COMMISSION STAFF WORKING DOCUMENT 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

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 1.12.2016  SWD(2016) 379 final   COMMISSION STAFF WORKING DOCUMENT  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) 382 final}  
 
 
1. 

INTRODUCTION AND CONTEXT ......................................................................... 7 

1.1. 

Introduction ....................................................................................................... 7 

1.2.  2015  Changes  to  the  Place  of  Supply  Rules  and  the  introduction  of  the 

Mini One Stop Shop .......................................................................................... 7 

Table 1 – Summary analysis of the implementation of the 2015 place of 

supply rules and MOSS ...................................................................... 8 

1.3.  Scope for further reforms of the cross-border VAT rules ................................. 9 

2.  WHAT IS THE PROBLEM AND WHY IS IT A PROBLEM?............................... 11 

2.1. 

Introduction ..................................................................................................... 11 

2.2.  The problems ................................................................................................... 11 

2.3.  Problem drivers ............................................................................................... 14 

2.3.1.  Driver  1  –  The  complexity  of  the  current  VAT  rules  for  B2C 

Intra-EU supplies of goods ................................................................ 14 

2.3.2.  Driver  2  –  The  complexity  of  the  current  VAT  rules  for  B2C 

imports of goods from third countries ............................................... 14 

2.3.3.  Driver 3 – The lack of an intra-EU threshold for B2C supplies of 
electronic  services  and  other  simplification  measures  for  small 
business ............................................................................................. 17 

2.3.4.  Driver 4 – Complexity of the current MOSS system. ....................... 18 

2.4.  Problem Tree ................................................................................................... 19 

Figure 1 – Problem Tree .................................................................................. 19 

2.5.  Evolution of the problem without action at EU level ...................................... 20 

3.  WHY SHOULD THE EU ACT? .............................................................................. 21 

4.  WHAT SHOULD BE ACHIEVED? ........................................................................ 22 

4.1.  General objectives ........................................................................................... 22 

The general objectives of are the smooth functioning of the internal market, the 
competitiveness of EU business and the need to ensure effective taxation 
of the digital economy. .................................................................................... 22 

4.2.  Specific objectives ........................................................................................... 22 

Table 2 – Linking the objectives to the problem ............................................ 22 

5.  WHAT ARE THE VARIOUS OPTIONS TO ACHIEVE THE OBJECTIVES? .... 23 

5.1.  Selection of options ......................................................................................... 23 

5.2.  Options analysed ............................................................................................. 23 

5.2.1.  Option 1:  Status Quo/Baseline ........................................................ 23 

5.2.2.  Option  2:  Removal  of  the  distance  selling  thresholds  and  the 

small consignment exemption (with no simplification measure) ...... 24 

5.2.3.  Option  3:    Option  3  -  Option  2  but  with  the  introduction  of  a 
new  common  VAT  threshold  for  EU  cross-border  sales  of  both 

2 

 
 
goods and services ............................................................................. 24 

5.2.4.  Option  4:    Option  3  plus  the  Mini  One  Stop  Shop  (MOSS) 
applying  to  intra-EU  supplies  of  goods,  intra-EU  and  non-EU 
supplies  of  services  and  to  the  import  of  all  goods  under  the 
customs threshold of EUR 150 .......................................................... 24 

5.2.5.  Option  5:    Option  4  plus  amendments  to  the  Mini  One  Stop 
Shop  (home  country  rules  and  home  country  control  subject  to 
applying the VAT rate of the Member State of Consumption, and 
a  ‘soft  landing’  for  identifying  the  place  where  the  customer  is 
located) .............................................................................................. 25 

5.2.6.  Discarded option: VAT split payment – intervention of payment 
service  providers  in  the  VAT  payment  to  the  relevant  tax 
authorities .......................................................................................... 26 

5.3.  Key features of the Options ............................................................................. 27 

Table 3 – Summary of the key features of the policy options assessed .......... 27 

6.  WHAT ARE THE IMPACTS OF THE DIFFERENT POLICY OPTIONS AND 

WHO WILL BE AFFECTED? ................................................................................. 28 

6.1.  Methodology ................................................................................................... 28 

Table 4 – Summary of methodology used ...................................................... 28 

6.2.  Analysis of the impacts of each of the options ................................................ 29 

6.2.1.  Option 1 – Status Quo ....................................................................... 29 

6.2.2.  Option  2  -  Removal  of  the  distance  selling  thresholds  and  the 

small consignment exemption (with no simplification measure) ...... 29 

6.2.3.  Option 3 - Option 2 but with the introduction of a new common 
VAT  threshold  for  EU  cross-border  sales  of  both  goods  and 
services .............................................................................................. 32 

6.2.4.  Sub-option  –  Level  of  the  Cross-border  threshold  for  goods 

and services ...................................................................................... 36 

6.2.5.  Option 4 - Option 3 plus Mini One Stop Shop applying to intra-
EU supplies of goods and services and to the import of all goods 
under the customs threshold of EUR 150 .......................................... 37 

6.2.6.  Option 5 - Option 4 plus amendments to the Mini One Stop Shop 
(home  country  legislation  and  home  country  control,  subject  to 
applying rate/exemptions of the Member State of Consumption) .... 41 

6.2.7.  Option 6 - Option 4 plus fully harmonised EU rules for Mini One 
Stop  Shop,  subject  to  applying  the  rates/exemption  of  the 
Member State of Consumption.......................................................... 43 

7.  HOW DO THE OPTIONS COMPARE? .................................................................. 45 

7.1.  Summary assessment of the impacts ............................................................... 45 

Table 11 – Summary analysis of impacts ...................................................... 46 

7.2. 

Identification of the Preferred Option ............................................................. 48 

7.3.  Subsidiarity of the preferred option................................................................. 49 

3 

 
7.4.  Proportionality of the preferred option ............................................................ 49 

7.5. 

Impact on SMEs .............................................................................................. 50 

7.6.  Delivering on REFIT ....................................................................................... 51 

8.  HOW WOULD ACTUAL IMPACTS BE MONITORED AND EVALUATED? .. 51 

8.1. 

Indicators for monitoring and evaluation ........................................................ 51 

8.2.  Monitoring structures ...................................................................................... 53 

ANNEX 1: PROCEDURAL INFORMATION .......................................................... 54 

ANNEX 2 – SYNOPSIS REPORT ON STAKEHOLDER CONSULTATION ......... 56 

ANNEX  3 

-  ASSESSMENT  OF  THE  IMPLEMENTATION  AND 
APPLICATION OF THE 2015 PLACE OF SUPPLY RULES FOR THE 
ELECTRONIC  SERVICES  AND  THE  MINI  ONE  STOP  SHOP 
(MOSS) .................................................................................................................... 64 

1. 

INTRODUCTION/BACKGROUND ....................................................................... 64 

1.1.  Introduction ................................................................................................... 64 

1.2.  Background to the 2015 Changes ................................................................ 65 

1.3.  Intervention logic ........................................................................................... 66 

Figure 1 – Intervention Logic ....................................................................... 67 

1.4.  Methodology .................................................................................................. 68 

2.  ASSESSMENT OF THE IMPLEMENTATION AND FUNCTIONING OF 
THE 2015 PLACE OF SUPPLY RULES FOR ELECTRONIC SERVICES 
AND THE MINI ONE STOP SHOP (MOSS) ...................................................... 69 

2.1.  Preparatory work for the implementation of the 2015 place of supply 

rules and the MOSS ...................................................................................... 69 

2.1.1.  Overview of preparatory work undertaken. ...................................... 69 

2.1.2.  Analysis  of  the  Member  State  perspective  of  preparatory 

works/implementation ....................................................................... 71 

2.1.3.  Analysis  of 

the  business  perspective  of 

the  preparatory 

works/implementation ....................................................................... 72 

2.2.  Assessment of the 2015 place of supply rules; ............................................ 72 

2.2.1.  Assessment of the impact on Member States ..................................... 73 

2.2.2.  Assessment of the impact on business ............................................... 73 

2.3.  Assessment of the Mini One Stop Shop ....................................................... 74 

2.3.1.  Take up of the MOSS ......................................................................... 74 

2.3.2.  Changes in VAT compliance costs for businesses ............................. 74 

2.3.3.  Assessment of the MOSS – Member States’ perspective ................... 76 

2.3.4.  Assessment of the MOSS - Businesses’ perspective .......................... 76 

2.4.  Overview of the key results from the analysis ............................................ 77 

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2.5.  Administrative cooperation, audit and audit guidelines ............................ 79 

2.6.  Assessment of the overall impact of the 2015 place of supply changes 

and MOSS on SMEs ...................................................................................... 79 

2.7.  Overall assessment of whether the policy objectives were met ................. 80 

3.  RECOMMENDATIONS FOR IMPROVEMENT .............................................. 82 

3.1.1.  Recommendations for immediate improvement ................................ 82 

3.1.2.  Recommendations for future expansion ............................................ 83 

3.2.  Recommendations on the MOSS system ..................................................... 83 

3.2.1.  Recommendations for immediate improvement ................................ 83 

3.2.2.  Recommendations for future expansion ............................................ 84 

3.3.  Recommendations on the administrative cooperation and audit ............. 85 

3.3.1.  Recommendations for immediate improvement ................................ 85 

3.3.2.  Recommendations for future expansion ............................................ 86 

4.  CONCLUSION ........................................................................................................ 86 

ANNEX 5 -METHODOLOGY ....................................................................................... 90 

1.  OVERVIEW OF THE METHODOLOGY ............................................................... 90 

1.1.  Approach to analysing the impacts .............................................................. 90 

1.2.  Tools for the analysis ..................................................................................... 92 

1.2.1. 

Standard Cost Model ......................................................................... 92 

1.2.2.  Computable General Equilibrium (CGE) model............................... 93 

1.3.  Quantification of the impacts ....................................................................... 93 

1.3.1.  Number of businesses ........................................................................ 93 

1.3.2.  Timeline ............................................................................................. 94 

1.3.3.  Growth rates ...................................................................................... 94 

1.3.4.  VAT revenues and compliance .......................................................... 94 

1.4.  Data gathering tools ...................................................................................... 95 

1.4.1.  Consumer survey ............................................................................... 96 

1.4.2. 

Interviews and Questionnaires .......................................................... 96 

1.4.3.  Mock purchases ................................................................................. 96 

1.4.4. 

Stakeholder workshops ...................................................................... 96 

1.4.5.  Business online survey....................................................................... 96 

1.4.6.  Desk research .................................................................................... 97 

2.  CGE MODEL .......................................................................................................... 97 

2.1.  Introduction ................................................................................................... 97 

2.2.  Scope of the CGE model ............................................................................... 98 

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2.3.  Scenarios for the modernisation of VAT treatment ................................... 98 

2.4.  Outputs of the CGE model ........................................................................... 99 

2.5.  Data strategy ................................................................................................ 101 

2.5.1.  Macro-economic data ...................................................................... 102 

2.5.2.  Construction of the EU Social Accounting Matrix .......................... 103 

2.5.3.  Data on e-Commerce....................................................................... 106 

2.5.4.  Data on administrative costs and VAT payments ............................ 107 

2.6.  Modelling approach .................................................................................... 107 

2.6.1.  Overview of the CGE model ............................................................ 107 

2.6.2.  Equilibrium of the model ................................................................. 110 

2.6.3.  Dynamics of the CGE Model ........................................................... 111 

2.6.4.  Modelling of the proposed Policy Options ...................................... 112 

3.  ANALYSIS OF NET VAT REVENUES IN OPTIONS 1 TO 6 ....................... 113 

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1. 

INTRODUCTION AND CONTEXT 

1.1. 

Introduction 

The European Commission is committed to ensuring the free movement of goods and services 
and  to  ensuring  that  “individuals  and  businesses  can  seamlessly  access  and  exercise  online 
activities  under  conditions  of  fair  competition”.  This  commitment  was  underlined  in  May 
2015  with  the  adoption  of  the  Digital  Single  Market  strategy1  which  contained  a  series  of 
actions designed to break down the barriers for the growth of e-commerce in the EU.  

The proposed initiative to modernise VAT for cross-border e-commerce, which is the subject 
of  this  impact  assessment,  stems  from  the  fact  that  the  current  VAT  system  has  been 
identified as one of the major barriers for business2 engaging in cross-border trade, and as will 
be demonstrated in this impact assessment is  a major  source  of distortions for EU  losses  as 
well  as  leading  to  substantial  revenue  losses  for  Member  States.  This  impact  assessment 
recognises  that  the  modernisation  of  cross-border  e-commerce  is  an  evolving  process,  and 
thus takes into account and assesses the implementation of important changes made in 2015 to 
the VAT place of supply rules and the introduction of the Mini One Stop Shop (MOSS).   

This assessment, which comes under the REFIT programme, intends to ensure that the future 
proposal is cognisant of the experiences which have gone before and in particular identify any 
areas where the regulatory framework can be improved to bring benefits to business, Member 
States and citizens.  

1.2. 

2015 Changes to the Place of Supply Rules and the introduction of the Mini One 
Stop Shop 

As set out above, the modernisation of VAT is  an ongoing process.  Until the end of 2014, 
VAT  on  telecommunications,  broadcasting  and  electronically  supplied  services  (hereafter 
referred to as electronic services) provided to final customers within the EU was levied in the 
country where the supplier was located but now, since 1 January 2015, with the coming into 
effect of new rules, VAT on those services is levied instead where the consumer is located (in 
accordance  with  the  country  of  consumption  principle).  This  change  was  adopted  by  the 
Council in 2008 to address revenue losses due to business relocating in Member States with 
low VAT rates as well as significant distortions faced by business as the differential in VAT 
rates ranged by up to 24% by applying the VAT rate of the place of the supplier. 

In  parallel  with  this  change  and  in  order  to  simplify  compliance  with  the  new  rules,  a 
simplified electronic registration and payment system, "the mini One Stop Shop" (the MOSS) 
has  been  introduced,  which  reduced  the  costs  and  administrative  burdens  for  businesses 
concerned.  Instead  of  having  to  declare  and  pay  VAT  directly  to  each  individual  Member 
State  where  their  customers  are  based,  businesses  are  able  to  make  a single  declaration  and 
payment in their own Member State. Suppliers can use a web portal in their Member State of 
establishment  to  account  for  the  VAT  due  on  sales  in  other  Member  States.  In  this  way  a 
vendor of electronic services has to charge the VAT of the country in which the consumer is 
located, but is only required to register and account for VAT in their home country or for third 
country suppliers in the Member State designated as such.  

http://ec.europa.eu/digital-agenda/en/our-goals   

1 
2   http://www.ecommerce-europe.eu/stream/survey-barriers-to-growth-ecommerce-europe-2015.pdf 

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An analysis of the implementation of the new place of supply rules and the MOSS has taken 
place  (see  Annex  3)  as  part  of  the  Study  ‘VAT  aspects  of  cross-border  E-Commerce  – 
Options  for  modernisation’  (hereafter  referred  to  as  the  Study).  The  study3  (available  at 
https://ec.europa.eu/taxation_customs/publications/studies-made-commission_en) 
has 
concluded  that  the  introduction  of  the  2015  changes  has  been  very  successful  with  general 
satisfaction  from  business  and  increased  revenues  for  the  vast  majority  of  Member  States 
arising  from  the  application  of  the  destination  principle  for  supplies  of  electronic  services. 
VAT  revenues  of  approximately  EUR  3  billion  were  paid  through  the  MOSS  in  2015 
representing about 70% of the total supplies of these services. Further, the study has estimated 
that  for business there has  been  a reduction in  costs of nearly EUR 500  million or  EUR 41 
0004 per company as a result of the availability of the MOSS compared to the alternative of 
registering and accounting for tax in the Member State of the consumer. 

Nevertheless, some problems have been identified with the new rules which will need to be 
addressed in the proposal.  Business, particularly in  the UK  which has  a very high domestic 
exemption  threshold,  have  complained  that  the  lack  of  a  threshold  for  intra-EU  supplies  of 
electronic  services  has  meant  that  they  have  to  account  through  the  MOSS  for  a  negligible 
amount  of  sales  to  other  Member  States  and  this  is  acting  as  a  barrier  for  such  businesses 
accessing the single market. They have also experienced difficulties in identifying where their 
customers  are  located  due  to  the  requirement  to  have  two  pieces  of  non-contradictory 
evidence. Further problems identified by business both large and small is the requirement in 
EU law to keep records for 10 years, which is over and above national requirements, as well 
as the need to know different national rules such as those applicable to invoicing and bad debt 
reliefs. An additional significant concern which has emerged is the inability for a business to 
adjust a return in the current period and instead have to adjust past returns and seek refunds 
from Member States.  

Table 1 – Summary analysis of the implementation of the 2015 place of supply rules and MOSS 

Summary Analysis of the implementation of 2015 Place of Supply rules/MOSS 

Positive results  

  Significant milestone in EU taxation – for the first time Member States are collecting 

tax on behalf of each other. 

  12 000 businesses used the MOSS system in 20155.  

  70% of EU turnover of electronic services covered by the MOSS. 

  EUR 3 billion paid through the MOSS in 2015 representing up to EUR 18 billion in 

turnover. 

  The  MOSS  has  saved  these  businesses  EUR  500  million  versus  the  alternative  of 
direct  registration  and  payment  –  on  average  EUR  41  000  per  business.  This 
represents a 95% reduction in costs. 

  Overall,  business  and  Member  States  very  satisfied  with  the  introduction  and 

3 Deloitte Study for the Commission on ‘Modernising VAT for cross-border e-commerce –    Pg. 2, Executive 

Summary of Lot 3 – Assessment of the implementation of the 2015 VAT changes. 

4  Deloitte  Study  for  the  Commission  on  ‘Modernising  VAT  for  cross-border  e-commerce  –  Pg.  8  -  Executive 

Summary of Lot 3 – Assessment of the implementation of the 2015 VAT changes. 

5 According to the study there are 85 000 businesses active in this sector, 12 000 use the MOSS with the majority 

of others complying through platforms e.g. iTunes store, Google Play store. 

8 

 
 
                                                 
implementation of the systems.  

  EU  acknowledged  as  the  global  leader  for  such  a  system  –  other  jurisdictions  are 

following.  

Areas for improvement 

  Problems experienced by micro business due to the lack of a threshold and difficulties 

in identifying customers.  

  Despite  an  exceptional  communication  campaign  carried  out  at  EU  and  national 
levels, there is still a need for Member States and Commission to communicate with 
micro-businesses. 

  Business  concerned  at  the  prospect  of  multiple  audits  by  potentially  each  Member 
State into which they make supplies as well as the  need to correct past VAT MOSS 
returns rather than adjust in current returns and then seek refunds. 

  10 years record keeping, different invoicing rules and onerous correction methods are 

areas to be looked at. 

1.3. 

Scope for further reforms of the cross-border VAT rules 

the  service 

In the 2011 Communication on the Future of VAT6, the Commission outlined that the general 
principle of EU VAT law should be based on taxation taking place in the country where the 
good  or 
the 
Communication, Council in May 20127 broadly endorsed the destination principle as the way 
forward for a definitive VAT system in the EU. The European Parliament also recommended 
reforms in its 2013 report on “Simplifying and Modernising VAT in the Digital Single Market 
for e-Commerce”8. 

is  consumed  (the  destination  principle).  In  considering 

Taxation in the jurisdiction of the recipient of the services is fully in line with international 
standards in this  field. The OECD  principles  on the taxation of e-commerce  were  agreed in 
1998 in Ottawa and provide that when applied, consumption taxes (like VAT) should result in 
taxation where consumption takes place. The EU in 2003 became the first tax jurisdiction to 
tax electronic services in line with the principles developed by the Organisation for Economic 
Co-operation and Development (OECD)9 by taxing B2C supplies of electronic services from 
non-EU businesses in the Member State of consumption10. This was followed in 2015 by the 
changes  to  the  intra-EU  place  of  supply  rules  which  now  tax  B2C  supplies  of  electronic 
services in the Member State where they are consumed. 

However, it cannot be ignored that the destination principle causes difficulties for business in 
the EU as they are faced with different rules in different Member States. The complications of 
having to deal with many different national systems represent a real obstacle for companies 

6  COM(2011) 851 final 

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/key_documents/communications/co
m_2011_851_en.pdf  

7  Ecofin Council Conclusions – May 2012 

http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/130268.pdf  

8   http://www.europarl.europa.eu/RegData/etudes/etudes/join/2012/492432/IPOL-

IMCO_ET(2012)492432_EN.pdf 

10 Within the EU such supplies were still taxed on the basis of where the supplier was located (taxed at origin). 

9 

 
 
 
                                                 
 
trying to trade cross-border both on and offline. Indeed, the complexity of VAT for making 
intra-EU B2C supplies is cited by business as one of the top three barriers to cross-border e-
commerce11. 

Applying  the  destination  principle  is  also  relevant  when  considering  the  need  to  ensure 
taxation in the context of the digitalisation of the economy, particularly given the significance 
of  VAT  revenue  for  EU  economies.  This  broad  issue  was  considered  by  the  Commission 
Expert Group on Taxation of the Digital Economy, chaired by the former Portuguese Finance 
Minister Vítor Gaspar, who reported in May 201412 and made a number of recommendations 
in  respect  of  modernising  VAT  for  cross-border  e-commerce.  The  recommendations  of  the 
Expert Group were considered by the Commission in the context of preparatory works for the 
digital single market strategy.  
As outlined in the Communication 'A Digital Single Market Strategy for Europe'13 (the DSM 
Strategy),  the  Commission  is  working  to  minimise  burdens  attached  to  cross-border  e-
commerce arising from different VAT regimes, provide a level playing field for EU business 
and ensure that VAT revenues accrue to the Member State of the consumer.  

Having carefully considered the problems business face, the Commission made a commitment 
in the DSM Strategy indicating that it will make legislative proposals in 2016 to reduce the 
administrative burden on businesses arising from different VAT regimes including:  

(i)  extending  the  current  single  electronic  registration  and  payment  mechanism  (the 
Mini-One Stop Shop) to intra-EU and 3rd country online sales of tangible goods,  

(ii)  introducing  a  common  EU-wide  simplification  measure  (VAT  threshold)  to  help 
small start-up e-commerce businesses,  

(iii)  allowing  for  home  country  controls  including  a  single  audit  of  cross-border 
businesses for VAT purposes, and  

(iv)  removing  the  VAT  exemption  for  the  importation  of  small  consignments  from 
suppliers in third countries. 

The Commission has restated this commitment in the April 2016 VAT Action Plan1415. It is 
also relevant that the Single Market Strategy16 recognises the complexity of VAT regulations 
for SMEs and identifies the DSM VAT commitment as one to assist SMEs accessing the single 
market17.  

11   http://www.ecommerce-europe.eu/stream/survey-barriers-to-growth-ecommerce-europe-2015.pdf  
12  http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/ 

good_governance_matters/digital/report_digital_economy.pdf  

13   COM(2015) 192 final. 
14   Communication from the Commission to the European Parliament, the Council and the European Economic 
and  Social  Committee  on  an  action  plan  on  VAT.  Towards  a  single  EU  VAT  area  –  Time  to  decide, 
Brussels, 7.4.2016, COM(2016) 148. 

15   The  Action  Plan  is  currently  (May  2016)  under  discussion  in  Council.  The  Council  conclusions  when 

finalised should be referenced here.  

16   Communication from the Commission to the European Parliament, the Council and the European Economic 

and Social Committee and the Committee of the Regions on Upgrading the Single Market: more 
opportunities for people and business http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52015DC0550&from=EN  

17   The  single  market  strategy  and  the  VAT  Action  Plan  also  commit  to  proposing  in  2017  a  comprehensive 
simplification  package  for  SMEs.  As  part  of  this  work,  all  aspects  of  SME  VAT  obligations  across  all 
sectors will be analysed. While the existing domestic thresholds will be examined as part of this work the 
commitment  in  the  DSM  strategy  to  introduce  a  cross-border  intra-EU  threshold  for  e-commerce  in  this 
initiative should be seen as separate given that it is focused on one particular sector of the economy.    

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Further, the April 2016 e-Government Action Plan18 recognises the 2015 MOSS system as a 
successful pan-European governmental IT project which has provided benefits for business and 
the single market, and has included the extension of the MOSS system in its list of actions for the 
2016 – 2020 plan.   

2.  WHAT IS THE PROBLEM AND WHY IS IT A PROBLEM?   

2.1. 

