Opinion of the European Economic and Social Committee on the Proposal for a Council Directive amending Directive 77/388/EEC with a view to simplifying value added tax obligations and the Proposal for a Council Regulation amending Regulation (EC) No 1798/2003 as regards the introduction of administrative cooperation arrangements in the context of the one-stop scheme and the refund procedure for value added tax (COM(2004) 728 final — 2004/0261 (CNS) — 2004/0262 (CNS))
Date: 2005-05-12
Institutions: European Economic and Social Committee
Subjects: VAT, administrative cooperation, exchange of information, fiscal policy, simplification of legislation, single market, tax harmonisation

27.10.2005

EN

Official Journal of the European Union

C 267/45

Opinion of the European Economic and Social Committee on the Proposal for a Council Directive
amending Directive 77/388/EEC with a view to simplifying value added tax obligations and the
Proposal for a Council Regulation amending Regulation (EC) No 1798/2003 as regards the intro-
duction of administrative cooperation arrangements in the context of the one-stop scheme and the
refund procedure for value added tax

(COM(2004) 728 final — 2004/0261 (CNS) — 2004/0262 (CNS))

(2005/C 267/07)

On 24 January 2005 the Council decided to consult the European Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the abovementioned 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 15 April 2005. The rapporteur
was Mr Burani.

At its 417th plenary session, held on 12 May 2005, the European Economic and Social Committee
adopted the following opinion by 90 votes nem. con. with one abstention.

1. Introduction: the Commission document

1.1
In October 2003, the Commission presented a commu-
nication (1) reviewing the VAT strategy it had launched in June
2000 and setting out a series of new initiatives to be taken
under that strategy. Essentially, the strategy consists of pursuing
four main objectives:
the simplification, modernisation and
more uniform application of current rules, and closer adminis-
trative cooperation.

1.2

The document referred to the EESC (2) is in three parts:

a) a proposal

for a Council Directive amending Directive
77/388/EEC with a view to simplifying value added tax
obligations;

b) a proposal for a Council Directive laying down rules for the
refund of value added tax, provided for
in Directive
77/388/EEC, to taxable persons not established in the terri-
the country but established in another Member
tory of
State;

c) a proposal for a Council Regulation amending Regulation
(EC) No 1798/2003 as regards the introduction of adminis-
trative cooperation arrangements in the context of the
one-stop scheme and the refund procedure for value added
tax.

1.2.1
Only proposals a) and c) require comments from the
EESC. The general comments apply to both proposals, as they
are both part of a single strategy.

upon the Competitiveness Council to identify areas for simplifi-
cation. A decision on the matter was adopted in June 2004 and
the Commission issued the document addressed by this
opinion in October 2004. Meanwhile, at the informal ECOFIN
meeting of 11 September 2004, the Dutch Presidency had
raised the issue of ‘Fostering growth by reducing administrative
burdens’. The Commission feels that its proposal fits perfectly
within this objective.

The Commission surveys (3) published in the second half
1.4
of 2003 stressed that one of the main objectives had to be to
simplify the system for ‘taxable persons who have VAT obli-
gations in a Member State where they are not established’
(in practice, exporters of goods and services — EESC note).
Indeed, the administrative burden on those persons is so great
and complex that many potential exporters prefer not
to
engage in any activities subject to VAT whatsoever in another
Member State.
so
complex and burdensome that 54 % of
large companies have
abandoned their claim at some stage in the proceedings.

the refund procedure is

In addition,

The proposals listed in point 1.2 seek precisely to avoid

1.5
such difficulties by providing for six practical measures:

1) the introduction of the one-stop scheme for non-estab-

lished taxable persons;

2) the introduction of a one-stop scheme to ‘modernise’ the

refund procedure;

1.3
The simplification of business obligations, which had
been under consideration for some time, was addressed by a
European Council decision of 26 March 2004, which called

3) harmonisation of the scope of the goods and services
for which Member States may apply restrictions to the
right to deduct;

(1) COM(2003) 614 final
(2) COM(2004) 728 final of 29.10.2004

(3) SEC(2004) 1128

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4) extension of the use of the reverse charge mechanism;

5) a review of the special scheme for small and medium-

sized enterprises;

6) simplification of the distance selling arrangements.

