Opinion of the Economic and Social Committee on:the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EEC) No 218/92 on administrative cooperation in the field of indirect taxation (VAT), andthe Proposal for a Council Directive amending Directive No 77/388/EEC as regards the Value Added Tax arrangements applicable to certain services supplied by electronic means
Date: 2000-11-29
Institutions: European Economic and Social Committee
Subjects: VAT, administrative cooperation, electronic commerce, tax law

20.4.2001

EN

Official Journal of the European Communities

C 116/59

Opinion of the Economic and Social Committee on:

— the ‘Proposal for a Regulation of the European Parliament and of the Council amending
Regulation (EEC) No 218/92 on administrative cooperation in the field of indirect taxation
(VAT)’, and

— the ‘Proposal for a Council Directive amending Directive No 77/388/EEC as regards the
Value Added Tax arrangements applicable to certain services supplied by electronic means’

(2001/C 116/14)

On 11 September 2000 the Council decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned proposals.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 7 November
2000. The rapporteur was Mr Walker.

At its 377th plenary session on 29 and 30 November 2000 (meeting of 29 November), the Economic
and Social Committee adopted the following opinion by 106 to two, with four abstentions.

1.

Introduction

1.1.
E-commerce is revolutionising business. The physical
locations of a business’s management, of its core activities and
of ancillary services are coming to matter less and less. National
boundaries are irrelevant; the global nature of the competitive
electronic marketplace means that it is not constrained by
traditional geographic, economic or political boundaries; it
will be exploited by those who are best positioned to benefit
from its characteristics. This constitutes a major challenge to
the world of national tax systems, in which each country
expects to tax sales or profits arising within its own territory;
for tax administrations, this is perhaps the most important
issue which they face today.

E-commerce holds the promise of significant wealth
1.2.
generation for Europe. It is, therefore, essential that taxation is
not a barrier to its growth but rather fosters a climate of
confidence within which growth can take place while protect-
ing the interests of all stakeholders. The provision of a clear
and certain regulatory environment is accepted by businesses
and governments alike as an indispensable prerequisite to
creating a climate of confidence in which business will invest
and trade. Whilst onerous rules can be stifling to the creative
process that drives economic activity, regulatory indecision
can be equally disruptive.

1.3.
The Lisbon European Council of 23/24 March 2000
concluded that, as part of the measures needed for e-commerce
to reach its full potential in the EU, the rules for e-commerce
must be predictable and inspire both business and consumer
confidence. The Commission’s proposal is being put forward
in furtherance of this objective.

Recognising that

1.4.
the emerging electronic business
environment — and, in particular, the growth of the Internet
as a medium for international commerce — raised a number
of issues for the future of the EU’s VAT system, the European
Commission began examining the tax implications in 1997.
Working closely with representatives of the fifteen national
tax administrations, the likely impact of the growth of e-
commerce on Community taxes was examined in detail. The
Interim Report (1) on the implications of electronic commerce
for VAT and Customs found that, in a good many instances,
the existing mechanisms and legal base would be sufficient to
ensure that taxes were collected, although administrations
would need to be mindful of the likely impact of the changes
in pattern and in the volume of transactions.

A fundamental recommendation of

1.4.1.
the Interim
Report was, therefore, that existing taxes can, and would, be
made to work and consequently there was no need to consider
new or special taxes for e-commerce. Achieving this would
require changes in the existing legislative structure.

1.4.2.
It was also clear that a purely legislative approach to
taxing e-commerce was not the sole answer. E-commerce is a
truly global process and no tax jurisdiction, acting in isolation,
can resolve all the issues that it raises. A level of international
collaboration is needed. The successful administration and
application of taxes will depend to a great extent on, inter alia,
achieving an international consensus on avoiding double
taxation or unintentional non-taxation, while giving businesses
security and certainty as to their obligations.

(1) Document XXI/98/0359 dated 3 April 1998.

C 116/60

EN

Official Journal of the European Communities

20.4.2001

1.4.2.1.
To this end, the Commission adopted a set of
guidelines (1) in June of 1998 as a basis for progress and, in
particular, to set an agreed framework for advancing the
debate within the Community. The intention was that they
would also serve as a common basis for the role to be taken
by the EU and its Member States on indirect tax issues in the
OECD ministerial conference scheduled for October of that
year in Ottawa. These guidelines gave due recognition to the
need for international accord.

