COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards a standard VAT return
Date: 2013-10-23
Institutions: European Commission
Subjects: EU Member State, VAT, administrative formalities, cross-border cooperation, private sector, single market, small and medium-sized enterprises, tax harmonisation, tax return













EUR-Lex - 52013SC0426 - EN











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52013SC0426

COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards a standard VAT return /* SWD/2013/0426 final */









COMMISSION STAFF WORKING DOCUMENT
EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT
Accompanying the document
Proposal for a Council Directive
amending Directive 2006/112/EC on
the common system of value added tax as regards a standard VAT return
1.           Introduction
The common EU VAT system is
an important source of revenue for Member States (22% of total taxes for Member
States in 2010) but is complicated with more than half of the 400 plus articles
of the VAT Directive dealing with exceptions to the basic rules. 
When measuring reporting
obligations in the context of the Commission's Action Programme for Reducing
Administrative Burdens in the European Union, VAT related burdens ranked at the
top with EUR 69 billion classified as administrative burdens. VAT returns in
the EU were estimated at EUR 19 billion.
The High Level Group on
Administrative Burdens (the so-called "Stoiber" group), said that
more work was needed particularly in the tax area to reduce burdens on
business. A study for the Stoiber group recommended "consideration could
be given to implementing a uniform VAT return throughout all 27 Member
States".
The VAT Directive on the
common system of VAT currently allows the Members States to determine the
content and submission of VAT returns resulting in 27 very different periodic
VAT returns with anything from less than 10 boxes to 100 boxes to be completed.
The "Retrospective
evaluation of the elements of the VAT system" estimates that a reduction
of 10% in the dissimilarity of the general VAT administrative procedures
between countries could yield a rise of 3.7% in intra-EU trade, while real GDP
and consumption would increase by 0.4% and 0.3%, respectively. Thus, a
standardised VAT return could have real positive effects on the EU economy.
Following the Stoiber
Group's report on administrative burdens a review of VAT obligations was
included in the Green Paper on the future of VAT which resulted in a
Communication committing to a legislative proposal in 2013, so that a standard
VAT declaration "is available in all languages and optional for business
across the EU". 
2.           Procedural
issues and consultations
DG TAXUD is the lead
Directorate General with consultation of DG MARKT, DG ENTR, DG CNECT, SG and
OLAF through a Steering Group. In addition the Legal Service and ESTAT were
kept informed. 
The Steering Group met on four occasions between 3 July 2012 and 23
May 2013.
Consultations were held through:
·                        
Green paper on the future of VAT and accompanying staff working document (Section 9.7 raised the
specific point of a standardised EU VAT declaration). The public consultation
was launched on 1 December 2010 and closed on 31 May 2011.
·                        
Workshops held with business to define the
standard VAT declaration during the PwC study from January 2012 until
June 2012. 
·                        
The VAT Expert group (VEG), set up by Commission Decision, met on 25 January 2013. 
·                        
SMEs were consulted at a Small Business Act
follow up meeting held on 17 April 2013.
·                        
Member States' tax authorities were consulted
through a Fiscalis seminar held in Portugal from 2-4 October 2012.
·                        
Member States were consulted through the Group
on the Future of VAT (GFV) on 28 January 2013.
Business is very supportive of a standard VAT return. SMEs unanimously
endorsed the idea of a standard VAT declaration, while at the same time being
consciousness of the need to reduce the frequency of VAT returns for smaller
businesses.
Member States are open, and in most cases supportive, of a standard VAT return
but are always mindful of the impact in terms of having to change their
national VAT return and the cost that it will entail. Two elements seem crucial
for them; firstly there should only be one type of VAT return as the cost to
implement and manage a double scheme (European and national) would be
prohibitive, and secondly there needs to be scope to take on board different
levels of information needed for risk analysis and control. 
3.           Problem
definition
The VAT Directive lays down
the rules by which Member States must require a VAT return from their taxable
persons. It defines the financial liability of companies vis-à-vis the Member State and provides information for risk control and subsequent auditing.
