the  application  of  traveller's  allowances 
Consequently,  tax-free  shopping within the Community would have ended. 

is  no 

Section 3.  Council  decision  to  maintain  tax-free  sales  in  intra-

Community trade until 30 June 1999 

19.  Tax-free  sales  are  not just  a  bonus  for  intra-Community  travellers;  they  can  have  other 
consequences  as  well.  Tax-free  shops  in  airports  are  a  major  source  of  revenue  for  the 
airport  authorities  and  in some cases are even operated  by,  or  in conjunction  with,  these 
authorities.  This  permits  a certain  amount  of  indirect financing of  airport  infrastructures 
outside  the  framework  of the  national  budget.  It  also  allows  airport  fees  to  be  kept  at  a 
low level, thus promoting tourism. Ferry companies generate a large part of their revenue 
from  tax-free  sales, which  enable them to  keep  fares  lower  than  would  otherwise  be the 
case.  All  these financing benefits  stem  from  the  Member  States'  decision  not  to  charge 
indirect taxes on sales by tax-free  shops. 

~ 

20.  While  adapting  indirect  tax  rules  to  the  basic  requirement  of  the  internal  market  to 
abolish  frontier  controls,  Member  States  were  not  prepared  to  change  the  situation  of 
duty-free  shops at the same time. The Council therefore  decided to prolong this situation 
on  a  temporary  basis  until  the  end  of  June  1999.  This  decision  was  motivated  by  the 
concern  „to  alleviate both  the  social  repercussions  in the  sectors concerned  and  regional 
difficulties  particularly  in border  regions, which might  arise as a result  of the abolition  of 

taxes  on  imports  and  exemption  on  exports  in  trade  between  Member  States"1. 
Considerations  regarding  the  above-mentioned  financing  benefits  provided  by  tax-free 
shops may also have played  a role. 

21.  Following  this  decision,  the  legal  framework  had  to  be  adapted  to  the  new  tax  concept 
put  into  place  in  1993.  In  the  absence  of importation  by a traveller,  the  tax  relief  could 
no longer be applied to the traveller himself, i.e. the purchaser.  The same result  as that of 
a  definitive  tax  relief  in  his  favor  would,  however,  be  achieved  by  maintaining  the  tax 
exemption in the hands of the vendor. This exemption, by contrast,  could  not  continue to 
be  based  on  the  exportation  of  the  goods  to  another  Member  State  since  such 
exportation  no  longer  exists  as  a taxable  event.  Accordingly,  the  conditions  governing 
that exemption had to be  redefined. 

22.  Article  28k  of the  Sixth  VAT  Directive  (Directive  77/388/EEC),  as  inserted  by  Article 
1(22)  of  Directive  91/680/EEC,  and  Article  28  of  Directive  92/12/EEC  (for  excise 
duties) authorize Member  States to grant tax exemptions to tax-free  shops for the supply 
of  goods  to  be  carried  in  the  personal  luggage  of  passengers  taking  intra-Community 
flights  or  sea  crossings  to  other  Member  States,  within  the  limits  which  also  apply  to 
travellers  from  a  third  country  entering  the  Community  (see  Article  1  of  Directive 
69/169/EEC). The exemption also covers supplies of goods by tax-free  shops in either of 
the  two  Channel  tunnel  terminals  to  passengers  holding  valid  tickets  for  the  journey 
between  those two  terminals.  The  exact  wording  of the relevant  articles  are  reproduced 
in Annex 2. 

23.  Even  though  the  Council  endeavored  to  reproduce  as  exactly  as  possible  the  situation 
that  existed before  1993, two major  changes can be identified.  The first one concerns the 
extension  of  the  arrangements  to  tax-free  shops  at  the  Channel  tunnel  terminals.  This 
modification  was  motivated  by the  concern  to  take  into  account  this  new  link  between 
France and  the United  Kingdom  in comparison  to the ferries  providing  the  sea link.  The 
second  change  relates  to  the  quantity  of  tax-free  goods  the  traveller  is  entitled  to 
purchase.  With  the  concept  of  importation,  the  quantity  was  defined  by  the  relevant 
value  and  quantity  limits applicable  at the time of importation.  Even  though  the  Council 
did  not  change  these  limits,  the  new  rules  also  allow  travellers  to  bring  back  tax-free 
goods purchased  on the first leg of a journey,  which under  the  old  scheme  either  had  to 
be  consumed  in the  other Member  State  or  were  to  be included  in the  goods  for  which 
the traveller's  allowance was  claimed.  Especially  with  regard  to  day  trips,  this  can  have 
the  effect  of  doubling  the  import  allowances  previously  applicable._However,  any 
attempt  to  avoid  this  would  have  required  a very  complicated  and  impracticable  set  of 
rules. 

24.  The  decision  is granted  a transitional  period  until  1999  allowing  the  sectors  concerned 
(airport  authorities, airlines, ferry  companies, producers of goods usually sold  in  tax-free 
shops  and  the  shop  operators  themselves)  sufficient  time  to  prepare  for  a  situation 
without  intra-Community  tax-free  sales. All Member  States  exercise  the  option  open  to 
them, but  two  of them  limit the application  of the exemption  to  goods which  are  subject 
to excise duties. 

Recitals  to the  directives  concerned 

Section 4.  Control aspects 

25. 

In accordance  with  the principle  of subsidiary,  the  application  of  Community  legislation 
and  the  setting-up  of  appropriate  control  mechanisms  are  generally  left  to  Member 
States.  Article  28k  of  Directive  77/388/EEC  and  Article  28  of  Directive  92/12/EEC 
therefore  require  the  Member  States  only to  take  the  measures  necessary  to  ensure  the 
correct  and  straightforward  application  of the  exemptions  provided  for  in those  articles 
and to prevent  any evasion, avoidance or abuse. 

26.  Since  the  effectiveness  of  controls  on  the  exemption  does  not  necessarily  affect  the 
interests  of the  carrying  out  the  controls  country  but  may  be  of greater  importance  for 
the Member  State  of  arrival  where  the tax-free  goods  purchased  will be  consumed,  the 
Council  and  the  Commission  agreed  in a statement  entered  in the minutes that  a  certain 
level  of  control  would  have  to  be  guaranteed  throughout  the  Community.  In  order  to 
prevent  the  reintroduction  of  any  checks  at  the  border,  it  was  also  decided  that  the 
control measures would  focus  primarily on the vendor. 

27. 

Indeed,  as the  tax  exemption  is to  be  applied  by the vendor,  he  is the  only  person  who 
can confirm  that  the sale does not  exceed the relevant value or quantity limits.  However, 
- this  is the  case  only  in  respect  of  the  supply  he  effects  -  it  does  not  safeguard  against 
multiple  purchases  by  the  same  passenger  during  the  same  journey.  Therefore  any 
control  scheme  has  to  address  the  problem  of  how  to  prevent  repeated  purchases  by  a 
passenger  in  tax-free  shopping  areas,  maybe  even  in  different  areas  (e.g.  at  the  airport 
and  on  board  the  aircraft).  It  is  obvious  that  the  vendor  cannot  possess  all  the  relevant 
information  without  an  additional  mechanism  for  providing  such 
information. 
Furthermore,  this  system  places the vendor  in  a very  difficult  situation:  compliance  with 
the  limits  on  his tax-free  sales  conflicts  with  his  commercial  interest  in  promoting  such 

.  sales. 

28.  To  cope  with  this  challenge,  the  Council  adopted  on  14  December  1992  a  document 
entitled  „Guidelines agreed  between  the Member  States  for  the  control  of tax-free  sales 
in the  Community".  These  guidelines  set  a  minimum  standard  of  control  and  are  based 
on  a two-level  control  system.  The  first  level  concerns  the  control  to  be  carried  out  by 
the vendor himself, while the second  one relates to possible control measures carried  out 
by the tax authorities with regard to the vendor. 

29.  Even  if these  guidelines  do  not  take  the  form  of a  legally  binding  instrument, it  is  clear 
that they form  the basis for  this report when it comes to  evaluating the  control  measures 
taken by the Member  States. The text  of the guidelines is contained  in Annex 3. 

Section 5. 

Increase in the value allowance 

30.  Until  31  March  1994  Member  States  were  entitled  to  authorize  tax-free  purchases  of 
goods within the following  limits, which were also applicable as allowances for  travellers 
from  third  countries: 

31.  The following  table shows the limits by quantity: 

10 

Tobacco products 

Alcoholic beverages 

Perfume  and toilet water 

200 cigarettes; 

or 

100 cigarillos, 

or 

50 cigars, 

or 

1  liter of spirits or strong liqueurs  50 gm of perfume 
over 22% by volume; 

and 

or 

2 liters of spirits with an alcoholic 
strength of not more than 22% by 
volume; 

or 

250 ml of toilet water 

250 gm of smoking tobacco 

2  liters  of  fortified  wine  and 

sparkling wines; 

and 

2 liters of still wine 

32.  The  value  limit  was  set  initially  at  ECU  45.  It  applies  to  all  the  goods  which  are  not 

covered by a quantity limit. 

33.  By  adopting  Directive  94/4/EC,  the  Council  increased  the  value  limit  for  third-country 
travellers  from  ECU  45  to  ECU  175 and  defined  a  specific  value  limit  for  tax-free  sales 
within the Community of ECU 90. 

34.  This was the first time that  different  value limits for  third-country  travellers  and  tax-free 
purchases within the Community had been set. The differentiation  is now justified  because 
of the  different  concepts  applied.  With  regard  to  third-country  travellers,  the  relief from 
import  duties  still  applies,  whereas  intra-Community  tax-free  sales  benefit  from  a  tax 
exemption  for  the vendor's  supply.  This reflects  the  establishment  of the  internal  market, 
with the  same  tax  regime  being  applied  to  all  Community  purchasers  even  if they  come 
from  another Member  State. 

35.  At  first  sight,  the  decision  to  increase the  intra-Community  value  limit  is not  consistent 
with  the  approach  initially  taken  by  the  Council,  namely  to  allow  only  a  transitional 
period  during  which  tax-free  sales  could  be  maintained  but  not  promoted.  However,  a 
number of objective reasons were put forward  to justify  an increase: 

•  the limit  of ECU  45 would  not  permit the  operators to  maintain  in real terms  tax-free 

sales at the level existing before  1993; 

•  as  intra-Community  import  controls  by  Member  States  were  significantly  lowered 
before  1993,  the  value  limit  applicable  was  less  and  less  frequently  observed  by 
travellers  and  a  return  to  its  stringent  application  would  have  created  dissatisfaction 
among passengers and operators; 

•  the  administrative  costs  and  burdens  with  which  the  vendor  had  to  contend  in 
implementing the vendor  control  system  were  disproportionate  to  the very  low  value 
of the goods  concerned. 

11 

36.  All  these  reasons  being  considered  in  a  very  global  way,  the  Council  asked  the 
Commission  to  examine  whether  a  further  revision  of  the  value  limit  should  bè 
considered. 

12 

CHAPTER 2 
THE VENDOR  CONTROL SYSTEM AND ITS APPLICATION  IN THE 
MEMBER  STATES 

Section  1. 

Preliminary  remarks 

37. 

If  tax-free  sales  are  permitted  only  under  specific  conditions  and  in  particular 
circumstances,  such  restrictions  arise from Community  legislation  and  therefore  provide 
a  common  framework  for  all  Member  States.  In  practice,  however,  the  use  of  this 
framework  depends  very  much  on  geographical  and  local  situations.  Tax-free  sales  are 
allowed  only  at  airports  and  in  ports,  on  board  aircraft  or  ships  during  flights  or  sea 
crossings, and in the special case of the Channel Tunnel. Each of these places has its own 
particular  characteristics  and  forms  a  specific  category  with  its  own  practical  issues. 
Furthermore,  sea crossings  can take place only between  some Member  States  and  differ 
considerably in length. 

38.  Member  States  have  finally  chosen  different  options  with  regard  to  the  implementation 
of tax-free-sales.  Certain Member  States allow purchases  exceeding  the limits of the  tax 
exemption  as  long  as  tax  is  properly  accounted  for,  while  others  prohibit  such  sales. 
Some Member  States  authorize the operation  of tax-free  and tax-paid  shops in the  same 
area, while others do not  offer  this possibility.  Sometimes, all tax-free  shops are operated 
by only one company, which can be either privately owned  or partly  or completely  state-
owned; in other areas each shop is owned  individually. 

39.  All  these  differences  suggest  that  Member  States  decide  on  the  necessary  control 
measures  for  tax-free  shops themselves as is usually the case with  other  domestically  tax 
exemptions.  This case is different,  however,  because the exemption  for  tax-free  sales, by 
definition,  concerns goods that are going to be transported  to  another Member  State and 
may,  if  not  efficiently  controlled,  cause  distortions  that  will  work  to  the  detriment  of 
retailers  in that Member  State. This led the Council to  agree, by the way of „guidelines", 
to a minimum  standard  of control  without,  however,  committing the Member  States to a 
legal  obligation  in this  respect.  In  addition,  the  content  of  the  guidelines  leaves  enough 
flexibility  to  each  Member  State  for  adapting  its  control  system  to  any  particular 
situation. 

Section 2. 

The Council guidelines 

40.  The  guidelines  that  are  reproduced  in  Annex  3  must  form  the  basis  for  any  control 
system  put  into  place  by  a Member  State  and,  accordingly,  for  the  assessment  of  such 
systems'in the present  report. 

41.  The guidelines  state,  in the first place,  a self-evident  principle:  the  vendor  must  observe 
all  conditions  of  the  tax  exemption  and,  consequently,  observe  the  quantity  and  value 
limits applicable. 

42.  The problem  now  is how to  place the vendor  in such  a position  that  he can  ascertain  all 
the  relevant  factors  determining  the  tax  exemption  and  especially  its  size.  He  can,  in 

13 

principle, have two  sources of information:  the passenger and any other shop  operator. 

43.  The passenger  is the only person who can inform the vendor  about the conditions  of the 
journey:  he is holding  a valid ticket  for  the journey, the immediate destination  of his trip 
is a place situated  in another Member  State, etc. If the passenger is not  already  on board 
the  means  of  transport  and  if  all  these  particulars  are  not  evident,  the  usual  way  to 
provide this information  is to show his ticket or boarding card to the shop  operator. 

44.  The  situation  is more  complicated  with  regard  to  information  about  previous  purchases 
by the passenger  that need to be taken into account in calculating the remaining  portions 
of the exemption  limits. The passenger  can show the invoice, but  how  can he be obliged 
to do so? Again the easiest way is to include the relevant information  on the ticket  or the 
boarding  card  which  he  might  have  to  show  in  any  event.  Accordingly,  the  guidelines 
favour  this approach,  specifying  that,  if appropriate, the ticket or boarding  card  could  be 
replaced  by  a  specific  voucher.  An  alternative  could  be  to  ensure  that  the  information 
about  a tax-free  purchase by an individual passenger  is stored  in such a way as to  permit 
all  operators  to  share  this  information.  In  that  case,  it  would  be  sufficient  for  the  next 
operator to identify  the passenger,  e.g. by his seat number in the plane. 

45.  Whichever  approach  is chosen,  the  Member  State will  have  to  choose  at  least  one  type 
of system that  ensures that the appropriate information  is available to the vendor. 

46.  Another  aspect  concerns  the  control  of  the  vendor  by  the  authorities  of  the  Member 
State.  Such control requires, in the first place, proper accounting  and  records  of all sales 
by  the  vendor.  In  practice,  however,  it  will  be  impossible  for  the  vendor  to  keep  any 
proof  of the  conditions  of an individual  sale, since this would  require  keeping  copies  of 
the  tickets  or  other  documents  and  would  be  impossible  to  manage  without  adding 
considerably  to  the  time  necessary  for  a  given  sale.  Therefore,  another  approach  was 
mentioned  by  the  guidelines,  the  so-called  global  accounting  method,  whereby  the  tax 
authorities have to compare overall tax-free  sales with the total number of passengers  for 
a  specific  journey  or  for  the  journeys  undertaken  during  a  given  period.  Under  no 
circumstances  must  total  sales  exceed  the  allowed  limits  multiplied  by  the  number  of 
passengers.  To  take  account  of the fact  that,  generally  speaking,  not  all travellers  would 
exercise  the  option  of  buying  goods  tax-free,  this  figure  could  be  adjusted.  Thus,  the 
authorities  could  at  least  check  the  overall  reliability  of  the  vendor's  own  control 
arrangements. 

47.  With  regard  to  sea  links  between  two  Member  States,  a number  of  specific  factors  can 
arise,  e.g.  the  ferry  company  may  be  responsible  to  both  countries'  authorities.  For  this 
reason,  this field was to  be  covered  by bilateral  agreements  between  the Member  States 
defining  the control  system and its practical  arrangements. 

48.  The possible involvement  of two  different  Member  States has further  led  to  a  statement 
in  the  guidelines  that  the  Member  States  should  make  best  use  of  the  Community 
provisions on administrative cooperation  and mutual assistance. 

Section 3. 

Control by the vendor in the different  Member States 

49.  It  has  already  been  explained  that  the  factual  situations  differ  a great  deal  depending  on 

14 

where the tax-free  shop is located. To take account  of these major  differences,  this report 
distinguishes three main categories: 

•  sales at airports; 

•  sales on board  aircraft; 

•  sales on board vessels. 

50.  This  section  confines  itself  to  describing  the  general  approach  to  control  taken  by 
Member  States. More  detailed  information  about  the  situation  in the individual  Member 
States can be found  in Annex  6, where, in particular,  the results  of the fact-finding  visits 
to the Member  States are summarized. 

•  At  airports 

51.  Various situations can be identified  : passengers may buy goods tax-free  more than  once 
at the same shop, they may buy at different  shops at the airport  and they may even buy at 
the  airport  and  subsequently  on board.  All these potential  tax-free  purchase  possibilities 
have  to  respect  the  limits  for  one  passenger  during  one journey.  Therefore  the  system 
applied  by  one vendor  should  in principle be able to  cope with  all these  possibilities  for 
the  passenger  to  buy  goods  tax-free.  A  system  whereby  a  vendor  monitors  only 
individual  sales  is  insufficient  to  meet  the  criteria  set  out  above.  Vendors  are  usually 
aware  of  the  existing  limits  and  inform  and  advise  potential  buyers  of  these  limits. 
Individual  sales by the same vendor are therefore  normally within the limits. 

52.  To prevent  subsequent tax-free  sales exceeding the limits for  one.passenger per journey, 
vendors  at  airports  usually  make  use  of  boarding  cards  or  equivalent 
transport 
documents  to  control  these  sales.  Once  a sale is made, the  boarding  card  is  stamped  by 
the  vendor  with  a view  to  preventing  repeat  sales  at  the  same  outlet  and  multiple  sales 
(by other outlets at the airport). 

53.  The  features  of  this  stamping  procedure  differ  in the  Member  States.  In  most  Member 
States  the  stamp  on  the  boarding  card  gives  an  indication  only  that  a  tax-free  sale  has 
been  made.  In  some Member  States the  indication  includes the  value  and/or  quantity  of 
the goods sold.  One Member  State attaches the sales ticket to the boarding  card in order 
to  allow  subsequent  sellers  to  verify  the  right  of  the  passenger  to  subsequent  tax-free 
purchases (at the same outlet or at other outlets). One Member  State does not  make use 
of the procedure  of stamping the boarding  card  at all. In this last  case, vendor  control  is 
based  only  on  monitoring  by the vendor  of each  individual  sale; this  system  appears  not 
to  be  capable  of  preventing  unauthorized  tax-free  sales.  In  certain  Member  States  each 
sale is registered  in the cash register and combined with data of the individual  passenger, 
such  as  flight  and  seat  numbers.  Subsequent  sales  at  the  same  outlet  or  other  outlets 
connected  to  this registration  system  can then be compared  with  previous  purchases.  In 
some Member  States  appropriate  software  and  computer  systems  have  been  developed 
(either by the operators  or by customs) in order to  ensure that the vendor  control  system 
is applied  properly,  whereas  others rely fully  on  "traditional"  control  procedures.  Where 
computer  systems  for  the  shopkeepers  are  installed,  they  are  linked  to  the  customs 
network in some countries. 

15 

•  On board aircraft 

54.  For the control of tax-free sales on board aircraft, Member States generally do not make 
use  of the boarding  card or an equivalent  document.  According  to  the Member  States, 
the use  of  such  documents  would  encounter  practical  problems  since  passengers,  once 
on board, often do not retain their boarding cards. 

55.  The  different  situation  between  a tax-free  outlet  established  within  an airport  and  tax-
free sales on board is a further reason for Member States to accept  a more limited form 
of control for on-board sales. The volume of tax-free sales on board aircraft is limited by 
the  very  nature  of  these  sales.  Control  follows  from  the  fact  that  actual  sales  are 
monitored by the crew,  by respecting the limits as to the value and/or the quantities  for 
each individual sale of these goods. 

56.  Almost  none  of  the Member  States  applies  a system whereby  a link  can be  established 
between tax-free  purchases  in the  airport  and possible  subsequent  purchases  during the 
flight (this  is  the  same  situation  for  tax-free  sales  in  harbors  and  possible  subsequent 
sales on board ferries).  Some Member States do nevertheless apply a control  system for 
monitoring these subsequent tax-free sales by use of a pre-ordering system or by use of a 
voucher  which  is  to  be  presented  and  stamped  for  each  tax-free  purchase.  In  the  pre-
ordering system, the boarding card is already stamped when issued. 

•  On board vessels 

57.  The picture  of the  control  systems  applied by the vendors  is more  diffuse.  Generally,  a 
voucher  is  distributed  with  the  issue  of  the  boarding  card;  this  voucher  contains 
information  on  the  quantitative  limits  allowed  for  goods  subject  to  excise  duties.  It  is 
marked  once  a sale  of  this  category  of  goods  has  been  effected.  Another  purchase  of 
these goods  can be made only if the purchaser can show,  on the basis of the receipt  for 
his first purchase, that the allowed  limit has not yet been reached.  For goods  subject  to 
the value limit, the control limits are often less strict, since for these purchases there is no 
marking  at  all.  In  these  cases  the  control  follows  from  the  fact  that  a  single  tax-free 
purchase can be made only up to the value limit. 

58.  On short-distance routes the voucher system is rarely used. The only means of control is 
by supplying  information  to  the public  on the  allowed  limits for  goods  to  be  purchased 
tax-free  and by the vendor exercising  self-restraint  in restricting  each individual  tax-free 
sale  to  the  allowed  amount  or  quantity.  Reasons  for  non-use  of  a voucher "system  in 
these situations seem to be the limited duration of these journeys and the large number of 
passengers.  A further argument  is that vouchers  can be exchanged  between  passengers, 
in  which  case  the  objective  of  limiting  tax-free  purchases  per  passenger  can  be  easily 
frustrated. 