The underlying principle of the guidelines was that
1.4.2.2.
the interface between the Community’s indirect tax system and
those of its trading partners should be neutral — in effect, all
supplies for consumption within the EU should be subject to
EU VAT while supplies to other jurisdictions should not. This
reflects the nature of the Community’s VAT system as a general
and comprehensive tax on consumption.

The Commission’s guidelines were considered by the
1.4.3.
ECOFIN Council on 6 July 1998, where the Member States
endorsed three main principles:

— no new or additional taxes need be considered for e-
commerce; existing taxes, and specifically VAT, should be
adapted so that they could be applied to e-commerce;

— for the purposes of consumption taxes, electronic deliver-
ies should not be considered as goods; in the case of the
EU VAT system, they should be treated as supplies of
services;

particular priority the implementation of a consumption tax
system that conformed to traditional broad taxation principles,
including neutrality, efficiency, certainty and simplicity. Such
a system is effectively in line with the principles adopted by
the Council.

As one step in an extensive consultation process,
1.4.4.
more than one hundred European business representatives,
including representatives of SMEs, attended a Round Table on
the options for the European union VAT system in Brussels in
January of 1999. The consistent message which the business
interests expressed was that clarity in the tax rules for e-
commerce is a priority and that there is a need for certainty as
to what the rules are and how they will be applied. The
Commission fully recognises the importance of eliminating
the uncertainties and distortions in the present tax system.

1.5.
The intention is to improve the functioning of the
single market, but without putting in question the long-term
legal and political commitment to a definitive system of
taxation and the degree of harmonisation that this will require.
The proposal now being made on the taxation of certain
services supplied by electronic means is a first step in
implementing this strategy.

2.

The Commission proposals

— only supplies of such services consumed in Europe should

be taxed in Europe.

2.1. VAT on certain services supplied by electronic means

1.4.3.1.

The Council also highlighted the following matters:

— the issue of control and enforcement of VAT on e-

commerce;

— the need for rules for the acceptance of paperless

invoicing;

— the fact that compliance for non-EU operators should,
having regard to international agreements, be made as
easy and simple as possible;

— the need to provide for the discharge of fiscal obligations

by electronic means.

Internationally,

1.4.3.2.
the Taxation Framework Con-
ditions, subsequently endorsed by government and business
identified as a
representatives at

the Ottawa Conference,

(1) COM(1998) 374 final.

The present proposal addresses the issue of on-line
2.1.1.
supply of digitised products, in particular those destined to
final consumers in the European union, which was identified
as a potential tax problem in the Interim Report. This is a new
type of business transaction, which had not been envisaged
when the existing legislative base was drawn up. Furthermore,
the compliance, control and enforcement models currently
available to tax administrations are likely to be inadequate in
certain respects.

2.1.2.
The consultations undertaken by the Commission
have confirmed the view that the modifications should be
based as closely as possible on the operation of the current
VAT system. What is being proposed, therefore, is predicated
on the continued use of
the reverse charge system for
transactions involving registered traders, linked to the impo-
sition of a registration obligation on non-EU operators supply-
ing to EU non-taxable persons.

2.1.3.
VAT Directive. The current rules of this Article, and,
particular, paragraphs (1) and (2)
Directive, provide that:

The approach taken is to amend Article 9 of the 6th
in
(c) and (e) of the 6th

20.4.2001

EN

Official Journal of the European Communities

C 116/61

— supplies of third country-based operators to non-taxable
persons in the EU are exempt from VAT while EU-based
operators have to charge VAT on such services, since the
place of supply of such services is usually the place where
the supplier is established (such cases are not covered by
Article 9 (2) (e) and fall under the basic rule in Article 9
(1);

— supplies by EU-based operators of the services mentioned
in Article (9) (2) (c) to customers in third countries or to
taxable persons established in the Community but not in
the same country as the supplier may have to be made
with VAT because the place of supply is the place where
the services are physically performed.

— where an EU operator provides these services to a non-
registered person in the EU, or to a registered trader in
the same Member State, the place of supply will be where
the supplier is located.