To help achieve these objectives, the Commission has

1.6
proposed three legislative initiatives:

— modification of the Sixth VAT Directive (4);

— replacement of the Eighth VAT Directive;

— modification of Council Regulation (EC) No 1798/2003 on

VAT administrative cooperation (5).

1.6.1
The initiatives proposed in the document have already
been extensively discussed with the Member States and have
been the subject of a wide consultation process with stake-
holders on the Internet.

A. PART I: THE PROPOSAL FOR A DIRECTIVE

2. The one-stop-shop project

the

first

2.1
The concept of a ‘one-stop-shop’ is not new: it was actu-
in Council Directive
ally proposed for
time
2002/38/EC, which, however, limited its scope to e-commerce
operators (6) supplying cross-border services to non-taxable
persons. Essentially, the one-stop (OS) scheme currently being
proposed would extend to all exporters of goods and
services the option of being included in an electronic
register in the country in which they are established,
which would be valid for all EU countries, thus eliminating
the obligation for exporters to be included in the VAT registers
of all the Member States to which they export and allowing
them to keep their national registration number.

2.2 With the introduction of the OS scheme, the situation
would be as follows:

— if the customer is liable to pay VAT, they must submit
their declaration in the Member State in which they are
established, in which case the exporter has no declarative
obligation;

— if, on the other hand,

the non-established trader
(vendor/exporter) is the person liable to pay the tax,
they can fulfil their obligations by using the OS scheme
instead of — as is currently the case — making their
declaration in the Member State of destination. The rate
will, of course, be that in force in the destination country.

(4) See Council Directive 2004/66/EC of 26.4.2004.
(5) See Regulation (EC) No 885/2004 of 26.4.2004.
(6) See EESC Opinion in OJ C 116 of 20.4.2001, p. 59.

2.2.1
The Commission is convinced that the one-stop model
could simplify tax obligations for a considerably larger number
and wider range of traders than it does today: in addition to
distance selling arrangements, which are already addressed by
the current provisions, all direct sales to consumers in other
Member States would be covered. However, an even more
important aspect is the inclusion in this scheme of transac-
tions between taxable persons for which the reverse
charge is not applicable.

2.2.1.1
It has been predicted that the OS scheme could be
used by around 200 000 operators. It is also likely that export
firms — particularly large firms — already included in VAT
registers in a country other than their own will continue to use
the current system. The OS scheme is an option rather than an
obligation.

2.3
However, the one-stop scheme is not the solution to all
the problems. In the first place, all the domestic rules on
declaration periods, payment and refund rules and imple-
menting arrangements will continue to apply; the Commis-
sion explicitly acknowledges that
the new scheme is not
intended to lead to a complete harmonisation of national
rules, which it ‘considers to be neither realistic nor necessary at
this stage’.

The issue of transfers of money remains unresolved:
2.3.1
these will have to be carried out directly between the taxable
person and the Member State of consumption. The
Commission notes that experience gained hitherto with the
existing electronic commerce special scheme (a scheme with
under 1 000 participating businesses in non-EU countries) has
shown that dealing with the redistribution of monies
received is ‘very burdensome’ for the recipient Member State.
Again according to the Commission, extending the scheme to
cover a much greater number of operators and transactions
would not be ‘a realistic option’: major treasury systems would
have to be developed to handle the money flows. However, this
task could be performed by financial
intermediaries, who
might offer a payment handling function to operators. Such
services are only to be offered on a voluntary basis and could
be particularly attractive to smaller operators ‘but would have
to be based on commercial realities’ — in other words, be
provided under acceptable conditions.