Member States are largely
free to set the type of information they deem necessary for the calculation of
the VAT that is due and this varies from less than 10 boxes to up to 100 boxes
of information. In addition summary annual VAT returns in certain Member States
can include 200 or more boxes to be completed. 
The requirement to submit a
VAT return is more administratively costly on an SME that generally does not
have the sufficient resources or knowledge to deal with tax matters in
comparison to a large business with more detailed internal controls and staff
dedicated to taxation issues.
Member States have designed
their VAT returns for purely domestic control, organisational and risk
management purposes and therefore there is no EU dimension playing a role.
Furthermore, Member States have little incentive in trying to reduce national
differences in VAT returns and left to their own devices the differences
between VAT returns and their complexities would at best remain the same.
As more and more
domestically-oriented small businesses are expected to trade cross border
tackling today the administrative burdens on SMEs only submitting national VAT
returns would also have positive knock-on effects and would facilitate their
cross border trade and strengthen the effectiveness of the Single Market.
3.1.        Cross
border problem
The main difficulty
businesses face in completing VAT returns in different Member States is the
complexity and different language regimes. This comes from having to provide
different information, the information not having consistent definitions, the
lack of good guidance in how to complete the VAT return, different rules and procedures
for the submission, and the need to complete it in the national language. This
complexity also comes from the level of information required, which in several
Member States, is very demanding.
This complexity in turn
leads to the following two main problems: it restricts cross border trade, and
it increases the burden of doing business across borders
There are an estimated 29.8
million businesses completing VAT returns in the EU. About 3.8 million of
theses submit VAT returns in more than one Member State which costs around 2 to
3 times more than the EUR 4 billion equivalent of submitting domestic VAT
returns.
For SMEs, when doing
business cross border, the problem is magnified for two clear reasons. First,
there is less financial capacity to set up local companies with local staff to
submit VAT returns in another Member State. And second, there is less financial
capacity to hire specialised staff or pay outside consultants with knowledge of
foreign rules and languages necessary to complete a VAT return in another Member State
The result is that there is
a specific barrier to trade and many SMEs simply don't trade cross border for
these reasons.
3.2.        Domestic
problem
The cost of submitting VAT
returns (e.g. time to record and collate information, filling in VAT return
boxes, submission, etc.), while substantial for large businesses in absolute
terms because they have a larger number of transactions, more complex VAT
issues and more extensive internal controls, are, as a percentage of annual
turnover, significantly higher for SMEs.
In the Communication on
Smart regulation - Responding to the needs of small and medium - sized
enterprises, the findings show that VAT legislation is seen by individual SME
businesses as the most burdensome area of EU legislation. Therefore, as part of
the "Think Small First" initiative it is clear that a measure to
reduce VAT burdens should have a significant impact notably on SMEs and micro
enterprises.
3.3.        Evolution
of the problem
More and more companies will
be exposed to having to fill in VAT returns in more than one Member State as the trade in goods and services cross border has intensified and more and more
SMEs discover and make use of trade across national borders helped by a single
currency and more common EU laws.
Moreover, under a system of
taxing supplies cross border at the rate in the Member State of destination,
this could require up to a further 1,2 million business to compete VAT returns
in another Member State. 
4.           Objectives
There are two main objectives: to reduce obstacles to cross border trade and to reduce burdens on
domestic businesses in order to support growth and competitiveness.
As well there are secondary
objectives. Promoting growth friendly fiscal
consolidation can be encouraged by exchanging standardised information between
Member States to help reduce fraud and improve compliance. Also the broader One
Stop Shop could benefit from the agreement of a standard VAT declaration as the
basis for the One Stop Shop VAT declaration. 