59.  As far as the  Commission  is  aware,  only  one  bilateral  agreement  in relation to  tax-free 

sales on board ferries seems as yet to have been reached. 

16 

Section 4. 

Description of control mechanisms in Member States 

•  At airports 

60.  Basically,  Member  States  control  vendors  at  tax-free  outlets  at  airports  by  focusing  on 
their bookkeeping.  This general  heading  comprises  in practice various  forms  of  control. 
Member  States,  however,  are  fundamentally  restricted  to  monitoring  goods  bought  and 
sold by the tax-free  outlet  or  company.  This form  of control  conforms  with  and  follows 
from the  normal  VAT  control  measures.  Data  on  sales  to  individual  customers,  which 
would be the specific item to control in the case of tax-free  sales, are seldom available. In 
some  cases  data  on  sales  per  period,  sometimes  per  day  or  per  flight,  are  at  hand  and 
give  some  in-depth  indication  as to  individual  sales. In  a number  of Member  States  tax-
free  vendors  have  to  operate  under  a  customs  and/or  excise  warehousing  system.  This 
system provides for  a certain  degree of control  of the vendor's  standing  and  his  capacity 
to  ensure  that  the  existing  rules  of  the  tax-free  regime  are  respected.  Certain 
bookkeeping  rules apply in these situations which usually  allow follow-up  of  movements 
of goods in and out of the warehouse. 

61.  Some Member  States carry out on-site controls (spot  checks) on vendors  as well  as their 
customers; this means control in and around  the shops entitled to sell tax-free  goods. 

62. 

In  over  half of the  Member  States,  global  accounting  systems  are  applied  in  respect  of 
the conditions  for  tax-free  sales. They are based  on a daily or monthly  summary  of  sales 
and  can  provide  information  such  as  the  date  of the  sale,  flight  number,  code,  quantity 
and value of the goods,  sometimes  in relation  to individual  passengers.  In  some Member 
States  this  information  is  obtained  from  a  computer  network  and  sometimes  simply 
provided  manually. 

•  On board  aircraft 

63.  As to tax-free  sales on board  aircraft,  Member  States basically apply the same systems to 
control  vendors  as  those  used  at  airports.  This  means  that  they  focus  on  bookkeeping 
and  involve  such  features  as  authorized  customs/excise  warehouses,  random  and  a 
posteriori  controls and a global  accounting  system. Most Member  States  apply  measures 
for  controlling  stocks of the airlines themselves  and/or  of the companies  supplying  those 
stocks. The global  accounting  system is designed  to  provide data  on the total  amount  of 
sales  on  board;  there  data  can,  in  principle,  be  compared  with  removals  from  stock. 
Nevertheless, it is not  so much the total  amount  of sales compared  with the total  number 
of  passengers  which  matters,  but  the  fact  that,  for  each  single  passenger,  tax-free 
purchases  are  restricted  to  the  allowed  limits.  Incidentally,  one  system  provides  lists 
identifying  passengers who made tax-free  purchases. 

•  On board  vessels 

64. 

In  this  case,  Member  States  once  again  make  use  of  the  measures  applied  to  sales  at 
airports and on board  aircraft.  One Member  State mentions random tests (spot  checks on 
travellers)  at  departure  or  upon  arrival.  Sometimes  a  comparison 
is  made  of 
recapitulative  sales  lists per journey,  the  sales vouchers  handed  to  individual  passengers 
and the number of passengers. 

17 

•  General observations 

65. 

It  is  to  be  observed  that  in  all  Member  States  certain  penalties  are  imposed  for  non 
compliance  with  the  vendor  control  rules by the vendor  and  in  some  cases  companies 
selling the goods may be  fined. 

Section 5. 

Evaluation 

66.  This  section  presents  an  analysis  of  the  present  situation  and  is  relevant  to  the final 
conclusions  of  the  Commission  with  respect  to  the  tax-free  scheme  and  how  it  is 
operated by the Member States in its general context. 

It  also  shows  that,  given  the  continuation  of  tax-free  sales  within  the  context  of  an 
internal  market,  there are a number of (other)  issues which  hamper  effective  control  of 
tax-free sales in intra-Community passenger traffic or indicate its lack of effectiveness. 

•  At airports 

67.  Most  of  the  Member  States  have  introduced  as  a basis  for  the  control  system  by  the 
" vendor  -  at least  as regards tax-free  sales  at airports  - the  use  of the boarding  card. In 
this way they  have satisfied  the requirement  to  "introduce  a system" for the purpose  of 
controlling  tax-free  sales.  However,  this  is  where  the  similarity  ends  in  respect  of  the 
situation  in the  Member  States  and  a more  critical  assessment  has  to  be  made  of  the 
procedure and effectiveness  of using the boarding card as a means of control. 

68.  Clearly,  the  boarding  card  could  be  useful  as  a  means  of  control  if  it,  or  any  other 
document,  had to  be used for  any tax-free  purchase and if all purchases were  indicated 
on  the  card,  with  the  objective  of  preventing  any tax-free  purchases  above  the  agreed 
limits. 

69.  The use  of the  card varies between  Member  States,  although  no  Member  State  makes 
the  theoretically  correct  use  of  it  or  exploits  its  potential  to  the  full.  Practical 
considerations  seem to be the cause of this restricted use of the card. It is clear that any 
system based  on the use of a card which  does not  indicate the value  and/or quantity  of 
the  goods  purchased  has  limitations  as  to  the  possibility  of  preventing  repeat  or 
subsequent  sales.  A  single  stamp  on  the  card,  as  seems  to  be  the  practice  in  most 
Member States, is only an indication that something has been bought  tax-free  and by no 
means  guarantees  that  no  (further)  tax-free  sales  will  be  effected  which  exceed  the 
allowed  limits.  Overall,  a  certain  discipline  of  not  allowing  tax-free  sales  above  the 
allowed limits seems to be followed by vendors and their personnel. As stated above, this 
is  not  sufficient  to  prevent  subsequent  and  repeat  tax-free  sales.  The  Commission 
considers these  provisions  as inappropriate  for  attaining the objective  laid  down by the 
Council in its guidelines. 

70.  As regards to the measures the Member States have taken to control  vendors,  it should 
be borne in mind that a control  system  is not,  in theory,  capable  of  achieving  the  same 
objectives  as  controls  applied  by  vendors.  The  latter  controls,  as first-line methods  of 
control,  basically  should be capable  of preventing  any tax-free  purchase by a passenger 
above the limits. If they do not meet this task,  one can hardly expect  the  control  system 

18 

of the Member  State to  rectify  this. First  and foremost,  therefore  Member  States have 
the task  of accepting or rejecting as insufficient  certain types of vendor control systems, 
before  checking that these  systems are applied as designed  and, finally,  before making a 
more general, overall check as to whether the vendor control  system can be said to have 
satisfied  the  expectations  placed  in  it.  This  last  check  is,  by  definition,  effected  a 
posteriori  and can therefore never replace the vendor's control system, which is designed 
to capture the individual tax-free purchases of passengers. 

71.  A  number  of  remarks  can  be  made  regarding  these  systems.  Occasionally  a Member 
State  mentions  on-site  controls  (spot  checks)  on  vendors  and  on  travellers.  Such 
controls could be very effective but they clearly need to be conducted within the territory 
of the  Member  State  in the  proper manner  and in  such  a way  as  not  to  prejudice  the 
gains coming from the internal market. In the case of controls on the vendor, who is the 
key point of control in the system, even the threat of well-advertised  potential checks by 
competent  authorities  might prove highly effective.  This type  of physical  control  could 
be  an  additional  element  in  the  proper  functioning  of  the  vendor  control  system  for 
example, abnormal quantities of products sold by tax-free outlets in other Member States 
were  detected  on  certain  intra-Community  flights  upon  arrival.  As  to  controls  on the 
traveller,  the Commission would  stress once  again that the traveller is not  in charge  of, 
or responsible for, the effectiveness  of the vendor control system and is not liable to pay 
the tax even if he has exceeded the allowed tax-free limits. 

72.  Generally,  Member  States  operate  a  system  whereby  operators  have  to  be  authorized 
before  selling  goods  tax-free  (along  the  lines  of  the  warehousing  arrangements).  They 
apply a form of bookkeeping control that is usually backed up by customs or warehouse 
systems with the accompanying control rules. The weak point in these systems is that, as 
a rule,  they  are not  equipped  or barely  equipped  to  compare  sales  data with individual 
passengers. The entire mechanism depends on the quality of data at vendor level.  This is 
why  these  systems  can give  only  a very general  indication  of  the  relationship  between 
total tax-free  sales over a given period and actual tax-free  sales to passengers entitled to 
make tax-free  purchases.  Where this is not yet the case,  the  accounting  systems should 
be improved in respect  of their capacity to establish this link between tax-free purchases 
by individual passengers and total tax-free sales. 

•  On board  aircraft 

73.  The general  approach in this respect seems to be based on the consideration that unduly 
strict  control  measures  for  on-board  sales  could  create  distortions  of  competition with 
shops  at  the  airport,  which  have  the first contact  with  the  passenger.  This  argument 
cannot be endorsed because it runs counter to the objective of the control. 

74.  The conclusion can be drawn that, in the majority of cases of controls in respect of sales 
on board  aircraft,  use  of  a boarding  card is regarded  as inappropriate.  The  reasons  for 
this  seem  to  be more of  a practical  than of a theoretical  nature.  The  use  of  a boarding 
card  for  such  sales  is  regarded  as  impractical  because  passengers  sometimes  do  not 
retain these cards or because merely stamping the card without giving only indication of 
value  or quantities  limits the usefulness  of this procedure.  Another  argument relates to 
the inherently limited scope for making tax-free sales on board aircraft. 

75.  These are rather odd considerations.  If a passenger does not bother to  retain his card in 

19 

order to make tax-free purchases, it is a moot point whether he really wants to  exercise 
this right. An  improperly  applied  control  mechanism  cannot  be  an  argument  for  doing 
away with any control system, but should rather be one reason to improve the system by 
including more  data on the card.  The argument based on the limited  scope  for  tax-free 
purchases on board aircraft  may have some relevance for certain types of tax-free sales, 
but surely not for all of them. 

76. 

In  one  respect,  sales  on  board  aircraft  differ from sales  by  other  tax-free  outlets.  By 
definition,  they  are the last  opportunity for passengers to  make tax-free  purchases.  If a 
proper link is established (see below) with tax-free sales at the airport and if each person 
on  board  is  only  given  the  opportunity  to  buy  goods  tax-free  once,  the  crew  is  in  a 
position to  monitor tax-free  sales within the limits,  since there are no  opportunities  for 
repeat or subsequent sales. 

77.  A major shortcoming  in almost  all the Member States  is the virtually complete  absence 
of  a system  linking  tax-free  sales  at  airports  to  sales  made  on  board  aircraft.  For  the 
problem of repeat sales at airports, the only real solution seems to be, as indicated above, 
the proper use of a boarding card or any other document and/or the use of a registration 
system linking all tax-free purchases per passenger and all tax-free outlets. The use of the 
boarding card in this way would,  at the same time, provide a solution to the problem  of 
subsequent  tax-free  sales.  Some  Member  States  make  use  of  a  preliminary  ordering 
system for passengers.  Where this card is properly  stamped  on being issued  and where, 
provided  it contains the right data, it  is required for  any (additional)  tax-free  purchase, 
whether at the airport and or on board, the system could prove to be effective.  While a 
number of Member States  seem to  apply some  of the elements of this  system,  as far as 
the  services  of  the  Commission  are  aware,  no  Member  State  applies  all  the  elements 
simultaneously. 

78.  As to the control  systems applied by the Member States, emphasis is again placed on the 
control  of  the  bookkeeping  and  accounting  systems  of  vendors.  The  remarks  made 
above  regarding  the  limitations  of  this  approach  for  the  control  of  tax-free  sales  at 
airports apply here as well.  Tax-free sales on board aircraft,  however,  provide additional 
and  more  specific  means  of  control,  since  these  sales  concern  only  one  vendor  (the 
airline). For this reason some Member States have, in various forms, introduced a system 
whereby comparisons  can be made between total goods brought  on Ijoard for a  specific 
flight  and  the  goods  sold  during  the  flight.  However,  data  are  rarely  available  on 
individual purchases per passenger,  which means that even for these Member States the 
control can only serve a global purpose. 

79.  A specific problem has to be addressed  :  the application of Community provisions in the 
context of non-domestic  airline operators,  and especially third-country  operators,  seems 
to  create  difficulties  for  Member  States,  e.g.  control  problems  in  cases  where  third-
country airlines, having made a first stop on Community territory,  make flights between 
two Community airports. 

•  On board vessels 

80. 

In some cases the vendor control system, apart from the instruction to the employees not 
to  sell more than the agreed  limits for individual tax-free  sales,  is based  on the use  of a 
voucher.  This  voucher  generally  indicates  the  allowed  tax-free  quantities,  but  seems  to 

20 

be applied only for sales of goods subject to these quantitative limits and not  for goods 
subject to a value limit. 

81.  An important difference  between boarding cards used for air travel  and vouchers is that 
the vouchers do not bear the name of the passenger. A weakness  of the voucher system 
is, therefore, that the vouchers can easily be exchanged between people who want to use 
them and those who do not. This seems to be one of the reasons why the voucher system 
is not used  at all on certain high-density ferry lines. If the voucher is used,  it  has to  be 
marked. In case of a subsequent purchase the seller, because of the marking,  should ask 
for  the  receipt  for  the  earlier  purchase  in  order to  determine  whether  the  subsequent 
purchase is still within the allowed tax-free limits. The system is not watertight since, for 
subsequent  purchases,  one  could  produce  an  earlier  receipt  while  withholding  other 
receipts. There is the further possibility of using the vouchers of other passengers. Apart 
from these  observations,  there  is  also  a risk of  forged  vouchers  and  the  setting-up  of 
"black markets" in vouchers. 

82.  The non-use of a system for controlling on purchases made on short-distance routes and 
goods  subject  to  value  limitations  as  well  as  the  intrinsic  weaknesses  of  the  voucher 
system (exchangeability,  failure to indicate quantities sold and complete  absences of any 
control in some situations) effort  scant guarantee that tax-free  sales exceeding  the limits 
can be  prevented  in an acceptable  way  and make tax-free  sales  on board  ferries  highly 
vulnerable to abuse. 

83.  The weakness  of  the vendor  control  systems  applied  on  board  ferries  seems  not  to  be 
counterbalanced  by  the  control  systems  applied  by  the  Member  States.  As  mentioned 
above, these systems come only second in line to the vendor control systems themselves, 
since they are not designed to counter individual purchases above the limits. 

84. 

It has been reported to the Commission that some ferry operators  organize day-trips to 
other Member States at very low ticket prices.  Sometimes passengers  do not disembark 
in the adjoining Member State.  The sole purpose of organizing these last trips seems to 
permit tax-free sales. 

85.  Ferry operators and national authorities in some Member States complain about the lack 
of vendor  control  carried  out  by  the  ferry  operators  and  national  authorities  of  other 
Member States on routes between them as this may lead to distortions of competition. 

86.  The setting-up of bilateral arrangements, as envisaged in the Council guidelines, is still at 
a  early  state  of  development.  For  the  Commission,  this  is  evidence  that  the  Member 
States are not fulfilling the commitment entered into by the Council in its guidelines. 

87.  The  measures  taken by the Member  States  resemble  their  control  systems  for  tax-free 
sales at airports and on board aircraft.  There is a reliance on bookkeeping  systems and 
warehousing  systems,  and  here the same remarks  can be  made  as  above'as  regards  its 
structural  possibilities.  In  some  Member  States  appropriate  software  and  computer 
systems have been developed  (either by the operators or by customs)  in order to ensure 
the  proper  functioning  of  the  vendor  control  system  applied,  whereas  other  Member 
States  rely  entirely  on  "traditional"  control  procedures.  Where  computer  systems  for 
shopkeepers are installed, they are in some countries linked to the customs network and 
in  others  not.  The  resemblance  between  sales  on  board  ferries  and  on  board  flights. 

21 

namely that  in each  situation there is only one vendor,  has led  in some  cases, including 
for the purpose of controlling sales on ferries, to control  systems based on a comparison 
of  total  tax-free  sales  and  passenger  numbers.  Even  in  these  cases  the  results  of  the 
control  measures  can  be  evaluated  only  in  a  very  general  manner  and  these  systems 
cannot  therefore  meet  the  goal  of  preventing  tax-free  sales  exceeding  the  limits  in 
individual cases. 

88.  From the various considerations set out in this section it is clear that the mechanisms and 
procedures put in place for implementing the vendor control  system are not sufficient  to 
achieve the objectives set by the Council. 

•  General observations 

89.  There may be some conflict here between the financial interests of the proprietors of tax-
free  shops  (as  well  as  of  tax-paid  shops)  in  making  sales  and  their  simultaneous 
obligation to ensure that the limits are respected. 

90.  This observation has to be viewed in the light of the fact that the public notices available 
to  the  public  about  the  implementation  of  vendor  control  and  mainly  concerning  the 
value  and  quantity  limits  leave  room  for  mistakes  or  incomplete  information.  For 
example, public notices are inconsistent within the ferry sector, ranging from excellent to 
poor even within the  same  company.  Passengers  are usually  provided  with  information 
about  the  quantitative  limits  for  tax-free  purchases  by  way  of  appropriately  placed 
notices or price lists. For the most part, the information  about the value limits in force is 
less  clear,  sometimes  even  non-existent  or  incomplete  in  that  they  indicate  that 
regulations do exist which are to be complied with but do not specify their content. 

91.  Sometimes, the same price is applied to goods, independently if they are sold tax-free or 
tax-included.  Under  this  scheme,  VAT  is  accounted  for  on  the  basis  of  a  mixed 
calculation involving tax-free and tax-paid purchases. In other words, passengers entitled 
or  not  to  purchase  tax-free  pay  the  same  average  percentage  of  VAT  without  being 
aware of it. It is clear that this calculation method cannot provide an exact assessment  of 
the tax  due.  In terms  of  pricing  policy,  a purchaser  does  not  know  the  amount  of tax 
contained in the sales price. 

In most  cases,  controls  do  not  exceed  those  imposed  in the  case  of  a warehouse 
keeper.  Indeed,  the  only  check  is  the  proper  recording  of  goods  removed  from  the 
warehouse  or  the  tax-free  area.  However,  the  specific  conditions  for  the  tax-free  sale 
itself are not controlled. This scheme is not in line with the basic principles for collecting 
VAT. 

92.  The  implementation  at  Community  level  of  vendor  control  varies  considerably  even 
within the same Member State. As Member States depend largely on the control  systems 
applied  by  the  other  Member  States,  less  stringent  control  systems  in  some  Member 
States have led to complaints of distortions of competition by operators in other Member 
States. 

93.  The  Commission  asked  a  number  of  representative  international  sea  and  air  traffic 
associations  and  duty-free  associations  to  give  their  initial  views  on  the  application  of 
vendor  control  by  their  members.  Their  views  differ  in  certain  ways,  because  of  the 

22 

variety of goods involved and of their specific interests. 

94.  Nonetheless,  a  general  approach  by  the  trade  is  to  call  on  the  Commission  to  take 
effective  enforcement  steps to ensure that all vendors and outlets in the Community have 
implemented  the vendor  control  system  with  a basic  degree  of  consistency  in  order  to 
avoid  undue  distortions  of  competition  and unnecessary  confusion  among  the  traveling 
public. 

95.  The  further  development  of  the  sector  is  not  consistent  with  the  guidelines  of  the 
Council,  which  are designed  solely to preserve temporarily the activities  of the  tax-free 
sales outlets that existed in 1993. On the contrary: 

•  new forms  of tax-free  sales have been introduced  (for instance,  special  arrangements 
that  contain  the  sale  of  the  air-ticket,  accommodation  and  a  "package"  of  tax-free 
goods; "pre-packing-systems") (see Chapter 2 Section 2 of Annex 6); 

•  some (existing) tax-free sales areas have been enlarged (see Chapter 2 of Annex 6); 

•  some  tax-free  shops  have  extended  the  range  of  goods  offered  (electrical  goods, 

radios, high-quality textiles etc.) (see Chapter 2 Section 5 of Annex 6); 

•  new tax-free  and tax-paid  shops  have  been  opened  or  are to  be  opened  in the near 

future (see Chapter 2 Sections  1  and 7 of Annex 6); 

96. 

In this respect,  the Commission reaffirms  its position that it is opposed to the  setting-up 
of new tax-free  sales  outlets  in the  Community under  a system which  is  specific  to  the 
sector and that this  situation is to be considered by all parties involved  as a distinct and 
time-barred exception to the rules of the internal market. 

23 

CHAPTER 3 
INTRA-COMMUNITY TAX-FREE SALES SINCE 1993 

Section  1. 

Preliminary  remarks 

97.  Traders'  experience  of  vendor  control  in  the  first  six  months  of  1993  is  that,  on  the 
whole,  the  vendor  control  system  appears  to  be  functioning.  Nevertheless,  there  is 
concern  about  a  downturn  (an  average  of  at  least  10%)  in  sales  and  revenues, 
notwithstanding  increased  numbers  of passengers.  This loss  of business  may,  according 
to the trade, be taken as an indication, in part, that vendor control systems are proving to 
be more restrictive than the old procedures for customs monitoring upon arrival. 

98.  The purpose  of requesting  statistical  data from Member  States  on tax-free  sales  in  1992 
and  1993 was to enable the Commission to undertake an economic analysis of the impact 
of  the  introduction  of  the  vendor  control  system  on  the  business  involved.  The  basic 
results  of  this  economic  analysis  are  set  out  in  this  chapter.  The  complete  data,  as 
summarized for  analytical purposes,  and the detailed  evaluation  of this data can be  found 
. in Annex 7. 

99.  The information  on  turnover  figures,  the  number  of passengers,  operators,  sales  outlets 
as well as the total floor  space taken by these outlets which have been made  available to 
the Commission are incomplete.  Some Member  States did not provide information  about 
all possible points, in particular  place of sale (BE, DK,  IRL, NL, PT  and  UK).  Spain did 
not provide all the details, but in some cases only totals (for airports)  and only figures for 
1993  (for  ferries).  France  indicated  totals  only  and  made  a  (non-requested)  distinction 
between  French  and  foreign  products.  Denmark  was  not  able to  give  the  full  details  for 
its  airports  and  for  the  sales  on  board  aircraft.  Three  Member  States  did  not  return  the 
data sheets sent by the Commission  (DE, IT and LU). 