2.3.2
In conclusion, the OS scheme leaves all existing
payment and refund procedures unchanged. The special
system for the supply of electronic services to private
consumers also remains in place; this provides for a single
payment to the exporting Member State, which is responsible
for redistributing the monies owed to the States to which the
service is being supplied. These arrangements are to be
reviewed before 30 June 2006 and, as part of the review, the
possibility will be explored of bringing all electronic service-
supply operations under the umbrella of the OS scheme.

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3. Other aspects of the proposal

3.1
A 1998 Commission proposal — intended mainly to
reform the refund system — also provided for a number of
reforms relating to expenditure not eligible for a deduction
of VAT, or only eligible for a partial deduction. The aim was
to approximate,
if not harmonise, the national rules, which
differed widely — as they still do. The proposal was not
adopted, mainly because of some Member States' concerns
regarding their VAT receipts.

The current proposal is along the same lines, seeking
3.1.1
to harmonise the categories of expenditure that can be
excluded from the right to deduct (non-deductible expenditure).
Broadly speaking (with a few exceptions and restrictions), this
exclusion would apply to:

— motorised road vehicles, boats and aircraft;

— travel, accommodation, food and drink;

— luxuries, amusements and entertainment.

All other types of expenditure not included in these categories
would be subject to the normal deduction rules.

3.2
For business-to-business (B2B) transactions, the Member
State of destination is liable to pay the VAT, which can be
refunded under the reverse charge mechanism, which is obli-
gatory for some transactions but can be applied at the discre-
tion of the Member States for others. The Commission is now
proposing to extend the scope of the obligatory reverse
charge mechanism to include supplies of goods which are
installed or assembled by or on behalf of the supplier, the
supply of services connected with immovable property, and
services covered by Article 9(2)(c) of the Sixth Directive.

According to the Commission,

the current rules on
3.3
VAT exemption are inflexible and inconsistent, because of the
way exemptions have been granted to individual Member
States at the time of their accession to the EU or on other occa-
sions. There are large discrepancies between the treatment
received by the different States on the matter: far from being
reduced, these discrepancies have increased with the extension
of
their scope. The
proposal provides for more flexibility in determining the
ceiling below which exemptions can be granted: a ceiling of
EUR 100 000 is proposed, but each Member State would be
free to set lower thresholds, which could differ according to
whether goods or services were being supplied.

temporary authorisations, or even of

3.4
The current provisions on distance selling lay down
two different ceilings: a total value supplied over a year of
EUR 35 000 or EUR 100 000, to be decided by each Member
State of destination. Above these thresholds, the supplier has to
charge the customer VAT at the rate in force in the Member
State of destination. In order to make life easier for operators,
the Commission proposes the adoption of a single ceiling of
EUR 150 000 which would take into account all sales to
all EU countries.

4. The one-stop scheme: comments

4.1
In general, the EESC endorses the setting-up of the one-
it wishes to make some comments,
stop scheme. However,
with a view to helping to make the cross-border VAT
mechanism more effective. These comments seek to provide
pointers for future developments and additional measures:
as far as the current situation is concerned, the Commission
forward a programme which is
has endeavoured to put
realistic but minimalist and therefore — it
is hoped —
achievable.

4.2
As regards tax harmonisation in general and harmonisa-
tion of VAT rules in particular, the situation does not inspire
great optimism. Progress is slow and fraught with obstacles, the
mechanisms are unclear and often ineffective and the rules
complex and, at times, difficult to interpret. It is the people and
businesses, and, ultimately,
the entire economy which are
paying for this situation. Paradoxically, however, the principal
victims are the Member States themselves, which often give the
impression — confirmed by facts — of wishing to preserve the
status quo at all costs for reasons which may or may not be
justifiable, continuing to use complex, costly systems because
they are afraid of change: red tape thus becomes self-perpetu-
ating.