Introduction 

As set out in the 2011 Communication on the Future of VAT and the VAT Action Plan, the 
VAT  system  for  cross-border  e-commerce  is  highly  complex  for  business  generally,  for 
SMEs, for tax administrations and indeed for consumers. The Commission receives frequent 
complaints  from  business  and  Member  States  and  therefore  there  is  a  need  for  action.  This 
need to act was supported in the open public consultation for this initiative whereby 94% of 
respondents  either  agreed  or  strongly  agreed  with  the  objective  of  the  Commission  in  the 
DSM  Strategy  to  minimise  burdens  attached  to  cross-border  e-commerce  arising  from 
different  VAT  regimes.  It  is  also  relevant  that  at  a  stakeholder  seminar  in  Dublin  in 
September  201519 
involving  representatives  from  all  Member  States  and  business 
representatives from online and offline EU and international businesses, the vast majority of 
Member  States  as  well  as  business  present  were  broadly  in  favour  of  the  Commission 
commitment in the DSM Strategy. 

Following the publication of the May 2014 Report of the Expert Group on the taxation of the 
digital economy, the Commission commenced work on a Study to identify the problem, the 
problem drivers, evaluate the 2015 changes and to analyse the impacts of the policy options to 
address the problems. This work forms the basis for the analysis of impacts in this assessment.    

2.2.  The problems 

There are in essence three distinct problems with the current VAT system in respect of cross-
border  e-commerce.  These  problems  are  inter-related  and  stem  from  the  complexity  and 
exceptions  within  the  current  system.  The  digitalisation  of  society  has  in  many  respects 
exacerbated inherent problems from these exceptions to the extent that what was designed as 
simplification measures have now emerged to be a significant problem. However, as will be 
seen in the options to address the problem there will be a need to use technology as well as 
introduce simplification measures targeted at small and micro-business. While technology in 
particular the internet through the growth in e-commerce is somewhat to blame for the extent 
of these problems, it is through technological solutions that these problems can be addressed. 
The  identification  of  the  problems  and  the  problem  drivers  derive  from  the  report  of  the 
Commission Expert Group, the Study and consultations with business and Member States.  

1.  Cross border compliance costs 

18   EU  eGovernment  Action  Plan  2016-2020  Accelerating  the  digital  transformation  of  government 
https://ec.europa.eu/digital-single-market/en/news/communication-eu-

(COM(2016) 
egovernment-action-plan-2016-2020-accelerating-digital-transformation  

final) 

179 

19   This  seminar  and  workshop  was  held  in  Dublin  in  September  2015  under  the  Fiscalis  2010  programme. 
Participants included representatives from all Member States and business representatives from online and 
offline  EU  and  international  businesses  including  the  main  global  players.  The  Commission  specifically 
facilitated the attendance of small business representatives at this seminar to ensure representation from this 
important sector. 

11 

 
 
                                                 
 
Since the introduction of VAT in the EU, the destination principle has effectively applied to 
the  business  to  consumer  (B2C)  intra-EU  supply  of  goods.  However,  this  principle  entails 
registration of the EU traders in the Member State where its clients are located, provided that 
a  certain  threshold  for  sales  is  achieved.  The  complications  of  having  to  deal  with  many 
different national systems represent a real obstacle for companies trying to trade cross-border 
both on and offline, and indeed this has been cited by business as one of the top three barriers 
to cross-border e-commerce.20 It is also identified as one of the main reasons why a company 
will geo-block21. 

These complications apply to each Member State the business wishes to make supplies to, and 
therefore  represent  a  significant  barrier  to  the  single  market.  For  instance,  a  2011  study 
indicated that, on average, a firm trading in two EU15 Member States would have to deal with 
11 differences in VAT-related procedures22. In addition, such businesses could be subject to 
audits from the tax administration in each of the Member States they supply to. The  Study 
has estimated using the standard cost model that the average VAT cost annually for intra-EU 
e-Commerce ,where a simplification measure such as the MOSS23 is not available, is EUR 8 
000 per Member State per company24. This can cover registration, the appointment of a fiscal 
representative,  VAT  returns,  VAT  statistical  returns,  dealing  with  queries  from  ta 
administrations etc. For a business supplying to all 28 Member States, the annual cost could 
be in excess of EUR 220 00025.  

VAT  compliance  costs  are  particularly  challenging  for  SMEs,  including  micro-businesses, 
who account for more than 99% of businesses in the EU26. They are already active in cross-
border  B2C  e-Commerce,  and  are  increasingly  interested  in  this  channel  to  expand  their 
activities.  However,  micro-enterprises  and  SMEs  have  to  face  a  complex  legislative 
framework  for  cross-border  transactions.  SMEs  are  currently  required  to  charge  and  remit 
VAT  to  the Member State  of the consumer for  all  supplies of electronic services as well as 
supplies  of  goods  where  the  distance  selling  thresholds  are  exceeded.  The  average  cost  for 
SMEs to account for VAT in another Member State is estimated to be EUR 4 100 annually 
per Member State27 they supply to.  

20   http://www.ecommerce-europe.eu/stream/survey-barriers-to-growth-ecommerce-europe-2015.pdf  
21   A business will decide not to supply to customers in other Member States. There are various reasons for this 
but onerous  cross-border VAT  obligations have been  identified  as  one  of  the key  reasons why  a  business 
will decide to geo-block and not make supplies to other Member States. See the IMPACT ASSESSMENT 
Accompanying  the  proposal  for  a  REGULATION  OF  THE  EUROPEAN  PARLIAMENT  AND  OF  THE 
COUNCIL  on  addressing  geo-blocking  and  other  forms  of  discrimination  based  on  place  of  residence  or 
establishment  or  nationality  within  the  Single  Market  SWD  (2016)  173  Final  https://ec.europa.eu/digital-
single-market/en/news/impact-assessment-accompanying-proposed-regulation-geo-blocking  

22   European  Commission.  (2011),  Compliance  costs  and  dissimilarity  of  VAT  regimes  across  the  EU:  A 
retrospective  evaluation  of  elements  of  the  EU  VAT  system,  prepared  by  Kox,  Henk  L.  M, 
http://ec.europa.eu/taxation_customs/resources/documents/common/publications/studies/report_evaluation_
vat.pdf, p. 22. 

23   The  MOSS  is  only  available  to  business  who  supply  telecommunications,  broadcasting  and  electronically 
supplied services to end consumers. If the business also supplies goods or has an existing active registration 
they are not eligible to use the MOSS.   

24   Deloitte Study for the Commission on ‘Modernising VAT for cross-border e-commerce’ – Lot 1, Pg. 32  
25   The  Commission services recognise  that with  increasing competition  and greater use of  technology in  the 

outsourcing of VAT obligations that there may be downward pressure on these costs.  

26  See http://ec.europa.eu/growth/smes/index_en.htm . 
27   Deloitte  Study  for  the  Commission  on  ‘Modernising  VAT  for  cross-border  e-commerce’  –  Lot  1,    Pg. 
44This  compares  to  the  average  of  EUR  8  000  for  all  business.  The  reduced  costs  reflects  lower  activity 
levels.  

12 

 
                                                 
It is also relevant to note that while the MOSS itself is a significant simplification for business 
who  make  cross-border  supplies  of  electronic  services  (the  cost  of  approximately  EUR  2 
20028 per business  annually is  far less than the estimated average cost of EUR 41 00029  for 
direct registration and payment), it is disproportionately high for businesses who have a cross-
border  turnover  less  than  EUR  10  000  and  therefore  represents  a  real  barrier  for  such 
businesses wishing to trade cross-border. 

2.  Lack of neutrality/distortions for EU business 

The issue of neutrality can arise due to non-taxation of goods coming from outside the EU or 
different VAT rates for supplies from businesses in other Member States. In effect, the same 
good  purchased  by  a  consumer  in  one  Member  State  can  have  multiple  tax  treatments 
depending on where the supplier is located – this can mean no tax in the case of the imports of 
small value and lower taxes in respect of supplies from other Member States.  

In  addition,  one  of  the  key  outputs  from  the  Study  is  the  extent  of  non-compliant  activity 
under  the  status  quo.  This  activity  is  having  a  profound  impact  on  EU  businesses  who  as  a 
result are not able to compete on level terms with suppliers from outside the EU. Further there 
is also evidence that that there is abuse of the current distance selling thresholds in intra-EU 
trade  particularly  where  there  are  VAT  rate  differentials.  This  is  significant  as  the  VAT 
element  in  many  Member  States  can  be  close  to  one  quarter  of  the  total  price  paid  by  a 
customer.  Micro-business  and  SMEs,  whether  they  operate  in  the  traditional  or  digital 
economies, are particularly vulnerable to such distortions.  

It is also relevant in terms of neutrality that there are differences in the level of administrative 
burden a business faces. There are no VAT compliance costs for non-EU businesses selling to 
EU customers30 as opposed to local compliance rules applying for domestic sales and foreign 
registrations for EU cross-border sales.   

3.  VAT revenue losses for Member States 

The different rules applicable in Member States as well as the VAT foregone from the VAT 
exemption for the importation of small consignments create challenges for tax administrations 
as  there  can  be  uncertainty  about  the  tax  treatment.  Based  on  the  analysis  in  the  Study,  the 
compliance losses31 for Member States are conservatively estimated as between EUR 2.6 and 
3.8 billion annually32. In addition, it is estimated that VAT foregone from the VAT exemption 
for the importation of small consignments could be up to EUR 1 billion annually.  

28   Deloitte Study for the Commission on ‘Modernising VAT for cross-border e-commerce’ – Lot 3, Pg. 8 
29   Deloitte Study for the Commission on ‘Modernising VAT for cross-border e-commerce’ – Lot 3,  Pg. 8 

30   The importer of the good is responsible for accounting for the tax rather than the non-EU business supplying 
the good. In effect this means that a significant burden is transferred to authorities, postal operators/express 
carriers and individuals on imports of small value. 

31   Includes compliances losses from non-EU and intra-EU transactions. 
32   Deloitte Study for the Commission on ‘Modernising VAT for cross-border e-commerce Lot 1, Pg. 4 

13 

 
                                                 
2.3. 

Problem drivers 

2.3.1.  Driver  1  –  The  complexity  of  the  current  VAT  rules  for  B2C  Intra-EU  supplies  of 

goods 

The  evidence  collected  through  stakeholder  consultations,  external  studies  and  in-house 
research  clearly  demonstrates  that  the  VAT  rules  for  cross-border  transactions  are 
complicated,  non-harmonised,  costly  for  business  and  difficult  for  Member  States  when  it 
comes to ensuring compliance. 

Businesses wishing to trade cross-border face different VAT rules depending on the Member 
State  they  are  supplying  to.  Member  States  require  that  a  non-established  business registers 
and  accounts  for  tax  on  goods  ordered  via  e-Commerce  channels  and  other  channels  where 
annual sales to their country are expected to be in excess of EUR 35 000 or EUR 100 00033. 
Once this threshold is reached they will need a VAT registration in that other Member State; 
they may need to engage a fiscal representative; they are facing a different national legislation 
which  in  many  cases  is  in  a  different  language  and  different  accounting  periods.  They  may 
also be subject to audit enquiries from multiple Member States.  The level of the threshold is a 
matter for Member States which due to its non-harmonisation adds complexity, although most 
Member States apply the EUR 35 000 threshold with the trend for a lower threshold given the 
decision by France to apply the lower EUR 35 000 threshold this year. 

Furthermore, the distance selling thresholds are problematic for Member States to control. In 
recent  years  there  has  been  increasing  evidence  of  abuse  driven  by  e-commerce  which  is 
highly concerning to Member States. In this respect a project group of the Commission and 
Member  States  was  established  in  201534  to  examine  the  means  whereby  Member  States 
could work together to address these abuses. The ultimate driver for the abuse is differences 
in VAT rates between Member States together with the complex rules which make it difficult 
for Member States to control. It is important to note that such abuse leads to distortions – the 
non-compliant taxpayers have a VAT advantage over the compliant ones.  

Aside  from  such  abuses,  it  is  also  relevant  that  distortions  can  legitimately  arise  under  the 
current rules. For example an Irish trader who does not reach the Danish registration threshold 
of EUR 35 000 could make supplies of children clothes to customers in Denmark charging the 
0% rate applicable in Ireland. The corresponding rate of VAT in Denmark is 25%. This same 
trader could be  supplying  to  each Member State  up to  the threshold of EUR 35 000 or  100 
000, and hence can theoretically benefit from an overall threshold in excess of EUR 1 million. 

2.3.2.  Driver  2  –  The  complexity  of  the  current  VAT  rules  for  B2C  imports  of  goods  from 

third countries  

Currently  the  system  of  imports  of  tangible  goods  to  end-consumers  in  the  EU  is  highly 
complex, is open to abuse and provides a competitive advantage to non-EU suppliers as such 
suppliers can in certain circumstances make VAT free supplies while EU suppliers generally 
have to charge VAT.  Further, the Commission and Member States receive complaints from 
consumers who face hidden VAT and administrative fees when purchasing goods from non-

33   Member States are required to apply a threshold of either EUR 35 000 or EUR 100 000 under Article 34 of 

the VAT Directive (Directive 2006/112/EC)  http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:347:0001:0118:en:PDF  

34  This project team was established under the Fiscalis 2020 programme and included representatives from 13 

Member States.  

14 

 
                                                 
EU  suppliers  –  in  many  cases  the  consumer  may  not  even  be  aware  where  the  goods  are 
coming from.   

There are in effect 3 types of VAT treatment in respect of imports of goods to consumers in 
the EU: 

i. 

Imports covered by the VAT exemption for small consignments (EUR 0 – 10/22) 

Consignments  supplied  directly  to  consumers  below  EUR  10/22  can  benefit  from  a 
VAT exemption35 i.e. they are supplied VAT free direct to consumers in the EU. This 
measure was designed at the time of its adoption in 198336 as a simplification measure 
to  avoid  that  too  much  time  is  devoted  by  customs  administrations  and  economic 
operators in the customs clearance of low value goods.  

With the rise of e-commerce, this has however turned into an expensive and growing 
tax subsidy benefiting non-EU sellers and triggering relocations of EU businesses to 
third countries or third territories. It is estimated that in 2015 there was 144 million37 
consignments  benefitting  from  this  exemption  (more  than  a  300%  increase  over  the 
last  15  years)  with  the  possibility  that  VAT  foregone  could  be  as  high  as  EUR  1 
billion in 2015.  

This  exemption  is  a  source  of  ongoing  complaint  by  EU  businesses  as  they 
legitimately  argue  that  they  are  at  a  competitive  disadvantage  to  non-EU  suppliers. 
There  is  also  some  evidence  that  the  exemption  is  the  subject  of  abuse  whereby  the 
value  of  the  consignments  is  under-declared  so  as  to  be  kept  within  the  exemption 
amount which indicates that the VAT losses could be higher (see below).  

Member States do have the option to remove the threshold for mail order including e-
commerce  transactions  which  France  has  recently  done.  A  recent  report38  of  the 
French  senate  shows  that  the  mail  order  exception  implemented  in  France  does  not 
work in practice. The report provides some interesting figures from the Roissy airport: 
in  2014  3.5  million  of  express  packages  and  37  millions  of  postal  packages  arrived 
from third countries whereas the VAT collected in customs amounts to only EUR 1.4 
million. 

ii. 

Imports above EUR 10/22 and below the customs threshold (EUR 150).  

Consignments  between  EUR  10/22  up  to  the  customs  duty  exemption  threshold  of 
EUR 150 are subject to VAT but customs duties do not apply. It is estimated that there 

35  Article 23 of Council Directive 2009/132/EC of 19 October 2009 provides that goods of a total value not 

exceeding EUR 10 shall be exempt on import. Member States may grant exemption for imported goods of a 
total value of more than EUR 10, but not exceeding EUR 22 and can exclude goods imported on mail order 
(including e-commerce channels). The exemption excludes excisable goods.  

36   Prior to 1983, VAT was integrated in a customs negligible value threshold of 10 ECU. 
37  EY Study for the Commission - . 

http://ec.europa.eu/taxation_customs/resources/documents/common/publications/studies/execsummary_lvcr
-study.pdf. The 2013 figure of 115 million consignments has been increased by the Commission in line with 
the growth in e-commerce.  

38   http://www.senat.fr/fileadmin/Fichiers/Images/redaction_multimedia/2015/2015-

Documents_pdf/20150917_e_commerce.pdf  

15 

 
                                                 
were 43 million such imports in 2015. In the vast majority of cases39 the customer is 
not  charged  VAT  at  the  time  of  sale  but  rather  the  package  is  assessed  for  VAT  at 
importation in the territory of the European Union. The customer pays the VAT and an 
administrative fee is charged to the customer by the transport operator i.e. the express 
courier  or  postal  operator  at  the  point  of  delivery  of  the  good  to  cover  the 
administrative  costs  of  clearing  customs.  The  postal  charges  for  customs  clearance 
vary between 0 and 22 EUR, whereas the courier firm will report on average cost of 
approximately 9 EUR per consignment and in practice the fee charged to the consumer 
can be much higher40.  
A recent study carried out by Copenhagen Economics41, which was based on a sample 
of  400  real  purchases,  has  found  that  65%  of  consignments  from  non-EU  suppliers 
through  the  public  postal  channels  were  non-compliant.  This  is  significant  as  it  is 
estimated that 70% of transactions are sent through public postal channels.  

iii. 

Imports above the customs threshold of EUR 150 

Consignments above the customs threshold of EUR 150 require a customs declaration 
and will be subject to VAT and customs duties if applicable. Similar to the situation 
above the customer is liable to the VAT and customs duties and is usually charged an 
administrative fee by the transport operator to cover the costs of clearing customs42.   

As  indicated,  the  current  complexities  for  B2C  imports  of  goods  are  conducive  to  non-
compliance for businesses and it is not ideal for consumers who are faced with the payment of 
VAT  and  administrative  fees.  The  Study  has  estimated  VAT  foregone  a  year  due  to  non-
compliance  of  approximately  EUR  570  million  below  the  threshold  of  EUR  10-22  and  of 
approximately EUR 2.1 billion43 on consignments with a value between EUR 10-22 and EUR 
150. The consultant considers that this estimate might ‘be quite conservative’ given separate 
work undertaken by the French Senate and reports in the UK which estimate losses in the UK 
alone of up to EUR 1.9 billion annually44. The types of abuses can be 1) goods over the value 
of the small consignments exemption but under-declared as being within the exemption (VAT 
free),  2)  commercial  goods  incorrectly  declared  as  consumer  to  consumer  transactions  or 
samples  (VAT  free),  3)  under-declaration  of  goods  between  the  VAT  exemption  threshold 
and  the  customs  threshold  (lower  VAT  paid),  and  4)  goods  supplied  from  EU  based 

39  There are some pilot schemes in place between some MS and third party transporters where VAT is charged 
up front to the customer, it is remitted by the 3rd party and the customer is not assessed for VAT on receipt 
of the package. 

40   In  practice  postal  operators  and  couriers  will  charge  end  consumers  an  administrative  fee  for  customs 

clearance services 

41   E-COMMERCE IMPORTS INTO EUROPE: VAT AND CUSTOMS TREATMENT (2016) Authors: 

Dr Bruno Basalisco, Julia Wahl, Dr Henrik Okholm 
https://www.copenhageneconomics.com/publications/publication/e-commerce-imports-into-europe-vat-and-
customs-treatment CE carried out this study on behalf of UPS by making approximately 400 real purchase 
brought to delivery via e-commerce platforms located in US, Canada, Japan, India and China. Delivery was 
made to 7 destination Member States.  50% of purchases were via express operators with 50% via public 
postal operators. VAT was due on all the consignments, customs duties were due on 45% of the 
consignments. 

42  Given the complexity of the interaction between customs duties and VAT with very different legal bases and 
rules, as well as to take a stepped approach it is considered that any amendments to the customs thresholds 
are beyond the remit of this initiative. 

43  Deloitte Study for the Commission: Lot 2 Pg. 256; please note that the estimates are based on compliance 

work carried out by a small number of Member States and an expert assessment. 

44 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/507610/Fulfilment_House_D
ue_Diligence_Scheme_-_HMRC_consultation.pdf, Pg. 4 

16 

 
                                                 
warehouses  but  fraudulently  treated  as  VAT-free  imports.  The  latter  problem  has  been  the 
subject  of  much  discussion45  in  recent  months  including  in  the  UK  parliament46  with  many 
complaints primarily from UK and German based businesses that this abuse means that honest 
businesses  cannot  compete.  This  can  have  wider  implications  as  supplies  from  these 
warehouses can be made to consumers in other Member State. It should also be noted that the 
European Court of Auditors recently reported on VAT fraud in the EU, and has urged action 
to address this problem47.  

In summary, this problem driver has implications for both Member States VAT revenues in 
terms  of  VAT  legitimately  foregone  by  Member  States  and  as  well  as  additional  VAT 
compliance  losses  due  to  non-compliance  and  fraud,  and  it  causes  significant  distortions  to 
EU business as they are at a competitive disadvantage to non-EU business.   

2.3.3.  Driver 3 – The lack of an intra-EU threshold for B2C supplies of electronic services 

and other simplification measures for small business 

Firstly, it should be noted that the changes to the 2015 place of supply rules for VAT were 
sought  by  Member  States  to  address  base  erosion  issues  (BEPS).  Those  issues  arose  where 
larger  and  some  smaller  mobile  businesses  utilised  changes  in  technology  by  locating  in 
Member States with low VAT rates and hence reducing the tax base of other Member States. 
Secondly  the  MOSS  is,  in  itself,  a  significant  simplification  and  can  reduce  the  costs  for 
business by up to 95% compared to the alternative of direct registration and payment.  

Nevertheless, the lack of a cross-border threshold for the place of supply rule changes in 2015 
has  been  the  source  of  a  large  number  of  complaints  by  business,  it  has  been  raised  in  the 
European Parliament and was one of the main problems raised by business in both the open 
public consultation and the assessment of the implementation of the 2015 changes. While the 
vast majority of complaints have come from UK based business primarily due to the fact that 
the UK has a very high domestic exemption for VAT of EUR 106 00048, the Commission has 
accepted  the  difficulties  that  the  2015  change  have  caused  for  micro-businesses  given  the 
absence  of  a  threshold  and  the  difficulties  they  have  faced  in  identifying  where  their 
customers are established.   

The problem driver in essence is that a small business which is below the domestic exemption 
threshold (no VAT is charged on their supplies but no input VAT can be deducted) is now as 
a  result  of  the  2015  place  of  supply  rules  required  to  charge  VAT  to  customers  in  other 
Member  States  and  account  for  this  tax  either  through  direct  registration  or  using  the 
simplified MOSS. The challenge they face is to identify where all their customers are located 
– to do this they are required under the VAT Implementing Regulation49 to collect two pieces 
of  non-contradictory  evidence  such  as  the  IP  address,  bank  details  or  other  commercially 
relevant  information.  For  electronic  services  this  is  difficult  because  there  is  no  physical 
delivery  address  for  the  customer  and  many  business  use  3rd  party  platforms  to  process  the 

45  http://www.theguardian.com/politics/2015/dec/22/tax-officials-investigate-amazon-ebay-vat-fraud-overseas-
https://www.onlinehaendler-news.de/handel/allgemein/18888-amazon-de-chinesische-haendler-

sellers 
unfaire-vorteile.html  

46  http://www.publications.parliament.uk/pa/cm201516/cmhansrd/cm160114/halltext/160114h0001.htm  
47  http://www.eca.europa.eu/Lists/ECADocuments/SR15_24/SR_VAT_FRAUD_EN.pdf  
48  The domestic exemption thresholds range from almost EUR 7 000 to EUR 106 000. 3 Member States do not 
found  here: 
have  SME 
http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/traders/vat_community/vat_in_ec_an
nexi.pdf  
Implementing Regulation (EU) No 282/2011 

threshold:  Spain,  Sweden  and 

the  Netherlands.  The 

table  can  be 

49 

17 

 
                                                 
payments. Such businesses are then faced with secondary challenges of needing to know the 
relevant VAT rules in the Member States they make supplies to and the requirement to keep 
records of all their supplies for 10 years.  

In  addressing  this  problem  driver,  it  should  be  noted  that  many  Member  States  were  not  in 
favour of a threshold when the 2015 changes were discussed in Council as it could lead to a 
loss of tax revenues and put their business at a competitive disadvantage and cause distortions 
in the single market. In discussions on this new initiative at the Fiscalis seminar in Dublin in 
2015, many Member State representatives restated their desire for no threshold or a very low 
threshold, the exception being the UK50 perhaps due to the high domestic exemption threshold 
in  place. A group  representing the interests  of micro-businesses  on the issue (the UK based 
EU VAT Action51) is seeking a cross-border threshold of EUR 20 000 (which is already high 
for many Member States) and a so called soft landing up to EUR 100 000 where a business 
can  benefit  from  simplified  requirements  such  as  a  customer  declaration  to  identify  the 
location of a customer.    