2.1.5.
The proposal does not have any impact on services,
whether defined in Article 9 (2) (f) or not, for which no charge
is made, such as free Internet access or free downloads.
(Article 2 of the 6th Directive makes it clear that only services
effected for consideration are subject to VAT). Nor does it
affect transactions involving the physical movement of goods,
even where the transactions are conducted by electronic
means. Its scope is limited to the following services when
supplied by electronic means against consideration and
includes also the supply of the rights to use several services:

This creates distortions of competition and places
2.1.3.1.
EU-based suppliers at a disadvantage vis-à-vis non-EU oper-
ators. The remedy proposed is to introduce a new para-
graph (2) (f) to Article 9 which transfers as a basic rule the
taxation of the services caught by this proposal to the place
where the customer has established his business or has a fixed
establishment to which the service is supplied or,
in the
absence of such a place, the place where he has his permanent
address or usually resides. Where the customer is a registered
trader established in a country other than that in which the
supplier is established, the customer will assume liability for
the tax. When supplies are made by taxable persons (estab-
lished inside or outside the Community)
to non-taxable
persons established in the Community the proposal introduces
a specific provision establishing the place of supply in the
Member State where the supplier is identified for VAT
[Article (9) (2) (f)].

— cultural, artistic, sporting, scientific, educational, enter-
tainment and similar activities, including the activities of
their
services
[Article 9 (2) (c), 1st indent]. This includes all forms of
broadcasting as well as other sound and images released
and delivered by electronic means;

organisers

ancillary

also

and

— software, including, for example, computer games;

— data processing (Article 9 (2) (e), 3rd indent) and explicitly
including computer services, including web-hosting, web
design and similar services;

— the supplying of information.

2.1.4.
follows:

The effects of this proposal may be summarised as

2.1.5.1.
For convenience, in the remainder of this document
all of the above services will be collectively referred to as the
supplies which are caught.

— for services supplied by a non-EU operator to an EU
customer the place of taxation will be within the EU and
the transaction will be accordingly subject to VAT;

2.1.6.
A number of additional measures have been necess-
ary to facilitate the proposed legislation. The effect of these
can be summarised as follows:

— where these services are provided by an EU operator to a
non-EU customer, the place of taxation will be where the
customer is located and the transaction will not be subject
to VAT;

— tax on supplies to registered traders will be accounted for
by the customer; registration for tax purposes by non-EU
suppliers will only be necessary if supplies are made to
unregistered customers;

— where an EU operator provides these services to a
registered trader in another Member State, the place of
supply will be the place where the customer is established;

— registration will not be required for non-EU established
traders whose annual level of sales in the EU is below
EUR 100 000;

C 116/62

EN

Official Journal of the European Communities

20.4.2001

— a single place of registration (which will,

in practice,
normally be the Member State to which the first taxable
supply is made) will be possible; this will enable the non-
EU operator to discharge all obligations for EU VAT with
a single tax administration; this latter measure effectively
puts EU and non-EU operators on an equal basis when
supplying EU customers;

— it will also be possible to complete electronically all
procedures in relation to registration and the filing of tax
returns;

— tax administrations will provide operators with the means
to distinguish easily the status of their customers (i.e.
whether the customer is a VAT-registered business or
not) and this will normally provide the means whereby a
supplier, acting with all possible diligence, can determine
whether or not a transaction should bear tax.

2.1.7.
Under the current legislation, the rate of tax to be
applied for sales to customers within the Community is the
standard rate of VAT for the Member State in which the
supplier is registered. In this context, there is a potential issue
to be addressed concerning the possibility of different rates of
tax applying to ostensibly similar goods and services. The
Commission intends to address this matter in a future review
of Annex H of the 6th VAT Directive, which lists the supplies
of goods and services which may be subject to reduced rates
of VAT.

2.2. Aims and contents of the proposal amending Regulation

(EEC) No 218/92

2.2.1.
The above proposals necessitate a change in the
current legal basis for confirming the validity of VAT identifi-
cation numbers.

amendment to the scope of the Regulation is necessary to
allow Member States to give confirmation of the validity of a
customer’s VAT identification number to any person supplying
services by electronic means.

2.2.2.
Taxable persons supplying services in accordance
with Article 9 (2) (e) of Directive No 77/388/EEC have no legal
obligation to confirm that their customer has a valid VAT
identification number. Nevertheless, the possibility of verifi-
cation of customers’ VAT identification numbers should, the
Commission believes, also be extended to these suppliers.

2.2.2.1.
As a trade facilitation measure, it is necessary that
the confirmation of validity of VAT identification numbers can
be made by electronic means. To that end, the current proposal
allows for this possibility by means of a Council Decision
made in the framework of the Commission exercising its
implementing powers. Because the Council has decided to
amend the procedures for the exercise of implementing powers
conferred upon the Commission, the opportunity provided by
the necessity to amend the Regulation is being used to update
the comitology procedures.

2.2.2.2.
The Commission is making this proposal under
Article 95 of the Treaty because the measures proposed do not
constitute fiscal harmonisation provisions but are intended to
ensure the proper functioning of the internal market for
services offered by electronic means. By choosing Art. 95 EC
as the legal basis, the Commission is consistent with its
proposal for Regulation No 218/92/EEC of 19 June 2000
(COM(90) 183), where it already suggested Art. 100A EC-
Treaty (now Art. 95 EC) as the appropriate legal basis. The fact
that the content of this information can be used for a correct
tax assessment does not mean that taxation, as such, forms the
principal objective of Regulation No 218/92/EEC or its
proposed modifications. The legal basis for the harmonisation
of indirect taxation is Art. 93 EEC.

The current wording of Article 6 of Regulation
2.2.1.1.
(EEC) No 218/92 allows Member States to confirm the validity
of the VAT identification number of any specified person.
However, the scope of this confirmation is limited to ‘persons
involved in the intra-Community supplies of goods or of
services’.

3. General comments

As services supplied by electronic means, as defined
2.2.1.2.
in the Proposal to amend Directive No 77/388/EEC, may
services, an
involve non intra-Community supplies of

3.1.
The Committee welcomes the Commission’s proposals
on VAT and electronic commerce on the basis that they should
contribute significantly to the establishment of a ‘level playing
field’ between EU businesses supplying services by electronic
means to consumers and non-EU operators addressing the
same markets.

20.4.2001

EN

Official Journal of the European Communities

C 116/63

3.1.1.
In principle, the approach to supplies to final con-
sumers is correct, as it establishes the EU’s right to tax digitised
products supplied to EU consumers. For supplies exceeding
the threshold this would remove the competitive advantage
currently enjoyed by non-EU suppliers of digitised products
by requiring them to charge EU VAT on supplies to EU
consumers, thereby putting them in the same position with
regard to their sales within the Community as EU traders.

3.1.2.
Similarly, the ability of EU traders to make supplies
to non-EU customers free of VAT will remove a significant
competitive disadvantage.

The Committee has consistently supported the intro-
3.2.
duction of a new definitive system of VAT based on taxation
in the country of origin at the earliest possible opportunity
and has repeatedly called upon the Member States to recognise
the importance of this measure and to stop blocking initiatives
for VAT reform (1). It therefore welcomes the Commission’s
assurance that the present proposals do not put in question
the long-term legal and political commitment to a definitive
system of taxation.

3.3.
The Committee agrees with the objectives of achieving
simplicity, clarity and certainty for businesses with regard
lack of certainty
to their legal obligations. For businesses,
constitutes a greater hazard and a stronger disincentive than a
known burden.

3.3.1.
It also agrees that there is a need to protect law-
abiding businesses from the unfair competition of traders who
evade their tax obligations. It is clearly inequitable that the
honest business should, in effect, be subsidising those with a
lower standard of ethics. The payment of taxes is a social and
legal obligation which should not be circumvented.

The Committee agrees that new forms of taxation
3.3.2.
are not necessary and that existing taxes can and should be
adapted to cope with e-commerce.

3.3.3.
It endorses the principle that the necessary modifi-
cations should be based as closely as possible on the operation
of the current VAT system until such time as a new definitive
system can be introduced.