The initial results of the OS scheme, which has already
4.3
been set up and is operational in the field of cross-border elec-
tronic services, would seem to suggest a low level of interest
from operators: indeed, fewer than 1 000 (non-resident) opera-
tors have used it, most of which are ‘large’ operators, although
it is too early on for that figure to mean much. According to
the Commission, support
for the one-stop scheme should
become more extensive, as 200 000 of the 250 000 resident
potential cross-border operators are likely to use it.
If this
happens, the one-stop scheme will run into difficulties: the
Commission notes that
the system adopted for electronic
commerce is already creating administrative problems and
heavy management burdens. The proposed solution is to make
the financial authorities responsible for collection and
redistribution of monies owed (described by the Commis-
sion as ‘burdensome’ processes) and for refunds, rather than
including these in the one-stop scheme. This may be neces-
sary but is clearly an unsatisfactory solution.

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4.4
The EESC notes that the task of managing these monies
would be just as ‘burdensome’ for the financial authorities as it
is for the tax authorities, although the financial authorities are
certainly equipped to provide this service. This management of
monies would, however, have a cost, which would be borne
by the taxpayers or tax authorities. Indeed, it is not specified
clearly who would have to bear the cost of the system to
be put in place, although the authorities assume that it would
the
be the operators. On the basis of studies carried out,
Commission believes that the new system — based on the one-
stop scheme and on a system of reimbursement/settlement of
the amounts owed — would still be less costly than the present
system.

The EESC does not have the resources to ascertain
4.5
whether and to what extent the one-stop shop project as a
whole, with responsibility for the service entrusted to the finan-
cial authorities, would lead to additional costs, or whether it
would bring appreciable benefits. Alongside the costs, the
financial benefits of simplifying and speeding up procedures
for operators and national administrations should be assessed.
It is thought that the benefits for operators could be appreci-
able but limited: the one-stop scheme would remove the need
to register in the different destination countries and for docu-
ments to be exchanged in paper form, but national rules
would still continue to apply (declaration periods, payment
and refund rules) and, most importantly, there will continue
to be many different national taxation rates if these are not
harmonised.

In short, the EESC endorses the Commission proposal
4.6
but would draw the decision-makers' attention to the following
essential point:
if the OS scheme is to be the sole interface
between operators and the different national administrations, it
must genuinely be solely responsible for procedures and the
handling of the sums owed and to be received. In any case,
the process will never be complete until tax rates and national
rules have been harmonised; this is also essential for the
creation of a genuine single market. Another issue which
warrants attention is languages: although the one-stop scheme
uses a code system for the exchange of information, proper
dialogue may prove to be necessary and could involve formulas
which it is not always possible to standardise.

The EESC also endorses the proposal

5.2
to extend the
scope of the reverse charge mechanism (point 3.2), but a
more decisive step would be to extend it to all B2B transactions
carried out within the EU.

5.3
VAT exemption (point 3.3) warrants comments of a
different kind. The EESC has already addressed the issue in its
opinion, where it criticised the custom of giving certain cate-
gories of operators special, more favourable treatment, not just
when new Member States have joined the EU in the various
waves of enlargement, but as past situations in the longer-
standing Member States have been allowed to continue. The
EESC noted — and now reiterates — that exempting some
categories of operators from VAT causes distortion of compe-
tition both in transnational transactions and — possibly with
greater impact here — within the Member States themselves.

5.3.1
It should, moreover, be noted that the Commission's
comments refer to ‘small and medium-sized enterprises’,
whereas most of the official documents, particularly the acces-
sion protocols, only refer to ‘small’ enterprises. This is a clear
indication of the intention to play down the importance of the
concession and extend it in practice to much larger enterprises.
The proposal does not make a distinction, merely referring to
‘persons’ with intracommunity turnover no greater
than
EUR 100 000: it is clearly intended, therefore, to extend the
benefit of the exemption to all businesses, irrespective of their
size.