It  is  essential  therefore  that  the  Commission  builds  a  business  case  based  on  evidence  to 
ensure  that  the  burden  on  small  business  is  alleviated  without  causing  any  distortion  to  the 
single market.  

2.3.4.  Driver 4 – Complexity of the current MOSS system. 

The analysis of the implementation of the 2015 changes identified complexities in the current 
MOSS  system  which  cause  difficulties  for  business  and  could  be  considered  as  less  than 
efficient for Member State tax administrations.  

The inherent drivers of this problem are as follows: 

1.  The requirement in some Member States to issue invoices to private consumers 

While most Member States do not require a business to issue a full or simplified VAT 
invoice  for  cross-border  B2C  supplies  of  electronic  services,  the  fact  that  some 
Member  States  still  do  unnecessarily  complicates  matters  and  means  that  many 
businesses operating cross-border still have to issue these in various different formats 
as well as different languages. Given that private consumers do not claim input VAT, 
there  is  little  justification  for  requiring  the  issuance  of  such  invoices  which  is  an 
unnecessary  cost  on  business.  To  be  noted  that  other  commercial  documents  will 
always be available to show the value of the transaction. 

2.  The prospect of audits from 28 tax administrations 

Control measures including audits under the MOSS lies with the Member State of the 
consumer rather than that where the business is located. This raises the possibility that 
a  business  could  be  audited  by  any  Member  State.  While  arrangements  have  been 
agreed by many Member States to apply audit guidelines52 these are voluntary and do 
not have any legislative base.  

50   The UK has the highest domestic exemption threshold of EUR 106 000.  

51 http://euvataction.org/updates/  
52  See MOSS audit guidelines 

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/telecom/one-
stop_add_guidelines_en.pdf  

18 

 
 
                                                 
3.  Record keeping requirements 

Businesses  registered  and  operating  via  MOSS  are  required  to  retain  records  for  a 
period  of  10  years  even  if  in  certain  Member  States  the  period  for  domestic 
transactions  is  shorter.  This  means  that  businesses  have  additional  costs  to 
systematically separate records relating to domestic and intra-EU transactions as well 
as the costs for retaining these for longer. 

4.  Inability to make corrections in the current MOSS VAT return 

In modern tax administrations and with self-assessed taxes, it is generally seen as good 
practice to allow a business to correct past VAT returns in its most recent return. The 
reasons  for  corrections  could  be  a  customer  returning  a  product53,  money  back 
guarantees for services, incorrectly assigning as B2C when it was B2B, or incorrectly 
attributed to the wrong Member State. Under MOSS, a business is required to adjust 
past returns individually which could mean that they need to be refunded VAT for that 
period. Some businesses have outlined to the Commission that the period for receiving 
such refunds is in excess of 4 months for some Member States which could have cash 
flow implications for the businesses.  

5.  Filing time 

Under the MOSS businesses are required to file and pay the tax return within 20 days 
of the end of the quarter. The assessment of the implementation of the MOSS has 
indicated that this period is challenging particularly when considering the inability to 
adjust a return in the subsequent period.    

2.4. 

Problem Tree 

A  summary  of  the  problems,  the  problem  drivers  and  the  effects  is  summarised  below.    As 
indicated  above  the  problems  and  the  underlying  problem  drivers  are  inter-related and  stem 
from the complexity and exceptions within the current system.  

Figure 1 – Problem Tree 

53  While not obvious for services such as music or movies purchased online, some intermediaries will make 

refunds to customers in certain circumstances.  

19 

 
 
 
                                                 
Problem Drivers 

Complexity of the current 
intra-EU VAT rules 

 Complexity of the current 
VAT rules for 3rd county 
supplies 

The lack of a cross-border 
threshold 

Complexity of the rules in 
the current MOSS 

Problems 

High business compliance costs 

Lack of neutrality 

VAT Revenue Losses  

Primary Effects 

Many business will not trade 
cross-border 

Unlevel playing field for EU 
business 

Less tax revenues for public 
services 

Secondary Effects 

Less choice for consumer 

Some businesses may decide to geo-block 

2.5.  Evolution of the problem without action at EU level 

E-commerce  has  become  a  key  part  of  the  economy  and  an  important  driver  of  economic 
growth  demonstrated  by  the  fact  that  over  the  last  five  years,  e-Commerce  in  Europe  has 
grown by between 17% and 20%54. From 2009 to 2014, the contribution of e-Commerce to 
GDP  has  almost  doubled55.  In  terms  of  expenditure,  it  is  estimated  that  total  online 
expenditure on goods and services in 2015 was EUR 540 billion across the EU-28 with cross-
border e-commerce accounting for about 18% of this figure, or EUR 97 billion56.  Therefore, 
it is evident that the problems identified in section 2.2 particularly the lack of neutrality for 
EU businesses and revenue losses for Member States will only increase if there is no action at 
EU level. Furthermore, the high compliance costs for business wishing to trade cross-border 
will  continue,  in  the  absence  of  simplification,  to  hold  back  the  development  of  the  single 
market in this important area of growth. Failure to act, given the expect continued growth in 
e-commerce, will lead to an even greater advantage for non-EU sellers and to VAT revenue 
losses for Member States estimated at EUR 7 billion annually in 2020 and growing by at least 
15%  year-on-year.  While  not  quantified,  there  would  also  be  continued  negative  effects  on 
employment and direct tax revenues.  

54  E-Commerce Europe, European B2C E-commerce Report 2014 
55  E-Commerce  Europe,  https://www.about-payments.com/newsroom/news/30517/double-digit-growth-for-

european-e-commerce-sales  

20 

 
 
                                                 
 
3.  WHY SHOULD THE EU ACT? 

In analysing the problems and the problem drivers it is clear that the root causes are within the 
VAT Directive itself: 

  The small consignments exemption which was designed as a simplification measure is 
leading to VAT foregone in Member States of EUR 1 billion. While Member States 
can limit this exemption and indeed reduce to zero, the experience in France is that 
without pan EU simplification measures non-compliance will increase.  The regime 
for imports of goods whereby the customer is liable for the VAT rather than the 
supplier as is currently the case with electronic services means that compliance is 
difficult to enforce.  

  The distance sales thresholds are provided for in the VAT Directive and only an 

amendment of the Directive can replace them by a common cross-border threshold. In 
addition, an amendment to the VAT Directive is required to include the supply of 
tangible goods within MOSS and therefore address the costly administrative burden 
which businesses face in trading cross-border. 

The  experience  of  the  MOSS  system  clearly  demonstrates  the  EU  added-value  for  Member 
States  in  terms  of  securing  VAT  revenues  and  business  in  terms  of  reducing  the  costs  for 
trading cross-border.  This could not have been achieved without an amendment to the VAT 
Directive as it is an exception to the normal rules whereby business are generally required to 
register for VAT in the Member State of destination in respect of B2C supplies.  As set out 
above,  any  further  added-value  by  extending  this  system  can  only  be  achieved  through  a 
legislative amendment. 

The  initiative  respects  the  principle  of  proportionality  and  will  not  go  beyond  what  is 
necessary for the smooth functioning of the single market. The proposal is indeed limited to 
cross-border  ecommerce  and  will  not  seek  to  harmonise  purely  domestic  legislation  and 
procedures. 

As with the subsidiarity test, it is not possible for Member States to address the problems and 
problem drivers without a proposal to amend the VAT Directive.   

In conclusion, if the problem at hand is to be addressed in a coherent and meaningful fashion 
it  can  only  be  achieved  through  a  legislative  proposal.    Therefore,  it  is  necessary  for  the 
Commission,  which  has  responsibility  for  ensuring  the  smooth  functioning  of  the  Internal 
Market  and  promoting  the  general  interest  of  the  European  Union,  to  propose  action  to 
improve the situation. The legal basis is Article 113 of the TFEU. 

21 

 
4.  WHAT SHOULD BE ACHIEVED? 

4.1.  General objectives 

The  general  objectives  of  are  the  smooth  functioning  of  the  internal  market,  the 
competitiveness  of  EU  business  and  the  need  to  ensure  effective  taxation  of  the  digital 
economy.   

4.2. 

Specific objectives 

The  specific  objective  for  the  proposal  are  outlined  in  the  Digital  Single  Market  strategy. 
These objectives are: 

i.  Minimising 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.  Providing a level playing field for EU businesses whether involved in 
the  traditional  economy,  engaged  in  domestic  e-commerce  or  cross-
border e-commerce. 

iii.  Facilitating  the  monitoring  of  compliance  and  the  fight  against  fraud 

for Member States’ authorities. 

iv.  Ensuring  that  VAT  revenues  accrue  to  the  Member  State  of 

consumption. 

Table 2 – Linking the objectives to the problem 

Specific Objectives 

Link to the problem 

Minimising  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. 

Providing  a  level  playing  field  for  EU 
the 
businesses  whether 
traditional economy, engaged in domestic 
e-commerce or cross-border e-commerce. 

involved 

in 

Facilitating the monitoring of compliance 
and  the  fight  against  fraud  for  Member 
States’ authorities. 

Ensuring that VAT revenues accrue to the 
Member State of consumption. 

22 

Addresses 
compliance costs 

the  problem  of  business 

the  problem  of  a 

Addresses 
level 
playing  field  as  non-domestic  business 
can compete without prohibitive costs.  

Addresses  the  problem  of  the  lack  of 
neutrality for business. 

Addresses  the  problem  of  the  losses  of 
VAT  revenues  for  Member  States  and 
the  lack  of  neutrality  for  business  who 
are  at  a  disadvantage  to  suppliers  who 
do not charge VAT. 

Addresses  the  problem  of  the  losses  of 
VAT  revenues  for  Member  States  and 
the lack of neutrality for business. 

 
5.  WHAT ARE THE VARIOUS OPTIONS TO ACHIEVE THE OBJECTIVES? 

5.1. 

Selection of options 

Six Policy Options were considered for the Study. These options were inspired by the Report 
of  the  Expert  Group  on  the  taxation  of  the  digital  economy  and  through  dialogue  with 
business interest and Member States. 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  which  largely  reflect  the 
commitment made in the DSM strategy.  

The  options  studied  are  the  same  as  those  identified  in  the  inception  impact  assessment57. 
Further,  these  options  were  tested  with  Member  States  and  business  at  the  2015  Dublin 
Fiscalis  seminar,  which  took  place  in  September  201558.  It  should  be  noted  that  no  other 
options emerged at this seminar, with vast support from both Member States and business for 
Options 5 or 6, although representatives from many Member States expressed strong doubts 
in respect of the proposed introduction of a threshold.  

The  policy  options  are  targeted  at  business  in  respect  of  removing  obstacles  and  improving 
the competitiveness of EU business. There is a particular emphasis here on SMEs. The policy 
options  are  also  targeted  at  Member  States  in  terms  of  increasing  VAT  revenues.    Benefits 
will  accrue  to  consumers  because  they  will  get  a  wider  choice  of  products  coming  from 
different  Member  States,  and  also  because  under  the  MOSS,  for  supplies  from  3rd  country 
suppliers, consumers will be able to pay for VAT when making an online purchase of goods 
and therefore not have any responsibility to pay the VAT and an administrative fee when the 
good is delivered.  

A soft law approach such as voluntary approach to use the MOSS is not feasible. The nature 
of the MOSS is that a supplier can benefit from a simplified tax accounting process whereby 
VAT  in  respect  of  sales  to  customers  in  other  Member  States  is  paid  through  a  web  portal 
hosted by his own Member State – in essence Member States agree to let each other collect 
taxes  on  their  behalf  and  ensure  compliance.  Legislatively  this  is  an  exception  from  the 
normal  rules  –  according  to  which  each  Member  State  is  collecting  its  own  taxes  -  and  is 
considered as a special scheme in the VAT Directive. Therefore a proposal to amend the VAT 
Directive and get agreement by all 28 Member States is essential. It is also required that  the 
individual MOSS portals inter-connect through IT systems hosted by the Commission.  

5.2.  Options analysed 

5.2.1.  Option 1:   Status Quo/Baseline  

This  options  means  no  action  will  be  taken  at  EU  level.  This  option  will  serve  as  the 
benchmark against which the other options will be assessed. The description of the problem 
and the problem drivers of the status quo is described in Section 2.  

57 http://ec.europa.eu/smart-regulation/roadmaps/docs/2016_taxud_002_iia_vat_en.pdf  
58 Deloitte Study for the Commission on ‘Modernising VAT for cross-border e-commerce’–  Lot 3 – Assessment 

of the implementation of the 2015 VAT changes, Annex 5. 

23 

 
                                                 
5.2.2.  Option 259:  Removal  of  the  distance  selling  thresholds  and  the  small  consignment 

exemption (with no simplification measure) 

Option  2  proposes  a  minimal  intervention  by  removing  the  VAT  exemption  for  the 
importation  of  small  consignments  (supplies  from  3rd  countries)  and  the  distance  selling 
thresholds  (Intra-EU  supplies).  This  option  is  fully  in  line  with  the  destination  principle  of 
VAT by charging VAT in the Member State of the consumer and addresses the issues of tax 
neutrality. There are no simplification measures proposed in this option. Therefore all imports 
will  be  subject  to  VAT  and  all  businesses  who  engage  in  cross-border  B2C  trade  will  be 
required  to  register  and  account  for  VAT  in  the  Member  State  of  destination.  This  option 
could be adopted rapidly as no pan European IT system would need to be built. 

5.2.3.  Option 3:   Option  3  -  Option  2  but  with  the  introduction  of  a  new  common  VAT 

threshold for EU cross-border sales of both goods and services60 

Option 3 builds on Option 2 with the removal of the distance selling thresholds and the small 
consignment exemption but also proposes the introduction of a new common VAT threshold 
for  all  intra-EU  B2C  supplies  of  goods  and  services  (cross-border  threshold).  The  different 
levels of the threshold analysed under this option are EUR 5 000, EUR 10 000 and EUR 100 
000 taking account of the number of businesses affected and the potential distortions. Such a 
threshold  is  independent  of  the  existing  domestic  VAT  exemption  thresholds61.  Up  to  the 
threshold an EU business making e-commerce supplies to customers in other Member States 
could opt to treat these supplies as domestic transactions. Once the threshold is exceeded, the 
supplier would be required to register and account for VAT due in all other Member States 
(average annual cost of EUR 8 000 per Member State without MOSS). A business which only 
supplies  cross-border  electronic  services  to  a  given  Member  State  would  be  able  to  use  the 
existing MOSS. This option could be adopted rapidly as no pan European  IT system would 
need to be built. 

5.2.4.  Option 4:   Option  3  plus  the  Mini  One  Stop  Shop  (MOSS)  applying  to  intra-EU 
supplies of goods, intra-EU and non-EU supplies of services and to the import of all 
goods under the customs threshold of EUR 150 

Option  4  builds  on  Option  3  but  importantly  includes  significant  simplification  measures 
through  the  extension/evolution  of  the  current  MOSS  system  to  the  Mini  One  Stop  Shop 
which would also apply to i) B2C intra-EU supplies of goods and ii) supplies of goods from 
suppliers  outside  the  EU.  Business  will,  however,  be  required  to  apply  the  rules  of  the 

59    In early discussions at Council, one Member State has indicated a preference for this option and therefore it 

was prudent to examine this in the impact assessment.  

60   It is important to recognise that this new type of threshold is very different to the distance selling threshold 
removed  in  Option  2.  Under  this  threshold,  all  B2C  supplies  to  consumers  in  other  EU  countries  will  be 
treated as a domestic supply up to the threshold amount. Thereafter, the business will be required to register 
and  account  for  the  VAT  in  the  Member  State  of  destination  with  no  simplification  under  Option  3.  The 
difference with distance selling thresholds is that the threshold amount is per Member State at either EUR 35 
000 or EUR 100 000. As outlined in Section 2, the distance-selling threshold is both a source of distortion 
and difficult to control in terms of compliance. The Member State where the business is based will be tasked 
with ensuring that thresholds are adhered to.    

61  The VAT Directive allows Member States to permit exemption for VAT for small enterprises in respect of 
domestic transactions. The level of the domestic exemption threshold currently in place in Member States 
ranges  from  EUR  5000  to  EUR  106  000  in  the  UK.  3  Member  States  do  not  apply  any  exemption.  The 
threshold proposed will complement the domestic exemption. Note also that the Single Market Strategy and 
the  VAT  Action  Plan  have  committed  to  proposing  a  SME  VAT  simplification  package  in  2017.  This  is 
intended to address all obligations an SME faces and is not confined to the e-commerce sector.   

24 

 
                                                 
Member  State  of  identification  in  areas  such  as  invoicing  and  to  keep  records  for  10  years, 
and could be subject to individual audits from each of the Member States they supply to. For 
this option, based on the analysis under Option 3, a common threshold of EUR 10 000 was 
considered  for  intra-EU  B2C  supplies  of  goods  and  services.  For  the  importation  side, 
supplies from MOSS registered non-EU businesses will also benefit from a fast-track customs 
procedure (subject to safety and security checks) as the VAT due on the consignments will be 
pre-declared and no customs duties are due on such consignments. It is also proposed to allow 
3rd parties such as postal operators, express couriers or market places to act as an intermediary 
and account for and declare the VAT through the MOSS. If VAT is  not  pre-declared under 
MOSS, the traditional route of accounting for VAT at importation will still be available using 
a simplified periodical declaration and paying the standard VAT rate in the Member State of 
importation. The general implementation date would be 2021 as this date aligns with changes 
to  the  treatment  of  parcels  in  the  Union  Customs  Code  and  also  to  ensure  that  the  MOSS 
system is adapted. This option (and for options 5 and 6) would propose to introduce in 2018 
an  intermediate  threshold  targeted  at  EU  microbusiness  and  start-ups  in  respect  of  cross-
border supplies of electronic services.  

In practice under this option and options 5 and 6, similarly to the current Mini One Stop Shop 
an EU business will be able to account for all supplies of goods and services to consumer in 
other Member States through a simplified quarterly return to its own tax administration. His 
tax  administration  will  then  transfer  the  taxes  due  to  the  relevant  Member  States  of 
consumption.  As  is  currently  the  case  with  electronic  services,  a  non-EU  business  or  an 
intermediary  such  as  a  platform/postal  operator/express  carrier  will  be  able  to  account  for 
taxes due through the MOSS established by a Member State of its choosing62 who will then 
transfer the taxes due to the Member State of consumption.  

5.2.5.  Option 5:   Option  4  plus  amendments  to  the  Mini  One  Stop  Shop  (home  country 
rules and home country control subject to applying the VAT rate of the Member State 
of Consumption, and a ‘soft landing’ for identifying the place where the customer is 
located) 

Option 5 is similar to option 4 in that there will be a MOSS to account for the tax due in other 
Member States and there will be an intra-EU threshold of EUR 10 000 but instead of applying 
the  rules  of  the  Member  State  of  the  consumer,  the  business  applies  the  VAT  rules  which 
apply  to  his  domestic  transactions  aside  from  the  VAT  rate63  which  will  be  of  the  Member 
State of the consumer. In addition, further simplifications would be introduced to address the 
problems  identified  in  the  analysis  of  the  2015  changes  such  as  in  relation  to  corrections, 
currency conversion rules,  amendment of returns etc. Unlike option  4, responsibility  for the 
audit  and  control  of  a  business  will  be  with  the  Member  State  where  the  business  is 
established in coordination with the Member States of consumption. Similarly to established 
practice in the field of customs, the Member State of identification will be entitled to retain a 
small percentage of the tax collected on behalf of other Member States to compensate IT build 
costs, ongoing maintenance costs and the resources spent controlling business established in 
that Member State with a view to ensuring full compliance. The objective of this option is that 
cross-border  B2C  transactions  will  be  as  similar  as  possible  to  domestic  transactions  with 
payment of the tax due in other Member States through the MOSS.  

Option 6:   Option 4 plus fully harmonised  EU rules for Mini One Stop Shop, subject to 
applying the rates/exemption of the Member State of Consumption 

62 Subject to eligibility criteria and controls 
63 VAT exempt supplies will also follow the rules of the Member State of the consumer.  

25 

 
                                                 
Option  6  is  similar  to  Option  5  but  instead  of  home  country  rules,  a  set  of  harmonised  EU 
wide rules would be adopted for all the obligations a business faces when engaging in intra-
EU  B2C  trade.  Although,  this  would  mean  that  one  set  of  rules  would  apply  for  domestic 
transactions and a separate set of rules for intra-EU transactions.  

5.2.6.  Discarded option:  VAT split  payment  –  intervention of  payment  service providers in 

the VAT payment to the relevant tax authorities 

Another  option  that  we  also  looked  into  was  the  possibility  for  banks,  card  issuers  or  other 
payment service providers to intervene in the collection mechanism for VAT (split payment). 
How the split payment would function: once a payment is made via the internet to purchase 
goods, the bank/payment service provider will have the liability to withhold the related VAT 
amount and remit it to a government bank account. 

Several problems were identified with this solution, such as: 

  the  payment  service  providers  generally  have  limited  information  on  the  underlying 
transaction. If a payment is made in accordance with the unique identifier (i.e. IBAN) the 
payment is considered to be executed correctly. The payment service provider of the payer 
or of the beneficiary are not obliged to check the identity of the beneficiary or the nature of 
the  underlying  relationship  between  the  payer  and  the  beneficiary  before  the  payment  is 
executed.  Imposing  the  liability  of  the  payment  service  providers  to  withhold  the 
equivalent of the VAT amount would imply knowing in detail the VAT rules applicable to 
that  transaction  in  order  to  establish  the  required  VAT  amount.  Such  payment  service 
providers  usually  have  no  access  to  commercial information  (status  and place  of  vendor, 
status and place of customer, VAT rate). To be noted that any additional obligations in the 
field of electronic payments could only be introduced by amending the Payment Services 
Directive (PSD)64.   

  The  role  of  the  payment  service  providers  is  basically  to  confirm  the  validity  of  the 
payment method used for the respective transaction and this is done automatically without 
any  human  intervention.  In  fact,  under  PSD  payments  have  to  be  executed  within  one 
business  day.  In  the  near  future,  instant  payments  will  become  the  norms.  Imposing  an 
obligation  on  the  payment  service  provider  to  enter  into  the  nature  of  the  underlying 
(contractual)  obligations  of  the  payer  vis-à-vis  the  payee  for  VAT  purposes  would 
seriously  hamper  the  possibility  of  payment  service  providers  to  participate  in 
instantaneous payments schemes.  

  Imposing a fragmented payment would also interfere with Article 67 of the PSD according 
to which a payment service provider is obliged to transfer the full amount of the payment 
transaction and to refrain from deducting charges from the amount transferred.  

Account taken of the above, this option was discarded. Going forward, this impact assessment 
will only focus on the first 6 options described above.  

64 Directive 2007/64/EC 

26 

 
 
 
                                                 
5.3.  Key features of the Options 

The table below provides an overview of the key features of the different Policy Options. 

Table 3 – Summary of the key features of the policy options assessed 

of 

selling 

Features 
General  requirement 
to 
register  and  account  for 
tax  in  the  Member  State 
of Consumption.65 
Availability  of  a 
the 
current  MOSS  for  EU 
B2C 
and 
non-EU 
electronic 
supplies  of 
services.  
Distance 
thresholds for goods 
VAT  exemption  for  the 
small 
importation 
consignments 
Intermediate cross-border 
in  2018  for 
threshold 
services 
electronic 
the  2015 
covered  by 
changes.  
Harmonised  cross-border 
threshold 
Intra-EU 
for 
supplies  of  goods  and 
services. 
The availability of the for 
intra-EU 
of 
supplies 
goods and services 
The availability of the for 
non-EU 
of 
supplies 
goods and services 
Fast-track 
customs 
arrangements  for  VAT 
pre-declared  goods  to  be 
imported  
Primary responsibility for 
audit  with  the  Member 
State  of  Consumption 
can 
(Multiple  MS 
undertake audits). 
Primary responsibility for 
audit  with  the  Member 
State of Identification.  
VAT  obligations  for  the 
business  dependent  on 
the  Member  State  of 
Consumption 
(Business 
operates  to  the  rules  in 
each  market  they  supply 
to 
28 
systems) 
VAT  obligations  of  the 
of 
Member 
identification for business 
supplying intra-EU cross-
border.  (Domestic  VAT 

potentially 

State 

– 

Option1 

Option2 

Option3 

Option4 

Option5 

Option6 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65 The general rule is to register in the Member State of consumption. The MOSS is an optional simplification 

for business.  

27 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
for 

Features 
obligations  except 
rates) 
Harmonised  EU  rules  for 
business supplying cross-
border. 

Option1 

Option2 

Option3 

Option4 

Option5 

Option6 

 

6.  WHAT  ARE  THE  IMPACTS  OF  THE  DIFFERENT  POLICY  OPTIONS  AND  WHO  WILL  BE 

AFFECTED? 

6.1.  Methodology 

This analysis of the policy options requires inputs from both the business and government 
perspective. To achieve this analysis, it was necessary to both quantitative and qualitative 
information. In terms of the economic impacts, it was necessary to utilise a range of 
methodological tools using a micro-oriented approach combined with a macro-oriented 
approach. A detailed annex describing the overall methodology used, the key assumptions and 
the CGE model used is described in Annex 4. 

Table 4 – Summary of methodology used 

Impact 
for  Member 
Impacts 
States’  revenues,  costs 
for 
and 
benefits 
Member 
to 
implement the Option 

States 

Approach used 
Quantitative analysis 

Qualitative analysis 

Tools for analysis  Key assumptions  Key sources 
Costs  similar 
Standard  Cost  model 
MOSS 
(SCM) 

the 

to 

on 
Impacts 
administrative  burden 
for businesses 

Quantitative analysis 

SCM 

Impacts  on  competition 
and growth  

Quantitative analysis 

CGE model 

Impacts on compliance   Quantitative analysis 

Projections  

Qualitative analysis 

Member 
interviews 
questionnaires) 

States’ 
and 

Stakeholder workshops 

Desk research 

Member 
interviews 

States’ 

Businesses interviews 

Stakeholder workshops 

Business online survey 

Consumer survey 

SCM  

Desk research 

Member 
interviews 
questionnaires 

States’ 
and 

Stakeholder workshops 

Desk research 

Mock purchases 

Different  scenarios  for 
e-Commerce growth 

Compliance  monitoring 
based on risk profiling 

Impacts  of  OSS  similar 
to those of MOSS 

Number of businesses 

Number  and  behaviour 
of 
micro-businesses 
engaged  in  cross-border 
e-Commerce 

Different  scenarios  for 
e-Commerce growth 

Number of businesses 

Number  and  behaviour 
of 
micro-businesses 
engaged  in  cross-border 
e-Commerce 

Different  scenarios  for 
e-Commerce growth 

28 

 
 
 
 
 
 
 
 
 
6.2.  Analysis of the impacts of each of the options 

6.2.1.  Option 1 – Status Quo 

Section  2  outlines  in  detail  the  problems  and  the  problem  drivers  of  the  status  quo.  In 
summary, the main problems are: 

1.  Cross-border  compliance  costs  –  these  costs  are  estimated  as  EUR  4.2  billion 
annually.  They  will  continue  to  act  as  a  barrier  for  business  wishing  to  access  the 
single market.   

2.  Lack  of  neutrality/distortions  –  These  distortions  include  non-EU  business  gaining  a 
legitimate advantage through the exemption for the importation of small consignments 
in  addition  to  the  vast  number  of  non-compliant  transactions  as  noted  in  the  recent 
Copenhagen Economics study which found that 65% of purchases made from non-EU 
sellers through the public postal services are non-compliant. In addition, the distance 
selling  thresholds  put  both  domestic  E-Commerce  sellers  and  businesses  in  the 
traditional economy at a disadvantage due to the exploitation of VAT rate differentials 
and  the  lack  of  control of  these  thresholds.  It  is  clear  that  theses  existing  distortions 
faced by EU business will magnify as e-commerce transactions continue to grow. 

3.  VAT revenue losses – Revenues for cross-border e-commerce are projected to be EUR 
137 billion from e-commerce in 2020. It is estimated in 2020 that the VAT foregone 
for the small consignments exemption will be EUR 1.3 billion and compliance losses 
will be EUR 6.7 billion. 

The conclusions of the Commission expert group on the taxation of the digital economy are 
clear  that  the  status  quo  is  not  an  option.  The  analysis  undertaken  in  the  Study  and  in  this 
impact assessment fully supports this assertion, and therefore the option of taking no action is 
not feasible. There is also broad support by Member States and business, in particular the e-
commerce  representative  organisations,  that  there  is  a  need  to  modernise  VAT  for  cross-
border e-commerce.    

6.2.2.  Option  2  -  Removal  of  the  distance  selling  thresholds  and  the  small  consignment 

exemption (with no simplification measure) 

Summary – the extent to which the specific policy objectives will be met 

Overall - Objectives not met  

1.  Minimising burdens attached to cross-border e-Commerce arising from different VAT 

regimes – Not met  

2.  Providing a level playing field for EU businesses – Partially met if sufficient controls 

in place to monitor small consignments and distance selling 

3.  Facilitating  the  monitoring  of  compliance  and  the  fight  against  fraud  for  Member 
States’  authorities.  –  Partially  met  if  sufficient  controls  in  place  to  monitor  small 
consignments and distance selling 

4.  Ensuring that VAT revenues accrue to the Member State of the consumer  – Partially 

29 

 
 
 
 
 
 
 
met if sufficient controls in place to monitor small consignments and distance selling 

Economic Impacts and competitiveness 

Impact on business 

EU Business  

In comparison with the Status Quo, this Option leads to a 12% increase of the administrative 
burden on businesses selling cross-border as a result of the removal of the distance selling and 
import thresholds, without any simplification being introduced. This figure however is based 
on  low  compliance  by  businesses,  as  well  as  impossibility  of  authorities  to  monitor  the 
increasing number of transactions. 

While  some  distortions  will  be  addressed  through  the  removal  of  the  small  consignments 
exemption,  the  increase  in  administrative  burdens  due  to  the  lack  of  any  simplification 
measures  and  a  cross-border  threshold  will  be  negative  for  business  overall.  The  impact  for 
domestic operators and those who are already registered for VAT in other Member States is 
likely to be positive as in theory there should be a more level playing field arising from the 
removal of the small consignments exemption.  

Non-EU Business 

Non-EU business and EU based importers will, in theory, be negatively affected by this option 
as  EU  customers  will  be  charged  VAT  on  importation  of  all  consignments  and  the  related 
compliance  burden  to  clear  customs  will  be  high  in  the  absence  of  any  simplification.  As  a 
result,  the  attractiveness  of  VAT  free  consignments  will  cease.  However,  in  practice,  there 
would  be  difficulties  in  enforcing  the  removal  of  small  consignments  exemption  (see  also 
below under Tax Administration and Tax Compliance).  

SMEs and micro-business 

Due  to  the  increase  in  the  administrative  burdens  which  will  disproportionately  affect  small 
and micro business, only a small minority of micro-businesses will be likely to comply with 
the  new  obligations,  while the  remaining  of  micro-businesses  will  be  likely to  cease  trading 
cross-border  or  will  fail  to  register  for  VAT  (i.e.  be  non-compliant).  There  should  be  some 
positive  impacts  for  business  operating  at  domestic  level  due  to  the  removal  of  the  small 
consignments exemption and the distance selling thresholds. However, any positive impact is 
minimal due to the increase in non-compliance.  

Postal operators and couriers 

The  impact  on  postal  operators  and  couriers  is  overall  negative.  The  removal  of  the  small 
consignments exemption will mean that they will have to process a significant larger number 
of  packages  through  customs  with  no  simplification  measures.  It  is  estimated  that  an 
additional  150  million  parcels  will  be  subject  to  a  VAT  declaration,  generating  a  total 
administrative cost of EUR 1.7 billion, instead of EUR 0.7 million under the baseline scenario 
(increase by 143%). 

Impact on Member States 
VAT revenues 

VAT revenues for Member States are expected to decrease by EUR 0.05 billion66 a year.   

66 See annex 4 Methodology – Analysis of VAT revenues under options 1 – 6.  

30 

 
                                                 
Tax Administration and Tax Compliance 

The removal of the small consignments exemption will increase substantially the number of 
packages which are required to be cleared by customs authorities.   

The removal of distance selling threshold simplifies the VAT system and should be expected 
to  facilitate  the  compliance  control  by  tax  authorities,  reducing  the  VAT  fraud  on  distance 
selling.   

The removal of small consignment exemption simplifies the VAT system and should enable 
slightly  more  efficient  compliance  controls  (e.g.  by  reviewed  risk  assessment).  However,  as 
the  volume  of  parcels  subject  to  VAT  increases,  there  is  higher  motivation  for  non-EU 
suppliers  to  undervalue  and  mislabel  the  parcels  to  reduce  their  VAT  cost.  Evidence  on  the 
high level of non-compliance where the small consignment exemption cannot be applied can 
be  found  in  a  recent  French  Senate  report67  (France  does  not  apply  small  consignment 
exemption to mail orders68). Therefore the level of non-compliance is expected to increase in 
this Option. 

Impact on e-Commerce market and competitiveness 

Medium growth Scenario69 

At a broader economic level, there is likely to be a small negative impact on cross-border e-
Commerce.  In terms of values70, compared to the base line total e-commerce (domestic and 
cross-border) is expected to increase by 0.3%, a decrease of 0.9% is expected in cross-border 
e-commerce representing a 0.5% increase in intra-EU e-commerce and a decrease of 4.7% in 
non-EU to EU cross-border e-commerce. Prices are due to increase but this effect is primarily 
due to the effect on current EU prices arising from VAT free supplies into the EU71.   

There are negligible differences under the DSM scenario72. 

Table 5 - Medium growth scenario 

Total e-
Commerce73 

Cross-border 
e-Commerce 

EU cross-
border e-
Commerce 

Non-EU cross-
border 

67http://www.senat.fr/fileadmin/Fichiers/Images/redaction_multimedia/2015/2015-

Documents_pdf/20150917_e_commerce.pdf 
68 This option is available to all Member States.  
69 Medium Growth has been calculated as  an annual growth rate of 12% for the e-commerce sector in the EU  
70   All impacts are calculated for 2020. It was decided to choose 2020 as this was deemed at the outset of the 
Study as a possible implementation date for the proposal given the need to get agreement by unanimity in 
Council and to provide sufficient time for IT development by both Member States and business. The impacts 
are on the basis of Year 1 implementation.  

72   The sensitivity analysis was carried out on the basis of 2 scenarios. The high growth scenario is an annual 
growth  rate  of  18%  for  the  e-commerce  sector  in  the  EU.  The  DSM  scenario  is  high  growth  of  18%  for 
supplies from within the EU reflecting other simplifications under the DSM strategy with medium growth of 
12%  from  non-EU  suppliers.  For  the  purpose  of  this,  it  was  decided  that  the  DSM  scenario  should  be 
utilised for the options.  

73   Total e-commerce includes cross-border and domestic.  

31 

 
 
                                                 
 
EU e-Commerce prices 

% 

0.5% 

2.6% 

1.1% 

5.7% 

e-Commerce value 

EUR billions 

3.5 

% 

0.3% 

Regional Impact  

-1.7 

-0.9% 

0.5 

0.3% 

-0.3 

-4.2% 

Given  the  lack  of  a  simplification  measure,  it  is  unlikely  that  there  will  be  any  significant 
regional impacts. However, Member States in which SMEs make up a greater contribution to 
e-commerce would be expected to be disproportionately impacted as those businesses would 
no longer benefit from the distance selling thresholds. 

Consumers and households 

The impact on consumers is likely to be negative overall as less business are engaging in intra-
EU trade. Hence consumer choice is down, which would make a decrease of prices less likely.  

Macroeconomic impact 

Negligible. 

Environmental and Social Impacts 

No significant impacts 

6.2.3.  Option 3 - Option 2 but with the introduction of a new common VAT threshold for EU 

cross-border sales of both goods and services 

Summary - Impact on the policy objectives 

Overall – Objectives not met 

1.  Minimising burdens attached to cross-border e-Commerce arising from different VAT 

regimes – Not met 

2.  Providing a level playing field for EU businesses – Partially met if sufficient controls 

in place to monitor small consignments and distance selling 

3.  Facilitating  the  monitoring  of  compliance  and  the  fight  against  fraud  for  Member 
States’  authorities  –  Partially  met  if  sufficient  controls  in  place  to  monitor  small 
consignments and distance selling 

4.  Ensuring that VAT revenues accrue to the Member State of the consumer – Partially 
met if sufficient controls in place to monitor small consignments and distance selling 

Economic Impacts 

32 

 
 
 
 
 
 
Impact on business 

EU Business  

EU businesses will benefit from a clearer legislative framework applying throughout the EU. 
Despite  the  introduction  of  new  thresholds,  the  absence  of  any  other  simplification  has  a 
negative impact on administrative costs. If the threshold is set at EUR 10 000, the costs are 
expected to increase by 7%.  

The  lack  of  any  simplification  measures  will  be  negative  for  business  overall  through  an 
increase in administrative burdens. On the positive side, some distortions have been addressed 
through the removal of the small consignments exemption and micro-business will be able to 
avail of a threshold. The impact for domestic e-commerce operators and those who are already 
registered for VAT in other Member States is likely to be positive as there should be a more 
level  playing  field  arising  from  the  removal  of  the  small  consignments  exemption.  The 
negative is the increase in compliance costs due to the lack of simplification measures. 

Non-EU Business 

Similar to Option 2. 

SMEs and micro-business 

The introduction of a threshold is likely to be positive for micro-business in particular but the 
lack  of  simplification  measures  i.e.  a  MOSS  is  negative  for  SMEs  overall  as  they  will  still 
experience  high  costs  for  registering  and  declaring  VAT  in  other  Member  States.  This  also 
means that there is a significant dis-incentive for micro and smaller businesses to grow as they 
will face a cliff in terms of administrative costs once the threshold is exceeded.  

With  the  common  VAT  threshold  at  EUR 10 000,  it  is  estimated  that  430  000  micro-
businesses (or 97% of the total) are below the EUR 10 000 threshold.  In terms of potential 
distortions74,  a  threshold  of  EUR  10  000  would  tax  at  origin  respectively  3.9%  of  the 
transactions.   

Also,  as  with  Option  2  there  should  be  some  positive  impacts  for  business  operating  at 
domestic  level  due  to  the  removal  of  the  small  consignments  exemption  and  the  distance 
selling thresholds.  

Postal operators and couriers 

Similar to Option 2.  

Impact on Member States 
VAT revenues 

Under this option total VAT revenues for Member States are expected  to increase by EUR 
0.45 billion a year.  

Tax Administration and Tax compliance 

74   The analysis of distortions is calculated by using taxation at origin as a proxy i.e. the tax would be paid at 
the rate of the Member State where the supplier is located rather than following the destination principle of 
where the customer is located. 

33 

 
 
                                                 
 
Similar to Option 2 except that there will be a reduction in the number of businesses required 
to  register  for  tax  in  other  Member  States  arising  from  the  introduction  of  a  threshold  and 
therefore this should increase EU compliance compared to Option 2 for the reason that there 
are less businesses required to register in other Member States and therefore resources can be 
better targeted.   

Impact on e-Commerce market and competitiveness 

Medium Growth Scenario 

At a broader economic level (based on a EUR 10 000 threshold), there is likely to be a small 
negative impact on cross-border e-Commerce.  In terms of values, total e-commerce (domestic 
and cross-border) is expected to increase by 0.3%. A decrease of 0.7% is expected in cross-
border  e-commerce  representing  a  0.5%  increase  in  intra-EU  e-commerce  and  a  decrease  of 
4.1%  in  non-EU  to  EU  cross-border  e-commerce.  Prices  are  expected  to  increase  but  this 
effect is primarily due to the effect on current EU prices arising from VAT free supplies into 
the EU. The removal of the exemption will substantially increase the average price of imports, 
leading to a shift from imports to domestic and intra-EU sales. The shift to intra-EU sales will 
however  be  smaller  than  expected  due  to  the  removal  of  the  distance  selling  thresholds 
without a MOSS which may lead to smaller firms exiting the market.  

Table 6 – Medium growth scenario Option 3 

Total e-Commerce 

Cross-border e-
Commerce 

EU cross-border e-
Commerce 

Non-EU cross-
border 

EU e-Commerce prices 

Threshold of EUR 10 000 

% 

0.9% 

2.33% 

0.68% 

5.71% 

e-Commerce value 

Threshold of EUR 10 000 

EUR billions 

% 

3.9 

0.3% 

-1.4 

-0.7% 

0.7 

0.5% 

-2.1 

-4.1% 

Source: Study 

DSM Scenario 

The DSM scenario is very similar to the medium growth scenario. 

Regional Impact  

Similar to option 2, but the availability of a cross-border threshold should mean that Member 
States  with  a  high  proportion  of  SMEs  engaging  in  e-commerce  should  not  be  as 
disproportionately affected as under Option 2.  

Consumers and households 

Similar to Option 2. 

Macroeconomic impact 

Negligible. 

34 

 
 
Environmental and Social Impacts 

No significant impacts 

35 

 
6.2.4.  Sub-option – Level of the Cross-border threshold for goods and services 

The  type  of  threshold  which  has  been  studied  is  one  under  which  businesses  would  apply 
domestic  rules  only.  A  threshold  under  which  cross-border  supplies  would  be  VAT  exempt 
has been disregarded because almost all Member States expressed themselves against it in the 
Dublin  Conference  but  also  because  it  would  increase  administrative  burdens  for  small 
businesses (who could be taxed at a domestic level and exempt abroad – leading to complex 
apportionment schemes for the right of deduction). 

To estimate the optimal level of the cross-border threshold75 to be targeted at Micro-business 
and start-ups, an analysis was undertaken for possible thresholds of EUR 5 000, EUR 10 000 
and EUR 100 000. This analysis identified the number of business eligible at each threshold 
level and the distortionary effect using the proxy of taxation at origin. If an EU business has 
annual  EU  cross-border  sales  below  this  threshold  they  shall  be  deemed  to  be  domestic 
transactions and therefore they would not be required to register and account for these taxes in 
the other Member State – either directly or through the MOSS.   

Table 7 - Analysis of thresholds 

Threshold 

No. of 
business 
Eligible76 

Potential 
reduction in 
burden with 
the 
availability of 
the MOSS 

Intra-EU cross-border 
impact 

Distortionary 
effect77 

% of e-
Commerce 
trade taxed 
at the origin 

VAT 
Revenues 
taxed at 
origin 

EUR 5 000 

400 000 

EUR 10 
000 

EUR 
100 000 

430 000 

510 000 

EUR 822 
million 

EUR 887 
million 

3.7% 

3.9% 

EUR 360 
million 

EUR 388 
million 

EUR 1054 
million 

10.3% 

EUR 1 188 
million 

Low 

Low 

High 

It is estimated that 400 000 businesses of micro-businesses1 (90% of the total) will be below 
the  common  VAT  threshold  (set  at  EUR  5  000).  With  the  common  VAT  threshold  at 
EUR 10 000, it is estimated that 430 000 micro-businesses (or 97% of the total) are below the 
EUR 10 000 threshold.  In terms of potential distortions1, a threshold of EUR 5 000 and EUR 
10 000 would tax at origin respectively 3.7% and 3.9% of the trade. Significantly a threshold 
of  EUR  100  000  would  only  exclude  an  additional  80,000  businesses  but  would  lead  to 
increased distortions of approximately10%.   

Based on the analysis under this option, it is considered that a EUR 10 000 threshold would 
be optimal given that it excludes 430,000 businesses from the scheme with a minimal amount 

75  It  should  be  noted  that  the  intra-EU  cross-border  threshold  adopted  would  be  independent  of  the  existing 

domestic exemption threshold.   

76 The number of affected business was analysed as part of the Study on ‘Modernising VAT for cross-border e-
commerce’ Lot 2, Page 249, Table 129. Estimate of businesses engaged in cross-border trades and revenues. 
Sources  used  include  Eurostat,  Business  Enterprise  Statistics  and  Information  Society  Statistics.  The 
analysis in Table 7 also considers the profile of actual trades per business in the MOSS system see Pg. 109, 
Table 12, of Lot 3 of the Study.   

77  This  assessment  uses  taxation  at  origin  as  a  proxy  to  determine  the  potential  distortionary  effect.  The 
alternative  would  have  been  to  carry  out  detailed  modelling  across  Member  States  which  would  be 
extremely  complex  given  VAT  rate  differentials  across  individual  products  and  Member  States.  It  is 
considered for this purpose that less than 5% is low; 5 – 10% is medium; and above 10% is high.  

36 

 
                                                 
of  distortions  to  the  single  market.  This  also  ensures  that  the  proposal  will  largely  stay 
consistent with existing Commission policy as well as international practice that consumption 
taxes like VAT should be taxed in the country where the consumer is based.  
In addition, one must also be cognisant of the political considerations particularly as 
unanimity will be required in Council. In the stakeholder consultation, representatives from 
most Member States indicated that they are either not in favour of a threshold, or a very low 
threshold.  

6.2.5.  Option 4 - Option 3 plus Mini One Stop Shop applying to intra-EU supplies of goods 

and services and to the import of all goods under the customs threshold of EUR 150   

Summary - Impact on the policy objectives 

Overall – Meets the objectives (Positive overall) 

1.  Minimising burdens attached to cross-border e-Commerce arising from different VAT 

regimes – Partially met 

2.  Providing a level playing field for EU businesses – Met 

3.  Facilitating  the  monitoring  of  compliance  and  the  fight  against  fraud  for  Member 

States’ authorities – Partially met 

4.  Ensuring that VAT revenues accrue to the Member State of the consumer – Met 

Economic Impacts and competitiveness 

Impact on business 

EU Business  
EU businesses will benefit from a clearer legislative framework applying throughout the EU. 
In  addition  to  a  new  threshold  for  micro-business,  a  simplified  scheme  (the  Mini  One  Stop 
Shop)  will  be  available  and  will  substantially  reduce  administrative  costs.  Option  4  is 
therefore likely to reduce the administrative burden for EU businesses by 42% (by EUR 
1.8 billion) compared to the status quo. 

Overall the impacts are positive particularly in terms of the competitiveness of EU business. 
Business  benefits  from  intra-EU  thresholds  as  well  as  the  simplification  measures.  It  is 
estimated  that about  83%  of businesses engaged in  cross-border e-Commerce and above the 
EUR  10  000  threshold  will  register  to  the  MOSS.  The  impact  for  e-Commerce  operators  is 
generally positive. Those businesses which are already registered for VAT in other Member 
States will reduce their annual compliance costs by approximately 90% with the availability of 
the MOSS, while those which are not yet registered and are growing their intra-EU sales can 
avail of the intra-EU cross-border threshold.  

It  is  not  envisaged  that  there  should  be  substantial  costs  for  EU  business  to  adapt  their 
systems to use the MOSS given the simplicity of the system.   

Non-EU Business 

This option is likely to have a positive impact for non-EU business wishing to supply to the 

37 

 
 
 
 
 
 
 
 
EU. This will also be positive for EU based importers supply B2C. While they will no longer 
be able to supply VAT free consignments to EU customers, they will be able to charge VAT at 
the point of sale to give a final price to EU customers, including for parcels between EUR 22 
and 150 for which a full customs declaration is today required. They can then benefit from the 
fast-track  customs  procedure  of  consignments  where  VAT  is  pre-declared.  Overall, 
administrative costs linked to these importations will be reduced by 72% (EUR 173 million 
instead  of  EUR  625  million  a  year),  mainly  because  it  will  move  from  high  per  transaction 
burdens  to  simplified  compliance  for  all  sales  during  a  period.  This  option  will  also  have  a 
negative impact on non-compliant non-EU business as Member States can free up resources to 
target the abuse. 

SMEs and micro-business 

The introduction of a threshold is likely to be positive for micro-business and SMEs generally 
as they will firstly benefit from a threshold and then, as their intra-EU sales increase, they can 
use the MOSS.  

Traditional economy and domestic E-Commerce suppliers will benefit from the level playing 
field and higher compliance rates. 

Postal operators and couriers  

Postal operators and couriers will need to develop/adapt their information systems in order for 
them to make sure that they receive, in advance of Customs clearance, electronic information 
indicating  whether  VAT  on  consignments  up  to  EUR  150  has  been  pre-declared  or  not 
through  MOSS  (under  Options  4,  5  and  6).  Such  a  system  is  essential  in  order  for  postal 
operators  and  couriers  to  automatically  distinguish  parcels  for  which  a  declaration  and 
payment are required and therefore to avail of the reduced processing costs which the MOSS 
will offer. Different implementation modalities for customs administrations can be envisaged. 
It  could  be  based  on  the  MOSS  registration  number  that  may  either  be  included  in  the 
Customs Early Notification System (compulsory on all consignments, including postal ones, 
as of 2020) or also implemented outside the ENS.  

Providing a robust estimate of such one-off costs is difficult as for some operators it may only 
be  a  matter  of  making  relatively  minor  adjustments  to  the  existing  systems  which  are  very 
well developed due to the full integration of the process from the exporting country until the 
place of final destination. However, it should be recognised that other operators, particularly 
postal  operators,  may  need  to  build  new  systems  –  e.g.  based  on  agreements  with  foreign 
stakeholders.  

