GREEN PAPER On the future of VAT  Towards a simpler, more robust and efficient VAT system
Date: 2010-12-01
Institutions: European Commission
Subjects: VAT, delivery, intra-EU trade, tax evasion, tax system

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EUROPEAN COMMISSION 

Brussels, 1.12.2010 
COM(2010) 695 final 

GREEN PAPER 

On the future of VAT 

Towards a simpler, more robust and efficient VAT system 

{SEC(2010) 1455 final} 

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

3. 

4. 

4.1. 

4.2. 

4.3. 

5. 

Introduction .................................................................................................................. 3 

Why launch a debate on the VAT system now? .......................................................... 4 

The complexity of the current system.......................................................................... 4 

Making the single market work better ......................................................................... 5 

Maximising revenue collection and tackling the system’s susceptibility to fraud....... 5 

Changes in technology and the economic environment............................................... 6 

Questions to be addressed ............................................................................................ 6 

VAT treatment of cross-border transactions in the single market ............................... 6 

Implementing the definitive arrangements based on taxation at origin ....................... 6 

The alternative route: taxation in the Member State of destination ............................. 7 

Other variants ............................................................................................................... 9 

Other key issues to be tackled.................................................................................... 10 

5.1. 

How to ensure the neutrality of the VAT system....................................................... 10 

5.2.  What degree of harmonisation does the single market require? ................................ 13 

5.3. 

5.4. 

5.5. 

5.6. 

6. 

Reducing ‘red tape’ .................................................................................................... 15 

A more robust VAT system ....................................................................................... 19 

An efficient and modern administrating of the VAT system..................................... 21 

Other topics ................................................................................................................ 22 

Have your say............................................................................................................. 22 

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GREEN PAPER 

On the future of VAT 

Towards a simpler, more robust and efficient VAT system 

1. 

INTRODUCTION 

Value added tax (VAT) was first introduced in Europe in 1954, in France. In 1967, 
the Member States of the European Economic Community, as it was then, agreed to 
replace their national turnover tax systems with a common VAT system. Since then, 
VAT has been introduced in around 1401 countries worldwide. 

By  2008  VAT  receipts  accounted  for  21.4%  of  the  national  tax  revenues  of  EU 
Member States (including social security contributions), a rise of 12% since 19952. It 
is thus a major source of revenue for national budgets and in many Member States it 
is the main source. VAT receipts represented in 2008 on average 7.8% of the GDP of 
a Member State, a figure that has increased by almost 13% from 1995. 

The  financial  and  economic  crisis  has  resulted  in  severe  challenges  for  public 
finances in many Member States. Given the particular slump in direct and property-
related  taxes  since  the  recent  recession,  the  share  of  VAT  revenues  as  part  of  total 
receipts has likely grown further in many Member States. 

Several  Member  States  have  recently  increased  VAT  rates  or  are  considering  it, 
either  as  a  reaction  to  the  consolidation  needs  resulting  from  the  crisis  or  in  the 
context of a longer-term shift towards indirect rather than direct taxation. The latter 
shift can be rationalised by the relative efficiency of consumption taxes, consumption 
being  a  broader  and  more  stable  base  than  profits  and  incomes.  The  broader  base 
allows  for  lower  rates,  thereby  reducing  the  distortive  effects  of  taxation,  with 
favourable effects on growth and employment.  

Moreover,  given  the  impact  of  ageing  societies  on  labour  markets,  savings  and 
consumption patterns and public expenditure in the years to come, taxation systems 
will have to be adapted. The financing of the welfare state may have to rely less on 
labour taxes and tax revenues from capital income (savings), thereby further arguing 
in favour of a shift to indirect taxation. 

After  some  40 years,  the  time  has  come  to  have  a  critical  look  at  the  VAT  system 
with  a view to strengthening its coherence  with  the single market,  its capacity as a 
revenue  raiser  by  improving  its  economic  efficiency  and  robustness,  and  its 
contribution  to  other  policies  whilst  reducing  the  cost  of  compliance  and  of 
collection. In this way, reforming the VAT system can play a crucial role supporting 

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OECD,  Consumption  Tax  Trends  2008,  VAT/GST  and  excise  rates,  trends  and  administrative  issues, 
p. 23. 
Taxation trends in the European Union, 2010 Edition, Annex A, Tables 7 and 8. 

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the delivery of the Europe 2020 strategy3 and a return to growth through its potential 
to  reinvigorate  the  single  market  and  underpin  smart  budget  consolidation  in  the 
Member States. Any such improvements require a comprehensive VAT system that 
can  adapt  to  changes  in  the  economic  and  technological  environment  and  is  solid 
enough to resist attacks of fraud of the kind experienced in recent years. 

A simpler VAT system would also reduce the operational cost to taxpayers and tax 
administrations, thereby increasing the net benefit to the Treasury. 

Moreover, the key role of businesses in collecting VAT must be properly recognised, 
since VAT is a consumption tax and not a tax on businesses. VAT compliance costs 
are  a major  administrative  burden for EU business and reducing this burden would 
contribute significantly to increasing the competitiveness of European companies.  

These are the main challenges the EU is facing in the field of VAT. Moreover, they 
have to be met in the unique context of a single market guaranteeing free movement 
of  goods  and  services  between  Member  States,  as  established  in  1993  with  the 
abolition within the EU of fiscal controls at the border. 

The  objective  of  this  Green  Paper  is  to  launch  a  broad  based  consultation  process 
with stakeholders on the functioning of the current VAT system and how it should be 
reframed in the future. 

2. 

WHY LAUNCH A DEBATE ON THE VAT SYSTEM NOW? 

The  approach  followed  in  the  last  decade  has  been  to  simplify  and  modernise  the 
current VAT system by increments. It has produced positive results, although it has 
reached its limits.  

There are also a number of factors indicating that the time is now right for broader 
reflection. 

2.1. 

The complexity of the current system 

The  complexity  in  the  VAT  rules  results  in  administrative  burdens  for  businesses. 
Dealing  with  VAT  accounts  for  almost  60%  of  the  total  burden  measured  for  13 
priority areas identified under the Better Regulation Agenda4. According to business, 
this is making the EU a less attractive place to invest5.  

Particular areas of concerns include key elements in the system such as obligations, 
deduction and rates. These can be particularly severe for SMEs which cannot always 
afford tax expertise to deal with increasingly complex VAT rules. 

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COM(2010) 2020, 3.3.2010, Europe 2020: a strategy for smart, sustainable and inclusive growth. 
COM(2009) 544,  22.10.2009,  Action  Programme  for  Reducing  Administrative  Burdens  in  the  EU 
Sectoral  Reduction  Plans  and  2009  Actions,  Measurement 
studies:  http://ec.europa.eu/ 
enterprise/policies/better-regulation/documents/ab_studies_2009_en.htm 
Position  Paper  of  20 October  2009  on  a  partnership  for  a  fair  and  efficient  VAT  system  from 
Businesseurope. 