5.3.2
The purpose of the exemption is not, therefore, to
exempt a particular category of business from VAT but a cate-
gory of minor transactions, and the EESC fully endorses this.
from
It remains to be clarified whether businesses exempt
national VAT on the basis of general provisions would be
subject to the limit of EUR 100 000 for intracommunity trans-
actions. If so, an absurd situation would arise in which busi-
nesses legally exempt would have to pay VAT if they exceeded
this limit.

5. Other aspects of the proposal for a directive: comments

5.1
The EESC fully endorses the Commission's proposal
(point 3.1.1) to harmonise the categories of expenditure
that can be excluded from the right to deduct VAT. Its
adoption would finally launch a process of approximating tax
rules, although it appears at present that the process would not
be completed for quite some time.

5.3.3
In principle, the EESC does not endorse the proposal
to give each Member State the option of setting a ceiling
lower than EUR 100 000, or even of setting different ceilings
for goods and services. This would merely perpetuate the
deplorable diversity of existing rules, which make operators'
work more complicated, increase administrative costs and ulti-
mately, once again, clearly run counter to the principles under-
lying the internal market. At the same time, the EESC is quite
aware that particular national situations could require deroga-
tions from a general rule, and so harmonising the exemption
ceiling would not have any significant effect, while there are
many other, more substantial discrepancies.

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all

As

regards distance selling (point 3.4),

the EESC
5.4
warmly appreciates
the Commission's endeavours —
including this proposal — to remove the onerous obligations
placed on operators by the diversity of national tax rules.
Along with the setting-up of the one-stop scheme, the estab-
lishment of a single ceiling applying to all Member States
should represent genuine progress.

B. PART II: THE PROPOSAL FOR A COUNCIL REGULATION

6. The Commission document

6.1
The proposal amends Regulation (EC) 1798/2003; this
amendment would be necessary if the directive were to be
adopted. It contains implementing provisions which do not call
for particular comment, as they largely concern arrangements
relating to communications between Member States, to the
publicising of rules and to cooperation with the Commission.
The most important provisions are laid down in Article 34g,
relating to the control of taxable persons and their returns.

6.2
The principle underlying the audits is cooperation
between the Member States. Audits carried out through the
OS scheme can be performed either by the Member State of
the OS scheme or by any other Member State of destination,
each party being under obligation to inform the other inter-
ested parties in advance; the latter are entitled to take part in the
audits if they so wish. The procedures to be used to establish
cooperation are those laid down in Articles 11 and 12 of the
basic regulation.

6.3
matters,

Since the regulation deals essentially with procedural
the EESC has no particular comments to make.

Brussels, 12 May 2005.

However, it wonders whether the arrangements for cooperation
provide for all possibilities in a field which, despite the fact that
no completely new elements are introduced (the OS scheme
already exists for distance selling), is highly complex in some
respects. In the first place, the scheme is virtual, and does not,
therefore, involve personal contact between representatives
of national administrations; furthermore, the abovementioned
problem of linguistic diversity will do nothing to facilitate
cooperation, or, at any rate, effective cooperation.

6.3.1
It should be noted that it is not always possible for
audits to be carried out using codes or standardised formulas
alone. Although the problem of liaison between administrations
and with users is considered to be minor or even non-existent,
for reasons that are well known, operators in the sector make
no secret of their current difficulties or their concerns for the
future.

is of paramount

Last but not least, the directive fails to deal with some-
6.4
thing that
importance to operators: data
protection. It is assumed that communications sent by opera-
tors to authorities will be protected from disclosure to third
parties by the rules on the protection of privacy. However the
real danger is not addressed: the danger that third parties
will hack into public authorities' databases. In the case in
point, data on market shares and clients' names could fall prey
to industrial espionage, which can cause serious harm. Before
entrusting any public authority with information,
individuals
and firms are entitled to know what mechanisms and systems
are in place to protect them from hackers.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND