COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposals for a Council Directive, a Council Implementing Regulation and a Council Regulation on Modernising VAT for cross-border B2C e-commerce
Date: 2016-12-01
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: VAT, administrative cooperation, broadcasting, electronic commerce, exchange of information, import (EU), tax exemption, tax offence, telecommunications, third country

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   EUROPEAN COMMISSION  Brussels, 1.12.2016  SWD(2016) 382 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposals for a Council Directive, a Council Implementing Regulation and a Council Regulation on  Modernising VAT for cross-border B2C e-commerce {COM(2016) 757 final} {SWD(2016) 379 final}  
 
 
Executive Summary Sheet 
Impact assessment on modernising VAT for cross-border e-commerce 

A. Need for action 

Why? What is the problem being addressed?  
There are three clear reasons why the VAT system for cross-border e-ecommerce needs to be reformed. The 
underlying causes of these problems arise from provisions in the current VAT Directive and  therefore Member 
States cannot address these without action at EU level. 
Firstly,  the  complexity  of  VAT  obligations  has  consistently  been  identified  as  one  of  the  key  reasons  why  a 
business will not engage in cross-border e-commerce, and therefore it means that the single market cannot be 
accessed by many businesses. It is been estimated that the costs of complying with VAT obligations costs on 
average EUR 8 000 annually for each Member State which a business supplies to. This is a significant cost for 
business, in particular SMEs.  
Secondly, the current system is not neutral as EU businesses are at a clear disadvantage to non-EU businesses 
which can legitimately and otherwise make VAT free supplies into the EU. Given that VAT rates can be as high 
as 27%, there is a substantial distortion in favour of non-EU business if VAT is not applied.   
Thirdly,  the  complexity  of  the  existing  system  as  well  as  the  current  exemption  for  the  importation  of  small 
consignments means that Member States lose valuable tax revenues. It is estimated that between VAT foregone 
and non-compliance from cross-border e-commerce such losses are currently as high as EUR 5 billion annually.  

What is this initiative expected to achieve?  
The specific objectives of the initiative are i) to minimise burdens attached to cross-border e-Commerce arising 
from  different  VAT  regimes  which  act  as  a  barrier  to  intra-EU  trade  and  unduly  limit  consumer  choices  ii)  to 
provide a level playing field for EU businesses whether involved in the traditional economy, engaged in domestic 
e-commerce  or  cross-border  e-commerce,  iii)  to  facilitate  the  monitoring  of  compliance  and  the  fight  against 
fraud  for  Member  States’  authorities,  and  iv)  to  ensure  that  VAT  revenues  accrue  to  the  Member  State  of 
consumption. 

What is the value added of action at the EU level?  
In the absence of a concerted approach at the EU level, action at the national level alone will not address the 
issues  identified  above.  The  underlying  drivers  of  the  unlevel  playing  field  for  EU  business  such  as  the  VAT 
exemption for the importation of small consignments and the intra-EU distance sales thresholds are provided for 
in the VAT Directive, and therefore this will need to be amended to address these issues. Further, the means for 
simplying  cross-border  VAT  obligations  such  as  the  extension  of  the  Mini  One  Stop  Shop  and  greater 
coordination by Memer States to ensure proper taxation can only be achieved at EU level.  

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
Six Policy Options were considered. These options were inspired by the 2014 Report of the Commission Expert 
Group on the taxation of the digital economy and through dialogue with business, including SMEs, with Member 
States  and  in  the  inter-service  steering  group.  The  options  are  designed  to  build  on  each  other  through  a 
minimal  intervention  to  address  the  neutrality  aspect  (Option  2),  the  introduction  a  cross-border  threshold  to 
address the problems facing micro-business and start-ups to the more comprehensive interventions proposed in 
Options 4, 5 and 6 involve the extension of the Mini One Stop Shop (MOSS) system to allow business to simply 
account  for  taxes  due  in  other  Member  States.  Option  5  allows  a  business  to  avail  of  the  same  oligations  as 
domestic  transactions  as  opposed  to  the  need  to  apply  28  separate  rules  depending  on  the  Member  State  of 
consumption.  Option  6  proposes  harmonised  rules  for  businesses  who  use  the  extended  MOSS  for  intra-EU 
B2C  transactions.  The  preferred  option  is  option  5  which  will  introduce  certain  simplifications  in  2018  with  the 
bulk of the reforms in particular the extension of the MOSS system coming into place in 2021.  

Given  that  VAT  is  an  EU  tax  with  the  broad  legislative  framework  determined  by  the  VAT  Directive 
(2006/EC/112), it is not considered that the objectives can be achieved without a legislative proposal to amend 
this Diretcive and associated Regulations. 

Who supports which option?  
Broadly speaking business are in favour of options 4, 5 and 6, with a preference for Option 5 as it addresses the 
distortions but introduces simplifications for tax collection and obligations. SMEs and start-ups strongly favour 
the introduction of an intra-EU threshold to minimise the burden on such businesses – option 5 will allow such 
businesses to benefit from the threshold in the start-up stage of trading intra-EU with substantial simplifications 
available to such businesses when the threshold is exceeded. Postal service operators are concerned about the 
removal of the small consignments exemption due to the difficulties they expect in the short term in collecting 

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taxes on import of a  significant number of additional packages. Option 5 therefore proposes a number of 
different simplification methods to specifically mitigate the burden they will face. It should be acknowledged that 
the trade off for taxing such consignments is the unlevel playing field that EU business face in addition to the 
significant loss of tax revenues for Member States. Express couriers are broadly in favour of options 4, 5 and 6 
whereby importers of goods destined for end consumers up to the customs threshold can avail of the MOSS.   

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?                                       
There are substantial benefits from this option: 1) it reduces overall compliance costs for business by 55% (or 
EUR 2.3 billion) compared to the status quo and indeed for a business who wishes to start trading cross-border it 
will  be  95%  less  costly  than  the  alternative  of  direct  registration,  2)  it  increases  the  competitiveness  of  EU 
business in the traditional and digital economies  by delivering a level playing field as non-EU suppliers will be 
required to charge VAT on all transactions into the EU, 3) the measures increase intra-EU e-commerce trade, 
and 4) it will increase VAT revenues for Member States by EUR 7 billion (as of 2021) annually driven by higher 
compliance and the removal of the VAT exemption for the importation of small consignments.  

What are the costs of the preferred option (if any, otherwise main ones)?                                       
In  terms  of  costs  for  Member  States,  a  significant  positive  to  this  option  is  that  the  infrastructure  is  already  in 
place (in the form of the existing “Mini-One Stop Shop”) and therefore the technical challenges for the extension 
of the MOSS to tangible goods should be quite straightforward.  

How will businesses, SMEs and micro-enterprises be affected?  

Another important benefit is that the initiative is SME friendly – the introduction of a threshold for the changes 
foreseen  in  2021  will  ensure  that  upwards  of  400  000  businesses  can  trade  cross-border  without  having  to 
register to the MOSS. This will enable them to grow their cross-border  business. When their  businesses grow 
and the threshold is exceeded they will be able to continue to apply home country rules except for VAT rates and 
utilise the MOSS to simply account for VAT due in other Member States.  Micro-businesses will benefit from the 
introduction  of  a  new  EU  cross-border  threshold  for  electronic  services  in  2018  as  well  as  simplified 
requirements to enable them to identify the Member State of end consumers. 

Stakeholders  such  as  the  public  postal  providers  will  need  time  to  adapt  their  systems  for  these  changes 
particularly as all commercial deliveries into the EU will now be subject to VAT. Non-EU vendors will have the 
means  to  account  for  VAT  through  the  MOSS  as  is  currently  the  case  for  electronic  services  which  will  bring 
significant simplifications to clearance procedures for goods coming from outside EU. Even in cases where the 
MOSS will not be used by non-EU vendors, simplified VAT import requirements will be put in place notably to 
meet the specific needs of postal operators. It is proposed that the implementation date will be 2021. This will 
enable  various  stakeholders  to  effectively  address  any  challenges  arising  from  the  removal  of  the  import 
exemption for small consignmentrs. 

Will there be significant impacts on national budgets and administrations?  
As  indicated  above,  Member  States  will  benefit  from  increased  tax  revenues.  The  changes  to  the  import 
procedures  whereby  all  consignments  will  be  subject  to  VAT  will  cause  some  challenges  to  customs 
administrations  but  this  will  be  mitigated  by  investment  in  IT  solutions  through  EU  programmes.  The 
implementation date of 2021 will also assist in providing the necessary time to make adjustments.  

Will there be other significant impacts?  
No other significant impacts  

D. Follow up 

When will the policy be reviewed?  
Ongoing  implementation  will  be  monitored  by  the  Standing  Committee  on  Administrative  cooperation  in 
particular the indicators on business-take-up, compliance and VAT revenues through the MOSS.        

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