In considering the costs that postal operators and couriers will face in either developing new 
information  systems or  adapting  existing  systems it is important  to recognise that the recent 
changes  of  the  Union  Customs  Code  have  put  security-related  obligations  on  both  postal 
operators and couriers in respect of the advanced information they will all need to provide by 
2021  anyway  to  EU  customs  administrations  in  advance  of  clearance  (end  of  the  remaining 
waivers). There may be scope to coordinate system developments in respect of requirements 
for  information  in  respect  of  VAT  with  the  customs  information.  This  may    reduce 
development  costs  for  the  couriers  and  postal  operators.  It  could  also  bring  benefits  to 
Customs  administrations  as  the  necessity  to  ensure  that  VAT  has  been  pre-declared  can  be 
integrated  into  the  general  clearance  process  rather  than  having  a  separate  process  only  for 
VAT. It is also relevant to highlight that a specific simplification regime will be put in place 
for consignments which are not declared through the MOSS. Postal operators will be able to 
account for taxes in one simplified monthly return rather than the alternative of a declaration 
for each consignment. Such a "fallback" procedure may also be very useful in the very first 
days of the new legal framework where the uptake of the MOSS by non-EU vendors might not 
be at full speed. 

38 

 
One  has  also  to  remember  that  the  ongoing  security  threats  will  unavoidably  lead  to  more 
requirements  for  proper  identification  of  all  types  of  packages  and  letters  sent  either  on  the 
postal or courier environments. The envisaged EU VAT changes should aim to link as much 
as possible to such changes needed for security purposes. 

Impact on Member States 
VAT revenues 

VAT revenues for Member States are expected to increase overall by EUR 7 billion a year 
under this option.  

Tax Administration and Tax compliance 

This  option  is  expected  to  substantially  improve  both  voluntary  compliance  and  compliance 
control on intra-EU cross border trade in goods and services other than electronic services.  

The  MOSS  would  facilitate  the  monitoring  of  compliance  and  the  fight  against  fraud  for 
Member  States  due  to  increased  exchange  of  information  and  closer  administrative 
cooperation, similarly to the current MOSS system for electronic services.  

Option 4 is expected to further improve both voluntary compliance and compliance control on 
the import of goods with a value up to EUR 150. The Option would also support reduce the 
fight  against  fraud  opportunities  by  sustaining  the  reduction  of  undervaluation  and  incorrect 
labelling  of  the  goods.  The  use  of  MOSS  on  imports  has  a  potential  to  also  improve 
compliance  controls  of  compliant  companies,  as  the  non-EU  supplier  would  become  VAT 
registered  in  the  EU,  therefore  having  a  closer  connection  with  the  EU  tax  authorities. 
Furthermore, Member States will be able to redirect risk analysis and anti-fraud strategies to 
companies which will not opt for the MOSS on imports. Therefore, option 4 has potential to 
reduce  fraud,  provided  there  is  an  effective  administrative  cooperation  between  tax 
administrations of Member States and with third parties A negative impact for many Member 
States  is  the  possibility  of  being  involved  in  a  multiplicity  of  different  audits  on  the  same 
companies  within their jurisdiction as primary control for auditing will lie with the Member 
State of consumption. This could lead to an inefficient use of scarce resources. 

IT Set-up costs 

Member States  will be  required to  adapt  the existing MOSS systems, however,  as  this is  an 
evolution  of  an  existing  system  rather  than  building  a  new  system,  it  is  envisaged  that  the 
costs would not be significant. Most IT development costs will concern the non-EU element 
of the scheme as well as developing risk analysis systems to process advance information 

Impact on e-Commerce market 

Medium Growth Scenario 

The introduction of the MOSS is expected to have a positive impact. Total e-commerce value 
is expected to increase by EUR 3.8 billion (0.33%) with intra-EU e-commerce increasing by 
EUR 1.5 billion (1.1%) and a decrease of EUR 2.2 billion (4.2%) in e-commerce from non-
EU suppliers. EU cross-border prices marginally decrease. 

Table 8 – Option 4 - medium growth scenario 

39 

 
Total e-
Commerce 

Cross-border e-
Commerce 

EU cross-border e-
Commerce 

Non-EU cross-
border 

% 

0.73 

1.84 

-0.03 

5.66 

EU e-Commerce prices 

Threshold of EUR 10 000 

e-Commerce value 

Threshold of EUR 10 000 

EUR billions 

% 

3.77 

0.33 

-0.69 

-0.36 

1.48 

1.07 

-2.17 

-4.2 

Source: Study 

DSM scenario 

When  considering  the  impact  of  the  DSM  scenario  on  cross-border  e-Commerce  within  the 
EU,  Option  4  is  estimated  to  have  a  relatively  more  positive  impact  on  EU  cross-border  e-
Commerce than non-EU e-Commerce. EU cross-border e-commerce values increase by EUR 
2.3 billion (1.2%).  In terms of prices, the DSM scenario is associated with greater downward 
pressure on prices thanks to more firms entering the market and more competition. The effect 
on the value of total e-Commerce (Domestic and cross-border) is also more positive under the 
DSM scenario, both in absolute and percentage terms (increase of EUR 7.9 billion or 0.5%).  

Regional Impact  

The overall VAT revenue from (intra-EU) cross-border e-Commerce transactions is estimated 
to  increase  notably  under  Options  4,  5  and  6,  as  an  effect  of  higher  compliance  and  of  the 
positive  impacts  of  such  options  on  intra-EU  e-Commerce  volume  and  value.  The  share  of 
such increased revenues obtained by Member States however will vary by country, depending 
on a number of factors: 

i.  Contribution to cross-border e-Commerce, by origin: countries that account for a larger 
share of cross-border online trade relative to population are expected to see a greater 
impact from the policy options since a larger proportion of businesses will be affected.  

ii.  Contribution  to  e-Commerce  flows,  by  destination:  countries  that  account  for  a 
disproportionately  large  share  of  inward  e-Commerce  flows  are  estimated  to  see  a 
greater revenue impact as a result of a greater share of transactions falling within the 
scope of VAT.  

iii.  Change  in  the  level  of  thresholds:  countries  that  experience  a  greater  monetary 
reduction from the existing distance selling threshold to the new Intra-EU will also see 
a  greater  increase  in  VAT  revenues,  since  the  change  in  policy  will  make  a  larger 
impact in these markets.  

Overall,  the  size  of  the  domestic  market  may  insulate  larger  European  economies  (such  as 
Germany and France) from the potentially adverse effects on cross-border trade deriving from 
being  major  countries  of  origin.  In  addition,  countries  such  as  the  UK  and  Spain  would  be 
expected to capture an above-average share of additional VAT revenues, given that spending 
on cross-border e-Commerce relative to the size of the economy, is higher in these markets. 
The impact in the UK is likely to be particularly pronounced since the current distance selling 
threshold for EU businesses is approximately EUR 100,000. Thus the reduction in the intra-
EU  threshold  may  significantly  increase  the  share  of  spending  that  is  subject  to  VAT. 
Germany,  Luxembourg  and  the  Netherlands  also  have  distance  selling  thresholds  of  EUR 

40 

 
 
 
100,000  and  may  therefore  see  a  greater  than  average  impact  on  tax  revenues.  The 
introduction of an intra-EU cross-border threshold together with the MOSS should ensure that 
there is not a disproportionate effect on Member States with a large number of SMEs.  

Consumers and households 

The overall impact is likely to be positive as the availability of the Mini One Stop Shop will 
make  geo-blocking  no longer justified from a VAT point of  view. As a result, there will be 
more choice for consumers. Overall the impact on prices is a slight increase reflecting the fact 
that there would be a 5% increase in non-EU supplies mainly down to the application of VAT 
on transactions which were  formally  exempt  on importation. This  increase is  mitigated  by a 
decrease  in  process  for  intra-EU  e-commerce  as  a  result  of  increased  competition  and  the 
levelling of the playing field for EU business.   

Macroeconomic impact 

Increase in VAT revenues will have benefits for Member State budgets. The positive impact 
on the EU's competitiveness should have a positive impact on the GDP, although no figure is 
available.  This  impact  is  expected  to  be  limited  as  the  measures  in  scope  of  this  impact 
assessment only affect one sector of the economy. 

Environmental and Social Impacts 

A  positive  impact  on  employment  is  expected  due  to  an  increase  of  e-commerce  and  the 
improvement of the competitiveness of the EU e-commerce sector. No figure is available on 
this impact although it is likely to be relatively small. 

No significant impact on the environment. 

6.2.6.  Option  5  -  Option  4  plus  amendments  to  the  Mini  One  Stop  Shop  (home  country 
legislation  and  home  country  control,  subject  to  applying  rate/exemptions  of  the 
Member State of Consumption) 

Summary - Impact on the policy objectives 

Overall –  Objectives met (very positive overall) 

1.  Minimising burdens attached to cross-border e-Commerce arising from different VAT 

regimes – Met 

2.  Providing a level playing field for EU businesses – Met 

3.  Facilitating  the  monitoring  of  compliance  and  the  fight  against  fraud  for  Member 

States’ authorities – Met 

4.  Ensuring that VAT revenues accrue to the Member State of the consumer - Met 

Economic Impacts and competitiveness 

Impact on business 

Business compliance costs 

41 

 
 
 
 
 
In addition to the new simplifications already available under option 4 (Mini One Stop Shop 
and new intra-EU thresholds), further simplifications (notably home country legislation) will 
bring  administrative  costs  further  down.  As  a  result,  the  overall  administrative  burden  for 
businesses  is  estimated  to  decrease  by  55%  (EUR  2.3  billion  annually)    compared    to  the 
status quo (the reduction is estimated of 42% under Option 4).  

EU Business  

Overall the impacts are positive particularly in terms of the competitiveness of EU business. 
Business  benefits  from  new  intra-EU  thresholds  as  well  as  the  simplification  measures.  The 
increase in compliance rates will benefit EU business through levelling the playing field. The 
impact  for  e-Commerce  operators  is  generally  positive.  Those  businesses  which  are  already 
registered  for  VAT  in  other  Member  States  will  reduce  their  annual  compliance  costs  by 
approximately  95%  with  the  availability  of  the  MOSS  (compared  to  90%  under  option  4), 
while those who are not yet registered and are growing their intra-EU sales can take advantage 
of the threshold. Operators in the MOSS will be able to benefit from additional simplifications 
under this option which further reduce administrative costs. 

Non-EU Business 

Similar to Option 4 with certain increased burden reduction from additional simplification of 
the compliance. 

SMEs and micro-business 

Similar to option 4 but these businesses will benefit proportionately more with the additional 
simplifications as in many cases trading cross-border will be similar to domestic transactions 
if in the MOSS, and in fact will be easier in many cases the MOSS VAT return is simpler than 
most national returns. 

Postal operators and couriers 

Similar to Option 4. 

Impact on Member States 
VAT revenues 

Similar to Option 4 

Tax Administration and Tax compliance 

The compliance impact of Option 5 would be very similar to Option 4. However, Option 5 is 
expected  to  further  increase  voluntary  compliance  by  providing  additional  simplification  to 
the MOSS in the form of application of home country legislation.  

Option 5 also has potential to further improve compliance controls and reduce fraud, focusing 
controls  on  companies  outside  the  MOSS,  provided  there  is  an  effective  administrative 
cooperation between tax administrations of Member States and with third parties. 

IT Set-up costs 

Similar to Option 4 

Impact on e-Commerce market 

42 

 
 
Similar to Option 4 

Table 9 - Overview of economic impacts for Option 5 

Total e-
Commerce 

Cross-border e-
Commerce 

EU cross-border e-
Commerce 

Non-EU cross-
border 

EU e-Commerce prices 

Threshold of EUR 10 000 

e-Commerce value 

Threshold of EUR 10 000 

% 

0.68% 

1.75% 

-0.15% 

5.66% 

EUR billions 

% 

3.57 

0.32% 

-0.63 

-0.33% 

1.57 

1.13% 

-2.20 

-4.22% 

Source: Study 

Regional Impact  

Similar to Option 4 

Consumers and households 

Similar to Option 4  

Macroeconomic impact 

Similar to Option 4  

Environmental and Social Impacts 

Similar to Option 4 

6.2.7.  Option 6 - Option 4 plus fully harmonised EU rules for Mini One Stop Shop, subject to 

applying the rates/exemption of the Member State of Consumption 

Summary - Impact on the policy objectives 

Overall – Meets the objectives (Very positive overall) 

1.  Minimising burdens attached to cross-border e-Commerce arising from different VAT 

regimes – Partially met 

2.  Providing a level playing field for EU businesses – Met 

3.  Facilitating  the  monitoring  of  compliance  and  the  fight  against  fraud  for  Member 

States’ authorities – Met 

4.  Ensuring that VAT revenues accrue to the Member State of the consumer – Met 

Economic Impacts and competiveness 

43 

 
 
 
 
 
 
 
Impact on business 

Business compliance costs 

In addition to the new simplifications already available under option 4 (Mini One Stop Shop 
thresholds),  further  simplifications  (notably  harmonised  rules)  will  bring 
and  new 
administrative costs further down. As a result, the overall administrative burden for businesses 
is  expected  to  decrease  by  51%  (EUR  2.1  billion  annually)  compared  to  the  status  quo  (as 
compared to 42% under Option 4 and 55% under Option 5). EU businesses will benefit from a 
clearer legislative framework applying throughout the EU.  

EU Business  

Overall the impacts are positive particularly in terms of the competitiveness of EU business. 
Business  benefits  from  new  intra-EU  thresholds  as  well  as  the  simplification  measures. 
Compliance rates increase benefits EU business through a level playing field. The impact for 
e-Commerce operators is generally positive. Those businesses which are already registered for 
VAT in other Member States will reduce their annual compliance costs by approximately 92% 
(as compared to 90% under option 4) with the availability of the MOSS, while those who are 
not yet registered and are growing their intra-EU sales can avail of the threshold.  

Non-EU Business 

Similar to Option 4 

SMEs and micro-business 

Similar  to  option  4  but  unlike  Option  5,  micro-businesses  and  SMEs  which  are  above  the 
threshold and in MOSS will need to apply two separate rules – domestic and the harmonised 
EU rules. Harmonisation in areas such as this has invariably led to the highest standards in an 
EU Member State applying to all business, e.g. the 10 year record keeping requirement under 
the MOSS, hence increased burdens. 

Postal operators and couriers 

Similar to Option 4. 

Impact on Member States 
VAT revenues 

Similar to Option 4 

Tax Administration and Tax compliance 

The  compliance  impact  of  Option  6  would  be  very  similar  to  Option  4.  Option  6  also  has 
potential  to  further  improve  compliance  controls  and  reduce  fraud,  focussing  on  companies 
outside the MOSS and provided there is an effective administrative cooperation between tax 
administrations of Member States and with third parties.  

IT Set-up costs 

Similar to Option 4 

Impact on e-Commerce market  

Similar to Option 4 

Table 10 - Overview of economic impacts for Option 6  

44 

 
Total e-
Commerce 

Cross-border e-
Commerce 

EU cross-border e-
Commerce 

Non-EU cross-
border 

% 

0.69% 

1.79% 

-0.10% 

5.66% 

EU e-Commerce prices 

Threshold of EUR 10 000 

e-Commerce value 

Threshold of EUR 10 000 

EUR billions 

% 

3.60 

0.32% 

-0.68 

-0.35% 

1.52 

1.10% 

-2.19 

-4.20% 

Source: Study 

Regional Impact  

Similar to Option 4 

Consumers and households 

Similar to Option 4  

Macroeconomic impact 

Similar to Option 4  

Environmental and Social Impacts 

Similar to Option 4 

7.  HOW DO THE OPTIONS COMPARE? 

7.1. 

Summary assessment of the impacts  

A summary assessment of the options is presented below.  

Option 2 

This  option reduces  VAT  revenues  and  increases  business  compliance  costs.  High  levels  of 
con-compliance mean that distortions remain. In terms of the public consultation, this option 
does  not  meet  the  overall  orientation  expressed  in  as  there  are  no  simplification  options 
proposed.  Postal  service  providers  have  strong concerns  in  respect  of  their  ability  to  collect 
taxes on small consignments with the removal of the VAT exemption.  

Option 3 

While this option offers some relief for  micro-business, there is  a negligible effect on VAT 
revenues and a reduction in costs for business. In terms of the consultation, the introduction of 
a threshold is seen as positive for the smallest of business but businesses over the threshold or 
who expect to grow will face onerous cross-border burdens without further simplification.   

Option 4 

There is a positive impact on VAT revenues and it substantially decreases compliance cost for 
business vs. status quo. This option is broadly compatible with the results of the consultation 
although a drawback of this option for business is the requirement to deal with 28 sets of rules 
and subject to audit by the Member States it makes supplies to. Postal operators are concerned 

45 

 
 
by the impact of the removal of the small consignments exemption (as with options 5 and 6) 
although the availability of the MOSS for imports and special simplifications when MOSS is 
not used should mitigate against these concerns.  

Option 5 

This option has a material effect on the overall compliance costs for business reducing these 
by EUR 500 m compared to option 4. The reason for this is that business will only face one 
set  of  rules as  opposed  to  28  sets  of  rules  in  option  4  and  2  sets  (domestic  and  harmonised 
EU) in Option 6. Further this option is intended to improve identified deficiencies in the 2015 
MOSS such as the means to correct past returns and extending the period to file the tax by 10 
days.  This  option  is  compatible  with  the  general  results  of  the  consultation  and  was  the 
preferred option for business at the Dublin seminar. 

Option 6 

This option is less desirable in terms of the reduction of business compliance costs compared 
to option 5, but is more positive than Option 4. Similarly to option 5, this option is broadly 
compatible with the results of the consultation but concern was expressed that harmonised EU 
rules would be overly complicated. 

Table 11 analyses and evaluates the key impacts across the 6 options.  

Table 11 – Summary analysis of impacts 

Key impacts 

Option1 

Option2 

Option3 

Option4 

Option5 

Option6 

A – Economic and Competitiveness impact 

Impact on Member States 

Member  States’ 
from 
revenues 
intra-EU trade 
Cost  for  Member 
State 
to 
implement  
the 
Effects  on 
volume and value 
of  imports  from 
third countries 

= 

= 

= 

Impact on businesses 

Administrative 
burden 

= 

Competition and growth in the EU 

Effects  on  intra-
EU  e-Commerce 
for  goods  and 
services 
Effects  on  intra-
EU  e-Commerce 
prices 
Effects  on  intra-
EU  e-Commerce 
value 

= 

= 

= 

- 

- 

-- 

- - 

- - - 

- 

+ 

+ 

- 

+ 

- 

- 

- 

+++ 

+++ 

+++ 

- - 

- -  

- -  

+++ 

+++ 

+++ 

++ 

+++ 

+++ 

+ 

+ 

++ 

++ 

++ 

++ 

++ 

++ 

++ 

++ 

46 

 
 
 
 
 
Key impacts 

Option1 

Option2 

Option3 

Option4 

Option5 

Option6 

Compliance  

on 

+ 

+ 

= 

= 

= 

- -  

- - - 

- - - 

from 
VAT 

Effects 
- - - 
Compliance 
B – Effectiveness of Options vs Policy Objectives 
Minimising 
burdens  attached 
to cross-border e-
Commerce 
arising 
different 
regimes. 
Providing  a  level 
playing  field  for 
EU businesses. 
the 
Facilitating 
monitoring 
of 
compliance  and 
the  fight  against 
for 
fraud 
Member  States’ 
authorities. 
Ensuring 
that 
VAT 
revenues 
the 
accrue 
to 
Member  State  of 
the consumer 
C – Coherence of options vis-à-vis the DSM Strategy 
Extending the 
current MOSS to 
intra-EU and 3rd 
country online 
sales of tangible 
goods  

- - -  

- - -  

- -  

- - 

= 

= 

+ 

= 

+ 

+ + 

+ + + 

+ + 

+ + 

+ + + 

+ + + 

+ + + 

+ + + 

+ + + 

+ +  

+ + + 

+ + + 

+ + + 

+ + + 

+ + + 

+ + + 

+ + + 

+ + + 

Introducing a 
common EU-
wide 
simplification 
measure (VAT 
threshold) to 
help small start-
up e-commerce 
businesses. 

Removing 
the 
VAT  exemption 
the 
for 
of 
importation 
small 
consignments 
from  suppliers  in 
third countries. 
Allowing for 
home country 
controls 
including a 
single audit of 
cross-border 
businesses for 
VAT purposes. 

= 

- - - 

+ + 

+ + + 

+ + + 

+ + + 

= 

+ 

+ 

+ + + 

+ + + 

+ + + 

= 

- - - 

- - -  

 + 

+ + + 

+ + 

D – Key indicators  
VAT Revenues 
(EUR) 
Business 
Compliance 

137 bn 

136.95 bn 
(- 0.05bn) 

137.45 bn 
(+0.35bn) 

4.7 bn 

4.6 bn 

144 bn 
(+7bn) 

2.4 bn 

144 bn 
(+7bn) 

1.9 bn 

144 bn 
(+7bn) 

2.1 bn 

47 

 
 
 
 
 
Key impacts 

Costs (EUR) 

Option1 
4.278 bn 

Option2 

Option3 

Option4 

Option5 

Option6 

(increase  of 
0.5bn) 

(increase  of 
0.4bn) 

(decrease 
of 1.8 bn) 

(decrease 
of 2.3 bn)  

(decrease 
of 2.1bn) 

Business 
Compliance 
Costs (%) 
Overall 
assessment 

= 

+ 12% 

+ 7% 

- 43% 

- 55% 

- 51% 

Does  not  meet 
objectives 

Does not meet 
objectives 

Does not meet 
objectives. 

Partially 
meets 
objectives 

Fully meets 
objectives 

Fully meets 
objectives 

Legend 
+++ much better suited                       ++ better suited                          + slightly better suited 
= no difference 
- less suited                                        - - slightly less suited                - - - much less suited 

7.2. 

Identification of the Preferred Option 

The analysis above indicates that broadly speaking Options 4, 5 and 6 are the options which 
can best address the specific objectives for modernising VAT for cross-border e-Commerce. 
These options fulfil in particular the key objectives of ensuring a level  playing field for EU 
business and that tax revenues accrue to the Member State of the consumer.  

In  comparing  these  3  options,  Option  5  is  considered  to  be  the  most  positive  as  a  business 
established  in  a  Member  State  can  make  supplies  to  a  customer  in  another  Member  State 
under  broadly  the  same  rules  as  a  domestic  transaction,  the  VAT  rate  applicable  being  the 
only  exception.  This  option  reduces  overall  compliance  costs  for  business  by  55%  and 
evidence  points  to  this  option  between  the  optimum  one  in  terms  of  meeting  the  overall 
general and specific objectives of the proposal.  

In  comparison,  Option  4  reduces  business  compliance  costs  by  42%.  This  is  positive 
compared to the status quo and options 2 and 3, however option 4 would require a business to 
potentially  have  to  apply  28  different  sets  of  rules  depending  on  the  Member  State  of 
consumption.  On  the  other  hand,  Option  6  would  require  a  business  trading  cross-border  to 
apply two separate sets of rules, one for domestic transactions and one for EU transactions. 
This  option  is  projected  to  reduce  overall  business  compliance  costs  by  51%.  While  this  is 
still a significant reduction compared to Option 4, experience from recent negotiations on the 
standard VAT return79 as well as the obligations negotiated  under the 2015 MOSS indicate 
that the harmonised intra-EU rules will likely  be the case of upwards  harmonisation i.e. the 
rules for intra-EU transactions will reflect the most complex in EU Member States. 

Options  4,  5  and  6  are  projected  to  increase  VAT  revenues  in  2020  by  EUR  7  billion 
compared to the status quo. Option 2 marginally reduces VAT revenues while Option 3 leads 
to  a  small  increase.  The  drivers  for  the  increase  in  VAT  revenues  are  the  reduction  in  non-
compliance  and  VAT  foregone  from  the  small  consignments  exemptions.  While  the  data 
indicated  that  there  would  only  be  negligible  changes  in  additional  VAT  revenues  across 
Options  4,  5  and  6  it  is  also  relevant  to  reflect  that  there  is  generally  a  positive  correlation 
between reduced administrative burden for accounting for taxes and higher compliance rates. 

78 Numbers have been rounded. 

79 The 2013 proposal for a standard VAT return was withdrawn by the Commission in 2015. The reason for the 
withdrawal was that the negotiations in Council were leading towards a compromise return which would be 
an amalgamation of all Member States returns and hence increasing the burden on business for adapting to 
this new return with no discernible benefits.  

48 

 
 
 
 
 
 
 
 
                                                 
Therefore,  greater  VAT  revenue  gains  for  Member  States  arising  from  higher  compliance 
rates may materialise under Option 5. 