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2.2.  Making the single market work better 

The  fact  that  domestic  and  intra-EU6  transactions  continue  to  be  treated  differently 
for VAT purposes may be an obstacle to the better functioning of the single market. 
This  is  compounded  by  the  existence  of  numerous  options  and  derogations  for 
Member States under EU VAT law which leads to divergent rules across the EU. 

The vital importance of a stronger, deeper, extended single market is highlighted in 
the  Commission’s  Communication  Europe  2020:  a  strategy  for  smart,  sustainable 
and  inclusive  growth.  Reforming  the  VAT  rules  in  a  ‘single  market-friendly  way’ 
was  one  of  the  recommendations  made  in  a  report  presented  at  Commission 
President  José  Manuel  Barroso’s  request  by  Professor  Mario  Monti  in  May  2010, 
outlining a comprehensive strategy for re-launching the single market7. 

The  Single  Market  Act  sets  out  several  initiatives  including  creating  a  supportive 
legal  and  fiscal  environment  for  business  in  order  to  reduce  administrative  burdens 
and promote cross-border activity. VAT is a key element in this respect8. 

2.3.  Maximising revenue collection and tackling the system’s susceptibility to fraud 

A  broad  based  VAT  system,  ideally  with  a  single  rate,  would  be  quite  close  to  the 
ideal  of  a  pure  consumption  tax  that  minimises  compliance  costs.  However,  in  the 
EU,  the  standard  rate  covers  only  about  two  thirds  of  total  consumption,  with  the 
remaining  one  third  subject  to  different  exemptions  or  reduced  rates9.  Of  the  EU 
Member States that are also members of the OECD, actual VAT revenues represent 
only 55% on average of the revenues that would, in theory, be collected if all final 
consumption  was  taxed  at  the  standard  rate.  Other  OECD  countries  such  as  Japan, 
South Korea or Switzerland have a more efficient VAT system with ratios of around 
73%10.  

In  2008,  total  VAT  receipts  collected  by  the  Member  States  came  to  around 
EUR 862 billion. A study11 has estimated the EU VAT gap (the difference between 
actual VAT receipts and what the Member States should theoretically receive based 
on  their  economies)  at  12%  of  theoretical  VAT  receipts  in  2006,  with  several 
Member States above 20%. Besides tax avoidance and losses due to insolvencies, the 
VAT gap is attributable also to fraud resulting in part from the endemic weaknesses 
of  the  current  provisions,  which,  in  particular,  allow  VAT-free  cross-border 
purchases of goods and services. 

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We use the term ‘intra-EU’ here because, with the entry into force of the Lisbon Treaty, the term ‘intra-
Community’ as commonly used and defined in VAT legislation, should no longer be used. The meaning 
is the same. 
A new strategy for the single market: at the service of Europe's economy and society, 
http://ec.europa.eu/bepa/pdf/monti_report_final_10_05_2010_en.pdf. 
COM(2010) 608, 27.10.2010. 
Copenhagen Economics, Study on reduced VAT applied to goods and services in the Member States of 
the European Union, Final Report, 21.6.2007. 
OECD, op. cit., p. 69. 
Study to quantify and analyse the VAT gap in the EU-25 Member States, carried out by Reckon LLP on 
behalf of the Commission. 

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2.4. 

Changes in technology and the economic environment 

The  EU’s  VAT  system  has  evolved  slowly  compared  with  the  technological  and 
economic environment, which has seen rapidly changing business models, increasing 
use  of  new  technologies,  the  growing  importance  of  services  -  now  accounting  for 
about 70% of economic activity - and globalisation of the economy generally. 

However, these technological changes may as well offer the possibility of new and 
alternative ways of collecting VAT to reduce burdens on business and VAT losses. 
The  existing  collection  model  has  remained  substantially  unchanged  since  the 
introduction of VAT. 

3. 

QUESTIONS TO BE ADDRESSED 

Discussions on the future of VAT have been divided between two major headings. 

The  first  of  these  concerns  the  principles  of  taxation  of  intra-EU  transactions  on 
which an EU VAT system, fully adapted to the single market, should be based. The 
second covers issues which need attention irrespective of any choice to be made on 
the treatment of intra-EU transactions. 

A more thorough and technically detailed discussion of a number of topics touched 
upon in the present paper can be found in a Commission Staff  Working  Document 
available at http://ec.europa.eu/taxation_customs/index_en.htm. 

4. 

VAT TREATMENT OF CROSS-BORDER TRANSACTIONS IN THE SINGLE MARKET 

4.1. 

Implementing the definitive arrangements based on taxation at origin 

From the first legislation on VAT agreed upon at EU level, a commitment was taken 
for  the  introduction  of  a  VAT  system  tailored  to  the  single  market  and  operated 
across Member States in the same way as within a single country.  

The  VAT  Directive12  still  stipulates  that  the  current  arrangements  for  taxation  of 
trade  between  Member  States  are  transitional  and  shall  be  replaced  by  definitive 
arrangements based in principle on the taxation of goods and services in the Member 
State of origin.  

However, an attempt made in 1987 to honour this commitment based on the physical 
flow of goods was unsuccessful. An alternative proposal in 1996 based on the place 
of establishment of the supplier was equally unsuccessful. 

The ostensible reasons why taxation at origin has not proven acceptable so far are as 
follows: 

•  Close  harmonisation  of  VAT  rates  would  be  needed  to  prevent  rate  differences 
from  influencing  decisions  on  where  to  buy,  not  just  for  private  individuals  but 
also  for  businesses  as  the  payment  of  VAT  -  although  eventually  deductible  - 

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Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax. 

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affects  their  cash-flow.  It  should  be  pointed  out,  however,  that  in  recent  years  a 
certain convergence of the standard VAT rates has been ongoing; 

•  A  clearing  system  would  be  needed  to  ensure  that  VAT  receipts  accrue  to  the 
Member  State  of  consumption.  New  information  technologies  -  not  available  at 
the time of the earlier discussions - have the potential to overcome this obstacle; 

•  Member  States  would  have  to  rely  on  each  other  to  collect  a  substantial  part  of 

their VAT revenue. 

In  June  2007  the  Council  invited,  in  the  context  of  the  debate  on  combating  VAT 
fraud, the Commission to explore again a VAT system based on taxation at departure 
of the goods.  

To  overcome  the  issue  of  differences  in  VAT  rates,  the  Commission  analysed  a 
model in which intra-EU supplies to taxable persons would be taxed at 15 % with the 
Member State of destination either collecting the additional VAT from the customer 
to reach the applicable rate or refunding the VAT paid in excess. 

The  Council  however  did  not  respond  to  the  Commission's  request  for  a  positive 
show  of  interest  needed  before  embarking  on  a  more  in-depth  analysis  of  such  a 
regime.  

In  the  meantime,  new  Directives  laying  down  the  place  of  taxation  for  certain 
transactions13 have clearly moved away from the principle of taxation in the Member 
State  of  origin  by  stipulating  the  place  of  taxation  as  the  place  where  consumption 
occurs or where the customer is established. 

4.2. 

The alternative route: taxation in the Member State of destination 

The  main  feature  of  taxation  at  destination is that VAT revenues accrue directly to 
the  Member  State  of  consumption,  according  to  its  domestic  rates  and  exemptions, 
thereby resolving the main objections against taxation at the place of origin. 

A  major  issue  to  be  resolved  in  such  a  system,  however,  is  ensuring  that  the 
treatment  of  intra-EU supplies and domestic  supplies  is consistent. Equal treatment 
can  be  achieved  either  by  taxing  intra-EU  supplies  or  by  eliminating  the  effective 
charging  of  VAT  on  domestic  transactions  via  a  generalised  reverse  charge  system 
(whereby the taxable person to whom the supply is made becomes the person liable 
for the payment of VAT). However, another  question  is  whether treatment actually 
needs  to  be  equal  and,  if  it  does  not,  to  what  extent  a  different  treatment  is 
acceptable,  without  it  being  an  obstacle  to  the  smooth  functioning  of  the  single 
market or allowing fraud linked to cross-border transactions. 

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Electronically  supplied  services  provided  from  third  countries  to  EU  private  individuals  (Directive 
2002/38/EC),  supplies  of  electricity  and  natural  gas  (Directive  2003/92/EC),  supplies  of  services 
(Directive 2008/8/EC). 

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4.2.1.  Maintaining the principles of the current system 

The  current  VAT  system  makes  a  distinction  between  supplies  between  taxable 
persons (business to business or ‘B2B’) and supplies to final consumers (business to 
consumer or ‘B2C’). 

For cross-border B2B transactions, the general principle, both for goods and services, 
is taxation at the rate and conditions of the Member State of destination (where the 
goods arrive or, for services, where the customer’s business is established) with the 
customer  paying  the  VAT  to  the  Treasury.  This  results  in  supplies  of  goods  and 
services  being  treated  differently  depending  on  whether  they  are  domestic  or  intra-
EU. This distinction is a source of complexity and of vulnerability to fraud. 

B2C  supplies  are  normally  taxed  in  the  Member  State  where  the  sale  of  goods  is 
made or where the supplier is established. However, because of the risk of distortion 
of  competition,  special  arrangements  apply  to  the  taxation  of  the  supplies  at 
destination,  imposing  heavy  obligations  on  suppliers  (distance  sales  of  goods  or 
certain services) or purchasers (purchases made by exempt taxable persons, notably 
small  businesses,  or  non-taxable  legal  entities,  and  purchases  of  new  means  of 
transport, for example). 

Nevertheless,  the  system  has  merits.  For  Member  States  it  guarantees  a  degree  of 
policy freedom and fiscal sovereignty in administering VAT. For business customers 
of B2B cross-border transactions, it does not seem to create huge VAT problems and 
might even have some advantages since the VAT does not need to be pre-financed. 

The  burden  falls  mainly  on  the  supplier,  who,  in  his  or  her  Member  State,  must 
justify  exemption  (in  supplying  goods)  or  non-taxation  (for  services)  and  faces 
certain additional reporting obligations and, increasingly, more stringent formalities 
designed to tackle fraud: the ‘red tape’ involved in cross-border transactions has been 
steadily increasing. In addition, tax administrations may challenge exemption or non-
taxation  if  fraud  has  occurred  elsewhere  in  the  commercial  chain  and  legitimate 
businesses may find it difficult to protect themselves against that risk. 

Maintaining the fundamentals of the current VAT regime would require an in-depth 
review  and  improvement  of  its  application  in  terms  of  legal  certainty  and 
administrative burdens on intra-EU transactions. 

4.2.2.  General use of the ‘reverse charge’ mechanism 

Consistency  between  domestic  and  intra-EU  transactions  could  be  achieved  by 
applying a reverse charge mechanism on domestic B2B transactions. This would deal 
with  the  endemic  vulnerability  to  fraud  of  the  current  VAT  system.  On  the  other 
hand,  it  would  require  additional  checks  and  reporting  obligations  for  domestic 
transactions  in  order  to  limit  the  fraud  shifting  to  the  retail  level  as  it  would  mean 
discarding the principle of ‘fractioned payment’, which is regarded as a major benefit 
of VAT. 

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The Commission studied the system in 200814. It concluded that the reverse charge 
concept should not be ruled out but that it could never be introduced on an optional 
basis  without  affecting  the  workings  of  the  single  market.  The  Commission  was 
willing to consider a pilot project to test the introduction of a compulsory generalised 
reverse charge system. While maintaining its position, the Commission is well aware 
of the administrative and economic implications of such a project. 

4.2.3.  Taxation of intra-EU supplies of goods and services 

Consistency between domestic and intra-EU transactions could also be achieved by 
taxing intra-EU transactions at the rate and under the rules of the Member State of 
destination.  

This would restore the principle of fractioned payment for cross-border transactions 
and deal with the current system’s endemic vulnerability to fraud. On the other hand, 
it would substantially increase the number of transactions for which taxable persons 
become liable for VAT in a Member State in which they are not established. 

When taxing intra-EU supplies, the place of destination can be defined in two ways:  

•  as the place of arrival, for goods, meaning the physical flow of the goods would 
still be followed, and as the customer’s place of establishment, for services, which 
is already the main rule at present; 

•  as the customer’s place of establishment, for both goods and services. 

Because VAT on intra-EU supplies would accrue to the Member State of destination, 
an  effective  one-stop-shop  mechanism  in  the  Member  State  of  origin  would  be 
needed to deal with VAT liabilities in Member States other than those in which the 
supplier is established. 

Such  a  change  would  have  consequences  for  businesses  and  tax  administrations. 
Taxation of intra-EU supplies would have cash-flow implications for both parties and 
reporting  obligations  would  have  to  be  completely  reviewed.  The  Commission  has 
not  yet  carried  out  a  detailed  analysis  of  such  arrangements  but  remains  open  to 
further explore these options. 

4.3. 

Other variants 

The  Commission  is  aware  that  other  arrangements  besides  those  described  above 
have been discussed in the public domain. It is not the intention to discard them from 
the discussion but, because most of them look like merely variants, there is no need 
to go into them in depth at this stage. 

Q1. Do you think that the current VAT arrangements for intra-EU trade are suitable 
enough for the single market or are they an obstacle to maximising its benefits? 

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COM(2008) 109, 22.2.2008 and SEC(2008) 249, 22.2.2008. 

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Q2. If the latter, what would you consider the most suitable VAT arrangements for 
intra-EU  supplies?  In  particular,  do  you  think  that  taxation  in  the  Member  State  of 
origin is still a relevant and achievable objective? 

5. 

OTHER KEY ISSUES TO BE TACKLED 

This section covers the major issues which need to be addressed, in addition to the 
treatment  of  intra-EU  transactions,  to  establish  a  solid,  simpler  and  more  efficient 
VAT system for the single market. These questions apply to the current system. 

5.1. 

How to ensure the neutrality of the VAT system 

5.1.1.  The scope of VAT  

The  rules  applying  to  public  bodies  create  differences  in  the  VAT  treatment  of 
similar  activities  depending  on  the  status  of  the  supplier.  The  evolution  in  the 
Member  States  towards  privatisation  and  the  deregulation  of  activities  traditionally 
reserved  for  the  public  sector  has  increased  these  differences.  New  forms  of 
cooperation  between  public  authorities  and  the  private  sector  (public-private 
partnerships) have arisen to deliver infrastructure and strategic public services such 
as roads, railways, schools, hospitals, prisons and water and waste treatment. 

Where public bodies are exempt or outside the scope of VAT, they have an incentive 
to limit outsourcing in order to avoid paying VAT that they cannot deduct. VAT thus 
becomes a factor influencing investment and spending decisions. 

The  Commission  recently  launched  a  study  of  the  economic  and  social  impact  of 
VAT  on  public  bodies  and  on  possible  solutions.  One  way  forward  could  be  to 
include all the economic activities of public bodies in the scope of VAT and to draw 
up  a  list  of  those  activities  to  be  excluded.  An  alternative  would  be  to  clarify  and 
modernise the conditions under which public bodies can no longer be considered to 
be outside the scope of VAT.  

Regarding the VAT treatment of holding companies' transactions related notably to 
management  of  shares  or  treasury  functions,  the  European  Court  of  Justice  has 
provided some limited guidance but it is still difficult to apply in practice. Clarifying 
the legal situation in the VAT Directive could be an option. 

Q3.  Do  you  think  that  the  current  VAT  rules  for  public  authorities  and  holding 
companies are acceptable, particularly in terms of tax neutrality, and if not, why not? 

Q4. What other problems have you encountered in relation to the scope of VAT? 

Q5. What should be done to overcome these problems? 

5.1.2.  Exemptions from VAT 

Exemptions are contrary to the principle of VAT as a broad based tax. The continued 
relevance  of  many  of  the  existing  exemptions  is  questionable.  Broadening  the  tax 
base by reducing the number of exemptions makes the tax more efficient and more 
neutral and offers a valid alternative to increasing VAT rates.  

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The  VAT  Directive  distinguishes  between  exemptions  for  certain  activities  in  the 
public  interest  (e.g.  for  social,  educational  and  cultural  reasons)  and  exemption  for 
other  activities,  e.g.  because  of  technical  concerns  about  applying  VAT  to  the 
underlying  transactions  (financial  services  and  gambling  activities)  or  interference 
with other taxes (transactions related to immovable property).  

There  is  a  need  to  review  these  exemptions,  notably  in  the  light  of  economic  and 
technological changes.  

This  approach  is  also  relevant  for  those  exemptions  which  Member  States  can 
continue to apply because they already applied them on 1 January 1978 or at the time 
of  their  accession.  An  example  is  the  fact  that  passenger  transport  services  can 
continue to be exempt, depending on the means of transport used. Other derogations 
allow  Member  States  to  charge  VAT  on  transactions  that  would  otherwise  be 
exempt. This weakens the objective of a common VAT system.  

As regards exemptions in the postal services proposal and the financial and insurance 
services proposals15, discussions are still ongoing. Finally, the study on public bodies 
(see point 5.1.1, paragraph 3) will also address exemptions in the public interest. 

Q6. Which of the current VAT exemptions should no longer be kept? Please explain 
why you consider them problematic. Are there any exemptions which should be kept 
and, if so, why? 

Q7. Do you think that the current system of taxation of passenger transport creates 
problems  either  in  terms  of  tax  neutrality  or  for  other  reasons?  Should  VAT  be 
applied to passenger transport irrespective of the means of transport used? 

Q8. What should be done to overcome these problems? 

5.1.3.  Deductions 

The right to deduct input VAT is fundamental to ensuring that the tax is neutral for 
businesses. The extent to which VAT is deductible is the key factor, but other factors 
include when and how VAT should be deducted.  

To be neutral, VAT on goods and services that are used for taxed economic activities 
must be fully deductible. It can be difficult to achieve this, and thereby offer a level 
playing field for businesses across the EU, in cases where goods or services are used 
for  multiple  purposes  (taxed  activities,  exempt  activities  or  non-business  purposes) 
and changes in this use occur during the economic lifetime of the goods or services. 

Restrictions  on  the  right  to  deduct  are  necessary  where  goods  or  services  are  also 
used  for  non-business  purposes  (mainly  private  consumption).  Flat-rate  restrictions 
may solve the problem where the ratio of business to private use is difficult or even 
impossible  to  determine,  but  they  should  be  consistent  with  the  economic  reality 
rather than a means of generating additional revenue. 

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COM(2003) 234, 5.5.2003, COM (2007) 746, 28.11.2007. 

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The right to deduct arises when the supply is made, whether or not the customer has 
paid  for  the  goods  or  services.  This  rule  may  create  a  cash-flow  advantage  for  late 
payers in particular, while the burden is borne by suppliers, typically SMEs. Basing 
the  VAT  system  on  payments  (cash  accounting),  so  that  the  VAT  becomes 
chargeable and deductible when the supply is paid would be neutral for everyone in 
terms  of  cash  flow.  Such  a  system  would  also  limit  VAT  losses  due  to  customer 
insolvency. 

As a rule, VAT is deducted by offsetting the deductible VAT against the VAT due. 
Where  this  means  that  the  taxable  person  is  entitled  to  a  repayment,  tax 
administrations have different approaches, as repayments present some risk of fraud. 
This risk should not be used as a reason for unduly delaying the right of deduction. 

In  addition,  refund  schemes  for  businesses  established  in  a  different  Member  State 
complicate  and  delay  the  actual  deduction  of  VAT.  A  one-stop-shop  mechanism, 
whereby  they  could  offset  the  input  VAT  incurred  in  a  Member  State  against  the 
VAT due there, could be a solution. 

Q9. What do you consider to be the main problems with the right of deduction?  

Q10. What changes would you like to see to improve the neutrality and fairness of 
the rules on deduction of input VAT? 

5.1.4. 

International services 

The  growing  importance  of  international  services,  as  a  result  of  globalisation, 
deregulation and developments in communication technology, has clear implications 
for  VAT.  Internationally  agreed  approaches  are  needed  to  avoid  double  or  non-
taxation of these services and important work is being done on this in the OECD. 

However, beyond ensuring legal certainty on taxation in the country of consumption, 
there  are  issues  to  do  with  checking  that  VAT  is  correctly  applied.  This  is 
particularly  the  case  for  electronically  supplied  B2C  services  such  as  software  or 
music  distributed  online,  for  which  VAT  collection  is  particularly  reliant  on 
voluntary  compliance  by  non-EU  suppliers.  It  is  questionable  whether  this  is 
acceptable  from  a  neutrality  and  competition  perspective  for  EU  suppliers  and 
Member States' budgets in the long term.  

Encouraging tax authorities to cooperate on VAT at international level is one avenue 
to  explore.  The  alternative,  less  attractive  at  first  sight  but  under  consideration  in 
certain non-EU jurisdictions such as Canada, is to seek ways of collecting VAT from 
private consumers, for example by checking online payments. 

There are also concerns about neutrality and transparency in the treatment of supplies 
of  services  within  international  business  groups,  which  varies  according  to  the 
structure  chosen  (branch/head  office  or  parent  company/subsidiary)  rather  than  the 
nature of the service.  

Q11.  What  are  the  main  problems  with  the  current  VAT  rules  for  international 
services, in terms of competition and tax neutrality or other factors? 

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12 

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Q12.  What  should  be  done  to  overcome  these  problems?  Do  you  think  that  more 
coordination is needed at international level? 

5.2.  What degree of harmonisation does the single market require? 

Any rethink of the VAT system must identify, on the one hand, the extent to which 
further  harmonisation  is  essential  in  order  to  improve  the  functioning  of  single 
market and reduce compliance costs for businesses and, on the other hand, the degree 
of flexibility needed by the Member States that is compatible with these objectives. 

5.2.1.  The legal process 

The  legal  base  for  the  harmonisation  of  VAT16  requires  unanimity  but  does  not 
specify the legal instrument to be used for that purpose. The use of Council directives 
gives Member States some freedom in transposing EU VAT law into their national 
legislation,  taking  account  of  their  legal  particularities.  The  outcome,  however,  is 
often  that  VAT  legislation  in  the  different  Member  States  is  inconsistent.  Using 
Council  regulations  rather  than  directives  would  achieve  greater  harmonisation, 
enabling in particular the EU to avoid double or non-taxation or to set out the VAT 
obligations of non-established businesses. 

EU measures implementing the VAT Directive also have to be agreed by unanimity. 
The  use  of  this  mechanism  (via  a  Council  Regulation)  for  clarifying  new 
amendments  to  the  VAT  Directive  quickly  before  their  entry  into  force  has  not 
proven  effective.  The  result  is  that  businesses  often  lack  guidance  on  the  practical 
application of the new rules. 

One  answer  would  be  to  allow  the  Commission  to  adopt  Implementing  Decisions 
with  the  consent  of  the  majority  of  Member  States.  The  Commission  made  such  a 
proposal in the past17, which would  have changed the role of  the VAT  Committee, 
but was not upheld in the Council. 

This  problem  could  also  be  addressed,  albeit  in  an  imperfect,  alternative  way,  by 
having  the  Commission  provide  explanations,  for  information  purposes,  on  how 
changes in the VAT law are to be understood. 

Incorrect transposition of amendments to the VAT Directive can of course be tackled 
by  launching  infringement  procedures.  But  this  does  not  always  provide  a  prompt 
solution  to  the  practical  problems  that  businesses  face.  Transposing  the  new  rules 
well in advance of their entry into force could prevent these problems. A process of 
streamlining and coordinating the national implementation process at EU level could 
be envisaged.  

Q13.  Which,  if  any,  provisions  of  EU  VAT  law  should  be  laid  down  in  a  Council 
regulation instead of a directive? 

Q14. Do you consider that implementing rules should be laid down in a Commission 
decision? 

16 
17 

Article 113 of the Treaty on the Functioning of the European Union (TFEU). 
COM(97) 325, 25.6.1997. 

EN 

13 

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Q15. If this is not achievable, might guidance on new EU VAT legislation be useful 
even if it is not legally binding on the Member States? Do you see any disadvantages 
to issuing such guidance? 

Q16.  More  broadly,  what  should  be  done  to  improve  the  legislative  process,  its 
transparency  and  the  role  of  stakeholders  in  the  process,  from  the  initial  phase 
(drafting the proposal) to the final phase (national implementation)? 

5.2.2.  Derogations and the ability of the EU to react quickly 

Member States can seek individual derogations in order to simplify the procedure for 
collecting VAT or to prevent certain forms of tax evasion or avoidance by means of 
specific  measures,  which  are  intended  to  be  temporary  and  tailored  to  a  particular 
domestic situation18. 

The result, however, is a patchwork of particular and changing rules in the Member 
States  which  adds  to  the  complexity  of  the  VAT  system,  especially  for  businesses 
operating  in  more  than  one  Member  State,  and  undermines  the  notion  of  a  level 
playing field for EU businesses. 

Moreover,  recent  experience  with  organised  fraud  schemes  has  been  that  the 
procedure for granting derogations is not always flexible enough to ensure a prompt 
and suitable reaction. Granting the Commission more powers to decide at very short 
notice  on  protective  and  temporary  derogations  to  act  against  fraud  upon  a  duly 
justified request from a Member State could be a way forward. 

Q17. Have you encountered difficulties as a result of derogations granted to Member 
States? Please describe these difficulties.  

Q18. Do you think that the current procedure for granting individual derogations is 
satisfactory and, if not, how could it be improved? 

5.2.3.  VAT rates 

The  ‘definitive’  VAT  system  based  on  taxation  at  origin  would  require  a  higher 
degree  of  harmonisation  of  VAT  rates  compared  to  the  current  system  based  on 
taxation  at  destination,  which  provides  Member  States  with  more  flexibility  still 
within the limits set by the single market requirements. 

It has been argued that the application of a single VAT rate to all goods or services 
would  be  an  ideal  solution  from  the  point  of  view  of  maximising  economic 
efficiency19. At the same time, the use of reduced rates as a policy instrument is often 
advocated  notably  for  health,  cultural  and  environmental  reasons  to  provide  easier 

18 

19 

The list of current derogations is available at 
http://ec.europa.eu/taxation_customs/ taxation/vat/key_documents/table_derogations/index_en.htm 
Copenhagen Economics, op. cit. 

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14 

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and  more  equal  access  to  educational  and  cultural  content  and  incentives  for  eco-
innovation and knowledge-based resource efficient growth20. 

The current variation in the standard rate in the EU and the reduced rates applied by 
some  Member  States  do  not  seem  to  disrupt  the  single  market.  This  is  mainly 
because there are correction mechanisms (special schemes for distance sales of goods 
or services and new vehicles, see point 4.2.1) in the current VAT system, but these 
add substantially to its complexity. 

Cross-border  transactions  involving  goods  and  services  at  a  reduced  rate  do, 
however,  create  compliance  costs  and  legal  uncertainty  for  business.  This  is 
particularly a problem when a business becomes liable for VAT in a Member State in 
which  it  is  not  established.  More  transparency,  with  a  binding  online  database  of 
goods and services under a reduced rate could be envisaged. 

Moreover,  there  are  still  inconsistencies  in  the  VAT  rates  applied  to  comparable 
products or services. For instance, Member States may apply a reduced VAT rate to 
certain  cultural  products  but  have  to  apply  the  standard  rate  to  competing  on-line 
services  such  as  e-books  and  newspapers.  The  ‘Digital  Agenda  for  Europe’21 
stipulates  that  the  challenges  of  convergence  between  the  online  and  the  physical 
environment  should  be  addressed  in  all  reviews  of  public  policy,  including  tax 
matters.  To  cope  with  these  discriminations,  two  possible  options  exist:  either  to 
maintain  the  standard  VAT  rate,  or  to  transpose  into  the  digital  environment  the 
reduced rates existing for goods in traditional supports. 

Q19.  Do  you  think  that  the  current  rates  structure  creates  major  obstacles  for  the 
smooth  functioning  of  the  single  market  (distortion  of  competition),  unequal 
treatment  of  comparable  products,  notably  online  services  by  comparison  with 
products or services providing similar content or leads to major compliance costs for 
businesses? If yes, in what situations? 

Q20. Would you prefer to have no reduced rates (or a very short list), which might 
enable Member States to apply a lower standard VAT rate? Or would you support a 
compulsory and uniformly applied reduced VAT rates list in the EU notably in order 
to address specific policy objectives as laid out in particular in ‘Europe 2020’? 

5.3. 

Reducing ‘red tape’ 

5.3.1.  The  Commission  Action  Programme  for  Reducing  Administrative  Burdens  and 

streamlining VAT obligations  

Following  from  the  European  Council’s  endorsement  in  200722  of  the  Commission 
Action  Programme23  to  reduce  the  administrative  burdens  arising  from  EU 

20 

21 
22 
23 

EN 

rates’  carried  out 

The summary report of the outcome of the public consultation ‘Review of existing legislation on VAT 
reduced 
is  available  at  http://ec.europa.eu/taxation_customs/ 
resources/documents/common/consultations/tax/summary_report_consultation_vat_rates_en.pdf. 
Commission's Communication, A Digital Agenda for Europe, COM(2010) 245, 19.5.2010, p. 9. 
Presidency conclusions of the European Council (7/8 March 2007), p. 10. 
COM(2007) 23, 21.1.2007. 

in  2008 

15 

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legislation  by  25%  by  2012,  the  Commission  presented  a  plan24  for  VAT,  among 
other areas, in 2009. 

This  plan  contains  16  measures  such  as  abolishing  the  annual  summarizing  VAT 
return  or  intra-EU  acquisition  listings  and  reducing  the  frequency  of  VAT  returns 
and  is  supported  by  the  High  Level  Group  of  Independent  Stakeholders  on 
Administrative  Burdens  chaired  by  Edmund  Stoiber25.  Six  of  the  measures  have 
either been adopted or proposed by the Commission.  

As  a  consequence  of  the  new  rules  on  the  place  of  supply  of  services,  in  a  recent 
opinion the High Level Group recommended additional burden reduction measures. 

The VAT Directive includes a common set of obligations and Member States have 
some freedom in deciding how to meet them. This leads to a patchwork of national 
VAT  obligations  and,  in  particular,  VAT  returns  which  require  different  types  and 
volume  of  information.  Devising  a  standard  EU  VAT  return  available  in  all 
languages,  which  businesses  could  opt  to  use  but  which  all  Member  States  would 
have to accept, could be a way forward to reduce compliance costs. 

Moreover, Member States may impose other obligations which they deem necessary 
to  ensure  the  correct  collection  of  VAT  and  to  prevent  evasion,  without  any  EU 
requirement  to  assess  their  impact  beforehand.  The  scope  and  costs  of  these 
additional obligations can be found in the study done for DG Enterprise as part of the 
Better Regulation programme26. 

A more uniform approach in this area would certainly facilitate the development of 
IT  tools  for  compliance  with  VAT  obligations  EU-wide  and  reduce  administrative 
burdens for businesses operating in a number of Member States. However, changing 
current practice in the Member States would have a cost both for tax administrations 
and for businesses, including those that only have to comply with such obligations in 
a single Member State. 

If  full  harmonisation  is  not  appropriate,  differences  could  be  limited  by  defining  at 
EU level a maximum set of standardised VAT obligations that may be imposed by 
the Member States. IT systems could more easily handle a pre-defined range.  

Q21.  What  are  the  main  problems  you  have  experienced  with  the  current  rules  on 
VAT obligations? 

Q22. What should be done at EU level to overcome these problems? 

Q23.  What  are  your  views  particularly  on  the  feasibility  and  relevance  of  the 
suggested  measures  including  those  set  out in  the  reduction  plan  for  VAT  (N° 6  to 
15) and in the opinion of the High Level Group?  

24 
25 

26 

COM(2009) 544, 22.10.2009 and Annex. 
Opinion  adopted  28.5.2009  http://ec.europa.eu/enterprise/policies/better-regulation/administrative-
burdens/high-level-group/index_en.htm. 
http://ec.europa.eu/enterprise/policies/better-regulation/files/abst09_taxlaw_implicit.zip. 

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5.3.2. 

Small businesses 

With  the  ‘Small  Business  Act  for  Europe’27,  the  EU  adopted  two  key  principles  to 
address the needs of SMEs: design rules according to ‘Think Small First’ and help 
SMEs to benefit more from the opportunities offered by the single market. Improving 
the business environment for SMEs is also part of one of the Commission’s flagship 
initiatives of ‘Europe 2020’, ‘An industrial policy for the globalisation era’.  

The special scheme for small enterprises aims primarily to reduce the administrative 
burden of applying the normal VAT rules: businesses with an annual turnover below 
a certain threshold are entitled to exemption from VAT.  

However,  this  scheme  has  a  number  of  shortcomings.  The  legal  framework,  based 
largely  on  when  Member  States  joined  the  EU,  has  created  differences  in  the 
thresholds and in the leeway given to Member States to set thresholds. In addition, 
the  calculation  method  of  the  threshold  and  scope  of  the  scheme  do  not  take  the 
single market into account: for example, the scheme does not cover supplies made in 
other Member States. Moreover, registration for VAT, a VAT declaration and VAT 
payments are required for certain cross-border purchases, particularly services. 

The Member States can apply other simplified schemes for charging and collecting 
VAT,  such  as  a  flat  rate  scheme,  but  these  are  applied  in  different  ways  and  are 
limited to domestic activity.  

All these schemes are a fragmented response to the fact that VAT compliance costs 
for small businesses are relatively higher than for big companies, particularly when 
they conduct business across the EU. 

An  EU-wide  scheme  with  a  common  threshold  and  greater  scope  for  reducing 
compliance  costs  across  the  single  market  and  thus  encouraging  small  business 
growth would seem the obvious solution. 

Besides  schemes  for  small  businesses,  a  special  scheme  for  farmers  who  have 
difficulty  applying  the  normal  rules  was  introduced  in  the  1970s.  The  rationale  for 
maintaining  this  scheme  is  to  be  considered  since  approaches  to  help  small 
businesses could meet small farmers’ needs for simplification too.  

Q24.  Should  the  current  exemption  scheme  for  small  businesses  be  reviewed  and 
what should be the main elements of that reassessment? 

Q25. Should additional simplifications be considered and what should be their main 
elements? 

Q26. Do you think that small business schemes sufficiently cover the needs of small 
farmers? 

27 

COM(2008) 394, 25.6.2008. 

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5.3.3.  Other potential simplification initiatives 

5.3.3.1.  A one-stop-shop mechanism 

For B2C transactions subject to VAT in a Member State other than that in which the 
supplier  is  established,  complying  with  the  particular  rules  of  that  Member  State  is 
not always easy. There is evidence that businesses avoid such transactions because of 
the  difficulties.  In  other  cases,  the  rules  are  ignored  and  VAT  is  charged  in  the 
Member State where the supplier is established rather than where the supply actually 
takes place. 

The  one-stop-shop  scheme  proposed  by  the  Commission  in  200428  and  still  on  the 
table  of  the  Council  was  intended  to  cater  for  such  cases.  The  underlying  concept 
remains  valid.  A  narrower  scheme  exists  for  B2C  electronic  services  supplied  by 
non-EU  suppliers  and  will  be  extended  in  2015  to  telecommunication  and 
broadcasting services and to EU suppliers.  

As long as VAT is based on taxation at destination, the one-stop-shop is desirable as 
a  simplification  measure  and  would  increase  compliance  and  cross-border  trade. 
VAT  regulations  were  among  the  key  barriers  identified  in  the  Commission's 
Communication on ‘Cross-Border Business to Consumer e-Commerce in the EU’29. 
It  is  probably  even  more  relevant  today,  since  over  60%  of  people  in  the  EU  use 
regularly the internet and 60% of these buy goods or services online. This figure has 
doubled since 2004 (when the proposal was first presented) and can only grow with 
the emphasis placed on the ‘Digital Agenda’30. 

Q27. Do you see the one stop shop concept as a relevant simplification measure? If 
so, what features should it have? 

5.3.3.2.  Adapting the VAT system to large and pan-European businesses 

The  legal  structure  (holding/subsidiaries  or  headquarter/branches)  of  businesses 
conducting economic activities in different Member States has a major influence on 
the  VAT  treatment  of  those  activities.  For  example,  it  affects  the  rules  on  cross-
border transactions between the different parts of the business and the calculation of 
deductible input VAT.  

Businesses  complain  about  the  lack  of  consistent  and  clear  VAT  rules  suited  to 
existing corporate structures. Tax authorities, on the other hand, are concerned about 
the opportunities for VAT avoidance schemes in complex corporate structures. 

Considering  transactions  between  interrelated  companies  or  supplies  of  goods 
between branches to be outside the scope of VAT, or extending the territorial scope 
of  VAT  groupings,  could  reduce  VAT  compliance  costs  on  a  large  number  of 
transactions within the EU. On the other hand, it would have to be ensured that such 
a  move  would  not  create  unfair  advantages  for  big  businesses  compared  to  smaller 
ones, or new means of fraud or tax avoidance. 

28 
29 
30 

COM(2004) 728, 29.10.2004. 
COM(2009) 557, 22.10.2009. 
Op. cit. 

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18 

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Q28. Do you think that the current VAT rules create difficulties for intra-company or 
intra-group cross-border transactions? How can these difficulties be solved? 

5.3.3.3.  Synergies with other legislations 

Efforts made to make customs procedures on importation easier must take account of 
VAT  to  maximise  the  benefits.  Consistency  between  VAT  law  and  other  tax 
legislation, notably excise duties, could also simplify compliance for businesses. 

Consultation  on  simplifying  VAT  collection  procedures  in  connection  with 
centralised customs clearance was launched recently but there might be other areas 
which could be looked at. 

Q29.  In  which  areas  of  VAT  legislation  do  synergies  with  other  tax  or  customs 
legislation need to be promoted? 

5.4. 

A more robust VAT system 

5.4.1.  Reviewing the way VAT is collected 

The way VAT is collected has hardly changed since the tax was first introduced in 
the EU; it still depends primarily on self-assessment by the taxpayer followed later 
by audits by the tax administration. 

As  part  of  the  ongoing  debate  on  the  strategy  to  combat  VAT  fraud,  which 
questioned  the  efficiency  of  this  collection  method,  in  2009  the  Commission 
launched a feasibility study on ways of improving and simplifying the collection of 
VAT by means of modern technologies and/or via financial intermediaries. 

The following four models were explored in some depth: 

•  The  customer  instructs  his  bank  to  pay  for  the  goods  or  services,  with  the  bank 
splitting  the  payment  into  the  taxable  amount  paid  to  the  supplier  and  the  VAT 
amount  transferred  directly  to  the  tax  authority.  This  model  eliminates  ‘missing 
trader’ fraud but it would require substantial changes in the way all businesses and 
tax administrations handle VAT. The issue of how to deal with cash or credit card 
transactions needs further work.  

•  All invoice data is sent in real time to a central VAT monitoring database. The tax 
authorities would obtain information much more quickly than they do now and a 
number of current VAT obligations could be abolished. It would be more effective 
and less burdensome if e-invoicing were used for all B2B transactions.  

•  The  taxable  person  uploads  predefined  transaction  data  presented  in  an  agreed 
format into a secure VAT data warehouse maintained by the taxable person and 
accessible, either directly or on demand at very short notice, to the tax authority. 
Some  Member  States  have  moved  in  that  direction  and  it  has  not  caused  major 
problems.  However,  the  model  does  not  prevent  ‘missing  trader’  fraud;  if  the 
trader  goes  missing,  his  or  her  VAT  data  warehouse  disappears  too.  But  it  does 
allow quicker detection. 

EN 

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•  A  taxable  person’s  VAT  compliance  process  and  internal  controls  are  certified. 
Some  Member  States  have  moved  in  that  direction.  The  model  should  increase 
trust  between  tax  authorities  and  taxpayers;  however,  the  certification  process  is 
time-consuming  and  requires  substantial  investment  by  tax  authorities  in  human 
resources. 