5.           Policy
options
The only option that could deliver simplification and administrative-burden
reduction within an acceptable timeframe would be stand-alone legislation at
the EU level. The options for the scope of a proposal are thus:
A) Benchmark (do nothing)
B) Compulsory standard EU
VAT declaration (for both business and Member States)
C) Standard VAT declaration
optional for all business (compulsory for Member States)
D) Standard VAT declaration
optional for those businesses submitting VAT returns in more than 1 Member
State (compulsory for Member States)
E) Compulsory standard VAT
declaration with limited flexibility for Member States to determine the
information from a standardised list
These options can be looked
at in terms of the following:
·                        
Contents of the standard VAT declaration
·                        
Periodicity and due date
·                        
Annual VAT return
·                        
Other issues (E-filing, corrections)
6.           Assessment of impacts
6.1.        Background
figures characterising the baseline (Option A)
There are about 30 million
companies in the EU that are obliged to fill in national VAT returns (0.2% are
large companies, 1.1% are medium-sized companies, 6.5% are small companies and
92.2% are micro-enterprises with an annual turnover of less than EUR 2
million). 
These 30 million companies
are submitting almost 150 million VAT returns annually, of which the vast
majority (more than 130 million) have to be submitted by micro-enterprises. At
the same time, VAT revenues paid by these micro-enterprises are a small
percentage of total VAT revenues collected.
The costs for submitting these
150 million VAT returns are estimated at about EUR 30 billion annually. This
corresponds to about 3.5% of annual VAT revenues and 0.25% of the GDP of EU27.
About EUR 0.48 billion fall on large businesses, EUR 5.98 billion on SMEs and
EUR 24.19 billion on micro-enterprises. 
The cost for the 27 Member
States to manage these 150 million VAT returns consists of recurring costs
(such as verifying consistency and plausibility of information provided,
gathering additional information, etc.) and one-off cost (such as IT, training
verifying annual returns). Figures exist for the UK and if this is typical of
the EU as a whole it would equate to total EU VAT collection costs of EUR 6
billion.
6.2.        Administrative
burden for businesses – including SMEs
Option B – compulsory standard VAT return (business and Member
States)
When not taking set-up and
switching cost into account, annual gross benefits are estimated at EUR 15
billion. However, in 8 Member States the VAT return is simpler than the model
PwC standard VAT declaration and in these Member States costs would increase by
about EUR 3 billion. The net saving would therefore be at EU level EUR 12
billion.
Additional set-up and
switching costs to change to the standard VAT returns are about EUR 150 per
company overall which for the entire population of 30 million companies would
add up to EUR 4.25 billion. 
If micro-enterprises could
not all choose to submit quarterly this could trigger lost cost savings in the
order of magnitude of EUR 1.8 billion.
If the annual summary VAT
return was not abolished additional lost annual cost savings for affected
businesses would be in the order of magnitude of EUR 2.8 billion.
Option C – optional standard VAT return for business
It is assumed that all
internationally active businesses (about 3.8 million) and about 80% of those
businesses that are registered in Member States with more complicated VAT
returns will switch to the standard return. The expected cost savings would
amount to EUR 15 billion, of which EUR 4.5 billion would accrue to the
internationally active businesses. This includes savings from abolishing the
annual VAT return (EUR 1.9 billion) and from quarterly VAT returns for micro
enterprises (EUR 1.8 billion).
Overall set-up and switching
costs for the affected business population of 20.4 million companies (0.4
million large businesses, 1.4 million SMEs and 18.6 million micro enterprises)
would add up to EUR 2.9 billion. 
Option D - optional for those businesses submitting VAT returns in
more than 1 Member State 
As only internationally
active businesses (about 3 million) could switch to the standard return, the
expected cost savings for recurrent expenditure for these enterprises would
amount to EUR 6 billion. The switching cost would be limited to EUR 500
million.
If all micro enterprises
that are being offered the standard declaration that presently have to submit
VAT returns on a monthly basis would have to continue to do so this would
represent about EUR 0.8 billion in lost savings. Another variant could be to
offer the reduced periodicity to all micro-companies (even to those not
benefitting from the standard declaration) and the additional saving compared
to the EUR 6 billion would then be EUR 1 billion.
If the obligation of
submitting summarising annual VAT returns would be abolished for all companies
in those countries requiring such returns this would represent about EUR 0.8
billion in lost savings.
Option E - compulsory
standard VAT declaration with limited flexibility for Member States to
determine the information from a standardised list
As under Option B annual
gross benefits are estimated at EUR 15 billion. However, unlike Option B there
is no loss in the Member States with simpler national VAT returns.
The one-off switching costs
for the entire population of 30 million companies would at first glance – as in
scenario B - add up to EUR 4.25 billion. However, switching cost might not
occur in those countries that simply request the same information (although
under a standardised format) as before, and so overall switching cost under
this scenario might remain limited to EUR 2.9 billion. 
If all micro enterprises
that presently have to submit VAT returns on a monthly basis would continue to
do so this would cost EUR 1.8 billion in lost savings, and the obligation of
submitting summarising annual VAT returns if not abolished would reduce savings
by EUR 2.8 billion.
6.3.        Costs
of managing VAT returns for Member States
The compulsory introduction
of a standard VAT return will require all Member States to change their national
VAT return, either by complementing it (options C and D) or by replacing it
(options B and E). This will result in costs in areas such as changing
websites, IT systems, informing all businesses of the changes and retraining
staff. It may also impact on audit and control with changes needed to risk
analysis tools. 
Member States affected by
introducing the standard VAT declaration could have additional once-off IT
costs of roughly EUR 800 million to EUR 1 billion as measured by the PwC study
(2013).
Member States are concerned
in areas other than cost such as the loss of information on risk analysis and
audits, and the effect this would have on staff resources.
These concerns are driven by
the assumption "the more information we ask the higher will be compliance
by tax payers". This assumption is, however, not supported by evidence, as
there is no apparent negative correlation between the number of boxes to be
filled out in a VAT return and the VAT gap in a given country. 
Member States can acknowledge
certain advantages for them of a standard VAT declaration:
·                        
easier exchange of information between Member
States to help identify fraud quicker
·                        
greater accuracy of information with fewer
mistakes as the VAT return would be standardised and in the majority of cases
simpler than the national VAT return
·                        
encourage voluntary compliance, notably for
smaller businesses. 
·                        
facilitate the changeover to the One-Stop-Shop
With respect to options C
and D, Member States were clear and unanimous in stressing that a dual VAT
return, i.e. maintaining their current VAT return and in parallel a standard EU
VAT declaration would be too complex and costly to manage. There will be
differences in the level of information received, rules and procedures for
businesses moving from one VAT return to the other and the compatibility of
historical data for risk analysis. 
7.           Comparison of options
The weighting for the impact
of the various options was based equally on the positive effects on business in
terms of the removal of obstacles to cross border trade and the administrative
burden reduction, and the negative effect of the cost of implementing the
change for Member States.
The cost for the Member States has been difficult to estimate and so
the key factors are based on:
·                        
the number of VAT returns offered to business
(dual system is more costly)
·                        
the number of Member States affected
Other factors, such as
social effects or changes to the environment are minimal, and can be discounted
as having no substantial effect on the decision as to which option is more
favourable. 
The trade-off between the
options is principally between more flexibility for business which further
reduces administrative burdens against the cost and complexity for Member
States. Option C gives the greatest burden reduction for business but is the
most disadvantageous for Member States. Equally option A is the best for Member
States but provides the least (in fact zero) burden reduction for businesses.
It is within this framework
that an alternative compromise solution, option E, combines higher burden
reduction for businesses while having a low impact on Member States.
 Option || Total admin burden saving (cross border and domestic) || Cost for Member State || Overall score || 
   || EUR || Rank || No. VAT return systems || No. Member States affected || Rank || Rank 
 E || 12 to 15 bn || 2nd || 1 || 19 || 2nd || 1st 
 C || 15 bn || 1st || 2 || 27 || 4th= || 2nd 
 B || 12 bn || 3rd || 1 || 27 || 3rd || 3rd 
 A || 0 || 5th || 1 || 0 || 1st || 4th 
 D || 6 bn || 4th || 2 || 27 || 4th= || 5th 
8.           Implementation and
monitoring
Continual monitoring of the administration burdens on burdens and
estimates of the VAT gap will enable sufficient review of the standard VAT
declaration.