In this context,  it  has  also  to  be  noticed  that  the  data  covering  airports  include  sales  to 
travellers  departing  both,to  other  Member  States  and  to  third  countries.  Concerning 
aircraft  and ferries,  the  data  provided  by Member  States  covers  solely  sales  on  intra-EC 
flights  and intra-Community  sea-crossings. 

100.  The Commission  is not  in a position  to  check  the  reliability  and  the  completeness  of the 
figures  put  at  its  disposal.  The  lack  of  information  which  has  been  mentioned  above  is 
due  to  various  reasons,  e.g.  the  figures  needed  are  not  gathered  at  all,  they  are  not 
they  are  not  accessible  because  of 
available  because  of  major  bankruptcies, 
organizational  difficulties,  etc. The missing information  from  Germany  and  Luxembourg 
does  not  affect  the  conclusions  to  be drawn  because  in these  countries  VAT  is  charged 
on  a  flat-rate  basis.  Hence,  the  Commission  estimates  that  the  available  data  for  the 
economic  analysis  are  sufficient  to  identify  the  underlying  trends  of tax-free  sales  in  the 
various Member  States and at the different  points of sale. 

101.  The following  analysis also endeavours to discover the main reasons for the  development 
of tax-free  sales  as  shown  in the  statistical  data.  Nevertheless,  it  is not  possible  to  take 
into account  all general  factors  influencing  tax-free  sales,  such  as  "normal" trade  cycles, 
industrial fluctuations,  changes in consumer behaviour,  etc. 

24 

The analysis focuses  on establishing  the  link between  the  evolution  of tax-free  sales and 
the respective  development  of the  number  of  passengers  and  of  operators  as well  as  on 
the  possible  influence  of  exchange-rate  fluctuations.  Inflation  is  not  taken  into  account 
directly.  Apart  from  the fact  that  exchange rates to  a certain  extent  reflect  inflation,  it is 
assumed  to be a minor factor  in this context,  at least  for  the years  1992 and  1993. Thus, 
any  major  effect  which  is  ascertained  on  the  basis  of  the  statistical  data  and  cannot  be 
explained  by  the  factors  described  is  expected  to  be  linked  to  the  introduction  of  the 
vendor  control  system.  It  follows  from  this  approach  that  there  is  a  methodical 
distinction made between the analysis in ECU and in national  currency. 

Section 2.  General  development:  Tax-free  sales  from  1992  to 

1993 in ECU* 

102.  On the  basis  of the  data  available to  the  Commission,  tax-free  sales  from  1992 to  1993 
increased  in airports by about  6% (calculated  for  seven countries; including both  sales to 
intra-Community  and  to  third-country  travellers),  on  board  aircraft  by  about  3% 
(calculated  for  seven  countries;  sales  to  intra-Community  travellers  only),  on  board 
ferries  by  about  25%  (calculated  for  six  countries;  sales  to  intra-Community  travellers 
only)3.  Sales in ports are disregarded  as only one Member  State provided  full  data in this 
respect. 

These  figures  reveal  an  increase  in  tax-free  sales  in  ECU'S  despite  the  introduction  of 
vendor  control  procedures  in  the  Community.  This  increase  has  been  noted  even  in 
airports  (where  control  systems  could  be  expected  to  be  easily  introduced),  but 
especially  on  board  ferries,  apparently  on  account  of  the  fact  that  the  vendor  control 
procedures  are  generally  less  strictly  applied  or  not  applied  at  all  on  board  ships.  The 
slight  decrease  in  tax-free  sales  in  ports  cannot  be  assessed  because  the  data  basis  for 
some of the ports in two Member  States is too thin. 

103.  From  the  available  data,  tax-free  sales  in  ECU  from  1992  to  1993  changed  in BE by  -
10.3%,  in DK by +0.6%, in E by -4.6%, in EL by +9.2, in FR by -10.4%, in IRL by  +1%, 
in  NLby  +2.5%,  in  PT by  -9.4%  and  in  the  UK  by+30.7%.  In  other  words,  in  three 
Member  States  there  is  a  significant  decline  in tax-free  sales  from  1992 to  1993  (about 
10%» in  BE,  FR  and  PT),  there  is  a  slight  decrease  in  tax-free  sales  in  Spain,  in  three 
Member  States  the  turnover  deriving  from  tax-free  sales was  more  or  less  the  same  in 
1992 and in  1993 (DK, IRL and NL), and in two Member  States tax-free-sales  increased 
significantly  from  1992 to  1993 (EL and UK). 

104.  There  are  large  differences  between  the  Member  States  concerning  the  results  in  the 
same place of sale (e.g. on board  aircraft,  ranging from -13% in PT to  +235% in EL). In 
some cases specific  explanations for  this can be found.  The increase for  all places of sale 
in  Greece  is due  mainly  to  sales  on  board  aircraft.  Since  the  number  of  passengers  has 
changed  only slightly in this period,  it seems clear that  a substantial  shift  in tax-free  sales 
has  taken  place.  France  shows  a  relatively  sharp  decrease  tax-free  sales  which  is  due 

2 
3 

Conversion  rates  used: as respectively  published  on 30 September. 1992 and on 30 September  J993. 
In  this  context,  it  has  to  be  noted  that  sales  on  board  aircraft  and ferries  relate  to  sales  made  by 
companies  having  their primary  establishment  in the Member  State  concerned. 

25 

mainly  to  intra-Community  travel  (decrease  of  22.3%).  However,  even  third-country 
tax-free  sales  have  been  falling,  though  less  steeply.  This  shows  that  vendor  control 
procedures are not the decisive factor in the decline. 

105.  Member  States' information  on tax-free  sales per category  of goods  does  not  indicate a 
significant  advantage  for  a particular  category  of  product;  the  increase  in  ECU  for  all 
goods  ranges from 9% to  14% (calculated  on the basis  of  figures from eight  Member 
States). In this context, France is, to some extent, an exception to the rule.  Sales  figures 
for the different  product  categories  vary  according  to  the  place  where  sales  are made. 
The main increase has been recorded on board aircraft and on board ferries. 

Section 3. 

Economic assessment: tax-free sales in 1992 and 1993 
in national currency and in ECU 

106.  The  following  table  sets  out  the  statistical  basis  for  the  economic  analysis  of  the 
development  of tax-free  sales  in the  Community from 1992  to  1993.  For  this  purpose, 
the percentage change is calculated: 

•  for total sales, in national currency and in ECU; 

•  for sales per passenger, in ECU only. 

The information is given for each Member State and for each place of sale. 

26 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

-

(10)  -

MSa 

Airportsb 

Aircraft0 

Ferries0 

Change 
in  nat 
curr.d 
(%) 

in 

Chan 
ge 
ECU 
P/Pe 
(%) 

in 

Chan 
ge 
ECU 
(%) 

Change 
in  nat 
curr.d 
(%) 

Change 
in  ECU 
p/pe 
(%) 

Change 
in  ECU 
(%) 

Change 
in  nat 
curr.d 
(%) 

Change 
in  ECU 
P/Pe 
(%) 

Change 
in  ECU 
(%) 

-10.18 

-21 

-11 

-4.22 

-30.10 

-5.62 

-5.59 

-7.96 

-6.97 

+22.16 

+11 

+21 

+29.79 

-1.51 

+28.53 

+9.91 

+6.22 

+O.01 

+16.22 

+5.87 

IRL 

+4.93 

-1 

-7 

-4 

-1.10 

-10 

+2.05 

-9 

+7 

+209.27 

+227.36 

+235.05 

+15.05 

+ 17.68 

+6.0-1 

-5 

-4 

+3 

-9 

+13.39 

-5.25 

+1.77 

+42.61 

+26.91 

+31.04 

+14.03 

+9.34 

+4.78 

-15.80 

-16.04 

-12.66 

+9.05 

+12.76 

+13. n 

-2.60 

-23.97 

-13.11 

+17.60 

+14 

+19 

+51.81 

+32.79 

+53.76 

BE 

DK 

EL 

ES 

NL 

PT 

UK 

107  As far  as airports are concerned, the change of tax-free  sales in airports per country  from 
1992 to  1993 in national  currency  (column  2)  and in ECU  (column  4)  showed  different 
in  Member  States:  In  some  countries  exchange  rates  did,  to  a  certain  extent,  influence 
the  evolution  of  tax-free  sales  at  airports  (EL,  ES,  IRL  and  PT),  in  others  no  major 
impact  can be established.  If there is such  an influence,  the  increase  in national  currency 
is  higher  than  in  ECU  or  there  is  even  a  decrease  of  sales  in  ECU.  This  is  a  logical 
consequence  of depreciation,  which at as such might have been  a reason-for  the  increase 
as a whole. Comparing  column 3 [change in ECU per passenger] with comparing  it with 
the figures from column 4  [change in absolute figures] reveals  no  clear  single trend.  For 
Ireland,  Spain  and  Portugal  there  is  no  or  little  difference  between  both  figures  which 
seems  to  indicate  that  the  increase  of  tax-free  sales  is  linked  to  the  increase  of  the 
number  of  passengers.  For  Belgium,  Denmark,  Greece,  the Netherlands  and  the  United 
Kingdom  the  development  of  sales  per  passenger  is  more  negative  than  in  absolute 

Member  State 
Includes  sales  to intra-Community  and to third-country  travellers. 
Only sales  on intra-Community flights  or intra-Community sea  crossings. 
National  currency 
Per  passenger. 

27 

figures. 

108.  Only  four  Member  States  were  able  to  supply  separate  data  on  sales  to  travellers 

departing to other Member States. They are set out in the following table: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

Intra-EC 
sales  in  1992 
(national 
currency) 

Intra-EC 
sales  in  1993 
(national 
currency) 

Change 

Passengers 
in 
1992 
(Intra-EC) 

Passenger 
s  in  1993 
(Intra-EC) 

2,093,790,244 

1,642,0 15,D62 

-22% 

11,922,295,077 

13,702,175,556 

+15% 

4,478,437 

4,941,906 

36,076,977 

37,555,866 

+4% 

3,085,179 

3,141,186 

Change 
intra-EC 
sales 
(in  ECU) 

in 

p/p 

-4% 

-6% 

Change  in 
total  intra-
EC 
sales 
(in  ECU) 

-23% 

+6% 

-4% 

117,576,077 

129,984,163 

+11% 

13,721,009 

14,211,040 

+8% 

+12% 

Mem 
ber 
State 

BE 

EL 

IRL 

UK 

•• 

Tax-free sales in airports per country from  1992 to  1993 in national currency (column 4) 
and in ECU (column 8) differ in Greece and Ireland (mainly due to changes in exchange 
rates) and do not show such differences  for Belgium and the UK. Looking into column 7 
[change in ECU per passenger] and comparing it with the figures from column 8 [change 
in  absolute  figures]  reveals  a  major  difference  for  Greece  only  which  is  absolutely 
coherent  with  the  overall  trend  established  above.  Consequently,  there  is  no  evidence 
suggesting  that  the  overall  tax-free  sales  trends  at  the  time  do  not  reflect  the  intra-
Community component properly. 

109.  Concerning  airline sales  set out  in the table under paragraph  106,  the  possible  influence 
of  changes  in  exchange  rates  can  be  seen  by  comparing  the  change  in  tax-free  sales 
figures  on board aircraft in  1992 and  1993 in national  currency (column  5) with those in 
ECU  (column  7).  This  comparison  reveals  no  major  difference  for  Belgium,  Denmark 
and  the  Netherlands,  whereas  in  Ireland,  Portugal  and  Spain  the  change  in  national 
currency is larger (or less negative) than that in ECU (and seems to have stimulated tax-
free  sales  on  board  aircraft).  Regarding  the  number  of  passengers  transported  and  its 
relationship to  the  development  of tax-free  sales on board  aircraft,  a look  at  columns 6 
[change  in ECU  per passenger]  and  7  [change  in absolute figures] apparently  indicates 
that  in  most  countries  passengers  seem  to  have  changed  their  purchasing  behavior 
significantly.  While  the  decrease  in  tax-free  sales  on  board  aircraft  per  passenger  is 
generally  more  marked  per passenger  than  in  absolute figures, the  converse  is  true  for 
Denmark. 

110.  For tax-free  sales on ferries, the percentage changes in national currency (column  8) and 
in ECU  (column  10)  are  significantly  different  in three  countries:  In Denmark,  Greece 
and Ireland the positive trend is higher in national  currency than in ECU's,  and this may 
suggest the intrinsic influence of devaluation on the increase in tax-free  sales in a country 

28 

whose  currency  becomes  weaker.  The  figures  in  columns  9  [change  in  ECU  per 
passenger]  and  10 [change  in  absolute  figures]  indicate  that  in  Belgium  the  decrease  in 
sales in absolute figures corresponds to an increase per passenger or, in other words, that 
Belgium  has  suffered  from  an  even  greater  deterioration  of  tax-free  business  than  the 
pure  figures  would  seem  to  indicate  at  first  glance.  In  Denmark,  Ireland  and  Spain  the 
increase per passenger  is also higher than the increase in absolute figures. Only in United 
Kingdom,  which  holds  the  largest  share  of  the  market  in  this  respect,  the  increase  per 
passenger  is smaller  than  in  absolute  figures.  However,  a  figure  of  over  30%  is  still  an 
impressive increase. 

Section 4. 

Evaluation 

111.  From the data available, the  statistical  research  concerning the evolution of tax-free sales 
in ECU  throughout  the  Community  clearly  indicates  that  from  1992  to  1993  there  was 
an overall increase in tax-free  sales. This increase is distributed  geographically,  and  major 
differences  regarding the place  of sale (related  to the means of transport)  are  discernible 
whereas the category of goods does not play an important  role in this respect. 

112.  It  is evident  that  the vendor  control  systems  applied  in the  different  Member  States  do 
not  prevent  tax-free  sales  developing  differently.  Throughout  the  Community,  controls 
carried  out on board  aircraft  and especially on board  ferries  are essentially  less strict than 
those  in  force  at  airports.  Passengers  obviously  become  aware  of  these  differences  in 
control and adapt their purchasing behavior accordingly. 

113.  Passenger  traffic  as a whole  increased  from  1992 to  1993  and  thus  favored  the  positive 
development  of  tax-free  sales.  However,  where  the  purchases  per  passenger  are 
concerned,  there  is  only  a  significant  overall  increase  for  sales  on  board  ferries,  which 
can be  related  to  vendor  control  procedures.  Other  explanations  for  this  change  are  not 
convincing  because  a  general  increase  in  the  demand  for  alcoholic  beverages,  tobacco 
products, perfumes,  toilet waters and. luxury goods at the time is not plausible. 

114.  In  some  countries  the  devaluation  of  the  national  currency  had  a  certain  stimulating 
effect  on the  evolution  of tax-free  sales. Nonetheless,  for  the  time  being  exchange  rates 
do not have a major  influence  on the development  of tax-free  sales. 

115.  Taking into account the  evolution  of tax-free  sales from  1992 to  1993 and the  evolution 
of passenger traffic  and exchange rates during the same period,  the general  conclusion  to 
be  drawn  from  the  corresponding  statistical  data  is  that  the  introduction • of  vendor 
control  procedures  did  not  adversely  affect  trade  in  tax-free  goods.  If  any  such  effect 
was identified  in a particular  case, it was not  decisive. The available data make it  evident 
that, generally  speaking, there has been  a rise in tax-free  sales since  1993. Therefore,  the 
conclusion  can  be  drawn  that  these  systems  do  not  function  well  enough  to  make  tax-
free sales above the appropriate thresholds impossible. 

116.  In  the  light  of  the  basic  Council  decision  of  14 December  1992,  the.statistical  analysis 
leads to two core findings:  that the goal  of giving the tax-free  industry the opportunity  to 
maintain  their  business  for  a  transitional  period  has  been  achieved  and  that  there  is, 
therefore,  no need to further  raise the value limit of ECU 90. 

29 

CONCLUSIONS 

117.  In  its  conclusions  of  14 December  1992,  the  Council  invited  the  Commission  „to  review 
the  operation  of  Member  States'  controls,  in  particular  in  relation  to  the  prevention  of 
multiple  and  repeated  sales". 

118.  The  present  report  shows  that  the  situation  in  most  Member  States  is  far  from  being 
satisfactory.  Few  Member  States  have  ensured  that  the  system  in  place  allows  account  to 
be  taken  by  the  tax-free  shop  operators  of  previous  tax-free  purchases  by  a  passenger 
when  that  passenger  is  making  further  purchases  during  the  same  journey.  Virtually  no 
Member  State  has  made  provision  for  the  tax-free  shop  operator  to  be  sufficiently  well 
informed  of  previous  tax-free  purchases  by  the  passenger  to  allow  use  of  any  part  of  the 
tax  exemption  still  remaining.  Virtually  no  Member  State  has  managed  to  arrange  for 
such  information  to  be  transmitted  from  the  airport  to  the  aircraft  for  subsequent  sales  on 
board.  Thus,  no  system  has  been  put  in  place  which  can  guarantee  that  the  current  limits 
for  tax  exemption  are  respected.  As indicated  in the  report,  this  has  clear  implications  for 
all  Member  States  since  the  goods  thus  exported  will  be  imported  tax-free  into  other 
Member  States  where  the  volume  of  domestic  sales  will  be  reduced  as  a  result,  with  an 
accompanying  decline  in tax  receipts. 

119.  Control  of  the  vendor  by  the  tax  authorities  generally  takes  place  but  doubts  can  be 
expressed  as  to  its  effectiveness.  It  seems,  indeed,  that  these  controls  do  not  go  beyond 
the  control  exercised  by  any  warehouse  keeper  and  ensuring  only  that  goods  have  not 
left  the  warehouse  or  the  tax-free  area  without  being  recorded,  but  not  involving  any 
check  on  the  conditions  for  further  exemption. 

120.  The  so-called  ,,global  accounting  system",  if  used,  is  not  likely  to  produce  a  realistic 
result  as  long  as  it  is  assumed  that  each  passenger  uses  his  full  tax-free  purchase 
allowance. 

121.  With  regard  to  the  control  of sea  crossings,  particularly  by  ferry,  it  has  to  be  stressed  that 
the 

not  one  bilateral  agreement  between  Member  States  has  been  notified 
Commission,  and  only  one  such  agreement  seems  to  exist  in  practice. 

to 

122.  This  leads  to  the  conclusion  that  the  Member  States  have  not  taken  very  seriously  their 
responsibility  for  setting  up  appropriate  control  mechanisms;  they  have  not  evenjnet  the 
minimum  standards  set  by  the  Council.  It  confirms  the  doubts  the  Commission  expressed 
during  the  negotiations-in  the  Council  that,  in  an  internal  market,  in  the  absence  of 
frontier  controls,  no  effective  control  might  be  feasible. 

123.  The  lack  of  sufficient  control  may  lead  to  distortion  of  competition  not  only  with  regard 
to  the  shops  selling  tax-paid  goods  but  especially  between  the  different  means  of 
transport  which  may  or  may  not  provide  tax-free  sales.  This  should  be  a  number  of 
concern  not  only  for  the  Commission  but  also  for  the  Member  States  themselves. 

124.  Furthermore,  the  practice  observed  is  likely  to  reduce  the  Community's  VAT  own 
resources  base.  Both  the  distorting  effects  and  the  revenue  implications  may  lead  the 
Commission  to  use,  when  appropriate,  its  power  under  the  Treaty  to  ensure  a  minimum 
of  control. 

30 

125.  The  report  also  shows  that  tax-free  shops'  turnover  did  not  suffer  from  the  new  tax 
regime  for  tax-free  sales.  It  demonstrates  at  the  same  time that  the  increase  in  the  value 
limit,  on  the  one  hand,  was  in line with  the  objectives  of  the  transitional  period  for  tax-
free  sales  and,  on  the  other  hand,  was,  and  still  is,  sufficient  to  ensure  that  these  same 
objectives  are  met  in the  future.  The  considerable  increase  in  tax-free  sales  recorded  in 
certain  sectors  is  likely  to  be  reduced  by  the  introduction  of  more  effective  control 
measures  by Member  States.  Thus,  a  further  adjustment  of  this  value  limit,  upwards  or 
downwards,  is not considered  justified. 

126.  While  this  situation  is  of  considerable  concern,  it  has  to  be  borne  in  mind  that  tax-free 
sales to  intra-Community  travellers are due to be abolished  in just  over  three year's time. 
In  such  circumstances,  it  is perhaps  understandable  that  Member  States  are  prepared  to 
live  with  a  less  than  perfect  control  system,  although  the  Commission  considers  that 
Member  States should  still seek to tighten their procedures for the remaining  period. 

127.  Moreover,  the  Commission  must  underscore  its  disappointment  that,  until  now,  to  the 
best  of  its  knowledge,  no  appropriate  measures  have  been  taken  by the  operators  or  by 
the Member  States to  prepare for  the  situation  after  June  1999, when  tax-free  sales  have 
to be discontinued  in accordance with the Council's decision. 

31 

ANNEX 1 

QUESTIONNAIRE  ON THE NATIONAL CONTROL  MEASURES  ON 
TAX-FREE SALES IN INTRA-COMMUNITY TRAVEL 

33  ».^l 

QUESTIONNAIRE ON THE NATIONAL CONTROL MEASURES ON TAX-
FREE SALES IN INTRA-COMMUNITY TRAVEL 

This questionnaire is divided in four  sections. The first three sections deal respectiively with sales in 
airports,  sales  on  bord  aircraft  and  sales  on  boards  ships.  Please  make,  where  appropriate,  clear 
distinction  between  different  systems  within  a  section,  for  example  between  small  and  major 
airports. The last section deals with general questions which relate to the three previous categories. 

The answers should  allow us to form  a view to what degree your control  system  prevents  sales per 
passenger  and  per  voyage  exceeding  the  limits  in  value  and  in  quantity  laid  down  in  Community 
law, and  should  provide the necessary information  for the Commission to be able to  draft  its report 
to the Council on the operation  of these control systems. 

Please  also  add  to  your  answer  copies  of  all  laws,  administrative  provisions  or  circular  letters, 
public  notices,  etc.  transposing  Article  28k  of  Directive  91/680/EEC  and  Article  28  of  Directive 
92/12/EEC, and transposing the guidelines agreed by the Council  on  14 December  1992. 

1. 

Sales at airports 

1. 

2. 

Can you give a general  description of the control system applied? 

In  particular,  what  measures  have  been  taken  to  avoid  multiple  sales  in  different  tax-free 
outlets or repeat  sales in one tax-free  outlet? What measures have been taken to  avoid  further 
sales  to  transit  passengers  who  already  bought  in  the  airplaine  on  the  first  leg  of  an  intra-
Community flight  or in the airport  of initial departure of that  flight? 

3.  Do  you  use  the  boarding  card  or  an  equivalent  document  issued  to  the  traveller  for  the 

purposes of your control  system to avoid multiple and repeat  sales? 

If yes, 

.  What  mentions are made on this card? 

.  What are the consequences  of these mentions? Do they avoid further  sales? 

.  Can this card  or  equivalent  document  be used  afterwards  by the  competent  authorities  for 

control  purposes? 

•  Is there a general  distinction  on this card  between  goods  subject  to  the general  value limit 
and  goods  subject  to  quantitative  limits? In the latter  category,  is there  a distinction  made 
between  the  several  products  (cigarettes,  strong  alcoholic  beverages,  aperitifs,  wines, 
perfumes  and toilet  waters)? 

4.  What  measures  have  you  taken  to  control  the  functioning  of  the  system?  What  are  the 

consequences for  the vendor  if it appears that the rules have not been  respected? 

5.  Did you introduce a system  of global accounting? If yes, what  are the underlying  principles of 

this system? What  is it intended to show, prove or control? 

6.  Detail  any  special  problems,  if any, that  have arisen  in the working  of the  control  system  on 

35 

national and on Community kevel, and your appreciation  of their importance. 

2. 

Sales on board aircraft 

1. 

2. 

Can you give a general description of the control system applied? 

In particular,  what  measures have been taken to avoid  sales taking place,  or to  avoid  that  the 
sales per passenger and per voyage exceed the value or quantity allowed,  in the  case that  the 
travellers already purchased tax-free  goods in outlets at the airport  or on a previous leg of the 
flight? 

3.  Do  you  use  the  boarding  card  or  an  equivalent  document  issued  to  the  traveller  for  the 

purposes of your control system to avoid multiple and repeat sales? 

If yes, 

•  What mentions are made on this card? 

•  What are the consequences of these mentions? Do they avoid further  sales? 

.  Can this card  or equivalent  document  be used  afterwards  by the  competent  authorities  for 

control  purposes? 

•  Is there a general  distinction  on this card between  goods  subject  to  the general  value limit 
and goods  subject  to  quantitative limits? In the latter  category,  is there  a distinction  made 
between  the  several  products  (cigarettes,  strong  alcoholic  beverages,  aperitifs,  wines, 
perfumes  and toilet  waters)? 

4.  What  measures  have  you  taken  to  control  the  functioning  of  the  system?  What  are  the 

consequences for the vendor if it appears that the rules have not been  respected? 

5.  Did you introduce a system of global accounting? If yes, what are the underlying principles of 

this system? What  is it intended to show, prove or control? 

6.  Detail  any  special  problems,  if any, that  have arisen in the working  of the  control  system  on 

national and on Community kevel, and your appreciation of their importance. 

3. 

Sales on board ferries 

1. 

2. 

Can you give a general description  of the control system applied? 

In  particular,  what  measures  have  been  taken  to  avoid  multiple  sales  in  different  tax-free 
outlets on a ferry-boat  or repeat  sales in the same tax-free  outlet? 

3.  Have  you  provided  for  the  use  of  the  ticket  system  of  the  ferry  operator  or  some  other 
procedure for the purposes of your control system to avoid multiple and repeat  sales? 

If yes, 

•  What mentions are made on this ticket? 

36 

.  What are the consequences  of these mentions? Do they avoid further  sales? 

•  Can this ticket be used  afterwards  by the competent  authorities for control  purposes? 

• 

Is there a general distinction on this ticket between goods subject  to the general value limit 
and goods  subject  to  quantitative  limits? In the  latter  category,  is there  a distinction  made 
between  the  several  products  (cigarettes,  strong  alcoholic  beverages,  aperitifs,  wines, 
perfumes  and toilet waters)? 

4.  What  measures  have  you  taken  to  control  the  functioning  of  the  system?  What  are  the 

consequences for the vendor if it appears that the rules have not been respected? 

5.  Did you introduce a system of global accounting? If yes, what are the underlying principles of 

this system? What is it intended to show, prove or control? 

6.  Have  you  entered  into  bilateral  agreements  with  other  Member  States  to  ensure  adequate 

control  on ferry  routes between your country and these Member  States? 

If yes, 

•  With what Member  States? 

•  What measures do they provide? 

•  Add  a copy of these arrangements. 

7.  Detail  any  special  problems,  if any, that  have  arisen  in the working  of the  control  system  on 

national and on Community kevel, and your appreciation  of their  importance. 

4.  General questions 

1. 
What measures have you taken to ensure that travellers are notified  at tax-free  outlets of the 
relevant  quantitative  and  value  limits  to  be  applied?  Does  the  trade  also  provide  publicity  and/or 
advertising?  Is  this  a  requirement?  Could  we  see  examples  of  both  official  and  trade  pubhcity 
please. 

2.  Did  you  on  any  occasion  have  recourse  to  the  Community  provisions  on  administrative 
cooperation  and  mutual  assistance?  If  so,  did  this  provide  the  desired  result?  Brief  details 
please. 

3.  Do  you  have  any comments  on  the  overall  approach  and  application  in  the  Community  as a 

whole? 

* 

* 

37 

ANNEX 2 

ARTICLES  OF COMMUNITY  LEGISLATION  PERTINENT TO TAX-
FREE SALES 

39 

\„ 

ARTICLES OF COMMUNITY LEGISLATION PERTINENT TO TAX-FREE 
SALES 

Article 28k of Directive 77/388/EEC (VAT) 
(as amended by Article 2 of Directive  94/4/EC) 

The following  provisions shall apply until  30 June 1999: 

1.  Member  States  may  exempt  supplies  by  tax-free  shops  of  goods  to  be  carried  away  in  the 
personal  luggage  of  travellers  taking  intra-Community  flights  or  sea  crossings  to  other 
Member  States. For the purpose of this Article: 

(a) 

(b) 

(c) 

tax-free  shop  shall  mean  any  establishment  situated  within  airport  or  port  which  fulfils  the 
conditions laid down by the competent  public authorities pursuant,  in particular, to  paragraph 
5; 

traveller  to  another  Member  State  shall  mean  any  passenger  holding  a  transport  document 
for  air  or  sea  travel  stating  that  the  immediate  destination  is  an  airport  or  port  situated  in 
another Member  State; 

intra-Community flight  or sea crossing shall mean any transport, by air or sea,  starting within 
the territory  of the country as defined  in Article 3, where the actual place of arrival is situated 
within another Member  State. 

Supplies of goods effected  by tax-free  shops shall include supplies of goods effected  on board 
aircraft  or vessels during intra-Community  passenger  transport. 

This  exemption  shall  also  apply  to  supplies  of  goods  effected  by  tax-free  shops  in  either  of 
two  Channel  Tunnel  terminals,  for  passengers  holding  valid  tickets  for  the journey  between 
those two terminals. 

2. 

Eligibility  for  the  exemption  provided  for  in  paragraph  1  shall  apply  only  to  supplies  of 
goods: 

(a) 

the total value of which per person per journey does not exceed ECU 90. 

By  way  of  derogation  from  Article  28m,  Member  States  shall  determine  the  equivalent  in 
national  currency  of  the  above  amount  in  accordance  with  Article  7  (2)  of  Directive 
69/169/EEC. 

Where the total value of several  items or of several  supplies  of goods  per  person  per journey 
exceeds  those  limits,  the  exemption  shall  be  granted  up  to  those  amounts,  on  the 
understanding that the value of an item may not be split; 

(b) 

involving  quantities  per  person  per  journey  not  exceeding  the  limits  laid  down  by  the 
Community  provisions  in  force  for  the  movement  of  travellers  between  third  countries  and 
the Community. 

The  value  of  supplies  of  goods  effected  within  the  quantitative  limits  laid  down  in  the 

41 

previous subparagraph shall not be taken into account for the application of (a). 

Member  States  shall  grant  every  taxable  person  the right to  a  deduction  or  refund  of the 
value added tax referred  to in Article  17 (2) in so far as the goods and services are used  for 
the purposes of his supplies of goods exempted under this Article. 

Member  States  which  exercise  the  option  provided  for  in  Article  16  (2)  shall  also  grant 
eligibility  under  that  provision  to  imports,  intra-Community  acquisitions  and  supplies  of 
goods to a taxable person for the purposes of his supplies of goods pursuant to this Article. 

Member  States shall take the measures necessary to  ensure the correct  and  straightforward 
application  of  the  exemptions  provided  for  in  this  Article  and  to  prevent  any  evasion, 
avoidance or abuse. 

42 

Article 28 of Directive 92/12/EEC (excise duties) 

The following  provision  shall apply for the period  ending 30 June  1999: 

1.  Member  States  may  exempt  products  supplied  by tax-free  shops  which  are  carried  away  in 
the personal luggage of travellers taking an intra-Community flight or  sea-crossing to another 
Member  State. 

For the purposes of this provision 

(a) tax-free shops  shall mean any establishment  situated  within  an airport  or port  which 
fulfils  the  conditions  laid  down  by  the  competent  publiv  authorities,  pursuant  in 
particular to paragraph  3 of this Article; 

(b) 

(c) 

traveller  to  another  Member  State  shall  mean  any  passenger  holding  a  transport 
document,  for  air  or  sea  travel,  stating  that  the  immediate  destination  is  an  airport  or 
port  situated in another Member State; 

intra-Community  flight  or  sea-crossing  shall  mean  any  transport,  by  air  or  sea, 
commencing within  a Member  State, where the actual place of arrival  is situated  within 
another Member  State. 

Products  supplied  on  board  an  aircraft  or  ship  during  the  intra-Community  passenger 
service shall be treated  in the same way as products supplied  by tax-free  shops. 

This  exemption  shall  also  apply  to  products  supplied  by tax-free  shops  situated  within 
one  of the two  access terminals to the Channel  Tunnel  to  passengers  holding  transport 
document which are valid for the journey between those two terminals. 

2. 

The  exemption  provided  for  in  paragraph  1 shall  apply  only  to  products  in  quantities  which 
do not  exceed  the limits, by person per journey,  laid down  by Community  provisions  in  force 
in the context  of the movement  of travellers between third countries and the  Community. 

3.  Member  States  shall take  the measures  necessary  to  ensure  that  the  exemption  provided  for 
in this  Article  is applied  correctly  and  straightforward,  and  to  prevent  any  possible  evasion, 
avodance or abuse. 

43 

Article 1 of Council Directive 69/169/EEC 
(as amended  by Article  1 of Directive  94/4/EC) 

Exemption  from  turnover  tax  and  excise  duty  on  imports  shall  apply,  as  regard  travel 
between third  countries  and the Community,  to goods in travellers' personal  luggage,  if such 
imports have no commercial  character  and the total value of the goods  does not  exceed  ECU 
175 per person. 

Member  States may reduce this exemption to ECU 90 for travellers under fifteen year old. 

Where the total  value per person  of several items exceeds the amount  set  out  in paragraph  1 
or  the  amount  fixed  pursuant  to  paragraph  2,  as  the  case  may  be,  exemption  up  to  these 
amounts  shall  be  granted  for  such  of the  items  as would,  if imported  separately,  have  been 
granted  exemption, it being understood  that the value of an individual item cannot be split up. 

* 

* 

* 

44 

ANNEX 3 

"GUIDELINES  FOR THE CONTROL OF TAX-FREE SALES IN THE 
COMMUNITY" AS AGREED  BY THE COUNCIL OF MINISTERS  ON 14 
DECEMBER  1992 

45 

"GUIDELINES  FOR THE CONTROL OF TAX-FREE SALES  IN THE 
COMMUNITY" AS AGREED BY THE COUNCIL OF MINISTERS  ON 14 
DECEMBER  1992 

ECOFIN Council 
14 December  1992 

Subject:  Guidelines for the control of tax-free sales in the Community 

At its meeting  on  9 December  1992, the Permanent  Representatives  Committee  agreed  to  suggest 
that,  as  an  "A"  item  of the  agenda  for  its meeting  on  14 December  1992,  the  Council  adopts  the 
following  conclusions: 

The  Council  recalls  its  view,  expressed  at  the  time  of  adoption  of  Directive  91/680/EEC  and 
92/12/EEC,  that  effective  measures  are  needed  at  Community  level  for  the  proper  control  of  tax-
free  sales in the Community and the agreement that guidelines would be necessary. 

The  Council  wishes  to  emphasise  the  importance  it  places  on  ensuring  that  adequate  control 
systems  exist  in  all  Member  States  to  ensure  fair  and  equal  treatment  for  passengers  and 
bussinesses alike, while also respecting the need to protect the economies of each Member State. 

The  Council  expects  each  Member  State  to  take  all  necessary  measures  to  correct  any  failure  of 
controls which is reported  to it as leading to evasion, avoidance or abuse. 

The  Council  considers  it  essential  that  each  Member  State  should  take  appropriate  measures  to 
ensure that  travellers  are  notified  at  duty-free  and  tax-free  outlets  of  the  relevant  quantitative  and 
value limits to be applied. 

The Council agrees that in establishing the necessary minimum levels of control Member  States will 
respect the principles set out in the Annex of these conclusions. 

The  Council  invites  the  Commission  to  review  the  operation  of  Member  States'  controls,  in 
particular  in relation  to the effective  prevention  of multiple and repeat  sales, in the light of practical 
experience.  The  Council  urges the  commission  to  report  to  the  Council  as  soon  as possible  on  the 
operation  of  these  controls  and,  if necessary,  to  propose  any  appropriate  measure  for  adoption  at 
the earliest possible date and in any event not later than 31 December  1993. 

47 

Guidelines agreed between the Member States for the control of tax-free 
sales in the Community 

1. 

Introduction 

ANNEX 

The provisions of Council Directives 91/680/EEC and 92/12/EEC authorise, respectively,  the 
continuation  of  VAT  and  excise  duty-free  sales  to  intra-Community  travellers  subject  to 
certain conditions until 30 June  1999. 

A  basic  principle  of  the  Community  legislation  which  has  to  be  respected  is  that  individual 
vendors shall not  sell goods VAT  and excise duty free in excess of the amounts provided  for 
in  the  directives  in  question  to  individual  travellers.  In  the  absence  of  the  possibility  for 
Member  States  to  control  such  sales  at  the  arrival  of  travellers  in  each  Member  State  by 
virtue  of the  removal  of  controls  at  frontiers  the Member  States  must  ensure  that  VAT  and 
duty-free  vendor respect the Community rules relating to the limits applied to  such sales. 

The provisions relating  specifically  to  excise duties refer  to those products  which  are  subject 
to harmonisation  at Community level and to perfumes  and toilet waters. 

To achieve this objective the control  system must encompass the following  elements. 

These  elements  are  based  on  the  need  for  the  vendors  to  themselves  control  their  sales  to 
individual  purchasers  and  on  the  need  for  the  authorities  to  control  sales  made  by  the 
vendors. 

2.  Vendor control 

(a)  Each  individual  vendor  is  only  allowed  to  sell  to  each  individual  intra-Community 
traveller  goods  up  to  the  maximum  value  (or  amount)  permitted  by  the  directives  in 
question.  Sales above these thresholds will be liable to VAT and/or excise duties. 

To  ensure  respect  of this principle the Member  States  shall  introduce  a  system  whereby 
the sales by vendors to'individual purchasers may not exceed these limits. 

(b)  In addition,  a global  accounting  may be undertaken  for  each individual  tax  and  duty-free 

sales outlet. 

(c)  The Member  States will ensure that each vendor keeps accounts  and  records in a manner 
that  allows  the  authorities  of  that  Member  State  to  examine  and  verify  the  type  and 
quantity  of sales by each vendor.  This must  allow the  authorities  both  to  ensure  that  the 
sales  limits  have  not  been  exceeded  in individual  cases  and  that  the  vendors  furnish  the 
information  necessary to allow the global accounting referred  to in (b) above. 

48 

2.1.  Sales at airports and on board  aircraft 

For  products  liable to  excise duties, Member  States  shall,  if appropriate,  provide  for  vendors 
to  demonstrate  that  they  have  made  a  sale  to  an  individual  traveller  on  a  hording  card  or 
equivalent  document issued to each traveller. 

2.2.  Sales on board  ferries 

In relation  to  VAT and duty-free  sales on ferries  between Member  States, the Member  States 
concerned  will  enter  into  bilateral  agreements  to  ensure  adequate  control  on  ferry  routes 
between  them.  These  bilateral  agreements  will,  in particular,  provide  for  measures  to  ensure 
that  sales to individual passengers do not exceed the value or quantitative limits set out in the 
two directives. 

For  that  purpose the Member  States will, if appropriate,  provide  for  use  of the ticket  system 
of the ferry  operator  or some other procedure to ensure respect  of the limits. 

3.  Application  of the  Guidelines 

These  elements  of the  guidelines  represent  a minimum which  Member  States  shall  respect  in 
the  control  of the  VAT  and  duty-free  sales limits provided  for  in  Article  28k  (5)  of  Council 
Directive 91/680/EEC  and Article 28 (3) of Council Directive  92/12/EEC. 

In addition to the control  measure applied by the Member  States to  ensure the proper  control 
of VAT  and duty-free  sales the Member  States shall, where appropriate,  have recourse to  the 
Community provisions on administrative cooperation and mutual  assistance. 

49 

ANNEX 4 

DATA SHEETS ASKING  FOR STATISTICAL  DATA ON TAX-FREE 
SALES 

51 

DATA SHEETS ASKING FOR STATISTICAL DATA ON TAX-FREE SALES 

Return I.  Tax-free sales in airports 

Please  complete  this  return,  indicating the global  figures  for the main  international  airports  situated 
in your  Member  State. 

1.  Airports  concerned 

2.  Number of passengers  departing from these  airports 

Destination 

1992 

1993 

Other Member States 

Third territories 

Total 

53 

3.  Turnover  deriving from tax-free  sales 

Goods concerned4 

1992 

1993 

Total 

Intra-EC5 

Total 

Intra-EC5 

Alcoholic beverages 

Tobacco 

Perfumes and toilet waters 

Other goods 

Total 

• 

4.  Number of sales outlets and floor  space 

1992 

1993 

Number of sales outlets 

Number of operators 

Total  floor  space  taken  by these 
outlets 

Distinguish  between  the different  categories  of products  if  the  data  is  a\>ailable.  Otherwise,  give  global 
figures. 
If  available. 

4 

5 

54 

Return II.  Tax-free sales on board aircraft 

Please complete this return, indicating the global figures for the airline(s) having his (their) primary 
establishment in your Member State. 

1.  Airline(s)  concerned 

2.  Number of passengers  transported 

i 

ssssssss 

i 

= = = == 

i 

= = = == 

^ ^ ^ ^ s aa 

i 

. 

= == 

i 

i 

= ^ a : ^ a r ^ i = a 3= 

1992 

1993 

Number of passengers transported 
by this (these)  airline(s)  on intra-
EC  flights  (departing  or  arriving 
in your Member State) 

55 

3.  Total  turnover  of  tax-free  sales  by  this  these  airline(s)  on  intra-EC  flights 

(departing or arriving in your Member State) 

1992 

1993 

Goods concerned4 

Alcoholic beverages 

Tobacco 

Perfumes and toilet waters 

Other goods 

Total 

56 

Return III.  Tax-free sales on board ferries 

Please  complete  this  return,  indicating  the  global  figures  for  the  ferry  operators,  having  their 
primary  establishment  in your  Member  State,  carrying  out  regular  sea  crossings  between  your 
Member State and other Member States. 

1.  Sea crossings and operators concerned 

2.  Number of passengers transported 

1992 

1993 

Number of passengers transported 
by these ferry operators on regular 
sea 
crossings  between  your 
Member  State and other  Member 
States 

' 

—~—^— 

i 

,i 

— — — —— 

— » » — — — —— 

57 

3.  Total  turnover  of  tax-free  sales  realised  by  these  operators  on  reguair  sea 

crossings between your Member State and other Member States 

1992 

1993 

Goods concerned4 

Alcoholic beverages 

Tobacco 

Perfumes and toilet waters 

Other goods 

Total 

58 

Return IV. Tax-free sales In ports 

Please  complete  this  return,  indicating  the  global  figures  for  the  sales  outlets  in  ports  m your 
Member States, accessible before sea crossings to other Member States. 

1.  Ports  concerned 

2.  Number of passengers  departing from these  ports 

T——~~"  — 

" 

' 

" 

' 

" "" 

' 

' 

' 

• — l - . M .I 

I 

•  l,l 

• 

II 

I 

II 

! 

.

- ^ — —— 

1992 

1993 

Number  of  passengers  departing 
from these ports to other Member 
States 

59 

3.  Total  turnover  of  tax-free  sales  to  passengers  departing  to  other  Member 

States realised in these sales outlets 

1992 

1993 

1 Goods concerned4 

Alcoholic beverages 

Tobacco 

Perfumes and toilet waters 

I  Other goods 

Total 

I 

_J 

_J 

4.  Number of sales outlets and number of operators 

mamimcimsmmmtBmB!llligiaBagaiamgamBtiamitcmmgSBmmi^^ 

Number of sales outlets 

Number of operators 

1992 

1993 

60 

ANNEX 5 

THE VENDOR  CONTROL SYSTEMS APPLIED  IN THE VARIOUS 
MEMBER STATES ACCORDING TO THE REPLIES TO THE 
COMMISSION  QUESTIONNAIRE 

61  ~o  v 

THE VENDOR CONTROL SYSTEMS APPLIED IN THE VARIOUS 
MEMBER STATES ACCORDING TO THE REPLIES TO THE 
COMMISSION QUESTIONNAIRE 

INTRODUCTION 

The first  step  of the initiatives from the Commission  has been to  draft  a questionnaire  dealing with 
the  application  of the vendor  control  system  and to  send this questionnaire  to  the Member  States, 
and to professional  organizations. 

Member  States'  replies  to  the  questionnaire  have  been  discussed  and  clarified  by  the  ad-hoc 
Working Group  on tax-free  sales in its meeting of 28 June 1993. 

The  presentation  made  below  endeavours  both  to  summarize  Member  States'  replies  to  the 
questionnaire  and the clarifications  made to their replies in the said meeting. 

The  criteria  for  doing  so  are  the  guidelines  agreed  between  the Member  States  for  the  control  of 
tax-free  sales in the Community from ECOFIN Council the meeting on  14 December  1992. 

The overall approach  of "vendor control" can be recognized  in an extract  of these guidelines: 

"Each individual vendor is only allowed to sell to each individual intra-Community passenger goods 
up  to  the  maximum  value  (or  amount)  permitted  by the  directives  in  question.  Sales  above  these 
thresholds will be liable to VAT and/or excise duties. 

To  ensure  respect  of  this  principle  the  Member  States  shall  introduce  a  system  whereby  tax-free 
sales by vendors to individual purchasers may not exceed these limits." 