The study31 shows all four models to have a positive cost-benefit ratio. The required 
initial  investment  cost  differs,  however,  and  this  influences  how  soon  the  national 
treasuries  receive  a  net  benefit.  Moreover,  a  combination  of  the  different  models 
could also be a more efficient way forward. 

Q30. Which of these models looks most promising in your view and why, or would 
you suggest other alternatives? 

5.4.2.  Protecting bona fide traders against potential involvement in VAT fraud 

Several Member States have introduced national measures to limit VAT losses from 
‘missing  trader’  fraud  by  trying  to  recover  the  tax  from  other  taxable  persons 
involved in the same transaction chain. The European Court of Justice has confirmed 
that where the tax administration is able to prove that the customer knew or should 
have  known  that  his  or  her  purchase  was  part  of  a  transaction  connected  with 
fraudulent evasion of VAT, it can refuse the customer the right to deduct. 

Tax  administrations  must  prove  such  knowledge  in  each  individual  case.  This  is  a 
lengthy,  costly  and  complicated  procedure.  In  addition,  it  risks  leaving  taxable 
persons in a vulnerable position, particularly when dealing with a new supplier. They 
have  to  perform  additional  checks  on  the  compliance  of  each  supplier.  Bona  fide 
businesses nonetheless run a risk that their right to deduct will be challenged because 
they have inadvertently been dealing with fraudsters. 

The first model set out under point 5.4.1 removes opportunities for ‘missing trader’ 
fraud  by  means  of  a  far-reaching,  compulsory  mechanism  of  split  payment.  A 
simpler, optional mechanism could also be envisaged. 

The optional mechanism would allow customers to protect themselves against such 
risks and save them from checking their suppliers’ compliance. The customer would 
exercise  the  option  by  paying  the  VAT  directly  to  the  tax  authorities  and  the  net 
amount to his supplier. 

For tax authorities, this would ensure the collection of VAT on transactions judged 
by  traders  themselves  to  be  a  potential  risk.  They  would  also  obtain  additional 
information and be alerted to new trends in fraud.  

However,  this  option  may  have  an  unwelcome  impact  on  the  relation  between  the 
supplier  and  customer  and  therefore  on  business  activities  in  general.  This  option 
could also have a cash flow effect for suppliers. 

Q31.  What  are  your  views  on  the  feasibility  and  relevance  of  an  optional  split 
payment? 

31 

http://ec.europa.eu/taxation_customs/index_en.htm. 

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20 

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5.5. 

An efficient and modern administrating of the VAT system 

Given taxpayers’ crucial role in making the VAT system work, the efficiency of their 
relationship  with  the  tax  authorities  will  greatly  influence  the  cost  of  administering 
the  system,  for  both  parties.  This  relationship  is  determined  not  only  by  reporting, 
payment or auditing obligations but also by the quality, reliability and accessibility of 
information provided by tax authorities. 

Tax administration issues are primarily the Member State’s responsibility. However, 
these  issues  have  an  impact  on  the  proper  functioning  of  the  single  market,  as 
confirmed by the Court of Auditors’ report32 on the EU’s ‘own resources’. 

The Commission pointed to the need to reflect on these issues in its Communication 
of December 2008, A coordinated strategy to improve the fight against VAT fraud in 
the EU33. It suggested devising a new approach based on voluntary compliance, risk 
assessment  and  monitoring,  with  the  aim  of  reducing  both  the  involvement  of  tax 
authorities  and  the  administrative  burden  on  businesses.  The  following  measures 
which could be envisaged are not exhaustive: 

–  enhancing  the  dialogue  between  tax  authorities  and  other  stakeholders,  for 
instance by setting up a permanent discussion forum allowing tax authorities and 
business representatives at EU level to exchange views; 

–  pooling best practice in the Member States, for instance by drafting guidelines for 
streamlining  administrative  practices  and  abolishing  unnecessary  burdens  on 
businesses; 

–  drafting  an  EU  policy  on  voluntary  compliance  tailored  to  the  EU  VAT  system 
through specific arrangements with stakeholders; for instance, by developing the 
idea  of  ‘Partnerships’  between  tax  administrations  and  taxpayers  and  of  prior 
rulings on the tax treatment of certain transactions; 

–  paying attention to IT issues when implementing the new VAT rules: defining a 
proper timeframe and agreeing on  a work process  for adapting IT systems,  both 
for  businesses  and  tax  authorities;  facilitating  automated  information  transfer 
between  taxpayers  and  the  tax  authorities  through  better  interoperability;  and 
perhaps  developing  specific  software  to  be  supported  at  EU  level  and  made 
available to all Member States. 

Q32.  Would  you  support  these  suggestions  to  improve  the  relationship  between 
traders and tax authorities? Do you have other suggestions?  

32 

33 

In their audit work for the Annual Report for 2008, the European Court of Auditors took the view that 
data collection for the reports should become one of the means of ensuring uniform application of the 
VAT Directive across all Member States and equal treatment of all taxpayers. See Article 12 of Council 
Regulation (EC) No 1553/89. 
COM(2008) 807, 1.12.2008. 

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5.6. 

Other issues 

This paper sets out a range of topics for discussion but they are not exhaustive. The 
objective is to launch as broad a debate as possible, so it is an opportunity to bring 
other issues on board. 

Q33.  Which  issues,  other  than  those  already  mentioned,  should  be  addressed  in 
considering  the  future  of  the  EU  VAT  system?  What  solution  would  you 
recommend? 

6. 

HAVE YOUR SAY 

The  purpose  of  this  Green  Paper  is  to  trigger  and  encourage  public  debate  on  the 
future  of  the  EU  VAT  system.  The  Commission  therefore  invites  all  interested 
parties to submit their contributions in response to the questions raised in this Green 
Paper by 31 May 2011, preferably by e-mail and in Word format to ’TAXUD-VAT-
greenpaper@ec.europa.eu’. 

The contributions do not necessarily need to cover all of the questions raised in this 
paper. They can be limited to those questions of interest to you. Please state clearly 
which topics your contributions relate to and specifically the number of the question 
you are answering. 

If you contribute on all the issues raised in this Green Paper, we would be interested 
in knowing how you would rank the different items according to importance. 

Contributions  will  be  published  on  the  internet.  It  is  important  to  read  the  specific 
privacy statement on how your personal data and contribution will be dealt with on 
the following website http://ec.europa.eu/taxation_customs/index_en.htm. 

A  report  summing  up  the  conclusions  drawn  from  the  contributions  will  also  be 
published on that website. 

Based on the conclusions that can be drawn from this debate, and as announced in 
the  Commission  Work  Programme  for  201134,  the  Commission  will  present  by  the 
end of 2011 a Communication identifying those priority areas in which further action 
at  EU 
that 
level  would  be  appropriate.  Subsequent 
Communication would be based on thorough impact assessments. 

initiatives  following 

34 

COM(2010) 623, 27.10.2010, Commission Work Programme 2011. 

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