3.4.
The issue is not primarily one of revenue retention at
this stage. The total existing volume of sales of digitised
products would yield no more than EUR 35 million per annum

(1) OJ C 82, 19.3.1996, p. 49, OJ C 296, 29.9.1997, p. 51, OJ C 101,

12.4.1999, p. 73, OJ C 116, 28.4.1999, p. 14.

in the EU as a whole. However, the potential for growth in e-
commerce is exponential and this could give rise to serious tax
losses at a later stage if the position is not regularised. The
Committee approves the principle of getting the tax structure
right before revenue loss becomes a serious issue.

3.5.
It is important that these proposals, which are a useful
starting point in adapting the VAT system to cope with e-
commerce, are not allowed to prejudice or adversely affect any
work by the OECD Consumption Tax Working Group. As the
Commission itself acknowledges, e-commerce is a truly global
process and the issues which it raises can only be solved by a
process of international co-operation involving the widest
possible constituency.

The main concern with regard to these proposals must
in turn, will

3.6.
relate to the question of enforceability. This,
depend on three factors:

— the willingness of non-EU traders to submit to voluntary

registration;

— the willingness of non-EU tax administrations to cooper-

ate in enforcement procedures;

— the possibility of securing enforcement by other means.

3.6.1.
VAT is a tax which imposes considerable administrat-
ive burdens on the businesses which are registered traders;
refusal to comply may well stem as much from an unwilling-
ness to incur the costs of undertaking the work involved in
completing the returns as from a desire to achieve an illicit
competitive advantage. The existence of a single place of
registration would greatly simplify the process for non-EU
traders and is obviously a key factor in securing their
compliance. It is questionable whether this measure will be
acceptable to a majority of Member States but, without it, the
chances of persuading non-EU businesses to register in the EU
would be substantially reduced.

The main problem is likely to arise from fears by
3.6.1.1.
some Member States that they might lose revenue to those
with lower rates of VAT, since the proposal that registration
should take place in the Member State where the first taxable
supply takes place is clearly open to manipulation and non-
EU traders would effectively have a choice of the Member State
in which they chose to register.

C 116/64

EN

Official Journal of the European Communities

20.4.2001

3.6.1.2.
This could be dealt with by setting up a ‘clearing
house’ system to redistribute tax revenues between the Member
States on the basis of consumption but previous experience
has shown that such arrangements are inevitably so complex
as to be unworkable.

It

is unlikely that

tax administrations in other
3.6.2.
countries would be prepared to expend much effort
in
collecting tax revenues on behalf of EU Member States or in
pursuing tax evaders. The level of co-operation on these issues
even between Member States has been disappointing.

3.6.3.
The efficacy of other measures which might be
introduced to secure compliance on a non-voluntary basis is
uncertain. As the Commission says, failure to comply with
self-assessment obligations does nothing to reduce or remove
a debt owed in respect of taxation, but if the debt is not
enforceable that is an academic point. Given the amount of
tax fraud which is acknowledged to take place in the EU under
existing regulations, it is clear that reliance cannot be placed
entirely on voluntary compliance; tools for direct enforcement
will need to be developed if the scale of evasion is not to bring
the system into disrepute.

3.6.3.1.
One possibility is, as the Commission suggests,
through credit cards but there are problems associated with
this approach. The use of the country indicator in the credit
card number would only be practicable when the non-EU
supplier was prepared to co-operate. A more radical approach
would be to require credit card issuers to levy VAT on the
transactions charged to each card. Apart from being difficult
to implement, this approach is open to a number of objections.
In the first place, banks, which control most credit card issues,
may be reluctant to release this information; in some cases,
they may be constrained by legal restrictions in their Member
States. Secondly, it is quite possible for people to hold credit
cards issued by banks located in countries other than their
own;
there was a significant
commercial advantage to be obtained by issuing credit cards
on which tax could not be levied, then there would be a
number of
located in off-shore tax
havens, which would offer this facility. Finally, as the Com-
mission says, credit card payments are likely to be superseded
by other payment systems for e-commerce transactions.

it became obvious that

institutions,

financial

if

3.6.3.2.
There is also the question of whether credit-card
companies would be willing to undertake the additional work
involved in providing this information. Similar considerations
apply to other intermediaries whose help might be enlisted,
such as Internet service providers, telephone companies and
inter-active television companies.