From  this  follows  that  the  vendor  control  system  as  such  has two  checks:  the  first  by  the  vendor 
himself, and  secondly the check of the administration whether the vendor's system works correctly 

33 

CHAPTER 1 
SALES AT AIRPORTS 

Section 1.  Controls carried out by the vendors themselves 

The  Council  decided  to  define  the  principles  to  be  respected  by  Member  States  with  a  view  to 
ensure a minimum needed for the appropriate controls. 

It  is  the  responsibility  of  the  vendors  to  sell  goods  tax-free  to  intra-Community  passengers  only 
within  the  limits  in value  and  quantity  allowed  by  the  appropriate  directives.  Due  to  the  specific 
character  of  excise  goods  mainly  concerned  in  this field, the  Council  has  decided  to  identify  the 
ways of checking such purchases. 

General description of the vendor control systems applied in the Member States 

Two  Member  States  (DE  and  LU)  apply  the  vendor  control  system  only  in  the  excise  field. 
VAT-free  purchases are not possible. 

In  11 out  of the  12 Member  States, the control  system by the vendors  is based  on the  boarding 
card  or equivalent transport  document which passengers must present  at the operator till. 

If the immediate destination  is situated  in another Member  State,  the vendor  should  restrict  the 
sales to the relevant  quantitative and value limits. 

Once  a  sale  is  made,  the  boarding  card  is  stamped  by  the  vendor  aiming  to  avoid  repeat 
purchases  (purchases  of  the  same  products  in  the  same  sales  outlet)  and  multiple  purchases 
(purchases  of the same products in several sales outlets). 

However the details of the procedure differ  from  Member  State to Member  State. 

In  most  Member  States the  stamp  on the boarding  card  only gives  an  indication  that  a  tax-free 
sale has been made. 

In one Member  State  (PT)  the  sales ticket  issued  indicates the  quantity  and  value  of the  goods 
sold.  The  sales ticket  is attached  to  the boarding  card  allowing  subsequent  vendors  to  verify  if 
further  purchases are still allowed. 

In  three  Member  States  (DE,  EL  and  IT)  the  annotation  on  the  boarding  card  or  equivalent 
document  provides an indication of the value and/or quantity of the goods sold. 

In the latter  category  one Member  State (DE) makes  a distinction between the  several  produci s 
(cigarettes,  strong alcoholic beverages, wines, others). 

One Member  State (NL) considers that no particular  measures in addition to the general  control 
mechanism  are needed to control  repeat  and multiple sales. 

The  Netherlands  is  not  convinced  that  a  stamp  on  the  boarding  card  would  increase  the 
efficiency  of the control  system. 

Three reasons for the non-use of the boarding card as control  system are put forward  : 

65 

1. 

Sometimes the boarding card is no longer used for embarkation; 

2. 

the  annotation  on  the  boarding  card  merely  increases  the  administrative  burden  for 
shopkeepers and does not lead to a more efficient  control system; 

3. 

experience has taught that in practice repeat sales are rarely carried out at airports. 

As the use of the boarding card had been found inappropriate, the Netherlands introduced a 
global  accounting  system  as  control  system  i.e.  a  control  system  to  ensure  that  the  overall 
quantitative  and value limits are not exceeded per flight.  In other words, the Netherlands  focus 
on the control of the vendors by the responsible authorities (see Section 2 instead). 

•  Not a single Member State has given notice of measures taken by them to avoid further sales to 
transit passengers, i.e. passengers who already bought on board the aircraft on the first leg of an 
intra-Community flight or at the airport of initial departure x>f that flight. 

•  Neither has any Member  State indicated that it makes use of the boarding  card for  a posteriori 

control purposes. 

Conclusion 

From the Member States' replies to the questionnaire and the discussions and clarifications made to 
the  replies  by the  Member  States  in the  ad-hoc  Working  Group  on tax-free  sales,  the  following 
conclusion can be drawn: 

11  out  of the  12 Member  States are convinced  that the  stamping procedure  of the boarding card 
should be the minimum level of vendor control. 

The  position  of  the  Netherlands  in  this  field  seems  to  be  inadequate.  The  alternative  to  the 
stamping  of the boarding card,  consisting  in only applying  a global  accounting  does  not  meet the 
need for ensuring control of individual tax-free purchases. 

Although the use of an annotation on the boarding card is not compulsory, the guidelines prescribe 
that Member States "shall introduce a system whereby the sales by vendors to individual purchases 
may  not  exceed  the  relevant  limits",  and  that  in  addition  a  global  accounting  system  may  be 
undertaken. 

Therefore,  the global  accounting  system cannot replace Member  States' obligationjo  introduce a 
system  avoiding  repeat  and multiple  sales by individual  purchasers  above  the  limits  laid  down in 
Community law. 

A majority of Member States are of the opinion that the stamping procedure of the boarding card 
does  not  offer  sufficient  control  possibilities, unless the  annotation on the boarding card provides 
an  indication  of  the  value  and  quantity  of  the  goods  sold.  The  latter  has  already  been  put  into 
practice in Greece and Italy while Germany specifies the category of excise products sold. 

Indeed,  a vendor control  system which is restricted to a single  stamp on the boarding  card has its 
weaknesses; the stamps reveals  "something" has been purchased, not the quantity nor the value of 
the goods. 

However,  these Member States stress that a more severe control  system than the  "minimum level" 

66 

of vendor  control  would  only be acceptable  if it  is  applied  on  a uniform  basis  in all the Member 
States. 

The opposite would give rise to complaints of distortion of competition. 

Section 2.  Control of the vendors by Member States1 authorities and 
consequences for the vendor in cases where the rules are 
not applied 

General  description  of  the  control  of  the  vendors  by  the  Member  States' 
authorities 

•  Basically,  all Member  States  apply the  same  control  procedures,  but they  attribute to  them a 
different  respective importance.  The control usually focuses  on the operator's bookkeeping. In 
some Member  States the  control  is based  on  a  computerized  accounting  programme  held by 
the tax-free shops. Generally inspections on site and (more or less regular) random controls (of 
the vendors and their customers) are also carried out. 

• 

• 

In most  Member  States  it  appears that the vendor  is responsible  for  any liability to  duties or 
VAT and penalties imposed by the competent authorities. 

In  6  of  the  12  Member  States  the  tax-free  shops  are  approved  customs  and/or  excise 
warehouse  keepers.  Accordingly  they  are  subject  to  the  prescribed  bookkeeping  rules which 
usually  require  that  a  follow-up  of  the  entries  and  the  exits  of  goods  into  and  out  of  the 
warehouse is possible. 

• 

In Denmark every vendor has to be approved by the authorities which implies that he agrees to 
appropriate bookkeeping rules (sales and stock). 

•  All Member  States have provided for  some kind of penalty for  the non-respect  of the vendor 
control rules by an operator. In 9 out of the  12 Member States the licence of the concessionaire 
can  be  (temporarily  or  permanently)  withdrawn  in  case  of  gross  and/or  persistent  abuse.  In 
Greece sales to persons not entitled to purchase free of tax (e.g.  crew members) could give rise 
to prosecution based on the provisions on contraband trade. 

•  The  regularity  of  controls  ranges  from  weekly  to  exceptionally.  Most  Member  States' 
authorities carry out regular monthly controls  and additional  controls whenever  deemed  to be 
necessary. 

• 

In 7  of  the  12 Member  States  a global  accounting  system  is  applied  in  order  to  get  an idea 
whether the operators generally respect the tax-free  sales conditions or not, or - in other words 
-  in  order  to  ensure  customs  the  total  sales  of  excisable  products  do  not  exceed  the  total 
allowances for any particular flight and to  calculate the vendor's VAT liability on excess sales. 
These  systems  differ from each other  remarkably: they  are based  on  a daily  or  on  a monthly 
summary of sales,  they contain a certain amount  of information  (possibly:  date, flight number, 
code,  quantity and value of the goods,  provided to  each passenger), they are submitted to  the 
authorities  automatically  by means  of  a computer  network  or  simply  handed  over.  In Italy a 
global accounting control system is still under consideration. 

67 

CHAPTER 2 
SALES ON BOARD AIRCRAFT 

Section 1. 

Controls carried out by the vendors themselves 

General  description  of  the  vendor  control  systems  applied  in  the  Member 
States 

•  Generally  speaking,  Member  States  do  not  make  use  of  the  boarding  card  or  equivalent 
document  for the  control  of sales  on board the  aircraft.  According  to  the Member  States,  this 
follows  mainly from the fact  that,  in most  cases,  the passengers  do  not  possess  it  anymore  on 
board  and  that  most  airlines  do  not  find  it  worthwhile  to  introduce  a  suitable  control  card 
(voucher  system)  which  would  have  to  be  carried  by  passengers  for  the  duration  of  their 
journeys. 

' 

•  Notwithstanding  the  non-use  of  the  boarding  card  or  any  other  document  such  as  a  voucher 
system,  Member  States  stress  that  in their  opinion  the  measures  taken  are  sufficient  to  avoid 
unjustified  sales on board aircraft. 

These measures are the following: 

•  the limits are mainly enforced  by crew instructions  and leaflets  on board making  passengers 

aware of the relevant limits (e.g. ES, IRL, IT,' NL, PT and UK); 

•  sales lists per voyage  are made or the sales are recorded  on PC mentioning the name and/or 

the seat number of the passengers who purchased tax-free (e.g. FR and UK); 

•  or,  the  agreed  limits  are  enforced  by  a  system  of  preliminary  orders.  If  the  passenger  has 
made a preliminary  order of goods,  his boarding card is stamped when  it  is handed  over to 
the passenger,  to  avoid him making tax-free  purchases both on board the aircraft  and within 
an airport. 

•  As to  the  question whether Member  States apply a control  system to  link  on board  sales with 

sales in tax-free shops within the airport the following can be said: 

The absence of such a control  link, resulting in a lack of co-ordination between  sales at airport 
and sales on board, makes it possible that the agreed limits are de facto  respectecTper tax-free 
outlet and not per voyage. 

It appears that Member  States do not  apply a vendor  control  system  making the  link between 
sales at airports and on board the aircraft,  thus they have not taken measures to  avoid  multiple 
sales (between the two subsequent places of sale at the airport and on board aircraft). 

The  exception  to  the  rule  is  Denmark  where  airlines  operating  charter  flights  apply  a  pre-
ordering system (the boarding card is stamped before the goods are delivered on board). 

Moreover, Member States find that a vendor control system Jinking both sales at airports and on 
board sales is superfluous  having regard to the limited risk involved  (e.g.  only limited  amounts 
of  tax-free  goods  can  be  carried  on  board  aircraft,  turnover from on  board  sales  is  relatively 

68 

low, time constraints involved) and the practical difficulties  both financially and administratively 
to install such a control system. 

Member  States  indicate  that  they  can  live  with  a  system  whereby  the  value  and  quantitative 
limits are respected with regard to actual sales on board aircraft. 

•  In  accordance  with  the  Community  provisions,  Member  States  do,  at  least  in  principle,  not 

permit tax-free sales to crew members engaged in intra-Community flights. 

Conclusion 

All Member States advise their domestic airlines to respect the limits even when a control system is 
absent. 

The majority  of  Member  States  is  of the  opinion that the  specific  situation  of  on board  tax-free 
sales  prevents  the  (need  for)  the  use  of  a  boarding  card  or  voucher.  In  general  practical 
considerations lie at the base of this reasoning.  It must be stressed  nevertheless that the end result 
seems to  be a weaker control mechanism for on board tax-free  sales than for tax-free  sales at the 
airport while the  absence  of a link between the places  of sale constitutes  a further  weak  spot  for 
this kind of traffic. 

Member  States  consider  sales  on  board  aircraft  in  excess  of  the  limits  less  important  than 
exceeding  the  limits  at  airports,  taking  into  account  the  limited  amounts  of  goods  which  can be 
carried on board aircraft,  and the time available for purchases. 

No  specific  measures  have  been  taken  to  avoid  sales  exceeding  the  limits  in  the  case  that  a 
passenger already purchased at the airport (multiple purchases). 

With the exception of one Member State, a vendor control system linking both on board sales and 
sales at airport is thus not available. 

Some Member  States find the introduction of a control  system linking both sales on board aircraft 
and  sales  at  airport  useful,  but not  worthwhile  having  regard to  the  small risks involved  and the 
administrative difficulties  such a system would involve. 

Section 2. 

Control of the vendors by Member States' authorities and 
consequences for the vendor in cases where the rules are 
not applied 

General  description  of  the  control  of  the  vendors  by  the  Member  States' 
authorities 

•  Basically the  system of control  of the vendors on board aircraft  is the  same as that  applied  for 
sales  at  airport  (focus  on  the  bookkeeping,  status  as  approved  customs/excise  warehouse, 
random and a posteriori controls, use of a global accounting system etc.). It is usually the airline 
which is responsible for any liability of taxes on excess sales. 

•  In Greece the  control  is based on the comparison of two filing cards  established  by the airline, 
i.e.  a first filing card  of  goods  transported  by  plane  itemizing  a description  of  the  goods,  the 
code, quantity and the price of each product and a second filing card established after the return 

69 

voyage of the plane itemizing alongside details of the first filing card, the quantities of the goods 
sold  during the flight.  The filing card shows the quantity  of goods  available  at the  moment  of 
departure and the quantity left after the return leg. 

In  Spain  the  control  is  based  on the bookkeeping  of  the  airlines,  whose  bookkeeping  system 
allows a distinction between the different  sorts of revenue (which makes it possible to  separate 
on board sales from the sales at airport). Non-respect of the relevant limits gives rise to fines to 
which the vendor is liable. 

In France the vendor  should,  in support  of his bookkeeping,  preserve the  embarkation tickets 
indicating the flight plan and issued when the goods are put on board and the sales lists of goods 
sold  tax-free  established  per  voyage.  Those  lists  contain  the  names  of  the  passengers  who 
purchased free of tax. 

In Ireland  the  supplier  of  duty free products  to  the  airline  as well  as  the  airline  itself  may be 
subject to penalties including withdrawal of the facility to stock/sell duty free goods. 

In Luxembourg no airline company is supplying goods tax-free on board its aircraft departing on 
intra-Community flights from Luxembourg. 

Most Member States undertake appropriate measures for controlling stocks. In the Netherlands 
the  control  is  centralized  on the  provisioning  companies  which  are forbidden  to  remove  more 
out of stock than actual purchasing behaviour allows. 

In  Italy  (like  in  EL  and  NL)  authorities  monitor  vendors  by  making  a  posteriori  global 
accounting  control.  The  global  accounting  system  makes  it  possible  to  determine  the  total 
amount of sales on board aircraft, the amount per individual passenger is not subject to a control 
as such. 

70 

CHAPTER 3 
SALES ON BOARD FERRIES 

Section 1. 

Controls carried out by the vendors themselves 

The two  main  considerations  of the  Council  when  adopting  the  guidelines  for  the  control  of  tax-
free sales on board ferries were: 

•  higher  potential  revenue  risks  and  abuses  compared  to  sales  on  board  aircraft  as  passengers 

have more time available to make tax-free  sales on board  ferries; 

• 

that the controls should be based on bilateral arrangements between Member  States. 

General  description  of  the  vendor  control  system  applied  in the  Member  States 

•  Generally speaking, the control  system applied  on board  ferries  does  not  greatly  derogate from 

the one applied in the tax-free  shops located at the airport. 

Unlike sales at airports where the boarding card is marked  once a sale is made,  on board  ferries 
it  happens  more  frequently  that  rather  than  a  boarding  card  or  equivalent  travel  document,  a 
separate voucher  (e.g.  duty-free  shopping  pass)  is issued  containing  information  with  regard  to 
(especially) the quantitative limit. 

The voucher is marked  at the moment  of the sale. A further  sale of goods  of the same  category 
is not  allowed  except  where  the  passenger  can  prove,  on the  basis  of the  receipt  of his  former 
purchase, that the limit has not yet been reached. 

With regard to the goods subject to the value limit the control measures are often  less strict. 

•  None  of  the  Member  States  has  indicated  that  it  uses  the  boarding  card  or  voucher  for 

subsequent  control purposes. 

•  In  Member  States  which  do  not  make  use  of  the  boarding  card  or  equivalent  document  e.g. 
vouchers or coupons, the agreed limits are mainly enforced  by crew instructions  and  controlling 
stocks. 

On  short  distance  routes,  which  nevertheless  have a large  number  of legs  and  passengers  (like 
the Dover-Calais passage), vouchers are rarely used. 

On  the  Dover-Calais  route  controls  are  carried  out  in  the  sales  outlet  combined  with  a 
subsequent accounting  control. 

No  voucher  system is applied  having regard  to the limited  passage time  and  the high  density  of 
travellers. An agreement  between the authorities  and the operators  is reached  in order  to  avoid 
repeat sales whereby the latter undertook  not to sell above the limits. 

Bilateral  arrangements 

•  Recognizing  that  the  Council  Guidelines  state  that  in  relation  to  VAT  and  duty-free  sales  on 

71 

ferries  between  Member  States,  the  Member  States  concerned  will  enter  into  bilateral 
arrangements  to  ensure  adequate  control  on  ferry  routes  between  them,  Member  States  were 
asked whether they entered into bilateral arrangements and to specify  the vendor control  system 
contained therein. 

•  Although  several  Member  States  replied  that  they  are  negotiating  bilateral  agreements,  it 
appeared that  at the time  the  second  meeting  of the  ad-hoc  Working  Group  on  tax-free  sales 
was held (19  September  1994), thus 20 months after the date the Guidelines were  agreed,  only 
one formal agreement had been signed. 

Moreover, the only arrangement agreed between Denmark and Germany only deals with  excise 
duties  leaving  aside the  VAT  aspects.  This is  why  it  is  no  appropriate  example  for  the  other 
arrangements to be concluded. 

•  During  the  abovementioned  meeting,  Member  States  were  asked  to  provide  the  Commission 
with copies  of  any formal  agreement  to  be reached,  so  that the  Commission  would  be  able to 
inform the other Member States. 

Until today not a single formal bilateral agreement has been received by the Commission. 

To  the  Commission's  knowledge,  merely  draft  proposals  for  bilateral  arrangements  were  sent 
out by the United Kingdom authorities at the end of July  1994 to all Member States with which 
the United Kingdom has ferry links: 

Section 2.  Control of the vendors by Member States' authorities and 
consequences for the vendor in cases where rules are not 
applied 

General  description  of  the  control  of  the  vendors  by  the  Member  States' 
authorities 

•  Basically the system of control  of the vendors on board ferries  is the  same  as that  applied  for 
sales  at  airports  (focus  on  the  bookkeeping,  status  as  approved  customs/excise  warehouse, 
random and a posteriori controls, use of a global accounting system etc.). It is usually the ferry 
company which is responsible for any liability of taxes on excess sales. 

• 

• 

• 

In Greece monthly or exceptional  controls (as judged necessarily) are based on a-recapitulative 
statement of sales effected  per voyage,  per product,  per quantity and per value.  The  statement 
is  compared  with  the  sales  tickets  delivered  by the  tax-free  outlet  to  each  passenger  and  the 
number of passengers. 

In Ireland the control is based on detailed stock records, duplicate records of each sales order, a 
monthly  statement  of  total  passengers  carried  and  the  volume  of  goods  sold  to  them  per 
product category, monthly stock accounts in respect of each product category. 

In the Netherlands  the  control  takes  place  by  tests  at  random  during  the  voyage  and  on  the 
basis of the administration kept by the ferry company. 

•  Portugal appears to be the only one of the  12 Member States where this kind of transport is of 

no significant importance. 

72 

In the United Kingdom the  authorities  apply the  same measures  to  control  the  functioning  of 
the vendor  on the Dover-Calais  route  as for  sales  at airports  and  on board  aircraft  (including 
the use of a global accounting  system).  The other operators keep records  and accounts which 
can be examined at any time. 

73  -7*1 

ANNEX 6 

THE VENDOR CONTROL SYSTEMS APPLIED IN THE VARIOUS 
MEMBER STATES ACCORDING TO THE COMMISSION'S SERVICES' 
MISSIONS TO MEMBER STATES 

75 

THE VENDOR CONTROL SYSTEMS APPLIED IN THE VARIOUS 
MEMBER STATES ACCORDING TO THE COMMISSION SERVICES' 
MISSIONS TO MEMBER STATES 

CHAPTER 1 
OVERVIEW 

Section 1.  Preliminary Remarks 

In  July  1994  Commission  officials  from  DG  XXI  undertook  fact  finding  missions  to  nine 
Member States (BE, DE, DK, EL, ES, FR, IT, NL and UK) 

• 

in  order  to  complete  the  information  given  in  questionnaires  and  the  statements  of  the 
international organizations involved and 

• 

in order to examine the proper functioning of the appropriate vendor control systems. 

Therefore,  the  focus  of  the  visits  was  mainly  on  the  technical  aspects  of  applying  a certain 
vendor control system in practice. 

Usually,  these missions included meetings with the competent  national  authorities, the airport 
or port authorities, contacts with operators of tax-free shops and a visit on site. 

Section 2.  Differences of the systems applied 

Obviously  the  various  Member  States  have  provided  for  some  system  of  vendor  control. 
However, there are major differences in the systems applied. These differences  can be outlined 
as follows: 

•  Some  Member  States  (like  EL)  do  not  allow  sales  above  the  limits  (although  VAT  will  be 
accounted for the sales exceeding the limit), some Member States do allow such sales (ES, FR 
and NL), while accounting for VAT. 

•  Some  Member  States  tolerate  the  co-existence  of  tax-free  shops  and  tax-paid  shops  in  the 

appropriate sales areas (ES, FR and IT), others do not (EL). 

•  Some Member States give crew members the opportunity to complete tax-free purchases, some 
do not. In the Netherlands there is a so-called prepackaging  system  only for crew members; in 
Germany only crew members from non-German airlines are allowed to buy. tax-free goods. 

• 

• 

In some Member  States there is only one company running tax-free  shops on the ground (EL: 
airports, harbours; ES: airports), in most there are a few companies doing this business. 

In some Member  States the companies running the tax-free  shops  are  state-owned  or (parti)) 
state-controlled, in others they are entirely private. 

• 

In  some  Member  States  appropriate  software  and  computer  svstems  have  been  developed 

77 

(either by the operators or by customs) in order to ensure the proper functioning  of the vendor 
control  system  applied,  whereas  others  fully  rely  on  "traditional"  control  procedures.  Where 
computer  systems  for  the  shopkeepers  are  installed  they  are in  some  countries  linked  to  the 
customs network and in others not. 

• 

In most Member  States there is no link between the sales on  ground  (of the airporO or in the 
harbour and the sales on board aircraft or vessel, in some this link exists at least partly (DK and 
UK). 