It should be noted that there is a negligible increase in prices in options 4, 5 and 6. The reason 
for  this  slight  increase  is  that  many  consignments  coming  from  non-EU  countries  are 
currently not subject to VAT. However, consumers should benefit in that suppliers from non-
EU countries will be able to avail of the MOSS and therefore the consumer will be charged a 
VAT inclusive price and for these supplies will not be faced with any liability for VAT and 
administration charges on importation. In addition, there should be access to a greater range 
of  products  due  to  the  increase  in  intra-EU  e-commerce  and  in  time  competitive  pressures 
may lead to a reduction prices. 

In terms of effects on consumers, option 5 may lead to a slight increase in prices, but this is as 
a result of the fact that VAT will be applied on certain goods which are currently exempt or 
through non-compliance. One notable benefit for consumers  is  that they will be able to  pay 
VAT at the point of sale when purchasing goods to be imported. This compares to the current 
situation  where  postal  operators  or  express  carriers  collect  VAT  from  the  consumer  on 
importation together with an administrative fee before releasing the goods.   Consumers will, 
in addition, benefit from greater choice as e-commerce grows.   

7.3. 

Subsidiarity of the preferred option 

The preferred option 5 is considered to be consistent with the principle of subsidiarity as the 
main problems which have been identified (distorting effects, high administrative costs, etc.) 
are  triggered  by  the  rules  of  the  existing  VAT  Directive.  Given  that  VAT  is  an  EU  tax, 
Member States are currently not allowed by themselves to set different rules and therefore any 
initiative  to  modernise  VAT  for  cross-border  e-commerce  requires  a  proposal  by  the 
Commission  to  amend  the  VAT  Directive.  Therefore  Option  5  will  clearly  offer  value  over 
and above what can be achieved at Member State level. 

7.4. 

Proportionality of the preferred option 

The preferred option 5 is considered to be consistent with the principle of proportionality i.e. 
it does not go beyond what is necessary to meet the objectives of the Treaties in particular the 
smooth functioning of the single market.  

1.  There is an overall reduction in the compliance costs business face when trading in 

the single market with Option 5 providing the highest reduction in costs. 

2.  For the most-part, trading cross-border will be as similar to trading at Member State 

level. 

3.  The  MOSS  will  be  optional  for  business  and  therefore  a  business  may  decide  to 
maintain  existing  arrangements.  The  MOSS  will  be  integrated,  as  with  the  MOSS 
system, into the web portal of their tax administration. 

4.  EU business will benefit from a more level playing field. 

5.  The  IT  costs  for  Member  States  and  the  European  Commission  should  not  be 

significant given that this is an evolution of an existing system. 

6.  The  new  intra-EU  threshold  will  ensure  that  small  business  and  businesses  with 
incidental cross-border sales will not be required to register and can opt to deem such 
supplies  as domestic. Further, when exceeding the threshold business will be faced 
with a far simpler option of using the MOSS than under the status quo. 

49 

 
As  outlined  in  5.1,  a  soft  law  approach,  such  as  a  Member  State  volunteering  to  apply  the 
MOSS, is not feasible.  

As with the subsidiarity test, it is not possible for Member States to address the problems and 
problem drivers without a proposal to amend the VAT Directive.   

7.5. 

Impact on SMEs 

The impact of the various options on SMEs and indeed in terms of the status quo has been a 
central objective of this impact assessment.  

Specific measures have been undertaken to understand and address the issues faced by SMEs 
which have informed this assessment both in quantitative and qualitative terms: 

1.  The Study included a specific analysis on SMEs. The terms of reference for the study 
mandated that SMEs would be included in all samples consulting business. An online 
survey  was  specifically  directed  at  small  and  micro-business  in  coordination  with 
representative groups. 

2.  In evaluating the current system and considering the options, the Commission ensured 
that  SMEs  were  represented  at  the  Dublin  Fiscalis  event.  Furthermore,  the 
Commission  ensured  that  the  EU  SME  body  ‘UEAPME’  was  able  to  present  to 
Member States and business on the challenges they face. In addition, the Commission 
ensured  that  a  UK  based  representative  group  was  present  at  the  seminar  and 
participated in the various workshops80.  

The benefits of the preferred Option to SMEs can be summarised as follows: 

1.  With a threshold, a very large number of small businesses who are engaged in intra-
EU  trade  would  not  be  required  to  use  the  MOSS  and  instead  will  be  able  to  opt  to 
treat transactions as domestic. A EUR 10 000 threshold would, for example, exclude 
almost 430 000 businesses while generating only minor distortions. 

2.  An intermediate threshold for electronic services will be needed following adoption by 
Council to address the issues faced under the 2015 changes without waiting for the full 
entry into force of the new proposal. 

3.  SMEs would also need to benefit from further simplifications such as the soft landing 
whereby up to e.g. EUR 100 000 there will be simplified requirements on the evidence 
needed to verify the location of the customer for supplies of electronic services. 

4.  SMEs who are growing will benefit from the MOSS which is far less costly than the 
alternative of direct registration in the Member State of the consumer. They will also 
be able to apply home country rules i.e. it will be similar to trading at domestically and 
any  queries  in  respect  of  the  MOSS  should  generally  only  be  through  their  own  tax 
administration. 

5.  SMEs  (and  all  business)  will  benefit  from  information  systems  to  assist  with  the 

identification of the appropriate VAT rates in other Member States.  

80  See  http://euvataction.org/2015/09/14/what-happened-at-the-eu-vat-fiscalis-summit/  for  a  report  by  the 

representative group on their participation at the Fiscalis seminar.  

50 

 
                                                 
6.  SMEs in e-commerce and in the traditional economy will benefit from the more level 
playing field whereby non-EU business will no longer be able to make supplies VAT 
free into the EU.  

7.6.  Delivering on REFIT  

Annex  3  presents  the  results  of  the  early  assessment  of  the  implementation  of  the  2015 
changes to the place of supply rules and particularly the MOSS system, which is in essence a 
pilot for the broader initiative.  This assessment shows that the MOSS has saved businesses 
EUR 500 million versus the alternative of direct registration and payment – on average EUR 
41 000 per business. This represents a 95% reduction in costs compared to the alternative of 
direct registration in the Member State of the consumer.  

The early assessment of MOSS has also been very useful in ensuring that the new initiative 
recognises the positives and addresses the shortcomings of the 2015 changes. For instance, the 
preferred option 5 proposes the introduction in 2018 of a cross-border threshold applying to 
services  covered  by  the  2015  changes  as  well as  a  relaxation  on  the  need  for  two  pieces  of 
evidence for suppliers of electronic service who have less than EUR 100 000 turnover (the so 
called  soft-landing).  In  addition  the  extension  of  the  MOSS  in  2021  will  take  on  board  the 
shortcomings  identified  under  the  REFIT  assessment  of  the  initiative  such  as  the  need  for 
home  country  rules 
invoicing  requirements,  coordination  of  audits, 
communications  with  taxpayers  and  indeed  including  a  threshold  for  suppliers  of  goods  as 
well as services.  

terms  of 

in 

The second REFIT aspect of the initiative refers to the main objectives of the new initiative, 
which  is  "minimising  burdens  attached  to  cross-border  e-Commerce  arising  from  different 
VAT regimes".   

In terms of the tangible benefits identified under the REFIT element of this proposal: 

  The simplifications in 2018 will take up to 6,500 businesses out of the current MOSS 
system leading to a potential cost saving for these businesses of EUR 13 million. 
  Also, in 2018, the so called soft landing approach where businesses who make intra-
EU supplies of electronic services  up to EUR 100,000 will benefit an additional 1,000 
businesses    

  The  preferred  option  (Option  5)  is  expected  to  reduce  VAT  compliance  costs  for 
businesses  by  €  2.3  billion  a  year  from  2021.  This  option  which  takes  on  board  the 
improvements identified in the assessment of the implementation of MOSS delivers an 
additional EUR 500 million compared to Option 4 which does not offer the benefits of 
home  country  rules  in  areas  such  as  record  keeping,  invoicing  rules,  coordination of 
audits etc. 

  The  introduction  of  a  threshold  for  goods  in  the  2021  changes  will  benefit 
approximately 430,000 businesses with potential savings to these businesses of up to 
EUR 860 million.    

8.  HOW WOULD ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

8.1. 

Indicators for monitoring and evaluation 

The table below gives an overview of the objectives, the indicators to measure whether they 
will be achieved, the tool for measuring these and the operational objectives. 

51 

 
 
Table 12 – Monitoring and evaluation framework 

Objectives 

Indicator 

Measurement tool 

Minimising burdens 
attached to cross-border 
e-Commerce arising 
from different VAT 
regimes  

  The number of 

  Real time reports in 

businesses using the 
MOSS. 

MOSS. 

  The cost savings for 

business. 

  Standard cost model 
exercise should be 
repeated 3 years after 
implementation. 

Operational 
objectives 
  70% of eligible 
business using 
the MOSS 
  90% reduction 
in cost vs 
alternative of 
direct 
registration 
based on 
supplying to 5 
Member States. 

Providing a level 
playing field for EU 
businesses  

  The rate of non-
compliance 

  Study to estimate 

  Reduction in 

non-compliance to be 
carried out 3 years 
after implementation.  

non-compliance. 

  Member States 

working together 
to address 
compliance 
challenges from 
e-commerce. 
  Reduction in 

non-compliance. 

  Member States 

working together 
to address 
compliance 
challenges from 
e-commerce. 

  The rate of non-
compliance 

  Study to estimate 

non-compliance to be 
carried out 3 years 
after implementation. 

Facilitating the 
monitoring of 
compliance and the 
fight against fraud for 
Member States’ 
authorities  

Ensuring that VAT 
revenues accrue to the 
Member State of the 
consumer. 

  The flow of VAT 

  Real Time reports in 

  Increase in 

revenues through the 
MOSS. 

MOSS. 

overall VAT 
revenues from e-
commerce 
transactions. 

The  extension  of  the  MOSS  provides  an  ideal  opportunity  to  integrate  monitoring  into  the 
revised  IT  system  with  the  objective  of  having  real-time  reports  on  the  core  indicators 
particularly the number of businesses using the MOSS and the flow of VAT receipts through 
it.  This  real-time  tool  can  differentiate  between  intra-EU  supplies  and  supplies  from 
businesses in third countries. Prior to the introduction  of the MOSS, it is  intended to put  in 
place  and  implement  a  comprehensive  and  ongoing  communication  strategy  to  ensure  that 
businesses in the EU and outside are aware of the possibilities offered by the MOSS. Within 
the  EU,  the  Study  currently  estimates  that  approximately  130  000  EU  businesses  will  be 
eligible to use the MOSS. 430 000 businesses will not be required to use it with a EUR 10 000 
threshold.  The  first  benchmark  will  be  that  70%  of  business  and  VAT  revenues  will  go 
through the MOSS which is in line with the take-up of MOSS.  

Estimating the rates of non-compliance is more difficult to do on an ongoing basis. Therefore, 
it  is  proposed  to  carry  out  after  three  years  an  exercise  to  estimate  non-compliance  in  a 
representative sample of Member States and identify means to address it.  

52 

 
 
 
 
 
 
 
 
 
 
 
8.2.  Monitoring structures 

As  with  the  2015  changes,  it  is  envisaged  that  the  Standing  Committee  on  Administrative 
Cooperation  Expert  Group  (SCAC  –  EG)  which  is  chaired  by  TAXUD  officials  and 
representative  of  all  Member  States  will  monitor  the  MOSS,  in  particular  the  indicators  on 
take-up by business, VAT revenues and compliance. 

53 

 
 
 
ANNEX 1: PROCEDURAL INFORMATION 

1. Agenda planning and Work Programme References 

The initiative to modernise VAT for cross-border e-commerce forms part of the Digital Single 
Market Strategy, adopted in May 2015, as well as part of the Single Market Strategy, adopted 
in October 2015, the VAT Action Plan adopted in April 2016 and the E-Government Action 
Plan also adopted in April 2016.  

TAXUD 
2016/TAXUD/002. The Inception Impact Assessment was published in July 2015.  

initiative.  The  Agenda  Planning  Reference 

lead  DG  for 

the 

the 

is 

is 

2. Inter-Service Steering Group 

An Inter-Service Steering Group was set up in 2015. In total, six meetings were organised: on 
24  February  2015,  10  June  2015,  25  June  2015,  17  July  2015,  16  November  2015  and  28 
April 2016. The first two meetings were chaired by TAXUD, with meetings since chaired by 
the SG. 

The following directorates and services were consulted: CNECT, GROW, JUST, ECFIN and 
OLAF.  The  feedback  received  from  these  directorates  and  services  has  been  taken  into 
account in the report.  

The  ISSG  approved  the  Inception  Impact  Assessment  that  was  published  in  July  2015.  The 
ISSG also followed the work of the study with presentations of the draft reports given by the 
consultants. The ISSG were given the opportunity to comment on the draft reports. 

3. Consultation of the Regulatory Scrutiny Board 

The Regulatory Scrutiny Board was consulted on 25 June 2016. The opinion of the Board was 
positive. The Board made a number of key recommendations: 

(1)  The  policy  context  should  be  better  described.  In  particular  the  REFIT  elements  of  the 
initiative should be brought out more clearly. 

(2)  The  need  for  EU  action  should  be  further  elaborated,  including  how  the  principles  of 
subsidiarity and proportionality apply. 

(3) The links between general and specific policy objectives should be further refined. 

(4) The analysis of the impacts should be improved, especially by bringing out the costs and 
benefits of each option more clearly. 

4. Commission Expert group on taxation of the digital economy 

The Commission Expert Group on taxation of the digital economy examined the role of VAT 
in ensuring revenues from the digital economy and the current VAT obstacles in its report of 
May 2014. The Report made a series of recommendations on VAT including the extension of 
the single electronic mechanism to supplies of goods and the removal of the small 
consignments exemption.  

54 

 
 
 
 
5. Studies to support the Impact Assessment 

Following the conclusions of the Expert Group on taxation of the Digital Economy, the 
Commission engaged Deloitte as consultants to: 

1.  Undertake an in-depth economic analysis on VAT aspects of e-Commerce. 

2.  Prepare an analysis of costs, benefits, opportunities and risks in respect of the options 
for the modernisation of the VAT aspects of cross-border e-Commerce, with the 
expectation that the analysis will feed into preparations for a future legislative 
proposal. 

3.  Evaluate the implementation of the 2015 place of supply rules and the Mini One Stop 

Shop, and identify best practices and room for possible improvements. 

In addition, the impact assessment befitted from a Study carried out in 2015 by EY for the 
commission the assessment of the application and the impact of the VAT exemption for 
importation of small consignments.  The Study carried out for the Commission presents an 
overview of the legal framework and procedures in place in the 28 EU Member States, as well 
as an economic analysis of the low value consignments market from 1999 until 2013, 
including an estimation of the potential VAT foregone by tax authorities due to this 
exemption. 

55 

 
 
 
Annex 2 – Synopsis Report on stakeholder consultation 

OVERVIEW OF CONSULTATION STRATEGY 

The  consultation  strategy  had  two  main  purposes.  The  first  was  to  assist  with  the  analysis 
under  REFIT  of  the  implementation  of  the  2015  changes  to  the  'place  of  supply'-  rules  and 
Mini One Stop Shop81 (MOSS), and the second was to get the views of stakeholders on the 
Commission’s  commitment  in  the  Digital  Single  Market  Strategy  to  modernise  the  VAT 
framework for cross-border e-commerce.  

There were four main aspects to the consultation process: 

1.  Consultations and stakeholder workshops undertaken by Deloitte as part of the 
Study  on  ‘Options  for  the  modernisation  of  cross-border  e-commerce’ 
(February 2015 –July 2016). 

2.  Fiscalis seminar (September 2015, Dublin) with Member States and business. 
3.  Targeted consultation with key stakeholders. 
4.  Open public consultation which took place between 25 September 2015 and 18 

December 2015. 

The intention to make a proposal in 2016 to modernise VAT for cross-border e-commerce is 
currently  being  discussed  by  the  Council  in  the  context  of  the  VAT  Action  Plan  with  the 
intention  to  adopt  conclusions  in  the  first  half  of  this  year.    To  be  updated  following  the 
adoption of conclusions as this reflects the views of Member States. 

In  addition,  the  Commission  has  presented  the  initiative  at  various  fora  including  the  VAT 
Expert  Group,  the  indirect  tax  committee  of  the  Confederation  of  British  industry,  at  the 
International  VAT  Association,  the  annual  conference  of  E-Commerce  Europe,  the  VAT 
working group of Business Europe, at a roundtable held in London hosted by EMOTA and, in 
April  2016,  at  a  joint  Customs/Fiscalis  2020  workshop  in  Malmö  focussing  on  the  customs 
aspects of the initiative.  

In designing the consultation strategy, the Commission was conscious of the need to consult 
directly with business and with Member States in addition to dialogues with associations and 
tax  practitioners.    Furthermore,  the  Commission  identified  that  it  was  essential  that  SMEs 
were  specifically  targeted  in  the  consultation  strategy  and  for  this  reason  requested  that  the 
consultants  engage  directly  with  SMEs  in  the  course  of  their  work.    In  addition,  the 
Commission  ensured  the  representation  of  the  UEAPME  (the  EU  representative  body  for 
SMEs)  at  the  Dublin  Fiscalis  seminar  as  well  as  a  representative  from  EU  VAT  Action 
(representing micro-businesses).     

The Commission considers that the consultation strategy ensured that all the key stakeholders 
were  reached,  either  directly  or  through  representative  associations,  and  that  the  key  issues 
relevant for stakeholders have been highlighted in the impact assessment.  

An overview of the participation of key stakeholders as identified in the consultation strategy 
is  identified  below.    This  table  demonstrates  the  comprehensive  nature  of  the  engagement 

81  A 

comprehensive 

this 
http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm#new_rules  

explanation 

available 

changes 

2015 

the 

of 

at 

is 

link 

56 

 
                                                 
with stakeholders for the initiative. A summary of the view of the stakeholders is presented in 
section 3 of this report.  

Table 1 – Overview of the key stakeholders and consultation strategy  

Consultation activity 

Deloitte Study 

Fiscalis Seminar 

Targeted 
consultation 

Open 
Consultation 

Public 

Representative Bodies 

EU Business Organisations 

 

EU E-Commerce organisations   

Business Tax experts 

EU Commerce organisations 

 

 

EU Postal service organisation   

operator 

 

Express 

EU 
organisations 

Businesses 

Electronic service providers 

E- commerce – goods 

Platforms/Intermediaries 

SMEs 

Micro-businesses 

Postal operators 

Express operators 

Tax Practitioners 

Member States 

Members of the Public 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSULTATION ACTIVITIES 

A summary of the consultation activities is presented below.  

Consultation  and  workshops  carried  out  with  the  consultants  (February  2015  –  July 
2016)82 

82   Some of this work is ongoing. This will be updated before publication. 

57 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Following  the  conclusions  of  the  Expert  Group  on  taxation  of  the  Digital  Economy,  the 
Commission engaged Deloitte as consultants to: 

4.  Undertake an in-depth economic analysis on VAT aspects of e-Commerce. 

5.  Prepare an analysis of costs, benefits, opportunities and risks in respect of the options 
for  the  modernisation  of  the  VAT  aspects  of  cross-border  e-Commerce,  with  the 
expectation  that  the  analysis  will  feed  into  preparations  for  a  future  legislative 
proposal. 

6.  Evaluate the implementation of the 2015 place of supply rules and the Mini One Stop 

Shop, and identify best practices and room for possible improvements. 

As  part  of  this  Study,  the  Commission  emphasised  the  need  for  the  consultants  to  engage 
directly with business to ensure that the analysis of the problem as well as the assessment of 
the  2015  changes  to  the  'place  of  supply'  rules  and  MOSS  reflected  the  real  issues  that 
business face. The Commission also underlined the need for the consultants to engage directly 
with SMEs.  

The consultation activities undertaken by Deloitte as part of the Study included: 

  Two  workshops  with  business  on  the  problems  faced  with  imports  from  3rd 

countries83. 

In-depth interviews with businesses in 8 Member States84. 

  One workshop with business, representative organisations and practitioners.  
 
  Questionnaire to all 28 Member States (Finance Ministries/Tax administrations)85. 
 
In-depth interviews with 8 member States (Finance Ministries/ta administrations). 
 
Interviews with SME organisations. 
  Specific survey aimed micro-business experience with the 2015 changes. 
  Participation in all workshops at the Dublin Fiscalis seminar86. 

Fiscalis seminar (September 2015) 

The seminar  was organised  by the Commission  and Irish  Revenue Commissioners from the 
7th to 9th September 2016 in Dublin, having more than 160 participants from all 28 Member 
States  authorities,  third  country  authorities  (Australia,  Norway),  the  OECD,  business 
representatives (including microbusiness and US based e-business), tax practitioners and the 
Commission  services.  The  Fiscalis  seminar  approach  has  been  useful  as  the  interactions 
between  business  and  Member  States  help  in  developing  a  common  understanding  of  the 
problem. This is particularly important for a VAT proposal as agreement of all Member States 
will be required.  

83     The  work  shop  minutes  are  in  Annex  8  Pg  182,  Lot  1  Report  ‘  Options  for  modernising  VAT  for  cross-

border e-commerce’ (unpublished). 

84   See  Annex  3,  Pg  218  Lot  2  Report  Lot  1  Report  ‘  Options  for  modernising  VAT  for  cross-border  e-

commerce’ (unpublished). 

85   See  Annex  6,  Pg  162  Lot  1  Report  ‘  Options  for  modernising  VAT  for  cross-border  e-commerce’ 

(unpublished). 

86   See  Annex  2,  Pg  218  Lot  2  Report  Lot  1  Report  ‘  Options  for  modernising  VAT  for  cross-border  e-

commerce’ (unpublished). 

58 

 
 
                                                 
The  seminar  included  a  mix  of  presentations  from  Member  State  tax  administrations,  the 
Commission, businesses and other experts (OECD, Norway, etc.), workshop discussions, and 
questions and answers sessions. The feed-back received during the seminar was overall very 
positive.  

Detailed  information  on  the  agenda,  participants  and  outcome  of  the  seminar  is  available 
under: http://ec.europa.eu/taxation_customs/taxation/vat/digital_single_market/index_en.htm 

The  main  issues  expressed  by  the  attendees  in  respect  of  the  2015  changes  concerned  the 
absence of threshold for micro-enterprises, foreign exchange conversions, diverging invoicing 
rules and uncertainty in respect of how cross-border audits will work.  

Regarding the future approach announced in the DSM strategy:  

  All business and almost all Member States strongly indicated that they are in favour of 

extending the One Stop Shop to distance sales of goods;  

  There  was  wide  agreement  on  removing  the  exemption  for  the  importation  of  small 
consignments.  In  particular,  there  was  a  strong  view  expressed  by  EU  business  who 
complained about the distortions of competition it generates. 

  There  was  no  agreement  on  the  threshold  for  micro-enterprises  between  Member 
States  -  the  majority  of  Member  States  are  not  in  favour  of  any  threshold  (or  a  very 
low  threshold)  as  there  were  no  significant  complaints  in  their  country  and  this  will 
trigger distortions as well as difficulties for monitoring the thresholds. Also concerns 
from certain business on the risk of distortions.  

  The  UAPME  (European  organisation  for  SMEs)  acknowledged  that  95  %  of  the 

reported issues were from the UK.  

Targeted consultation with key stakeholders. 

Given  the  need  to  ensure  that  all  stakeholders  were  targeted  the  Commission  identified  a 
number of key stakeholders who would need to be contacted to ensure that they were aware of 
the initiative and any potential implications.  

The  terms  of  reference  for  the  Study  specifically  ensured  the  consultation  of  1)  businesses 
including SMEs impacted by the 2015 changes, 2) EU businesses likely to be impacted by the 
VAT  DSM  proposal,  and  3)  Member  States.  The  Fiscalis  seminar  was  an  invaluable 
complement to this by consulting businesses across the EU as well as some  global business 
together  with  Member  States  in  plenary  sessions  and  workshops  on  the  impact  of  the 
proposal. Nevertheless, it was recognised that there would be a need for the Commission to 
reach  out  directly  to  certain  businesses  and  representative  organisations  to  ensure  their 
participation  in  the  process.  This  was  particularly  relevant  for  public  postal  operators  and 
express courier operators who would be directly affected by the intention to remove the small 
consignments  exemption  and  replace  it  with  simplification  measures.    The  first  step  in  this 
targeted  process  was  a  workshop  involving  these  operators  in  March  2015  which  has  been 
followed up by a series of meetings to discuss how this will work practically particularly in 
terms  of  matching  the  new  VAT  requirements  with  customs  rules.    The  Commission  also 
invited representatives from these operators to make presentations at a Fiscalis/Customs 2020 
workshop for tax and  customs administrations  in April 2016  – the subject  of this workshop 
was to look at the legal and technical issues for imports of small consignments arising from a 

59 

 
 
removal  of  the  small  consignments  exemption  and  the  extension  of  the  Single  Electronic 
Mechanism to the supply of goods from non-EU suppliers. 

As outlined in Table 1, the Commission held meetings (on request) with a number of different 
organisations and businesses, and participated in events where the VAT DSM initiative was 
discussed.  In  this  respect,  it  is  relevant  that  meetings  were  held  with  groups  representing 
SMEs.  The primary purpose of these meetings was for business to gain an understanding of 
the initiative and to identify any issues of concern. The results of these meetings have been 
reflected in the conclusions in Table 4.   

Open public consultation 

Overview 

The open public consultation for the initiative was held for 12 weeks between 25 September 
and 18 December 201587 using the EU survey tool. The questionnaire was translated to ensure 
that  the  reach  was  as  far  as  possible.  The  Commission  received  approximately  370 
submissions. All public submissions are available on the DG TAXUD website88. There was 
no evidence of a campaign/a large number of duplicate responses which could have a material 
impact on the results and therefore all contributions have been included in the analysis. 

The profile of the participants is below with a large majority of respondents being business: 

Table 2 – Profile of respondents Open Public Consultation 

Profile 

Business 

Business association 

Member of the Public 

Other/No answer 

No. 

252 

58 

34 

28 

% 

68% 

16 % 

9% 

7% 

In terms of the countries where the contributors indicated where they were based, a significant 
45%  indicated  the  UK.  143  of  these  were  businesses  with  94  indicating  that  they  had 
worldwide turnover of less than EUR 100 000 annually. 

Table 3 – Country of respondents – Open Public Consultation 

Country 

UK 
Belgium89 
Germany 

Italy 

No. 

167 

39 

32 

14 

% 

45% 

10% 

8% 

4% 

87http://ec.europa.eu/taxation_customs/common/consultations/tax/2015_vat_cross_border_ecommerce_en.htm 
88 http://ec.europa.eu/taxation_customs/resources/documents/common/consultations/tax/public-consultation-

results_en.xlsx 

89 Reflects the fact that many of the representative organisations are Brussels based. 

60 

 
 
 
                                                 
Netherlands 

France 

Other EU 

Non-EU 

Other/No answer 

13 

12 

119 

12 

19 

3% 

3% 

19% 

3% 

5% 

The survey for the open public consultation also included a small number of open questions.  
These questions gave an opportunity for respondents to elaborate on their responses. For the 
most  part,  respondents  raised  the  issues  of  key  concern  giving  further  background  on 
particular  issues  such  as  cross-border  threshold.  A  number  of  contributors  including  tax 
practitioners  provided  an  insight  into  the  difficulties  with  the  current  regime  and  indicated 
where they saw the need for improvements. Other bodies raised the difficulties they face with 
different regimes  across  the EU for instance  the scope of the VAT exemption for gambling 
and the need for Member States and the Commission to provide information on compliance 
obligations for businesses trading cross-border. A number of issues such as the taxation of e-
books were raised which are not relevant for this proposal and these have been disregarded for 
the purpose of this synopsis report.   

Summary Results from the open public consultation 

Below is a brief analysis of the key findings. It is important to recognise that the responses, 
which  numbered  370,  should  not  be  interpreted  as  representing  the  views  of  all  businesses 
across the EU. However, the Commission considers that the overall consultation strategy did 
reach the key stakeholders for this initiative. 

A. Analysis of the 2015 changes to the 'place of supply' rules 

  Three quarters of respondents considered that the current Mini One Stop Shop is a 
significant simplification to the alternative of registering and accounting for VAT 
in the Member State of the consumer for supplies of electronic services. A deeper 
analysis  indicates  that  many  of  those  who  did  not  support  the  simplification  did 
not do so primarily due to the lack of a cross-border threshold.   

  Most  of  the  problems  with  the  2015  changes  to  the  'place  of  supply'  rules  were 
raised  by  micro-businesses  due  to  the  lack  of  a  cross-border  threshold,  many  of 
which indicated that as a result they will no longer make supplies of such services 
cross-border. 

  The top 5 issues of concern with the 2015 changes were  

1.  the lack of a cross-border threshold, 
2.  micro-business deciding not to trade intra-EU as a result of no threshold, 
3.  difficulties in identifying the location of the customer, 
4.  the need for better communication on future changes for micro-businesses,  
5.  the desire for simplified VAT obligations. 

B. Cross-border VAT on sale of goods and other transactions not in MOSS 

61 

 
 
  
 
 
  A large majority of respondents were of the view that accounting for VAT in other 

Member States is either very difficult or difficult.  

  The  distance  sales  thresholds,  in  particular,  were  identified by  many  respondents 
as problematic particularly in terms of the need to identify sales per Member State 
to ensure that a threshold was not breached.  

C. 2016 VAT initiative in the DSM 

  A  large  majority  of  respondents90  either  agreed  or  strongly  agreed  with  the 
objective of the Commission in the DSM Strategy to minimise burdens attached to 
cross-border e-commerce arising from different VAT regimes.  

  A  large  majority  agreed  with  the  objective  of  extending  the  Single  Electronic 

Mechanism (One Stop Shop) to B2C supplies of tangible goods. 

  There was broad support for the application of home country obligation rules for 

the extended Single Electronic Mechanism particularly in respect of audits. 

  A large majority of respondents, across all categories, were strongly in favour of a 

cross-border threshold.  

  Many respondents, particularly EU businesses and business representative bodies 
indicated  that  they  are  in  favour  of  the  removal  of  the  small  consignments 
thresholds. 

OVERVIEW OF CONSULTATION RESULTS 

Further detailed information is available in the Study91 and on the consultation page of the DG 
TAXUD website. 

Table 4 – Summary of results 

Stakeholders 

Summary of Results 

business 

EU 
business 
organisations 

and 

EU business and business organisations were broadly 
supportive of the initiative, in particular the potential of the 
SEM to reduce cross-border compliance costs and the need to 
ensure a level playing field for EU business. The need to 
introduce a cross-border threshold to facilitate small business 
and to address the problems experienced with the 2015 
changes was emphasised. Business organisations also stressed 
the need for an EU VAT information portal to support the 
initiative. 

90  For the purposes of these statistics, respondents who expressed no opinion or did not answer were excluded.  

91   See https://ec.europa.eu/taxation_customs/business/vat/vat-reports-published_en .  

62 

 
 
 
                                                 
Tax Practitioners 

Micro-business and 
SMEs 

Postal 
Operators/Couriers 

Member States 

Tax practitioners were generally satisfied with the introduction 
of the place of supply changes and MOSS. Specific concerns 
related to the invoicing rules, the audit regime, corrections of 
past returns with potential delays in refunds and the currency 
conversion rules. Emphasised the need to address these in the 
2016 proposal. 

The principal issue for micro-businesses was the absence in the 
2015 place of supply changes of a cross-border threshold and 
the difficulties they face in identifying the location of 
customers. These businesses strongly advocate the 
introduction of a threshold and other simplification measures 
particularly in respect of the identification of the location of 
their customers. 

The  express  couriers  were  broadly  in  favour  of  the  initiative 
although some caution was expressed on the need to have real 
simplification  for  both  VAT  and  customs  obligations.  Postal 
operators expressed concerns on how the removal of the small 
consignments  exemption  will  affect  their  business  model  and 
the  investment  needed  to  adjust  to  the  proposals  as  they 
handle  many  of  the  consignments  currently  benefitting  from 
the exemption. 

Discussions are ongoing in Council in respect of the conclusions 
on the VAT Action Plan. However, Member States were broadly 
supportive  of  the  initiative  at  the  Fiscalis  seminar  in  Dublin. 
Two Member States, UK and Denmark, responded to the public 
consultation.  Both  were  broadly  in  favour  of  the  initiative, 
however, while the UK was strongly in favour of a cross-border 
threshold, Denmark expressed strong reservations on this point 
due to potential distortions and the effects on Danish business.  

European Parliament   MEPs,  in  questions  and  in  committees,  have  raised  on  a 
number  of  occasions  the  difficulties  that  micro-businesses, 
particularly  from  the  UK,  have  faced  since  the  introduction  of 
the 2015 changes particularly in respect of the lack of a cross-
border threshold and problems identifying the location of their 
customers.  Vice-President  Ansip  and  Commissioner  Moscovici 
have  indicated  to  MEPs  that  they  are  in  favour  of  the 
introduction  of  simplification  measures  in  the  forthcoming 
initiative.   

Citizens/Consumers 

Responses  from  citizens,  consumers  and  consumer  groups  to 
the open public consultation were not significant.  

63 

 
 
ANNEX 3 - ASSESSMENT  OF  THE  IMPLEMENTATION  AND  APPLICATION  OF  THE  2015 
PLACE  OF  SUPPLY  RULES  FOR  THE  ELECTRONIC  SERVICES  AND  THE  MINI  ONE 
STOP SHOP (MOSS) 

1. 

INTRODUCTION/BACKGROUND  

1.1. 

Introduction 

This  annex  presents  the  assessment  of  the  implementation  and  application  of  the  2015 
place  of  supply  rules  for  telecommunications,  broadcasting  and  electronically  supplied 
services  (hereafter  “electronic  services”)  and  the  Mini  One  Stop  Shop  (MOSS),  and 
identifies the best practices and room for possible improvements.  

The assessment focuses on the following areas: 

1.  Assessment of the preparatory work for the introduction of the 2015 changes; 

2.  Assessment of the 2015 place of supply rules; 

3.  Assessment of the implementation of the MOSS; 

4.  Administrative cooperation, audit and audit guidelines; 

5.  Quantitative assessment of the 2015 place of supply rules and the MOSS; 

6.  Assessment of the impact of the changes on SMEs; 

7.  Conclusions and recommendations. 

The analysis included in this assessment draws on the report produced by Deloitte as part 
of their study on VAT aspects of cross-border e-Commerce. The assessment covers the 
first 18 months (up to July 2016) of the operations of the scheme.  

It is important to note that the assessment does not constitute a full evaluation given that 
the  MOSS  has  been  applicable  only  since  January  2015.  Therefore,  the  focus  on  the 
analysis is on assessing the implementation of the MOSS and the 2015 place of supply 
rules  and  measuring  changes  in  VAT  revenues  and  regulatory  costs  for  businesses  and 
national administrations. The full evaluation will be conducted after sufficient experience 
with the functioning of the new rules has been gathered. 

The  assessment  has  been  conducted  soon  after  implementation  in  order  to  support  the 
extension  of  the  new  rules  to  cross-border  business  to  consumer  sales  of  goods  and  to 
services other than electronic services. However, it is also relevant that in the long lead-
in  period  (2008  –  2015)  from  adoption  at  Council  to  implementation,  there  was  an 
intense  dialogue  with  key  stakeholders  including  Member  States  and  business.  This 
dialogue identified many of the potential issues which could arise for instance in respect 
of the auditing rules being burdensome on business and IT systems not being ready, and 
the  Commission  took  steps  to  address  these  through  auditing  guidelines  and  the 
development of a fall-back IT solution. 

This  assessment  has  been  conducted  under  REFIT,  which  is  the  Commission’s 
programme  to  make  EU  law simpler  and  to reduce  regulatory  costs. It should be noted 

64 

 
 
that  as  the  MOSS  was  proposed  in  2005  and  agreed  in  2008  no  specific  impact 
assessment was carried out to identify the expected savings from MOSS. The aim of this 
assessment  is  to  identify  to  what  extent  the  simplification  potential  has  materialised  on 
the ground and whether there is scope for introducing any potential improvements.  

1.2.  Background to the 2015 Changes 

The issue of VAT and the digital economy has been discussed since the mid 1990's, with 
agreement  reached  by  the  OECD  in  Ottawa  in  1998  that  when  applied,  consumption 
taxes (like VAT) should result in taxation where consumption takes place. The adoption 
of  the  e–commerce  Directive  in  200292  that  took  effect  in  2003  put  this  principle  into 
practice.  Effectively  this  meant  that  the  place  of  supply  for  electronic  services  from 
outside  the  EU  would  be  in  the  Member  State  of  consumption.  This  was  supported  by 
vendor  registration  and  remittance  whereby  a  non-established  trader  could  account  for 
VAT  in  one  Member  State  in  respect  of  his  supplies  to  all  Member  States.  The 
responsibility then fell on that Member State to transfer the VAT to the Member State of 
consumption.  

The 2003 changes were an important milestone in EU VAT Law as it was a statement of 
intent  for  future  developments.  It  is  also  a  reasonable  assumption  that  failure  to  have 
implemented these changes would have resulted in tax and employment losses to the EU 
as the digitalisation of the economy allowed the delivery of services without any physical 
presence  and  automatically  in  a  loss  in  competitiveness  for  EU  business.  With  average 
VAT rates in the EU of approximately 21%, there would have been a clear incentive for a 
business to locate outside the EU and supply these service VAT free. However, the 2003 
changes  created  their  own  problems  as  the  place  of  supply  rules  for  the  same  supplies 
made  intra-EU  were  taxed  at  the  place  of  the  supplier  rather  than  the  customer.  This 
meant that there could be considerable gains for EU suppliers by locating in a Member 
State with low VAT rates as there is a wide variance in VAT rates within the EU with 
standard rates of between 15 and 27%. 

As  a  result,  non-EU  businesses  located  themselves  within  the  EU  in  a  low  VAT 
jurisdiction.  In  addition,  many  EU  businesses  also  relocated  to  a  low  VAT  rate  EU 
jurisdiction  which  led  to  an  erosion  of  the  VAT  base  in  certain  Member  States.  It  is 
important to recognise that the gains were in respect of revenues and not just profits and 
therefore the gain could be up to 20% of the consumer price of the service. Due to the 
resulting  distortions  and revenue losses,  it quickly  became apparent to the Commission 
and Member States that there needed to be a move to a destination based VAT system for 
B2C supplies of electronic services, broadcasting and telecommunications within the EU.  

It is relevant also to mention that in many respects in 2003 digital services were still in 
the  embryonic  stage.  At  that  stage,  people  were  generally buying  their  music  in  stores, 
renting movies and buying physical books in book stores. The changes since then have 
been  profound.  There  is  no  doubt  that  this  presents  challenges  for  business  in  the 
traditional economy, but in terms of taxation, it is also clear that the step taken by the EU 
in  2003  to  move  towards  the  destination  system  for  supplies  of  electronically  supplied 
services was the correct one.  

92 Council Directive 2002/38/EC  

65 

 
                                                 
As  outlined  above,  the  2003  changes  to  the  place  of  supply  rules  presented  challenges 
within  the  EU.  Taxation  of  electronic  services  supplied  B2C  within  the  EU  was  in  the 
Member State in which the supplier is established and not at destination, while in relation 
with  third  countries,  taxation  in  the  Member  State  of  destination  was  already  the  rule. 
This rule led to a cluster of businesses establishing themselves in Member States with the 
lowest rate of VAT, from which they can supply electronic services across the EU at a 
more  advantageous  VAT  rate  than  a  business  established  in  the  Member  State  of  the 
customer.  This  threat  to  the  tax  base  in  many  Member  States  emphasised  the  need  for 
further reform to the place of supply rules based on the destination principle. 

In 2005, the Commission made a proposal to amend the place of supply rules and provide 
that the same rules for services based on the destination principle would apply intra-EU. 
After a number of years of negotiation, new place of supply rules were agreed by Council 
as part of the so-called VAT package. As a result of this agreement, from 1 January 2015 
the  place  of  supply  of  all  services  of  telecommunications,  broadcasting  and  electronic 
services to private individuals are in the Member State in which the customer is located, 
rather  than  the  Member  State  in  which  the  supplier  is  established.  The  same  principle 
thus applies, intra EU and in relations with third countries.  

The Commission proposed in 2004 a "one–stop" mechanism allowing a trader to fulfil all 
his  VAT  obligations  for  EU–wide  activities  in  the  Member  State  in  which  he  is 
established.  While  agreement  on  this  proposal  had  stalled  and  indeed  this  proposal  has 
now  been  formally  withdrawn,  the  principles of  this  vendor  registration  and  remittance 
model were integrated into the VAT package, whereby a mini One Stop Shop (MOSS) 
was introduced in 2015 to support the new place of supply rules. The MOSS allows the 
supplier, rather than register for VAT in each Member State in which he has a customer, 
to  register, declare  and pay  the  VAT  due  on  supplies  of  electronic  services  supplied  to 
final consumers in other Member States via a web portal in his own Member State. The 
supplier  therefore  submits,  once  a  quarter,  a  single  VAT  declaration  to  his  home 
administration. 

1.3. 

Intervention logic 

In  terms  of  the  policy  intervention,  the  table  below  summarises  the  policy  intervention 
and its objectives.  

Policy intervention 

Policy objectives 

1. Place of Supply rule changes 

2. Introduction of the MOSS 

that 

Ensuring 
tax  revenues  from  supplies  of 
electronic  services  accrue  to  the  Member  State  of 
consumption based on the destination principle. 

Neutrality for business – supplies in a Member State 
would be taxed at the same VAT rate irrespective of 
the origin of the supply. 

Simplifying 
the  burden  on  business  who  are 
required  to  account  for  VAT  in  other  Member 
States 

Figure 1 provides a more in-depth analysis of the intervention logic  

66 

 
 
 
 
 
Figure 1 – Intervention Logic 

67 

 
 
1.4.  Methodology  

The  study  carrying  out  this  assessment  used  a  range  of  methodologies,  including  in-depth 
interviews  with  tax  authorities  and  businesses  in  eight  Member  States,  questionnaire  based 
surveys with tax authorities and microbusinesses, application of analysis tools (Standard Cost 
Model,  hereinafter  SCM)  and  a  stakeholder  seminar,  arranged  jointly  with  the  EU 
Commission and the Irish Revenue to confirm the initial findings.  

The study used the SCM to identify and quantify the recurring costs of doing business in other 
Member States for a ‘typical’ business engaged in cross-border B2C e-commerce transactions 
in  electronic services. The SCM  is a widely used tool to  estimate  the administrative burden 
for businesses to comply with legal requirements which, as is the case here, can generally be 
translated  into  Information  Obligations  (IOs).  The  ‘typical’  EU  business  results  from  the 
characteristics  of  a  number  of  real  businesses  engaged  in  cross-border  B2C  e-commerce  in 
electronic services in EU Member States. The results per country were averaged to calculate 
the  time  needed  by  the  ‘typical’  EU  business  to  comply  with  VAT  related  requirements.  In 
addition,  a  non-EU  business  selling  electronic  services  across  the  EU  was  included  in  the 
exercise.  Overall,  28  EU  businesses  (from  seven  Member  States  and  one  non-EU  country) 
were included in the sample. The sample covered micro (2), small (2), medium (1) and large 
(16) businesses. Additional data and information came from external available sources. A key 
input  for  the  model  is  the  hourly  earnings/wage  rates  elaborated  by  Eurostat93.  Other  key 
parameters  for  the  analysis  were  the  number  of  businesses  engaged  in  cross-border  B2C  e-
Commerce (obtained as part of the study), and the number of Member States a ‘typical’ EU 
business is registered to (estimated via primary data collection and expert judgement).  

In addition, the study estimated the one-off implementation costs for businesses related to the 
place  of  supply  rules  and  the  MOSS  on  the  basis  of  interviews  with  businesses.  Due  to  the 
limited experience with audits at this stage, enforcement costs have not yet been analysed. 

While there has been lengthy engagement on these changes with business and Member States 
since 2008, it should be noted that due to the short time since the implementation of the new 
rules from January 2015, the findings in the analysis only show the initial experience of the 
tax  authorities  and  businesses,  which  is  still  limited  in  some  areas,  such  as  on  audits  and 
administrative cooperation. 

Please  note  that  the  assessment  is  not  covering  all  five  evaluation  criteria  required  by  the 
Commission Better Regulation’s guidelines. Given that the new rules have been in place only 
since  2015, it  was  too  early  to  judge  their  relevance,  coherence  and  value  added.  Therefore 
this  analysis  focuses  on  the  analysis  of  the  implementation  of  the  new  rules,  early  results 
(effectiveness)  and  the  corresponding  changes  in  VAT  revenues  and  compliance  costs  both 
for  businesses  and  national  administration  (efficiency).  The  early  results  refer  to  initial 
outputs  rather  than  long-term  impacts  that  could  be  assessed  in  the  context  of  general 
objectives. Similarly, the assessment of changes in regulatory burdens is likely not to capture 
all cost-savings, as it refers to the first months of the functioning of the new rules where both 

93  See:  http://ec.europa.eu/eurostat/web/products-datasets/-/earn_ses_hourly.  The  most  recent  figures  date  back 
to  2010,  but  given  the  economic  crisis,  figures  are  considered  still  quite  accurate  by  the  Commission’s 
services  consulted  on  the  topic.  Updated  hourly  earnings  should  be  elaborated  by  Eurostat  by  the  end  of 
2015.  

68 

 
 
                                                 
business and national administrations were still learning how to apply the MOSS and the 2015 
place of supply rules. 

Also,  given  the  nature  of  this  assessment,  the  results  have  not  been  presented  around  the 
evaluation questions. Instead, it was considered that structuring of the analysis around the key 
aspects of the new rules would result in a clearer presentation.  

The analysis is conducted both from the Member States’ and businesses’ perspective. 

2.  ASSESSMENT  OF  THE  IMPLEMENTATION  AND  FUNCTIONING  OF  THE  2015  PLACE  OF 
SUPPLY RULES FOR ELECTRONIC SERVICES AND THE MINI ONE STOP SHOP (MOSS) 

2.1. 

Preparatory work for the  implementation  of the  2015 place  of supply  rules and 
the MOSS 

The  successful  introduction  of  the  2015  place  of  supply  rules  and  the  MOSS  was  a  high 
priority  for  the  Commission  as  outlined  in  the  Communication  on  the  Future  of  VAT 
(December  2011).  The  Commission  services  together  with  Member  States  recognised  the 
importance of a successful introduction of the 2015 changes for the EU VAT system and in 
particular  the  need  to  ensure  that  IT  specifications  for  the  MOSS  system  were  in  place,  the 
need to have robust implementing rules in implementing regulations, the need to work with 
the key stakeholders and importantly the need to communicate with business. This part of the 
assessment  gives  an  overview  of  the  preparatory  work  undertaken  and  follows  this  with  an 
assessment of this work by Member States and business.   

2.1.1.  Overview of preparatory work undertaken. 

A  summary  of  the  preparatory  work  is  below.  A  more  detailed report  was  presented  by  the 
Commission to the Council in June 2014 (see COM(2014) 380 final94).   

1. 

Legislative framework 

To prepare for the 2015 changes and the MOSS, it was essential to put in place a clear legal 
structure to fully support this significant development.  

A  Council  Regulation  relating  to  the  obligations  under  the  MOSS  was  adopted  in  October 
201295, along with a Commission Regulation relating to the standard forms and returns96. In 
addition, a further Council Regulation, laying down measures helping to identify correctly the 
place of supply of certain services such as how to determine customer location, and providing 
for a number of proxies in that respect, was adopted by the Council on 7 October 201397. In 
particular, it clarifies the issue of customers having multiple locations, or using devices to buy 

94 

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/telecom/com(2014)
380_en.pdf 

95 Council Regulation (EU) No 967/2012 of 9 October 2012 amending Implementing Regulation (EU) 282/2011 
as regards the special schemes for non-established taxable persons supplying telecommunications services, 
broadcasting services or electronic services to non-taxable persons (OJ L 290, 20/10/2012, p. 1–7) 

96 Commission Implementing Regulation (EU) No 815/2012 of 13 September 2012 laying down detailed rules 
for the application of Council Regulation 904/2010, as regards special schemes for non-established taxable 
persons  supplying  telecommunications,  broadcasting  or  electronic  services  to  non-taxable  persons  (OJ  L 
249, 14/09/2012, p. 3–10) 

97 Council Implementing Regulation (EU) No 1042/2013 of 7 October 2013 amending Implementing Regulation 

(EU) No 282/2011 as regards the place of supply of services (OJ L 284, 26.10.2013, p. 1). 

69 

 
                                                 
electronic services, telecommunications or broadcasting in a Member State in which they are 
not  established.  Based  on  this  new  legal  framework,  clear  and  very  detailed  definitions  of 
electronic services, broadcasting services and telecommunication services are available.  

2. 

Guidance for Member States and business 

The  Communication  on  the  Future  of  VAT  included  a  clear  recommendation  that  the 
Commission  will  publish  guidance  in  order  to  inform  businesses  and  promote  a  more 
consistent  application.  This  was  seen  by  the  Commission  services  as  fundamental  for  the 
success of the new rules and MOSS. 