3.6.3.3.
There is an implied threat in the Commission’s
paper that non-EU operators who refused to comply might
have protection for their intellectual property rights withdrawn
in the EU. This would be a strong inducement, given that
many of the products involved in e-commerce are easily
piratable, but such a course of action would put the EU in
breach of international agreements which it has concluded on
this subject; it would also risk violating WTO rules.

The Commission looks towards new tools to
3.6.3.4.
ensure enforcement against non-compliant businesses and
expects such tools to become available as technology and e-
commerce procedures develop but experience suggests that
legislation, especially in the field of taxation, tends to lag
behind technology. The technological advantage lies with the
evader rather than the legislators.

3.6.3.5.
The prevention of tax evasion, as in other areas of
criminal activity, depends for its effectiveness primarily on a
reasonable and realistic expectation that non-compliance will
be detected. The difficulty in the area of e-commerce lies in
the transaction has even taken place. The
knowing that
proliferation of the use of portable personal computers enables
the transaction to be generated from anywhere in the world
regardless of the domicile of the consumer.

3.6.3.6.
Failure to secure compliance, whether voluntary or
involuntary, from the vast majority of traders whose trans-
actions would be liable to EU VAT under these proposals
would precipitate defections amongst those non-EU operators
who had previously submitted to registration, because they
would then be in a position of competitive disadvantage.

3.7.
It will obviously be necessary for non-EU traders who
choose to comply with the self-assessment obligation to have
the means of verifying the tax status of their customers.
This process would be greatly facilitated if national
tax
administrations were to publish directories of VAT-registered
traders in their jurisdiction, in the same way that telephone
directories or voters lists are published; these directories could
be updated on a three-monthly basis.

The list of supplies which are caught by this proposal
3.8.
is far from exhaustive and this gives rise to the possibility of
litigation concerning whether a specific service is or is not
covered by one or other of these defined categories and, if so,
which one. This creates a degree of uncertainty, which the
Commission has said that it is trying to avoid. There is also the
problem that lists may become outdated by technological
developments leading to the introduction of new types of
services.
It would be preferable to have a more general
categorisation. There is a strong case for replacing lists with
something couched in more general terms, which would be
better able to deal with future developments.

20.4.2001

EN

Official Journal of the European Communities

C 116/65

3.9.
The Commission’s proposals represent an effective
extension of the use of the reverse-charge procedure. This is
contrary to the Commission’s former stance, which has, in
general, been hostile to extensions of
the reverse-charge
principle on the grounds that it moves the VAT system further
from the definitive, origin-based system of VAT towards which
it is working.

4.3.
The addition of Article 9 (2) (f) to cover digitised
products with different rules from Article 9(2)(e) could create
administrative complexity and distortion in favour of non-EU
suppliers where ‘bundled’ or composite supplies with elements
falling within the different sub-paragraphs are made.

3.10.
The Committee particularly welcomes the Com-
mission’s assurance that it, ‘will continue to work to ensure
that any aspects of the EU tax system which can be construed
as obstacles to growth of e-commerce are removed.’ The
Committee regards this as an indispensable prerequisite for the
taxation of e-commerce.

The proposal refers to the use of ‘all possible dili-
3.11.
gence’. The Committee feels that this could potentially consti-
tute a very onerous requirement if it were interpreted too
rigidly.
It is also concerned that differences between the
Member States in the way in which this term is interpreted and
applied could result in a further fragmentation of the system
and increased difficulties for cross-border traders. The Com-
mittee feels that a requirement to exert ‘all reasonable diligence’
would be less prejudicial.

4.