•  Random  controls  are  carried  out  only  in  some  Member  States.  One  Member  State  (NL) 
entrusts a private firm with the task  of carrying out  controls concerning the quality standards, 
the attitude towards customers, the information given to passengers and the respect of tax-free 
limits. 

•  There  seem to  be  major differences  as far as the  sanctions  are  concerned  when  the  limits  for 

tax-free sales respectivly purchases are exceeded. 

Section 3.  Common problems 

The vendor control  system is based upon the  self-restraint  of the vendors when carrying out their 
sales. It is obvious that from this (in a way paradoxical)  situation problems will arise, all the more 
so as the costs for the running of a tax-free  shop are high and as the costs for presenting the luxury 
goods imposed by their producers are also elevated. 

The methods of control usually apply only to one shop so that repeat purchases in other shops are 
possible. Moreover, there is usually no link between the sales in the tax-free shops and the sales on 
board aircraft.  The control procedures themselves rely on the traditional  methods as supervision  of 
agreed  customs  warehouses,  taking  stock  (in  order to  establish  an inventory  of  the goods  in the 
tax-free  shops),  control  of  declarations,  listing  of  the  sales  on  board  aircraft.  All  of  these 
procedures are in most cases carried out a posteriori.  Apparently there is no (or only a scarce) real 
system of global control. 

Passengers usually get information about the quantitative limits for tax-free purchases; the relevant 
information  is  given  by  appropriately  posted  bills  or  in  the  price  lists.  For  the  most  part  the 
information  about  the  value  limits  in  force  is  less  clear,  sometimes  even  inexistent  or  neutrally 
indicating that there are some regulations to respect but not mentioning their content. 

The further development  of the sector,  which appears to take place here and therefcToes not take 
into account the provisions of the Council which are directed only at temporary maintenance of the 
activities of the tax-free sales outlets existing in 1993. 

On the contrary 

•  new  forms  of  tax-free  sales  have  been  introduced  (for  instance:  special  arrangements  that 
contain  sales  of  the  air-ticket,  accommodation  and  a  "package"  of  tax-free  goods;  "pre-
packing-systems"); 

some (already existing) sales areas have been enlarged; 

some  tax-free  shops  have  extended  the  range  of  goods  offered  (electrical  products,  radios, 

• 

• 

78 

high-quality textiles etc.); and 

• 

some new tax-free and tax-paid shops have been opened or are envisaged for the near future 

At present, it is difficult  to ascertain if this development  only shows the gradual and necessary 
change  to  a  situation  in  which  the  sector  of  tax-free  sales  adapts  and  prepares  itself  to  a 
situation  where  it  is  based  upon  tax-paid  sales  or  whether  it  is  aimed  at  strengthening  the 
existing position (economic importance of the sector, investments made etc.). 

79 

CHAPTER  2 
FINDINGS  FOR  THE VARIOUS  MEMBER  STATES 

Section 1.  Belgium 

Preliminary  remarks 

The  mission  was  bound  for  Zaventem  Airport  in  Brussels  and  Oostend  (ports);  it  included 
meetings with the Customs and Tax authorities, with representatives  of the  "Brussels Airport 
Terminal Company", of an important private company running tax-free shops and of SABENA 
Airlines.  Moreover  there was  a presentation  of  the  control  procedures  presently  in  force  at 
Zaventem.  It  has to  be  noted  that  an extension  of  the  airport  infrastructure  (including  shop 
premises) was, at the time of the mission, going on. 

Zaventem Airport 

Controls carried out by the vendors themselves 

Operators stamp the air-ticket of their customers without further specification  of the purchases 
made. Appropriate  baskets  at the  cash-desk  indicate  the  quantitative  limits which  have to  be 
respected. The price tags in the tax-free shops usually show both the tax-free  and the tax-paid 
price of the goods; thus, the customer becomes  aware of the VAT  or excises  he will  pay by 
exceeding the value limit of ECU 90. 

Sales to crew members are not allowed on intra-Community flights.  However,  a special "crew 
shop" exists  that  is  run for  supplying  the  airlines  and  which  is  not  under  the  control  of the 
airport authorities. 

As far as sales on board aircraft are concerned, again, the Belgian operators have to obtain the 
status as an agreed warehouse for customs and fiscal purposes.  These warehouses  are closely 
monitored  by  the  customs  authorities.  On board  aircraft,  SABENA  applies  a  computerized 
system which ensures that Belgian  VAT  is calculated for purchases  exceeding  the value limit 
of ECU 90.  Thus, Belgian VAT is calculated for,  even if the flight  starts in another Member 
State.  The  appropriate  brochures  indicate  the tax-free  price  as well  as  the  tax-paid  price.  A 
copy of the cash-receipts issued  on behalf of the sales on board aircraft  is handed  over to the 
customs. There is no link between the sales completed on board aircraft  and those carried out 
on the ground at the airport. 

Control of the vendor by the Member States1 authorities 

In order to get  the -  compulsory  -  license to run a tax-free  shop from the  airport  authorities 
operators  have to  obtain the  status  of  an agreed  customs  (and  VAT/excises)  warehouse  for 
every outlet. 

The  control  of  the  vendor  by the  customs  authorities  is  mainly  carried  out  by  the  customs 
authorities who  are empowered  to  do  so by the VAT  administration;  officials from the  VAT 
department intervene  only every three to five years. There is no global  accounting  system for 
control  purposes.  Instead,  controls  are based  on the  bookkeeping  of  every  operator  and the 
appropriate  customs  documentation  (invoices,  cash-receipts  indicating  the  customer's  flight 

80 

number,  listing  etc.).  From  time  to  time,  random  controls  are  accomplished  by  customs 
officials. 

Special problems brought up during the visit 

According  to  the  information  given  by  the  Belgian  authorities  no  major  abuses  were  to  be 
ascertained  up  to  thé  moment  of  the  visit.  Only  airlines from third  countries  seem  to  have 
difficulties  enforcing  the  appropriate  limits,  especially  on  the  intra-Community  leg  of flight 
coming from and/or bound for a third country. 

Operators  are  planning  to  establish  new  forms  of  selling,  such  as  "pick-up"-arrangements 
(customers  order the goods when they leave the country and receive them when they return) 
and tax-paid sales on arrival. Representatives of the "Brussels Airport Terminal Company" and 
of  an important  private  company  running tax-free-shops  pointed  out  that  they  are  about  to 
reorganize  their  business  in .order  to  adapt  to  the  new  arrangements  of  vendor  control 
(modification  of shop-facings,  re-determination of the sale-surface  per product,  diversification 
of products offered,  new sales forms). 

Although  exact  figures  were  not  available  for  every  product  and  distribution  channel,  it 
appears  that  -  notwithstanding  an increase  in  passenger  traffic  -  the  turnover from tax-free 
sales has considerably decreased since the introduction of "vendor control". 

According to the vendors, passengers usually show little understanding  for the fact that limits 
are applied  on intra-Community  travel  and not  on third  country travel; moreover,  they  often 
mix these  limits  up  with  the  "TTC"-limits  applied  for  tobacco  and alcoholic  products  in the 
Belgian road traffic. 

Harbours and railway stations 

Only the vessels of the Belgian ferry company (Régie Maritime Transport,  i.e.  Oostend Lines) 
are controlled by the Belgian authorities; the tax-free-shops  are run by a private company. The 
main means of control is the boarding card. It is foreseen to improve the control procedures by 
stipulating an appropriate co-operation agreement with the British authorities. Anyway, mobile 
control  task forces  have found  out that abuses  of the tax-free  sales  arrangements  have taken 
place in the port of Oostend. 

81 

Section 2.  Denmark 

Preliminary  remarks 

The  mission  included  meetings  with  officials  of the Ministry  of  Taxation  in  Copenhagen  and 
with the customs authorities  at the airport  of Copenhagen, visits on site and informal  contacts 
with operators of tax-free  shops as well as a meeting with customs officials  in Nykôping and  -
as visit on site - a ferry crossing from Rôdbyhavn in Denmark to Puttgarden in Germany. 

The  evaluation  of  the  latter  passage  is  based  on  informations  given  by  customs  officials  in 
Nykôbing (which are responsible for the application  of the vendor control  on board  the  ferry) 
and  on a ferry  crossing which was made during the visit.  A normal ferry  crossing usually lasts 
one  hour.  Most  passengers  seem  to  take  this  trip  only  for  the  purpose  of  buying  tax-free 
goods. There are 44 such crossings in both directions every day. 

Copenhagen Airport 

Controls carried out by the vendors themselves 

In the only duty free outlet  existing  at Copenhagen  Airport  the passengers  have to  show  their 
boarding  cards  at  the  control  desk.  The  vendor  puts  a  stamp  on  the  boarding  card,  thus 
indicating that a sale has been made. The nature of the products  sold is not indicated. For  sales 
of  goods  subject  to  the  value  limit  and  exceeding  this  limit,  VAT  is  accounted  for  by  the 
vendor  and  indicated  at  the  receipt.  There  is however  no  price  difference  for  the  client.  The 
control  of the  sales  is linked  to  the  controls  of the  sales  on  board  aircraft  for  charter flights, 
but  only for  charter  flights.  A  specific  system  of preliminary  orders  is  applied  to  flights  from 
Copenhagen  Airport.  According  to  this  system  the  tax-free  goods  are  delivered  on  board. 
Therefore  the  passenger's  boarding  card  is  already  stamped  before  he  receives  the  tax-free 
goods he has ordered. 

Control of the vendors by the Member States'  authorities 

The  control  of  the  vendor  by  the  customs  authorities  does  not  contain  specific  random 
controls of purchases  made by the travellers. However,  random  controls  are carried  out  at the 
cash  receipts in order  to  check whether  or not  individual  passengers  exceed  the limits,  and  on 
the  crew  members  returning  from  intra-Community  flights  (where  tax-free  sales  are  not 
allowed). There is no real global accounting system applied. 

Special problems  brought up during the visit 

Among the other issues having been discussed  during the meetings two need to be pointed  out 
explicitly:  Denmark  has  established  an  agreement  with  Sweden  and Norway  in  order  to  limit 
tax-free  sales  up  to  the  limits  applicable  on  importation  in  these  states.  SAS  authorities 
complained  about unfair  competetion from  third  country authorities that would  not  respect  the 
limits  on  the  intra-Community  leg  of  a  flight  from  a  third  country  via  Denmark  to  another 
Member  State. 

82 

The ferry between Rôdbyhavn (Denmark) and Puttgarden  (Germany) 

Controls  carried out by the vendors themselves  and  control  of the  vendors  by 
the Member States'  authorities 

When passengers  go  on board,  they  receive  a control  card.  This  control  card  mentions  two 
types of goods  (spirits and tobacco). In Denmark the date is not mentioned,  in Germany it is. 
The  use  of  this  control  card  is  due  to  an  oral  agreement  of  the  local  authorities  of  both 
countries.  In  the  tax-free  shop  on  board  the  ferry  the  control  card  is  stamped  in  the 
appropriate box when alcoholic beverages over 22% or tobacco  products are sold.  It appears 
that the limits per passenger were generally accepted although there are no particular measures 
to  monitor  sales  of  products  other  than  spirits  and  tobacco.  From  time  to  time,  custom 
officials  carry out random checks on the sales tickets. 

Danish residents not leaving Denmark  for more than 36  hours are supposed  to fill in a "self-
declaration" form  indicating the  quantities  of goods  acquired  which  exceed  the  Danish  limits 
applying to them. The number of such "self-declarations" is rather limited. 

83 

Section 3.  Germany 

Preliminary  remarks 

The  mission  comprised  a  visit  on  site  at  Hamburg  Airport  (including  contacts  with  the 
operators  of  tax-free  shops)  and  a  meeting  with  German  officials  at  the  Customs  Office  of 
Hamburg Airport. 

Controls carried out by the vendors themselves 

The vendor control applied by the vendors themselves works as follows: The passenger has to 
show  his boarding  card  at the  cash-desk.  A  stamp is put on the boarding  card; this  stamp  is 
divided  in  four  parts,  respectively  for  alcoholic  beverages,  tobacco  products,  perfumes  and 
goods  subject to  specific  German excise duties. The appropriate part is marked by the vendor 
who will also enter the flight number in the cash register. A separate cash receipt is issued per 
boarding  card.  When the  mission  took  place,  the  software  used  in the  shops  was  due to  be 
changed  in order to  prevent  the  issue  of  cash-receipts  for  quantities  exceeding  the  limits  (as 
used in EL). 

One of the main particularities of the German system is that sales of all goods (including those 
subject  to  a  quantitative  limit)  to  intra-Community  passengers  are  not  exempt  from  VAT. 
Sales  on  board  aircraft  and  ferries  are  exempt from VAT  within  the  value  and  quantitative 
limits.  Prices  at  the  airport  are  however  the  same  for  intra-Community  travellers  and 
passengers to third  countries.  VAT  on  sales to  intra-Community  passengers  is  accounted  for 
by the vendor on the basis of the cash-receipts that mention the flight number. There is no link 
made between sales on board and sales at the airport.  Sales to  crew members of non-German 
airlines on intra-Community flights are allowed and carried out by the catering  firms. 

Control  of the vendor by the  Member States'  authorities 

The  control  of  the  vendor  by  the  customs  authorities  does  not  make  use  of  a  real  global 
accounting  system.  Random  controls  are  carried  out  on  the  cash  receipts  in  order  to  check 
whether individual passengers did exceed the limits. No abuses have been established.  In  1993 
the turnover from tax-free  sales  at Hamburg  airport  decreased  significantly  in comparison  to 
1992, although the passenger traffic  increased slightly. 

84 

Section 4.  Greece 

Preliminary  remarks 

The mission  comprised  meetings with the Customs authorities (from  the Ministry  of Finance), 
with representatives  of the  "Hellenic Duty Free  Sales" (HDFS)  and  contacts with  operators  of 
appropriate shops as well as a visit on site. The HDFS is a state-controlled  private body which 
includes all duty-free  shops in Greece but one situated at the border to (former)  Yugoslavia.  In 
total,  there  are  22  tax-free  shops  in  Greece,  at  airports,  ports  and  at  frontier  stations.  There 
are no tax-free  sales on board  cruise-ships within Greece. 

Controls carried out by the vendors  themselves 

At  the  airport  of  Athens,  vendors  make  use  of  a  computer  system  designed  to  establish  a 
blocking  for  unjustified  sales.  HDFS  has  developed  this  system  in  collaboration  with  the  tax 
authorities.  The  operators  enter  the  destination,  the  flight-number  and  the  passenger's  seat  in 
the  cash-register.  If  the  threshold  (value  or  quantitative)  is  passed,  repeat  sales  to  the  same 
customer  are  "blocked  up".  If  the  customs  authorities  wish  so,  the  centralized  computer 
provides for  a daily outprint  listing of all sales carried  out. 

Since they  have  no  boarding  card  crew  members  do  not  have  an  opportunity  to  buy  tax-free 
goods. 

There  is  no  link  between  the  sales  in  the  tax-free  shops  and  the  sales  on  board  aircraft. 
Nevertheless,  the  latter  are  duly  controlled  by establishing  a detailed  listing  of the goods  sold 
on  board  aircraft.  According  to  the  Greek  authorities  these  sales  are  anyway  rather  limited 
(due to the time and space restrictions on such a flight). 

The same scheme  of control  as described  above  is mutatis  mutandis  applied  as  far  as  sales on 
ships (apart from cruises) are concerned. 

Control of the vendors  by the  Member States'  authorities 

Customs  officials  accomplish  detailed  controls  on  a  monthly  basis;  tax  controls  take  place 
every  three  to  four  months.  Excise  duties  are  constantly  monitored  by  the  customs  in  the 
agreed customs warehouse where the goods are sold. 

Special problems  brought up during the visit 

During  the  meetings,  the  operators  of  the  tax-free  shops  complained  about  the  major 
investments that  were  necessary  in order  to  implement  the  computer  system  described  above. 
Passengers  usually  show  little  understanding  for  the  necessity  of  a  sales  limit  and  of  the 
appropriate  controls. Moreover,  the  control procedures  applied  slow  down  the  passage  at  the 
cash-desks.  As  a  result  of  all  this,  the  annual  turnover  of  the  tax-free  shop  had  decreased 
significantly  although the number of passengers had  increased. 

85 

Section 5. 

Spain 

Preliminary  remarks 

The  mission  to  Spain  was  bound  for  the  airport  of  Palma  de  Mallorca  via  the  airport  of 
Barcelona.  The  mission  comprised  meetings  with  representatives  of  ALDEASA,  the  state-
controlled  private  enterprise  holding the license for  tax-free  sales at  all  Spanish  airports,  with 
representatives  of  an  important  charter  flights  company,  with  the  airport  and  customs 
authorities at Palma as well as visits on site in Palma and - shortly - in Barcelona. 

Palma  was  chosen  as  destination  of  the  visit  because  it  is  a  very  important  (mainly  charter 
flight) airport  for  holiday traffic  with  about  12 million  passengers  every  year.  About  96%  of 
the tax-free  sales at this airport  are carried out in the airport centre. 

Palma de  Mallorca 

Controls carried out by the vendors  themselves 

The  vendor  control  system  applied  by  the  operators  works  as  follows:  in  the  tax-free  shop 
passengers have to  show their boarding card which will be stamped with  a simple rubber  mark 
of the company  running  the tax-free  shop.  The operator  informs  his clients  about  the  existing 
limits;  for  quantitative  limits particular  baskets  are  installed  at  the  cash-desk.  Every  operator 
participates in a computer  net  linked to the cash-registers that  "blocks up"  sales to  passengers 
which  would  exceed  the  appropriate  limits.  This  system  is however  not  linked  to  the  airport 
authorities"  computer  system  (whereas the  system  applied  by the  "normal"  shops  is). There is 
no link between the sales on board  aircraft  and at the airport. 

Crew  members  have  no  possibility  to  carry  out  tax-free  purchases.  On  board  aircraft  there  is 
no control of sales (except the overall listing). No  detailed  information  concerning the  tax-free 
sales on ferries was available. 

Control of the vendors  by the Member States'  authorities 

The  control  of  the  vendor  by  the  customs  authorities  is  mainly  based  on  the  measures 
undertaken  for  customs  and  fiscal  purpose  (taking  stock  in  the  agreed  customs  warehouse, 
declarations,  listing  of  the  sales  on  board  aircraft).  On  a  yearly  basis  detailed  controls  take 
place as far as the company stocks are concerned. There are no specific random controls. 

Special problems  brought up during the visit 

According to the operators  and the airport  authorities the changes to  come  into  effect  in  1999 
will not  affect  the turnover  in the (then  no longer tax-free)  shops at the  airport  if an  adequate 
new price policy will be applied  and  if the  partition  of the profits  between  producers,  airport-
authorities and traders will be re-determined. 

Some problems have been brought  up  during the meetings with the airport  authorities  and  the 
operators: 

•  Special  arrangements  (mainly  offered  by  certain  charter  flight  companies)  contain  sales  of  the 
air-ticket,  accommodation  and  a  "package"  of  tax-free  goods.  This  system  would  have  to  be 

86 

considered in terms of distortion of competition. 

•  Travellers  usually  show  little  understanding  for  the  restrictions  imposed  on  them.  The 

employees in the tax-free shop find their job increasingly difficult  to carry out. 

•  Some  charter  flight  airlines  apply  more  and  more  so-called  "prepackaging"-systems  (see 

Section 2: Denmark). 

•  The airport of Palma de Mallorca was, at the time, being extended  and the range of goods sold 

in tax-free shops has been expanded. 

Barcelona 

The visit  on site at the airport in Barcelona  showed that the application of the vendor control 
system still creates certain difficulties.  In some cases, the operator did not ask for the boarding 
card.  Thus,  the  distinction  between  the  situation  in which  goods  to  be  sold  tax-free  and the 
situation  in  which  they  are  subject  to  normal  taxation  was  not  always  clear  neither  to  the 
vendor nor to the client. 

87 

Section 6. 

France 

Preliminary  remarks 

The  mission  was  bound  for  the  airport  Paris-Orly  and  comprised  a  meeting  with  French 
Customs officials,  contacts with the operators of tax-free  shops and a visit on site. 

Controls carried out by the vendors themselves 

In  order  to  buy tax-free  goods the passenger  has to  show  his boarding  card  and  the  operator 
will  verify  destination,  flight-number  and  identity  of  the  passenger.  Nevertheless,  it  appears 
that  by  this  procedure  the  passenger  is  not  prevented  from  repeat  sales  in  another  of  the 
various  tax-free  shops  at  Orly.  The  cash  registers  are  not  linked  to  a  centralized  computer. 
Sales  to  crew  members  are  not  allowed  on  intra-Community  flights  nor  on  third  country 
flights. 

Control of the vendor by the Member States'  authorities 

The  tax-free  shops  at  the  airport  have  to  apply  for  a  license  in  order  to  start  their  business. 
They  will  obtain  this  license  only  if they  accept  an  agreement  to  act  as  an  agreed  customs 
warehouse for fiscal and customs purposes. 

On demand,  the  customs  authorities  will get  a listing of the weekly  sales per  shop.  A kind  of 
audit control  is established  every half year. As far as excises are concerned  the usual  measures 
provided  for  in  the  appropriate  Directive  92/12/EEC  are  carried  out.  There  are  no  specific 
random  controls.  Furthermore,  there  is  no  link  between  the  sales  on  board  aircraft  and  the 
sales at the airport,  which is no major  problem because the turnover  on board  aircraft  is rather 
limited. 

88 

Section 7. 

Italy 

Preliminary  remarks 

The mission was bound  for  the airport  of Milan-Linate.  The mission  comprised  meetings with 
the Italian  customs  authorities,  with representatives  of DUFRITAL  s.p.a, which  is the  Swiss-
based  company  holding the license for  tax-free  selling at the  airport,  and  with  representatives 
of ALITALIA  s.p.a.  as well  as a visit  on site. The visited  airport,  Linate,  is an  airport  mainly 
devoted  to business-traffic,  which is why a very high percentage  of the tax-free  sales is related 
to intra-Community traffic.  Generally, in Italy tax-free  shops are situated  in ports  and  airports; 
tax-paid  shops have been opened  at railway stations (Milan)  and the creation  of such shops at 
appropriate places at the motorways is under  consideration. 

Controls carried out by the vendors themselves 

The  operators  of tax-free  shops  control  the quantitative  limits  of tax-free  sales  directly  at  the 
cash-registers.  If the value limit for goods  subject  to this limit is exceeded,  VAT  is  accounted 
for  by the  vendors  for  all goods.  The  client  does not  become  aware  of this; there  is no  price 
difference.  The tax-free  purchases  carried  out  in the tax-free  shop  are treated  with a stamp on 
the boarding  card  of the client.  There is no link to  the  sales on board  aircraft.  Crew  members 
from intra-Community flights as well as from third  country flights do not  have the  opportunity 
to accomplish tax-free  purchases. 

Control of the vendor by the Member States'  authorities 

The customs  authorities  are  entitled  to  carry  out  spot  controls  on  the  sales  completed  by the 
passengers. Therefore  the receipt  is always attached  with  an adhesive to  the bag  of the goods. 
The  cash-registers  used  in  the  tax-free  shops  are  directly  linked  to  a  central  computer  that 
enables the authorities to provide for an outprint listing of the transactions whenever they wish 
so.  Anyway,  every  evening  the  shop-keepers  have  to  give  to  the  authorities  a  listing  which 
shows  the  turnover  and  the  VAT  for  each  transaction.  Every  two  years  the  authorities  take 
stock in order to  establish a detailed  inventory of the goods  in the tax-free  shops.  This is also 
considered  to  be  sufficient  to  (indirectly)  control  the  sales  on  board  aircraft.  Nevertheless,  a 
listing of all tax-free  sales on board  is transmitted  to  the  airline in Rome  which  will take  care 
for the levy of VAT on the part of the sales exceeding the appropriate limit. 

According  to  the  information  given  by  the  Italian  authorities  the  control  system  described 
hitherto applies in more or less the same way to tax-free  sales on ferries. 

Special problems  brought up during the visit 

As a result  of the introduction  of the vendor control  system the turnover  regarding  spirits and 
cigarettes  has  significantly  decreased,  whereas  the  sales  of  perfumes  has  proved  to  be  stable. 
Passengers  usually  show  little understanding  for  the  restrictions  imposed  and  complain  about 
the slow-down  of passage at the cash-desks. The way the vendor control  measures are applied 
at  different  airports  within  Italy  and  outside  Italy  may  differ  significantly  which  is  a  major 
concern  of the  Italian  operators  who  fear  distortions  of  competition.  In  addition,  despite  the 
provisions of the Council  - deemed to only temporarily  maintain the  activities  of tax-free  sales 
sections - the creation  of some new tax-free  shops is envisaged  in Italy. 

89 

Section 8. 

Netherlands 

Preliminary  remarks 

The  mission  took  place  at the  Amsterdam  Airport  Schiphol  and  included  meetings  with  the 
customs  authorities,  the airport  authorities,  contacts with operators  of tax-free  shops  as well 
as a visit on site. 

Controls carried out by the vendors  themselves 

Vendors  use  an appropriate  software  programme that  has been  screened  by  customs  before. 
The flight number and the number of passengers buying tax-free goods are to be entered in the 
cash register.  Vendors always ask for the boarding card of their customers (but do not stamp 
it). Limits relate only to passengers with a destination located in another Member State, not in 
a third  country  outside  the  Community.  Accordingly,  (at  least  since February  1994)  sales  to 
crew members operating  on intra-Community  flights  are not  allowed whereas  crew  members 
on third country flights can make preliminary orders for tax-free goods which are supplied on 
board  aircraft.  Passengers  bound for  another Member  State  can complete  tax-free  purchases 
within  the  authorized  (value  and  quantitative)  limits  and  above.  In  the  latter  case  VAT  is 
accounted for by the vendor without affecting the sales price to the passengers. 

The  cash-registers  used  in  the  tax-free  shops  are  directly  linked  to  a  central  computer 
calculating  VAT  to  be  paid  to  the  authorities  for  sales  exceeding  the  limit;  the  central 
computer then provides for an outprint listing of the sales made per flight number. 

Control  of  the  vendors  by  the  Member  States  authorities  and  consequences 
for the vendor  in case of non-applying the rules 

The  control  of  the  vendor  as  carried  out  by  the  customs  authorities  already  starts  before 
granting  the  status  of  agreed  customs  warehouse  when  the  vendor's  bookkeeping  and 
administration  is  checked  on  transparency.  Twice  a year  visits  on  site  are  accomplished  by 
customs  questioning  (the embarking) passengers  on a particular flight whether and what they 
have  bought  tax-free.  According  to  an  overview  from  1993  an average  of  about  7%  of the 
passengers  questioned  appeared  to  have  exceeded  the  quantitative  limit.  From  time  to  time 
customs  officials  try  to  carry  out  purchases  above  the  authorized  limits,  but  apparently  no 
vendor seems to be violating these limits. 

Four  times  a  year  a  private firm (acting  on  behalf  of  the  customs  authorities)  controls  the 
quality  standards,  the  attitude towards  customers,  the information  given to  travellers  and the 
respect  of  tax-free  limits.  Furthermore,  a  posteriori  administrative  controls  are  carried  out 
whereby  the  number  and  the  volume  of  sales  per flight in  relation  to  the  number  and  the 
volume  of  sales  of  passengers  on  a  particular  flight  entitled  to  purchase  free  of  tax  are 
checked.  If a shopkeeper abuses his right to sale tax-free goods his license will be withdrawn. 
Such  a withdrawal  would  be  due to  the violation  of  his contract  with the  airport  authorities 
about the respect of the legal provisions on tax-free sales. 

Special  problems  brought  up during the visit 

•  Concerning the non-stamping  of the boarding card in the Netherlands,  airport  officials  pointed 
out that surveys  on the purchase behaviours  of travellers carried  out  by the  airport  authorities 

90 

and practical experience seem to show that repeat sales seldom take place. Following the yearly 
examinations  of  the  purchase  patterns  and figures by the  airport  authorities  -  in general  -  no 
major  change  can be  ascertained  in the  purchase  behaviour  compared  to  the  situation  before 
1993.  However,  the total  turnover  and the turnover  per passenger  show  a decrease  although 
passenger  traffic  as  a  whole  has  increased.  This  development  is  said  to  be  due  to  the 
introduction of the vendor control system. 

For  certain  flights  arriving  from  other  Member  States,  the  customs  authorities  denounced 
problems on goods exceeding the quantitative limits. 

According to the vendors, travellers usually show little understanding for the fact that limits are 
applied on intra-Community travel and not on third country travel. 

91 

Section 9.  United Kingdom (and the French channel coast) 

Preliminary remarks 

The visit related to the passing of the English Channel by ferry from Calais to Dover and by 
Jetfoil from Ramsgate to Ostend. It comprised various meetings with the Customs authorities 
in Dover and Calais as well as with operators of tax-free shops and trade industry; visits on 
site took  place  in  duty-free-shops  at  the Hovercraft  Port,  the  Channel  tunnel  terminal,  the 
Jetfoil Duty Free Shop, on the ferry Calais-Dover, the Jetfoil Ramsgate-Ostend. 

Calais in France 

Controls carried out by the vendors themselves 

Except for the passage Calais-Dover, the vendor control system is based on a voucher system 
containing  information  with  regard  to  the  quantitative  limits. The voucher  is  marked  at  the 
moment of sale. Further sales of goods of the same category are not allowed except where the 
passenger can prove, on the basis of the receipt of his former purchase, that the limit has not 
been reached yet. 

On the Dover-Calais passage no voucher system is applied having regard to the time limit and 
the great  number of passengers (approximately  16 million passengers  a year).  In contrast  to 
the  areas  where  a  voucher  system  is  applied  a  global  accounting  control  system  has  been 
implemented. Moreover, the cashier in every salespoint has to verify that the appropriate limits 
of tax-free purchases are not exceeded. On board the two ferries on this line there are tax-free 
shops  which  are  run  by  a  subsidiary  of  the  French  SNCF  and  monitored  by  the  French 
authorities. 

Crew members are not allowed to complete tax-free purchases. 

At the hovercraft  port there are tax-free  shops under French authorization  and control at the 
embarking  point.  The  boarding  card  is  stamped  once  a  sale  is  made.  The  vendor  control 
system  at the port  (under  French  surveillance)  and  the  vendor  control  system  on board  the 
hovercraft  (licensed  and controlled by the United Kingdom authorities) are not linked, but an 
official  request for a bilateral agreement was under way from the British side. 

At the time of the visit, the Irish-run tax-free  shops in the Channel tunnel terminal (passenger 
and freight traffic)  were about  to  establish  a new vendor control  system whose  shaping was 
still unclear at that time. 

Dover and Ramsgate (United Kingdom) 

Controls carried out by the vendors themselves 

As far  as the vendor  control  applied  by the vendors themselves  is concerned,  there are two 
types in the United Kingdom: 

1.  First,  vouchers  can  be  used  which  is the  case  for  all  ferry  routes  (except  the  Dover-Calais 
ferry, but including the Dover-Calais crossings by Hovercraft).  This voucher system works as 
follows:  At the check-in  hall each passenger  is issued with a passenger ticket  and a separate 

92 

voucher (duty-free  Shopping Pass). The voucher is colour coded and details the date of travel 
and  the  duty-free  allowances  (operators  often  use  it  for  marketing  purposes  as  weU).  The 
voucher is ticked off at the moment of sale and the customer can complete further purchases of 
goods  of the same category only when he can prove on the basis of the receipt  of his former 
purchases,  that the  appropriate  limit  has  not  been  reached  yet.  At  the  hoverport,  where  the 
hovercraft  embarks,  a  tax-free  shop  is  available  as  well.  Purchases  made  in  this  shop  are 
marked on  a voucher  and a second purchase on board the  hovercraft  is only  allowed  for the 
remainder of the duty-free allowance.  Thus, a control link between sales at port and on board 
the hovercraft is established. 

2.  Secondly,  the vendor control  can rely on a gentlemen's agreement  between the operators and 
the  customs  authorities  and  on  traditional  forms  of  monitoring  Due  to  the  high  density  of 
travellers (approximately  16 million a year) being on board only a limited time and due to the 
fact  that  a voucher  system  does not make sense  on this line because  only  about  30% of the 
passengers  are  making  use  of  their  duty  free  allowances  (which  means  that  70%  of  the 
vouchers issued  could be put in free circulation of a kind of  "black market" or will  be simply 
thrown away and picked up again) this approach is made use of on the Dover-Calais ferry. The 
appropriate limits are well published. The control is carried out by the cashier who will ask for 
documentary evidence (of an appropriate number of customers/passengers for this special sale) 
if the limit for tax-free  purchases is reached three times or more. Moreover,  supervisors  from 
the operator, competitive operators and Customs are placed at the cashiers in order to observe 
the well working of the system. 

Sales to crew members are not allowed.  Sales exceeding the value limit of ECU 90 are possible; in 
this case  VAT  is accounted  for by the vendor without  affecting  the  sales  price for  the passenger. 
United Kingdom ferry operators are VAT identified  in France (by means of a branch or through a 
tax representative)  to  account  for VAT  on sales on board a ferry travelling from Calais to Dover 
since,  in  principle,  supplies  are  deemed  to  have  taken  place  in  the  Member  State  from  which 
transport begins. French ferry operators are not registered for VAT in the United Kingdom and not 
accounting  for  VAT  on  sales  made  during  the  return  leg  (Dover  -  Calais),  which  is  a  topic  in 
discussion  between  the  French  and  the  British  authorities.  Approximately  50%  of  the  VAT 
collected on the outward and the return leg is paid to the French authorities. 

In the EUROTUNNEL duty-free shops no vouchers are issued; instead a global  accounting system 
has been agreed  (but  at the time no audits were  carried out  as full  services were not in operation 
yet).  Concerning the tax-free  sales at the harbours a voucher  system  is used  and a vendor control 
system is applied making a link sales at port and on board vessels (Hovercraft,  Jetfoil). 

Control of the vendors by the Member States' authorities 

As  far  as the  control  of  the  vendors  by the  authorities  is  concerned,  a global  accounting  control 
system  is  only  used  on non-voucher  routes,  i.e.  Dover-Calais.  Operators  have to  submit  monthly 
returns  to  the  authorities  entailing  statistics  on  sales  per  category  of  product  and  the  number  of 
passengers  carried.  On voucher  routes  an audit  control  system  set  up by  customs  is  applied.  An 
overall review and evaluation of the vendor control  system applied was carried out by the customs 
authorities in June  1993; it came to the conclusion that no major evasion, avoidance or abuse could 
be ascertained. Instead, operators seem to be extremely careful in respecting the appropriate limits 

93  , ^S 

ANNEX 7 

RESULTS OF THE STATISTICAL RESEARCH ASSESSING MEMBER 
STATES1 RETURNS TO THE APPROPRIATE DATA SHEETS 

95 O ^ 

RESULTS OF THE STATISTICAL RESEARCH ASSESSING MEMBER 
STATES' RETURNS TO THE APPROPRIATE DATA SHEETS 

INTRODUCTION 

The  Commission  has  asked  the  Member  States  for  statistical  data  on  tax-free  sales.  Nine 
Member States (BE, DK, EL, ES, FR, IRL, NL, PT and UK) have replied to the letter with 
four data sheets (see Annex 6) asking for information on 

the number of passengers, 

the turnover  deriving from tax-free  sales  (distinguishing  the  different  categories  of products: 
alcoholic beverages, tobacco, perfumes and toilet water, other products), 

the number of sales outlets, 

the number of operators and, where appropriate, 

the total floor space taken by the sales outlets. 

These statements were to be made respectively for 

1.  tax-free  sales in airports (total sales and sales to intra-Community passengers), 

2.  tax-free  sales  on  board  aircraft  (on  intra-Community flights by  airlines  having  their  primary 

establishment in the Member State concerned), 

3.  tax-free  sales on board  ferries  (on  intra-Community  crossings  by ferry  operators  having their 

primary establishment in the Member State concerned), and 

4.  tax-free  sales in ports (to passengers departing to other Member  States). As only one Member 

State was able to supply complete data on these sales, they are not further  analised. 

The economic analysis of the statistical data made below endeavours 

• 

• 

• 

to  have  a  closer  look  at  the  assertion  (often  made  by  operators  and  representatives  of  the 
respective associations during the visits in various Member  States) that the introduction of the 
vendor-control system led to a sharp decrease in the sales in question, 

to find out whether there is a particular trend in the development  of sales after  the introduction 
of the vendor-control system, and if so, which, 

to  get  an idea  of possible  regional  differences  and  differences  according  to  the  place  of sale 
(airports, ferries, aircraft) in such a trend and 

• 

to discover at least some of the reasons for the development  found. 

Of course, it is impossible to take into account all the factors  influencing  the development of 
tax-free  sales  of  certain  tax-free  goods  in certain  countries  in  certain  places.  There  are too 

97 

many important aspects which are not covered by the information  asked for  and given  to the 
Commission  (e.g.  "normal"  trade  cycles,  industrial  fluctuations,  changes  in  consumer 
behaviour-eta;  all  of  these  factors  may  differ  for  each  Member  State).  Inflation  is  not 
explicitely  taken  into  account.  Apart from the  fact  that  exchange  rates  to  a  certain  extent 
reflect  inflation it is supposed to be a minor factor in this context,  at least for the years  1992 
and 1993. 

Therefore,  the  fundamental  approach  of  the  analysis  made  below  focuses  on  the  following 
questions: 

• 

• 

• 

• 

Is there a particular trend in the development of tax-free sales from 1992 to  1993 per place of 
sale? 

Is there a particular trend in the development of tax-free sales from 1992 to  1993 per country? 

Is there a particular trend in the development of tax-free sales from 1992 to  1993 per category 
of goods? 

Is it possible to  explain the trend in the development  of tax-free  sales from 1992  to  1993  per 
country or per place of sale with the respective development  of the number of operators, of 
sales outlets or the total floor space taken by the sales outlets? 

• 

Is it possible to explain the changes in demand by the development of the exchange-rates  in the 
appropriate countries? 

The  statistical  data is  presented  in the  following  analysis  to  answer these  questions.  Since  a 
detailed distinction of the development of tax-free sales in nine Member Scates relating to  four 
categories  of  products  sold  in  four  different  situations -to  be  calculated  in  two  currencies 
(national currency and ECU6) is not feasible in a report like this, the general  approach will be 
to  assess  the  overall  development  per place  of  sale,  per Member  State  and  per  category  of 
goods first and establish a more detailed presentation and analysis according to the findings of 
the overview. 

The quality of data given to the Commission does not always meet the requirements necessary 
in order to draw statistically well:founded conclusions.  According to national peculiarities, the 
answers given in the data sheets are sometimes rather variable and not always comparable with 
each other (e.g.  sometimes  there are only global figures given  and sometimes  there  are  only 
figures for one  year  available).  This has to  be taken into  account  when  it  comes  toUrawing 
conclusions from the findings of the analysis. 

Conversion rate  used: as respectively  published  on 30 September  J992 and on 30 September  1993. 

98 

CHAPTER 1 
DEVELOPMENT OF TAX-FREE SALES IN THE COMMUNITY 

Section 1. 

Preliminary remarks 

• 

It is impossible to give a detailed  and complete  overview  of the development  of tax-free  sales 
all  over  the  Community  from  1992  to  1993  because  not  all  Member  States  replied  to  the 
Commission's  request  and  those  who  replied  generally  gave  incomplete  figures  (for  various 
reasons:  the figures needed  are  not  accessible  and  -  in  some  cases  -  because  of  unforeseen 
bankruptcies (in DK) or organizational difficulties  the data are no longer available).  Therefore, 
the  analysis  made  below  cannot  give  absolute  "hard  facts"  but  it  will  surely  describe  the 
underlying tendencies well. 

•  The  basis  for  establishing  the  tables  and figures in this  chapter  can  be  seen  in the  following 

table: 

99 

Member  State 

Tax-free  sales 

At  airports 

At aircraft 

On  board 
ferries 

At  ports 

Complete 

Complete 

Complete 

-/-

Figures  are  not  available and  still  outstanding.  Since  Germany  charges  VAT  on  sales 
in duty/excise free shops, there is no major problem arising from the lack of  figures. 

Complete 

Complete, but 
only totals 

Complete 

-/-

Complete 

Complete 

Complete 

Complete 

In percentage and  totals 

Complete 

Complete for 
1993 

Barcelona 

Totals distinguishing French and foreign  products. 

Complete 

Complete (totals) 

Complete 

-/-

Figures are not available and still outstanding. 

Figures  are  not  available  and  still  outstanding.  Since  Luxembourg  charges  VAT  on 
sales  in  duty/excise  free  shops,  there  is  no  major  problem  arising  from  the  lack  of 
figures. 

Complete 

Complete 

Complete 

Complete 

Complete 

Complete 

-/-

-/-

Complete 

-/-

-/-

-/-

BE 

DE 

DK7 

EL 

ES 

FR 

IRL 

IT 

LU 

NL 

PT 

UK 

Table  1. Completeness  of data returns given  to the Commission 

The expression  "complete" in this table means: 

• 

that  all relevant  sites in the country appear to be covered, 

• 

that the figures are given for all categories of goods and 

• 

that the figures  are available for  1992 and for  1993. 

The tables in Sections 2 to 4 below are dealing with tax-free  sales from a certain  point  of view 
(respectively place of sale, country and category of goods). It is reminded  that  data  concerning 
sales on board  aircraft  and ferries  only relate to  intra-Community  trafic.  Data  relating  to  sales 
at  airports  also  include  sales  to  third  country  travellers.  This  is  because  only  a  few  Member 
States  communicated  separate  figures  for  sales  to  intra-Community  travellers  (These  figures 
are analysed in Chapter 2 of this Annex). 

There  are  no  complete  figures  for  Copenhagen;  therefore  they  are  not  taken  into  consideration 
establishing  the  tables. 

for 

100 

Section 2. 

Tax-free sales per place of sale in ECU 

Following the general analytical approach, the first question to be examined by looking at the 
statistical  data  put  at  the  Commission's  disposal,  is  how  tax-free  sales  have  developed  in 
different  places of sale and in total. 

The  appropriate  table  set  out  below  is  based  on  the  (tax-free  sales)  figures  from  seven 
countries8  (at  maximum)  and  does  not  take  into  account  Spain  (only  partly9),  France,  Italy, 
Germany and Luxembourg and the airport of Copenhagen. 

Place of  sale 

At  airports 

1992 

1993 

Change 

989,688,422 

1,050,156,959 

On board  aircraft 

46,062,852 

47,543,582 

+ 6.11% 

+ 3.21% 

On board  ferries 

447,339,638 

556,774,704 

+ 24.46% 

Total 

1.483,090,912 

1.654,475,245 

+11.56% 

Table 2. Evolution  of tax-free  sales per place  of sale  (totals of intra-Community  and third-country  sales  in ECUj 

The figures shown in the table indicate 

•  an  increase  in  tax-free  sales  despite  the  introduction  of  vendor-control-procedures  in  the 

Community; and 

•  an increase of tax-free  sales even at airports, but especially  on board ferries which may be due 
to the fact  that the vendor-control  procedures are generally less  strictly  or even  not applied at 
all on board vessels. 

However,  while evaluating these results it has to be taken into account that the figures of four 
Member States are missing and that the calculation has been made in ECU.  Therefore it has to 
be verified  if the trend  of development  is the  same in the national  currencies  or if changes  of 
the  exchange-rate  and  of  the  composition  of  the  European  Currency  Unit  have  lead  to 
distortion of the figures. This will be looked at in Chapter 2. 

The next step is to examine, if there are differences  in the development  of tax-free  sales in the 
different  countries. 

Section 3. 

Tax-free sales per country in ECU 

The  question  of this part of the  analysis is, how  -  according to  the  statistical  data put to the 
Commission's disposal - tax-free sales have developed in different Member States and whether 
differences  might originate from different  systems of vendor control10. 

The  following  table  gives  an  overview  of  the  information  about  tax-free  sales  in  1992  and 

9 
10 

The figures  for  tax-free  sales  on  board  aircraft  in  Greece  have  been projected  by  doubling  the  data  given 
because  this  was available  only for  the second half  of the year. 
Figures for  tax-free  sales  on board ferries  were available  only for  1993 and have  been left  out. 
It  is  reminded  that  sales  on  board  aircraft  and ferries  relate  to  sales  made  by  companies  having  their 
primary  establishment  in the Member  State  concerned. 

101 

1993 given by Member States* authorities in this respect11. 

Member  State 

1992 

1993 

Change 

BE 

DK 

EL 

ES 

FR 

IRL 

NL 

PT 

UK 

Total 

Total 

Total 

Total 

Total 

Total 

Total 

Total 

Total 

104,881,409 

94,019,025 

-10.36% 

177,019,597 

178,171,573 

92,888,368 

101,498,967 

152,136,565 

145,017,367 

+0.65% 

+9.27% 

-4.68% 

314,678,877 

281,941,458 

-10.40% 

89,578,783 

90,475,830 

262,541,616 

269,133,939 

37,899,950 

34,310,496 

+1.00% 

+2.51% 

-9.47% 

571,308,511 

746,811,814 

+30.72% 

Table 3. Evolution  of tax-free sales per Member  State  (totals of intra-Community  and third-country  sales  in  ECU) 

The figures show: 

• 

• 

• 

• 

that in three Member States there was a significant  decline of tax-free  sales from 1992 to  1993 
(about  10% in BE, FR and PT); a slighter decrease is noticed for Spain. 

that in three Member States the turnover deriving from tax-free sales was more or less the same 
in 1992 and in 1993 (DK, IRL and NL); 

that  in  two  Member  States  tax-free  sales  increased  remarkably  from  1992  to  1993  (EL  and 
UK). 

that there is a large difference  between the Member  States in the results  of the  same  place  of 
sale (e.g. on board aircraft from -13% in PT to +235% in EL). 

The increase for all the places of sale in Greece is mainly due to sales on board aircraft.  Taking 
into  account  that  the  number  of  passengers  has  only  slightly  changed  in  this  period  (from 
1,266,695 in  1992 to  1,301,810 in  1993) it seems to be clear that a substantial shift, in tax-free 
sales  has  taken  place.  However,  this  result  has  to  be  evaluated  cautiously,  because  the 
appropriate  Greek figures for  ferries  have  been  incomplete  and  estimates  were  necessary  in 
order to use them. 

France  shows  a  relatively  sharp  decrease  of  tax-free  sales  which  is  mainly  due  to  intra-
Community travel  (ECU  162,042,108  in  1992 to  ECU  125,809,440  in  1993,  which  means a 
decrease  of 22.36%12). However,  even the third-country  tax-free  sales  have  been  falling,  but 
less  steeply.  Unfortunately  no figures about  the  evaluation  of the  number  of  passengers,  the 
number of sales  outlets,  the number of operators  and the total  floor  space taken by the  sales 

The figures  for  tax-free  sales  on  board  aircraft  in  Greece  have  been projected  by  doubling  the  data  given 
because  this was available  only for  the second half  of the  year. 
The figures  supplied  by France  did not contain  the sales  on board  aircraft. 

11 

12 

102 

outlets are available,  so that a real assessment  of the development  is not  possible.  Anyway, a 
decisive  influence  of the vendor-control  procedures  cannot  be  ascertained,  since  at  least  the 
development of third-country  sales shows that there have to be other reasons determining the 
decline. 

The major part of the increase of tax-free sales in the Community (which has been determined 
above)  is  obviously  due  to  the  development  in  the  United  Kingdom,  where  an  increase  of 
about  30%  has  taken  place.  In  absolute  terms  this  trend  outweighs  the  negative  trend 
established  in  some  of  the  other  Member  States.  Taking  into  consideration  the  appropriate 
number of passengers at the airports and on the ferries in the United Kingdom one determines 
an increase of tax-free  sales per person in ECU of 32.79% (ferries)  and  14% (airport), which 
indicates  that  the  trend  in tax-free  sales  can  partly  be  founded  on  the  increase  of  passenger 
transport as a whole (see in detail Chapter 2; unfortunately there are no figures concerning the 
British airports). 

Again,  while  evaluating  these  results  it  has to  be taken  into  account  that  the figures of  four 
Member States are missing and that the calculation has been made in ECU. Therefore it has to 
be verified  if the trend of development  is the  same in the national  currencies  or if changes  of 
the exchange-rate and of the composition of the European Currency Unit (ECU)  have lead to 
distortion of the figures (see Chapter 2). 

Section 4. 

Tax-free sales per category of goods in ECU 

The question to be analyzed in this part of the report is, how - according to the statistical data 
put to  the  Commission's  disposal  -  tax-free  sales  have  developed  for  different  categories  of 
goods. 

The table below summarizes the information given by the Member States in this respect: 

103 

Category  of goods 

Alcoholic beverages 

Place 

Aircraft 

Ferry 

1992 

1993 

Change -

3,041,970 

3,539,345 

+16.35% 

138,731,608 

182,126,334 

+31.28% 

Airport 

199,463,600 

201,383,590 

+0.96% 

Total 

341,237,178 

387,049,269 

+13.43% 

Total inch France 

401,432,640 

438,035,778 

+9.12% 

Tobacco products 

Aircraft 

Ferry 

8,905,785 

12,961,983 

+45.55% 

137,592,930 

186,631,961 

+35.64% 

Airport 

191,399,489 

186,117,166 

-2.76% 

Total 

337,898,204 

385,711,110 

+14.15% 

Total incl.  France 

395,337,772 

439,358,683 

+11.14% 

Perfumes 

Other  goods 

Aircraft 

Ferry 

12,713,394 

13,022,946 

+2.43% 

59,011,765 

68,942,102 

+16.83% 

Airport 

228,409,888 

240,756,251 

+5.41% 

Total 

300,135,047 

322,721,299 

+7.53% 

Total  incl.  France 

391,852,391 

404,710,367 

+3.28% 

Aircraft 

Ferry 

Airport 

Total 

13,861,828 

12,943,062 

-6.63% 

112,003,335 

119,074,308 

+6.31% 

370,257,754 

421,775,087 

+13.91% 

496,122,917 

553,792,457 

+11.62% 

Total incl.  France 

601,449,420 

649,110,765 

+7.92% 

Table 4. Evolution  of  tax-free  sales per  category  of goods  (totals  of  intra-Community  and  third-country  sales 
in  ECU)13 

The increase of tax-free sales as calculated in ECU on the basis of Member States' information 
does  not  indicate  a  significant  advantage  for  a certain  category  of  product  (increase  for  all 
from 9% to  14% without  France;  even whilst  including  the total from intra-Community  and 
third-country figures from France the increase is  still  significant).  Not  astonishingly,  the  sales 

The French figures  are  based  upon  the  official  French  statistics  and  therefore  distinguish  the products  sold 
according  to their  origin,  France  or abroad. Consequently  they  cannot  be  integrated  in the  tables.  Only  the 
overall  totals  can  be used as supplementary  information. 

13 

104 

figures for  the  different  categories  of  products  vary  according  to  the  place  where  sales  are 
made  (main  increase  on  board  aircraft  and  on  board  ferries).  Further  investigation  in  this 
respect  does  not  seem  necessary:  obviously  the  vendor-control-procedures  -  though  partly 
different  for  products  under  a value  limit  and  under  a quantitative  limit  -  do  not  affect  the 
appropriate sales  figures. 

Section 5. 

Conclusion 

The trend of tax-free  sales all over the Community consists  of a remarkable increase  of  sales 
(calculated in ECU) which is mainly due to the development in certain Member States whereas 
a relative majority  of Member  States have to  report  stable  or decreasing  sales figures in this 
sector.  Major  differences  concerning  the  category  of  goods  sold  could  not  be  ascertained, 
whereas it appears that increases of tax-free sales took mainly place on board ferries. 

105 

CHAPTER 2 
EVOLUTION OF TAX-FREE SALES PER PLACE OF SALE 

The analysis below focuses on the following key figures (where available): 

Total sales in national currency (1992 and 1993). 

Percentage change of total sales (1992/1993). 

number of passengers (1992 and 1993). 

Percentage change in ECU of total sales per passenger. 

Percentage change in ECU of total sales. 

These aspects  are dealt with in the following  sections distinguishing  the place  of  sale  (which 
seems to be the most interesting topic from the vendor-control point of view). 

Section 1. 

Tax-free sales at airports 

Table  2  of  Chapter  1  showed  that  on  an ECU-basis  tax-free  sales  at  airports  have  slightly 
increased. Even when taking into  account  that the evolution in France was  negative  and that 
figures from Italy  are  missing14,  the  overall  conclusion  that  at  least  no  significant  decline  of 
tax-free sales at airports has taken place from 1992 to  1993, appears to be justified. Hence, the 
question  arises  if this finding is  mainly  influenced  by the  introduction  of  the  vendor  control 
system or by other aspects,  such as changes of the exchange rate or the number of passengers. 
The following table attempts to provide some figures for answering this question: 

The German and the Luxembourg figures  are missing as well, but these countries  charge  VA T anyway. 

106 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

" 

(8) " 

Member 
State 

Total  sales 
in 
1992 
(national 
currency) 

Total  sales  in 
1993  (national 
currency) 

Change  in 
total  sales 
(national 
currency) 

Number 
passengers 
departing 
1992 (total) 

of 

in 

Number  of 
passengers 
departing 
in 
(total) 

1993 

Change  of 
sales 
per 
passenger 
in ECU 

Change  of 
total  sales 
in ECU 

BE 

DK 

EL 

ES 

IRL 

NL 

PT 

UK 

3,262,646,613 

2,930,494,311 

-10% 

4,672,186 

5,203,062 

-21% 

-n% 

40,923,139 

49,992,499 

+22% 

369,038 

401,373 

+11% 

- 2 1% 

18,702.567,579 

21,736,643,472 

+16% 

6,893,769 

7,446,528 

20,152,105,000 

21,336,566.000 

+6% 

16,850,960 

17,287,620 

46,207,247 

48,483,862 

+5% 

6,684,887 

6,723,915 

- 1% 

-7% 

-4% 

476,449,100 

471,210,200 

-1% 

9,546,070 

10,862,006 

-10% 

5,820,592,000 

5,940,101,000 

+2% 

4,685,965 

4,663,813 

-9% 

295,550,658 

347,568,461 

+18% 

29,610,495 

30,951,629 

+ 14% 

+7% 

-5% 

+4% 

+3% 

-S>% 

-19% 
-  ,11 

Table 5. Tax-free sales  in airports  (sales to passengers  departing  to both other Member  States  and third  countries) 

If  one  compares  the  change  of  tax-free  sales  in  airports  per  country  from  1992  to  1993  in 
national  currency  (column  4)  and  in ECU  (column  8)  one  can  observe  two  effects:  In  some 
countries  exchange  rates  did,  to  a  certain  extent,  influence  the  evolution  of  tax-free  sales  at 
airports  (EL, ES, IRL  and  PT),  in others  no major  impact  can be  established.  If there  is  such 
an influence, the increase in national currency is higher than in ECU or there is even  a decrease 
of sales in ECU. This is a logical consequence of depreciation,  which  as such might  have been 
a reason for the increase as a whole. 

Looking into column  7 [change in ECU per passenger] and comparing  it with the figures  from 
column  8  [change  in  absolute  figures]  gives  a  certain  idea  of  the  possible  influence  of  the 
number of passengers on the evolution  of tax-free  sales at airports.  Again,  no  single trend  can 
be estabhshed  for the whole of the Community. For Ireland,  Spain  and Portugal  there is no  or 
little difference  between both figures which seems to indicate that the increase of tax-free  sales 
is linked to the increase of the number of passengers. The increase in the United  Kingdom  and 
in Denmark  is less significant  when  calculated  per passenger  and  for  Greece, Belgium  and  the 
Netherlands,  too,  the  development  per  passenger  is  more  negative  than  could  have  been 
expected from the absolute figures. 

Generally  speaking,  it  has  to  be  said  that  passenger  traffic  at  airports  had  increased  which  as 
such is surely no negative aspect for the business, be it tax-free  or (later on) tax-paid. 

Only four  Member  States were  able to  supply  separate data  on  sales to travellers  departing  to 
other Member  States. These data are set out in the following table: 

107 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

(8)  -

Member 
State 

Total  sales  in 
1992  (national 
currency) 

Total  sales  in 
1993  (national 
currency) 

total 

Change 
in 
sales 
(national 
curren 
cy) 

Number  of 
passengers 
departing 
in 
(total) 

1992 

Number  of 
passengers 
departing 
in 
(total) 

1993 

sales 

Change 
of 
per 
passen 
ger 
ECU 

in 

Change  of 
total  sales 
in  ECU 

BE 

EL 

IRL 

UK 

2,093,790,244 

1,642,015,562 

-22% 

11,922,295,077 

13,702,175,556 

+15% 

4,478,437 

4,941,906 

36,076,977 

37,555,866 

+4% 

3,085,179 

3,141,186 

-23% 

+6% 

-4% 

-4% 

-6% 

117,576,077 

129,984,163 

+11% 

13,721,009 

14,211,040 

+8% 

+12% 

Table 5a. Tax-free sales at airports to passengers departing to other Member States 

The comparison of the change of tax-free  sales at airports per country from 1992 to  1993  in 
national currency (column 4) and in ECU (column 8) reveals significant  differences  for Greece 
and Ireland - as explained above presumably linked to the depreciation of their currency - and 
does not show such differences  for Belgium and the United Kingdom. Looking into column 7 
[change  in ECU per passenger]  and'comparing it with the figures from column  8  [change in 
absolute figures] reveals a major difference  for Greece only, which is absolutely coherent with 
the  overall  trend  established  for  Greece.  The  limited  data  available  do  not  allow  to  draw 
general  conclusions.  However,  for Member  States that  supplied  data,  it would  seem that the 
intra-Community figures basically follow the same trend as the overall  figures. 

Section 2. 

Tax-free  sales  on  board  aircraft  on  intra-Community 
flights 

A first result  of the  statistical  research  done with figures in ECU  was  that  tax-free  sales  on 
board  aircraft  have  increased.  This  evolution  can  be  due  to  the  introduction  of  the  vendor 
control system (which does not seem to work properly on board aircraft)  or to changes of the 
exchange rate or the number of passengers.  The following table attempts to find an answer to 
this question.  It has to  be remembered  that the figures for each Member  State relate to  sales 
on intra-Community flights by airlines having their primary establishment  in the Member State 
concerned. 

108 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

(S) 

Member 
State 

Total  sales  in 
1992  (national 
currency) 

Total  sales  in 
1993  (national 
currency) 

Change  in 
total  sales 
(national 
currency) 

Number  of 
passengers 
departing 
in 
(total) 

1992 

Number  of 
passengers 
departing 
in 
(total) 

1993 

Change  of 
total  sales 
in  ECU 

sales 

Change 
of 
per 
passen 
ger 
ECU 

in 

BE 

DK 

EL 

ES 

IRL 

NL 

PT 

244,482,166 

234,169,623 

-4.22% 

1,550,854 

2,093,949 

-30.10% 

-5.62% 

396,000 

514,000 

+29.79% 

23,410 

30,550 

-1.51% 

+28.53% 

15385,140,300 

1,191,111,290 

+209.27% 

1,266,695 

1,301,810 

+227.36% 

+235.05% 

908,768,220 

1,030,477,563 

+13.39% 

2,368,138 

2,543,750 

-5.25% 

+1.77% 

5,047,669 

7,198,306 

+42.61% 

4,563,861 

4,712,446 

+26.91% 

+31.04%  | 

45,411,287 

38,234,430 

-15.80% 

3,998,390 

4,159,570 

-16.04% 

-12.66% ] 

828,878,510 

807,298,150 

-2.60% 

1,601,888 

1,830,854 

-23.97% 

-13.11%  | 

Table 6. Tax-free sales  on board  aircraft 

As far  as the  possible influence  of changes in the  exchange  rates  is concerned  the  comparison 
between the change of the tax-free  sales figures  on board  aircraft  in  1992 and  1993 in national 
currency (column 4) and in ECU (column  8) shows that no major  difference  can be ascertained 
for  Belgium,  Denmark  and  the  Netherlands.  In  Spain,  Ireland  and  Portugal  the  change  in 
national  currency  was  larger  than  in ECU.  Especially  in  Spain  and  Ireland  the  depreciation  of 
the currency  seems to have stimulated tax-free  sales on board  aircraft. 

Regarding  the  number  of  passengers  transported  and  its  relation  to  the  development  of  tax-
free  sales  on  board  aircraft,  a  look  at  the  columns  7  [change  in  ECU  per  passenger]  and  8 
[change of the absolute figures]  apparently indicates that in some countries passengers  seem to 
have changed  their  purchasing  behaviour  remarkably.  While the  decrease  of tax-free  sales  on 
board  aircraft  per  passenger  is  even  much  more  significant  than  in  absolute  figures,  the 
opposite is true for Denmark.  At this stage it is difficult  to  decide whether this development  is 
due  to  the  differences  in  the  functioning  of  the  vendor  control  systems  applied  or  to  other 
aspects, such as differences  in marketing,  advertisements, etc. 

Section 3. 

Tax-free  sales  on  board  ferries  operating  on  intra-
Community crossings 

According  to  the  approach  chosen  for  the  research  in this  part  of the  study  it  now  has  to  be 
decided,  whether  the  assertion  of  Chapter  1,  that  tax-free  sales  on  board  ferries  have 
significantly  increased,  can  be  maintained  when  the  basis  of  the  calculation  are  the  national 
currencies  (instead  of  the  ECU)  and  when  the  results  are  weighted  by  the  evolution  of 

15 

The figures  for  tax-free  sales  on  board  aircraft  in  Grèce  have  been  rebuilt  by  means  of  doubling  the 
data given  because  these were available  only for  the second  half  of the  year. 

109 

passenger traffic  at the time. The following  table provides some useful  figures  in this regard.  It 
has  to  be  remembered  that  the  figures  for  each  Member  State  relate  to  sales  on  intra-
Community  crossings  by  ferry  operators  having  their  primary  establishment  in  the  Member 
State  concerned. 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

Member 
State 

Total  sales  in 
1992  (national 
currency) 

Total  sales  in 
1993  (national 
currency) 

total 

Change 
in 
sales 
(national 
curren 
cy) 

Number  of 
passangers 
departing 
in 
(total) 

1992 

Number  of 
passangers 
departing 
in 
(total) 

1993 

sales 

Change 
of 
per 
passen 
ger 
ECU 

in 

Change  of 
total  sales 
in  ECU 

BE 

DK 

EL 

ES 

-

IRL 

NL 

UK 

752,294,000 

710,255,000 

-5.59% 

2,167,652 

1,867,897 

+7.96% 

-6.97% 

1,310,129,894 

1,323,109,019 

+9.91% 

1,710,628 

1,610,558 

+6.22% 

+0.01% 

3,184,660,486 

3,663,831,486 

+15.05% 

708,535 

638,445 

+17.68% 

+6.04% 

2,863,099 

294,195 

15,936,159 

18,172,800 

+14.03% 

1,630,260 

1,562,346 

+9.34% 

+4.78% 

60,982,000 

66,502,000 

+9.05% 

1,906,708 

1,913,009 

+12.76% 

+13.13% 

154,800,000 

235,000,000 

+51.81% 

1 

19,000,000 

22,000,000 

+32,79% 

+53.76% 

Table  7. Tax-free sales  on board  ferries 

Comparing  the  percentage  of  change  of tax-free  sales  on board  ferries  from  1992 to  1993 in 
national  currency  (column  4)  and  in  ECU  (column  8)  leads  to  some  conclusions  about  the 
influence  changing  exchange  rates  had  on  the  evolution  of  tax-free  sales  on  board  ferries. 
Three  countries  show  a  significant  difference  between  both  figures:  Denmark,  Ireland  and 
Greece; in ail of them the positive trend  is even higher in national  currency  than  in ECU.  This 
may  be  a  hint  of  the  intrinsic  influence  of  devaluation  on  the  increase  of  tax-free  sales  in  a 
country whose currency became weaker. 

The  increase  in the  number  of passengers  may be another  "natural" reason  for  the  increase  in 
tax-free  sales being ascertained  in this field. The figures in the columns 7  [change  in ECU  per 
passenger] and 8 [change of the absolute figures] indicate that in Belgium the decrease of sales 
in absolute figures corresponds  to  an increase  per passenger  or,  in other  words,  that  Belgium 
has  suffered  from  an  even  greater  deterioration  of the  tax-free  business  than  the  pure  figures 
seem  to  show  at  first  glance.  In  Denmark,  Ireland  and  Greece  the  increase  per  passenger  is 
also higher than the increase in absolute figures. Only in the United  Kingdom,  which  holds the 
largest  share  of  the  market  in  this  respect,  the  increase  per  passenger  is  smaller  than  in 
absolute figures. However,  more than 30% does still represent a very significant  increase. 

Summing  up,  it  seems  quite  obvious  that  the  increase  of  tax-free  sales  on  board  ferries  in 
relation  to  passenger  traffic  is  even  higher  than  was  to  be  expected  from  the  calculation  in 
ECU  in  Chapter  1.  A  certain  (sales-encouraging,  positive)  influence  of  the  exchange  rate 
evolution appears to  be probable for various countries but the figures do not  allow  indubitable 

110 

conclusions in this sense. 
Section 4. 

Conclusion 

Despite the incompleteness of data the statistical research  concerning  the evolution  of  tax-free 
sales  in ECU  all  over  the  Community  clearly  indicates  that  from  1992 to  1993  there  was  an 
overall  increase  of  tax-free  sales  which  was  geographically  split,  moreover  major  differences 
regarding  the  place  of  sale  (and  the  means  of transport)  v/ere  to  be  ascertained  whereas  the 
category  of goods  did not play an important  role in this respect  (the development  of sales was 
more  or  less  the  same  for  all  categories  of  goods).  The  conclusion  to  be  drawn  from  these 
results  in terms  of "vendor  control"  is that  the vendor  control  systems  applied  in the  different 
Member  States  seem  to  allow  a  different  evolution  of  tax-free  sales  and  that  all  over  the 
Community  controls  carried  out  on  board  aircraft  and  especially  on  board  ferries  are 
essentially less strict than those on the ground  at airports. Passengers  obviously become aware 
of these differences  in control  and  adapt  their  purchasing behaviour  (e.g. by buying  cigarettes 
on board  aircraft  instead of purchasing them at the airport). 

The  influence  on these first results by the  evolution  of the  exchange  rates  or  the  evolution  of 
the  number  of  passengers  appears  to  be  rather  limited.  Apart  from  some  minor  cases,  the 
calculation  of the  figures  in  national  currencies  or  in  relation  to  the  number  of  passengers  in 
1992 or in  1993 did not change the trend established before (per country or per place of sale). 

Passenger  traffic  as a whole has  increased  from  1992  to  1993  and  thus  favoured  the  positive 
development  of  tax-free  sales.  However,  where  the  purchases  per  passenger  are  concerned, 
there  is  only  a  significant  overall  increase  for  sales  on  board  ferries,  which  can  be  related  to 
vendor  control  procedures.  Other  explanations  for  this  change  are  not  convincing  because  a 
general  increase  in  the  demand  of  alcoholic  beverages,  tobacco  products,  perfumes,  toilet 
waters and luxury goods at the time does not seem plausible. 

In  some  countries  the  devaluation  of  the  national  currency  seems  to  have  had  a  certain 
stimulating  effect  on  the  evolution  of  tax-free  sales  as  well,  but  again  no  trend-changing 
influence  can be determined. 

111 

ISSN 0254-1475 

COM(96) 245 final 

DOCUMENTS 

EN 

09  02 

Catalogue number  :  CB-CO-96-323-EN-C 

ISBN 92-78-05930-7 

Office  for Official  Publications of the European  Communities 

L-2985 Luxembourg 

Wl