Specific comments

4.1.
This proposal is the latest in a series of amendments to
Article 9 of the 6th VAT Directive, the cumulative effect of
which has been to produce a degree of complexity which is
less than desirable. While major restructuring of the 6th
Directive may seem unnecessary in the context of an impend-
ing new definitive system, it has to be recognised that this
definitive system has been a long time in gestation; given the
reluctance of Member States to agree to changes to the VAT
system, the emergence of a new definitive system in the
immediate future must be viewed with a degree of scepticism;
if its advent is to be much further delayed, then the Committee
would advocate that, without calling into question the commit-
ment
to a new definitive system or further delaying its
implementation, there should be a major re-write of Article 9
as part of a comprehensive modernisation of the existing
system.

supplies

4.3.1.
Broadcasting has not been included as a specific item
in Article 9 (2) (f), which seems very odd considering the
fall within
preamble. TV broadcasting
Article 9 (2) (c) will be included in the new Article 9 (2) (f).
This seems to include certain aspects of broadcasting but not
all. This area needs redrafting to identify clearly what is
included in Article 9 (2) (f). The problem would be largely
removed if digitised products and broadcast services were
subject to the same rules.

that

4.3.2.
Data processing remains in Article 9 (2) (e) but when
supplied by electronic means it becomes an Article 9 (2) (f)
service. A large proportion of data processing is carried out by
computers (data processing machines) and the inclusion under
both articles will clearly produce difficulties.

Article 9 (2)

(f) defines computer services as
4.3.2.1.
‘including web-hosting, web-design or similar services’. With-
out clearer definition, there will be significant differences of
interpretation. For example, computer hire could be included
here or under Article 9 (2) (e), while maintenance of computer
equipment could fall either here or under 9 (2) (c).

4.4.
There is potential for anomalous situations to arise
where a service provided by electronic means is taxed at a
different rate from that applied to an identical service provided
by conventional means because, for example, the conventional
service is taxed at a reduced rate in a given Member State while
the electronic service is taxed at the standard rate.

4.2.
The proposals permit some tax-free transactions across
borders, and this is broadly welcomed, but a greater emphasis
on Article 9 (2) (e) is required, and not just for e-commerce.
For cross-border supplies of all services and digitised products,
Article 9 (2) should be the default, not Article 9 (1).

The Committee notes that a turnover threshold of
4.5.
EUR 100 000 will be applied to non-EU operators before
registration will become mandatory.
It considers that the
distortion of competition between EU and non-EU traders
would be further reduced if this threshold were standardised
in all the Member States for both domestic and foreign
operators.

C 116/66

EN

Official Journal of the European Communities

20.4.2001

4.6.
The Committee warmly welcomes the proposal to
allow traders to discharge their fiscal obligations, including the
verification of the customer’s VAT status and the payment of
the tax, by electronic means. In particular the Committee
considers that the electronic verification of the customer’s VAT
status is an indispensable precondition for e-commerce. It
considers that such facilities should be extended to all regis-
those who are engaged in e-
tered traders and not just
commerce.

4.6.1.
The Committee notes that some Member States may
require derogations from this requirement for a transitional
period because their tax authorities are not yet equipped with
the requisite technology. An extended transitional period
during which a number of Member States were not operating
an electronic system would again create differences between
the Member States which would undermine the continuity of
the system; it would also discourage non-EU operators from
registering in those countries. The Committee hopes that any
derogations given in this context will be limited to the shortest
possible time.

4.7.
The Committee notes that the Commission intends to
make a review of Annex H of the 6th VAT Directive, which
lists the supplies of goods and services which may be subject
to reduced rates of VAT. While this is obviously necessary, it
is doubtful whether the Member States would accept further
restrictions on their ability to apply reduced rates of tax.

4.8.
The exponential expansion potential of e-commerce
poses problems for the taxation of goods as well as services.
The sheer volume of cross-border transactions in goods is
likely to create severe difficulties for customs services, which
have to levy VAT on imported goods at the border. It has
already been necessary in some Member States to raise the
threshold of unit value at which VAT becomes due; further
increases in this threshold are likely to be necessary and it may
be that some other system for taxing cross-border transactions
in goods will have to be found.

There is a risk of an element of double taxation for
4.9.
European consumers. Where a non-EU supplier is required to
charge sales tax in the country of origin on export sales and
registers for self-assessment to EU VAT, there is no mechanism
in
proposed for recovering or offsetting the foreign tax,
contrast with the situation which pertains for foreign divid-
ends.

4.10.
The Committee agrees with the Commission’s
decision to use Article 95 of the Treaty as the legal basis for
the proposed regulation.

5. Conclusions

5.1.
E-commerce is a global business and the taxation
challenges which it raises can only be tackled effectively by the
widest possible degree of international co-operation.

5.2.
The Committee agrees with the Commission on the
need to remove the existing competitive disadvantage for
European traders vis-à-vis non-EU operators, the need to
protect compliant businesses against unfair competition from
traders who evade their fiscal responsibilities and the need to
modify the VAT system to cope with the new challenges
presented by e-commerce.

5.3.
The Committee endorses the principle that taxation in
general should exhibit the qualities of neutrality, efficiency,
certainty and simplicity.

5.4.
The Committee agrees that no new or additional taxes
need to be considered and that existing taxes should be capable
of being adapted to cope with e-commerce.

The Committee regrets the length of time which it is
5.5.
taking to introduce a new definitive VAT system and welcomes
the Commission’s assurance that it is still fully committed to
this project.

5.6.
The Committee approves of the proposals to allow
traders to submit VAT returns, make payments, verify the VAT
status of their customers and provide any other information
required by the tax authorities by electronic means and hopes
that any derogations granted to Member States in respect of
their obligation to make this facility available to operators in
their jurisdiction will not be unnecessarily lengthy.

The Committee welcomes the Commission’s assurance
5.7.
that any aspects of the EU tax system which can be construed
as obstacles to e-commerce will be removed.

20.4.2001

EN

Official Journal of the European Communities

C 116/67

5.8.
The Commission’s proposals fit well with the principles
of VAT; if VAT is to remain the standard European tax on
consumption, applicable to all forms of commerce, something
along the lines proposed should be introduced. Unfortunately,

there must be doubts about the enforceability of the Com-
mission’s proposals and their acceptability to the Member
States in their present form.

Brussels, 29 November 2000.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on the ‘Proposal for a Council Directive
amending Directive 77/388/EEC on the common system of value added tax, with regard to the
length of time during which the minimum standard rate is to be applied’

(2001/C 116/15)

On 19 October 2000 the Council decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 7 November
2000. The rapporteur was Mr Kenneth Walker.

At its 377th plenary session on 29 and 30 November 2000 (meeting of 29 November) the Economic
and Social Committee adopted the following opinion by 110 votes to one, with 10 abstentions.

1.

Introduction

1.1.
The second sub-paragraph of Article 12(3)(a) of Direc-
tive 77/388/EEC (1) stipulates that, on a proposal from the
Commission, and after having consulted the European Parlia-
ment and the Economic and Social Committee, the Council
shall decide unanimously on the standard rate of VAT to be
applied.

1.2.
The Directive, introducing a system of minimum rates,
stipulated, inter alia, that from 1 January 1993 the standard
rate could not be set at less than 15 %. Member States were,
however, given the option of applying one or two reduced
rates, equal to or greater than 5 %, to a limited list of categories
of goods and services. Some transitional derogations were also
provided for, to take special situations into account. The
Directive set an expiry date of 31 December 2000.

1.2.1.
At the same time, however, the Council legally and
politically re-affirmed its April 1967 commitment to the
achievement of a definitive VAT system, based on taxation of
goods and services in the Member State of origin, and set itself
a new target date of 31 December 1996 to achieve this goal.

1.3.
The programme adopted by the Commission in July
1996 envisaged a gradual transition to the definitive system.
The first stage was to be the modernisation and more uniform
application by the Member States of the existing system,
together with amendments designed to lead to the definitive
system, but it very soon became clear, as in 1987, that the
necessary degree of harmonisation could not be achieved
because of differing domestic arrangements in the Member
States.

1.4.
Consequently, to maintain the degree of harmonisation
of the rates already achieved, on the one hand, and, on the
other, to open the way to the definitive system of VAT based
on taxation in the country of origin, the Commission presented
a new proposal for a Directive (2) on 20 December 1995, as
provided for in the 1992 Directive. That proposal provided
for a standard rate band with a minimum level of 15 % and a
ceiling of 25 %. Given the supposedly transitional nature of
the prevailing taxation system, the arrangements were to apply
for only two years, from 1 January 1997 to 31 December
1998.

(1) OJ L 145, 13.6.1977, p. 1. Directive as last amended by Directive

2000/17/EC (OJ L 84, 5.4.2000, pp. 24-25).

(2) COM(95) 731 final (OJ C 73, 13.3.1996, p. 22).