Explanatory Notes on the Place of supply rules 

Following  agreement  of  the  Implementing  Regulation  in  Council,  the  Commission  in 
collaboration  with  Member  States  and  business  representatives  prepared  extensive 
explanatory  notes  which  were  published  in  April  2014.  The  ‘Explanatory  Notes’98  are 
intended  as  a  guidance  tool  that  can  be  used  to  clarify  the  practical  application  of  the  new 
place-of-supply rules for telecommunications, broadcasting and electronic services. They are 
available in all EU languages, as well as in Japanese, Chinese and Russian. 

MOSS Guidelines 

The  Commission  services  have  drafted  a  comprehensive  Guide  to  the  MOSS99,  which  has 
been adopted by the Standing Committee on Administrative Cooperation (SCAC) in October 
2013.  This  Guide  gives  detailed  information  on  how  the  MOSS  will  work  in  practice  and 
covers  areas  such  as  registration,  deregistration,  making  returns,  the  payment  process  and 
record keeping. The guidelines have been published in the EU languages, Japanese, Chinese 
and Russian.  

3. 

Communication  

The Commission recognised the need to inform business, both in the EU and in 3rd countries, 
on the 2015 changes and the MOSS. The Commission, in collaboration with Member States 
and business organisation, participated in a number of seminars to explain to business how the 
new  rules  would  work,  and  what  it  can  offer  them  in  terms  of  simplicity.  The  Commission 
made a keynote presentation at the OECD Global VAT Forum in Japan in April 2014. Further 
events  took  place  in  Luxembourg,  the  UK,  Poland,  Germany  and  the  US.  In  addition,  the 
Commission  has  a  dedicated  web  portal100  with  all  the  relevant  information  on  the  2015 
changes and MOSS.  

4. 

MOSS IT implementation  

The success of the MOSS is dependent on IT systems and development. While responsibility 
primarily  lies  with  Member  States  to  ensure  that  the  web  portals  were  fully  functional  for 
registration  in  October  2014,  and  for  live  operation  in  January  2015,  the  Commission  has 
worked  very  closely  with  Member  States  to  ensure  that  the  systems  were  ready.  Technical 

98

99

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/telecom/explanato

ry_notes_2015_en.pdf. 

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/telecom/one-stop-

shop-guidelines_en.pdf. 

100

 http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm#new_rules. 

70 

 
                                                 
specifications  have  been  prepared  by  the  Commission  and  agreed  by  Member  States  at  the 
Standing Committee on Administrative Cooperation (SCAC). The Commission very closely 
monitored the implementation of MOSS by Member States, and proposed fall-back solutions 
to national administrations in case any Member State would not have had part of its system 
ready on time.  

5. 

Coordination of audits  

One  important  issue  which  is  not  yet  fully  resolved  is  the  audit  of  the  businesses  under  the 
MOSS. EU legislation on the MOSS still foresees that controls and audits are to be carried out 
by the Member State of consumption, although several tools are available to Member States to 
enhance coordination of audits. For both EU and non-EU companies, this may involve up to 
28  different  tax  administrations  auditing  the  same  companies  without  any  coordination  and 
leading  to  information  requests  in  multiple  languages.  Not  only  could  this  create 
disproportionate  administrative  burdens  on  business  but  it  could  also  put  at  stake  the 
efficiency  of  the  audits  themselves  as  well  as  the  level  of  voluntary  compliance  (which  is 
particularly sensitive where non-EU companies are involved). Member States have developed 
audit  guidelines in  order  to promote the principle of coordination of audits, with the aim of 
reducing  burdens  on  business,  promote  voluntary  compliance  and  raise  the  efficiency  of 
audits.  These  guidelines  have  been  published  by  the  Commission,  as  well  as  the  names  of 
participating Member States. Unfortunately, not all Member States have agreed to implement 
them. They are available in all EU languages, as well as in Japanese, Chinese and Russian.  

Appropriate new tools, such as joint audits, to enhance the efficiency of audits in this sector 
may be useful, provided Member States can agree on the legal basis. Delivering a successful 
MOSS as a precursor to the broader OSS requires full trust by each Member State that taxes 
will be collected and that the necessary auditing (on the principle of risk) will take place.  

2.1.2.  Analysis of the Member State perspective of preparatory works/implementation 

The  main  conclusion  from  the  assessment  of  the  implementation  from  the  Member  State’s 
perspective  is  that  the  launch  of  the  MOSS  has  been  successful  and  that  the  MOSS  system 
functions  well.  There  is  some  evidence  of  ‘teething’  problems,  such  as  the  issues  around 
registrations  and  related  communications.  However,  these  concerns  do  not  seem  significant 
and ought to be easily addressed in the short term. The support of the European Commission 
during the implementation process has been assessed very positively by the Member States. 

In more detail: 

  The  legislative  implementation  of  the  place  of  the  supply  changes  was  timely  and 
legislation  was  accompanied  with 

in  most  cases 

the 

generally  successful  and 
administrative guidance. 

  There  was  high  appreciation  for  the  active  role  of  the  Commission  in  providing  further 

guidance on the interpretation of the new rules.  

  The  Member  States  used  a  wide  range  of  communication  channels  to  promote  the  new 
rules.  However,  there  may  be  some  scope  for  improvements  regarding  tailoring  the 
communication for specific groups of businesses (especially microbusinesses). 

  The  Member  States  have  started  to  identify  mismatches  in  the  national  interpretation  or 
the application of the rules. EU level discussions or further guidance may help to reduce 
such mismatches or find a way to address the consequences. 

71 

 
Implementation costs 

  The  average  IT  cost  for  a  Member  State  for  implementing  the  MOSS  portal  was  about 

EUR 2.5 million, with very large variations across countries.  

  The IT cost borne by the Commission linked to the development of the specification of the 
MOSS amounted to about EUR 1.9 million whilst the annual cost for the support, follow-
up  of  operations,  incidents  support  and  basic  maintenance  of  the  system  is  estimated  at 
around EUR 300 000 in Year 1, and EUR 180 000 per year to 2020. 

2.1.3.  Analysis of the business perspective of the preparatory works/implementation 

Many  businesses  had  to  adapt  their  cross-border  sales  and  related  processes.  In  this  regard, 
businesses  found  communication  activities  on  both  the  EU  and  national  level  helpful. 
However,  the  awareness  was  significantly  lower  amongst  the  smallest  businesses.  The 
Commission’s guidance material  are considered very helpful, but  quite technical (especially 
for small businesses) and it was seen by some businesses as unfortunate that not all Member 
States  follow  or  endorse  these101.  The  effectiveness  of  national  guidance  was  considered  to 
differ depending on the country; however, some additional national guidance targeted to the 
smallest businesses would be generally welcomed. 

Similarly to the Member States, it can be confidently concluded that the launch of the MOSS 
has been successful also from the business perspective and that the MOSS functions well as a 
reporting tool, mitigating the administrative burden for businesses supplying B2C electronic 
services. 

Regarding  business  experiences  with  the  MOSS  registrations,  the  experiences  were  very 
positive. The issues identified relating to the MOSS registrations were: 

  Some  businesses  were  uncertain  whether  supplies  fall  into  the  scope  of  the  new 
place  of  supply  rules,  which  was  mostly  a  problem  for  smaller  and  micro 
companies. 

  The  lack  of  the  possibility  to  register  retroactively  is  considered  to  cause  a 

disproportionate burden. 

  The fact that non-EU suppliers cannot use the MOSS if they already have a local 

registration could cause problems with compliance. 

2.2.  Assessment of the 2015 place of supply rules; 

Since 1 January 2015, all cross-border B2C supplies of electronic services, previously taxed 
in the Member State of the establishment of the supplier (for EU suppliers) are now subject to 
VAT  in  the  Member  State  of  the  residence  of  the  customer.  In  assessing  the  change  in  the 
rules it is necessary to look at the impact on Member States revenues and on business. There 
are  some  cross-overs  with  the  assessment  of  the  MOSS  system  given  that  this  was  the 
simplification measure introduced to reduce the burden on business.  

The implementation of the 2015 place of supply changes created costs for both tax authorities 
and businesses. The ongoing application of the new rules impacts the revenue of the Member 
States, influenced by the uptake of the MOSS and the revenue declared through the MOSS. 
The  businesses  that  chose  to  register  for  the  MOSS  or  to  apply  alternative  compliance 

101 This particular comment reflects the fact that not all Member States have agreed with the auditing guidelines 

whereby Member States endeavour to minimise the burden on business y coordinating audits. 

72 

 
 
                                                 
measures  (such  as  registering  directly  or  trading  through  platforms)  suffer  different 
administrative burdens, depending on their choice as well as their size and business model. 

2.2.1.  Assessment of the impact on Member States 

VAT  revenues  from  electronic  services  for  the  EU  28  as  a  total  will  have  increased  arising 
from the introduction of changes. The reason for this is the differential in VAT rates between 
origin and destination which can be up to 24%. The vast majority of Member States will have 
benefitted  monetarily  from  the  changes.  The  biggest  impact  has  been  on  Luxembourg  who 
had a concentration of electronic service suppliers. The revenue losses for Luxembourg have 
been  mitigated  by  revenue  sharing  whereby  as  an  interim  measure  the  Member  State  of 
identification  can  retain  30%  of  the  revenues  in  years  2015  and  2016,  and  15%  of  the 
revenues  in  2017  and  2018.  A  detailed  quantitative  analysis  is  included  in  Table  1,  Section 
2.4.    

2.2.2.  Assessment of the impact on business 

The assessment showed that the impact of 2015 place of supply rules on businesses depends 
on  the  size  and  business  model  of  the  business  and  the  nature  of  its  supplies.  The  general 
conclusion is that SMEs, especially microbusinesses, are impacted by the new place of supply 
rules more significantly than larger companies, and are struggling with the application of the 
new  rules.  Therefore,  further  consideration  on  ways  to  simplify  the  application  of  rules  by 
these  businesses  would  be  useful,  such  as,  for  example,  requiring  a  lower  standard  on 
collection of evidence or including a threshold. 

The changes in the place of supply rules were widely endorsed as the principle of taxation in 
the  country  of  consumption  is  considered  as  fair  and  providing  a  level  playing  field  for 
businesses. However, the fact that businesses are confronted with potentially 28 different sets 
of  national  rules  was  ranked  by  businesses  as  their  main  issue,  impacting  the  smallest 
businesses most.  

The other key findings from the assessment of the application of the new place of supply rules 
were as follows: 

  Regarding  identifying  the  customer  status  (B2B  or  B2C),  the  business  systems  rely 
mostly on assumptions (e.g. checking the VAT registration number or assuming B2C due 
to the nature of the supply) and correcting the transaction post sales, when challenged by 
a business customer. 
In terms of locating the customers, the proxies included in the Implementing Regulation 
were  seen  as  very  helpful  for  businesses  and  are  widely  applied.  The  majority  of  the 
businesses  interviewed  however  rely  on  two  pieces  of  information102  to  locate  their 
customers and apply a (self-created) hierarchy of evidence in case of mismatches.  

 

  The presumption that the tax obligation lies with the intermediary (unless rebutted) when 
trading  through  a  platform  or  marketplace  (Article  9a  of  the  Implementing  Regulation) 
was  considered  as  considerably  simplifying  the  administrative  burden  for  smaller 
companies, although further guidance would be welcomed. Intermediaries (app stores and 

102 The evidence required can be the 1) the billing address of the customer, 2) the IP address of the device used 
by the customer or any other method of geolocation 3) bank details of the customer, 4) the mobile country 
code stored on the SIM card of the customer, 5) the location of the customer's fixed land line, and 6) other 
commercially relevant information (article 24f of Council Implementing Regulation 282/2011 of 15 March 
2011). 

73 

 
                                                 
marketplaces)  have  mixed  reactions  to  the  presumption,  depending  on  their  business 
model.  
Although  for  most  companies  the  qualification  of  their  services  as  an  electronically 
supplied  service  was  fairly  straightforward,  some  businesses  are  struggling  with  it, 
especially  regarding  services  which  may  be  either  taxed  under  new  rules  or  exempt  (e-
learning, gaming) and where national rules tend to differ. 

2.3.  Assessment of the Mini One Stop Shop 

The MOSS was introduced as a means to mitigate the administrative burden of the 2015 place 
of  supply  changes  by  allowing  the  supplier  to  report  its  cross  border  B2C  supplies  of 
electronic services through an electronic portal in the Member State where it is established (or 
in case of a non-EU supplier in a Member State of its choice).  

2.3.1.  Take up of the MOSS 

The  number  of  businesses  registered  to  the  MOSS  was  provided  by  Member  States  and 
increased over the year, reaching about 12 900 in the EU scheme and slightly below 1 100 in 
the non-EU scheme by the middle of 2016.  

The  total  number  of  EU  businesses  supplying  cross-border  B2C  electronic  services  is 
estimated  to  be  about  83  000.  This  does  not  mean  that  70 000  (83  000  less  the  13 000 
registered  to  the  MOSS)  EU  businesses  supplying  cross-border  B2C  electronic  services  are 
still  doing  so  outside  of  the  MOSS  system.  In  fact,  a  significant  part  of  those  businesses 
(especially  smaller  ones)  are  not  using  the  MOSS  but  are  trading  through  a  platform  or 
marketplace which is registered for the MOSS (Article 9a of the Implementing Regulation). 
As  such,  they  are  not  directly  eligible  for  the  MOSS  but  instead  the  intermediary  assumes 
most of the fiscal obligations. Other businesses are directly registered in the Member States of 
consumption, for example because they also sell goods. 

It may also be the case that some businesses are not compliant in that they continue to charge 
domestic VAT for intra-EU transactions. However, the study did not find any cases of large 
scale abuse of the new place of supply rules. 

Based on data collected and stakeholders interviewed the study estimated that about 15% of 
businesses  supplying  cross-border  B2C  electronic  services  are  registered  for  the  MOSS. 
According to expert assessment, about 70% of the volume of electronic services is however 
processed via the MOSS.  

2.3.2.  Changes in VAT compliance costs for businesses 

In evaluating the MOSS, it is useful to also analyse what the costs for business would have 
been  without  the  simplification  measure,  as  the  first  objective  of  the  2015  was  to  apply  the 
destination principle. The MOSS was intended to address the burden that business would face 
arising from this policy change. 

Businesses not using the MOSS 

According to estimates, the overall costs that businesses face when engaging in cross-border 
B2C e-Commerce of electronic services under the 2015 place of supply rules (but not using 

74 

 
 
 
 
the MOSS) amount to about EUR 1.4 billion or about EUR 41 500103 annually per business 
per year, or about (on average) EUR 5 200 per business per each Member State they sell to 
cross-border. This is less than the overall average cost for businesses engaged in cross border 
e-Commerce  (around  EUR 8 000)  as  there  are  relatively  more  SMEs  in  the  segment  of 
businesses supplying electronic services104. To be observed that this is not a new burden but a 
cost  which  is  linked  to  already  existing  obligations  of  companies  which,  for  one  reason  or 
another, are already VAT registered in the Members States of consumption. 

VAT registration is perceived as particularly burdensome by businesses, as they have to deal 
with differences in the national procedures and time necessary for registration across Member 
States. It is quite common for businesses in such situations to outsource these tasks and to use 
external advisors, especially for large enterprises.  

Submitting  the  VAT  return  represents  by  far  the  most  burdensome  and  expensive  regular 
administrative  cost,  as  it  represents  more  than  95%  of  the  total  compliance  costs  for 
businesses applying the 2015 place of supply rules, but not using the MOSS. Companies often 
choose to outsource at least part of the related activities, as a way to cope with the different 
requirements and frequencies across Member States.  

Businesses using the MOSS 

According to estimates, the overall costs that businesses face when engaging in cross-border 
B2C e-Commerce of electronic services using the MOSS amount to about EUR 23 million, or 
about  EUR 2 200  per  business  per  year,  or  about  (on  average)  EUR  434  for  each  Member 
State to which a business has cross-border sales105. As anticipated, this represents an increase 
in the administrative burden, due to the change in the place of supply rules, counter-balanced 
by the MOSS. The overall  cost for businesses using the MOSS is  about 95%  lower than of 
those not using the MOSS, resulting in a total saving for businesses using it of about EUR 500 
million.  Similar  cost  savings  can  be  expected  from  the  extension  of  the  MOSS  to  intra-EU 
B2C supplies of goods proposed in the Commission's Digital Single Market Strategy of May 
2015, for businesses making such supplies of goods for which at present they are registered in 
the various Member States of destination.  

In  addition, submitting VAT returns and paying VAT via the MOSS presents economies of 
scale for businesses, deriving from the fact that they have to file only one VAT return (and 
carry  out  one  payment)  for  each  reporting  period,  irrespective  of  the  number  of  Member 
States they have supplied cross-border electronic services to. The marginal cost for submitting 
the  VAT  return  and  paying  the  VAT  thus  decreases  for  each  additional  Member  State 
electronic services are supplied to. Such economies of scale translate into a reduction of the 
costs  per  company  per  Member  State  from  92%  when  the  VAT  return  is  filed  for  three 
Member States, up to 95% when it is filed for 27 Member States.  

Submission of VAT returns through the MOSS represents by far the most burdensome task, 
accounting  for  approximately  98%  of  the  total administrative  costs  related  to  the  use  of  the 
MOSS. The submission of VAT returns via the MOSS is carried out by businesses either in-
house or with the support of external advisors. 

103 An average of eight VAT registrations was used.  
104 Part 1 of the study determined that cross-border VAT compliance costs are lower for SMEs. However, these 

costs relative to the companies’ revenues are proportionately higher.  

105 An average of five Member States was used.  

75 

 
                                                 
Overall, businesses do not consider the MOSS return/declaration as a complex or particularly 
burdensome  task.  However,  some  of  the  businesses  interviewed  would  appreciate  an 
improvement  in  the  MOSS  functionality  such  as  allowing  a  direct  dialogue  between  the 
business accounting system and the MOSS as a means to input data directly. 

2.3.3.  Assessment of the MOSS – Member States’ perspective 

The  assessment  is  largely  positive  with  in  excess  of  14  000  registrations  in  mid-2016.  This 
does  not  fully  reflect  the  reality  of  the  uptake  of  the  MOSS  as  many  businesses  supplying 
cross-border e-services are complying through intermediaries (platforms).   

The  main  problems  identified  in  relation  to  the  MOSS  are  in  fact  linked  to  its  design  and 
scope  or  the  limitations  of  it,  such  as  the  application  to  electronic  services  only,  without  a 
threshold and the exclusion of the input VAT deductions, or the revenue sharing mechanism 
which received very mixed reaction from the Member States. The assessment identified a list 
of mostly operational issues which may be addressed in the medium term, such as the MOSS 
return  correction  procedure,  a  review  of  the  currency  exchange  principles,  a  de  minimis  for 
transfers  of  funds  between  Member  States  or  other  simplifications  on  payments  and 
reimbursement processes. 

The  net  revenue  impact  (loss  or  gain)  from  the  new  set  of  rules  depends  on  whether  each 
Member  State  has  more  cross-border  consumption  or  sales.  Nearly  all  Member  States 
expected  the  net  revenue  impact  of  the  new  rules  to  be  positive  (with  a  few  exceptions). 
Indeed, based on the initial MOSS data (Q1 and Q2 2015), most Member States have a net 
gain and only a limited number of Member States experiences a net loss.  

The  total  VAT  revenue  declared  via  MOSS  in  2015  exceeds  EUR  3  billion  (EU  scheme 
around  EUR  2 754  million  and  non-EU  scheme  around  EUR  292-350  million).  Comparing 
revenue from the non-EU scheme to the revenues reported through the VoES in 2014 of about 
EUR 140 million, the estimates from Q1 2015 indicate at least a tripling of revenues.  

Based  on  the  information  received,  in  all  countries  analysed,  a  small  number  of  large 
businesses account for the large majority of the revenues collected under the Union MOSS. 
Data collected from Member States show that more than 99% of the VAT revenue processed 
via the MOSS is declared by about 13% of the businesses registered (with small differences 
across Member States).  

2.3.4.  Assessment of the MOSS - Businesses’ perspective 

The analysis of the introduction of MOSS from a business perspective indicates overall that it 
is successful and meets the overall objectives to making it easier and less costly for business 
to comply. This analysis is confirmed by the evaluation of the related administrative burden. 
However,  for  small-  and  microbusinesses  even  this  lower  administrative  burden  seems 
difficult to overcome.  

Regarding  the  system  itself  the  MOSS  is  generally  considered  easy  to  use  and  it  is  seen  as 
very convenient to be able to file only one single VAT return and make one single payment. 
The system is, however, not without its flaws and there are operational elements which could 
be simplified, such as the treatment of credit notes and currency conversions, the possibility 
of providing notifications and balance statements by the portal and the storage period for the 

76 

 
 
 
MOSS  documentation.  The  Commission’s  forthcoming  proposal  to  extend  the  system  to 
cross-border supplies of goods should address these issues.  

2.4.  Overview of the key results from the analysis 

The  table  below  provides  an  overview  of  the  main  results  of  the  analysis,  based  on  data 
available mid- 2016.  

Table 1 – Overview of main results from the quantitative analysis 

Main results from the analysis 

Total  number  of  EU  businesses 
supplying 
B2C 
electronic services 

cross-border 

About 83 000 

Businesses 
MOSS106 

registered 

to 

the 

Union scheme 

Non-Union scheme 

12899 registrations 

1079 registrations 

EU  businesses  outside  of 
MOSS 
supplying 
services 

the 
electronic 

About 34 000 

EU  businesses  not  eligible  for  the 
MOSS/non-compliant107  

About 38 000  

Administrative  burden  in  2015  for 
EU businesses supplying electronic 
services 

Overall: 
1.437 billion 

EUR 

In MOSS 

Outside MOSS 

-  Overall:  EUR 

23 

-  Overall: 

EUR 

million 

1.414 billion 

- 

- 

Per  business:  EUR  2 
172 

Per 
per 
business 
Member  State:  EUR 
434 

- 

- 

Per business: EUR 
41 623  

Per  business  per 
Member 
State: 
EUR  

- 

5 203 

First  Member 
Identification108 

States 

of 

In terms of No. of registrations 

In terms of revenues (2015) 

Union scheme: 

Union scheme: 

-  Germany (2943); 

-  Luxembourg (55% of revenue) 

-  UK (2578) 

- 

Ireland (15% of revenue) 

Germany and the UK hold 43% of 

The total VAT revenue reported for 
to  EUR  2  692 
2015  amounts 

106 Situation as of May 2016. 
107 The study did not find any evidence of widespread non-compliance 
108 Situation as at the beginning of October 2015. 

77 

 
 
 
 
 
 
 
                                                 
Main results from the analysis 

all registrations. 

million.    The  estimate  for  2016  is 
EUR 2 735 million. 

Non-Union scheme:  

Non-Union scheme: 

-  UK (616) 

-  United  Kingdom 

(50%  of 

- 

Ireland (166) 

The  UK  and  Ireland  hold  76%  of 
all registrations 

revenue) 

- 

Ireland (34% of revenue) 

The total VAT revenue reported for 
2015 amounts to EUR 306 million. 
The  estimate  for  2016  is  EUR  508 
million. 

VoES109 registrations: 

VoES revenues: 

First  Member 
Consumption 

-  UK (54% of registrations) 

-  The  Netherlands 
registrations) 

(21%  of 

- 

- 

- 

2012: EUR 103.5 million 

2013: EUR 118.1 million 

2014: EUR 137.9 million 

States 

of 

Union scheme 

Non-Union scheme 

-  UK 

-  Germany 

- 

- 

- 

France 

Italy 

Sweden 

-  UK 

-  Germany 

- 

- 

- 

France 

Italy 

Spain 

Most Member States underestimated their net gain. 

VAT  revenue  from  VAT  returns 
with 
turnover 
declared 
below/above EUR 10 000 

a 

Total VAT revenue (below):  

Total VAT revenue (above):  

EUR 1,1 million (0,1%) 

EUR 2,99 billion (99,9%) 

109 The VAT on Electronic Services system or “VoES” was a system similar to the non-Union MOSS and was 

introduced on 1 July 2003. 

78 

 
 
 
 
 
 
 
 
                                                 
2.5.  Administrative cooperation, audit and audit guidelines 

Despite  the  implementation  of  the  MOSS,  businesses  still  need  to  apply  up  to  28  sets  of 
national rules and may receive direct information requests from other Member States. Since 
VAT audit rules are not harmonised in the EU, this could be particularly burdensome for the 
businesses.  However,  the  MOSS  audit  guidelines  are  aiming  to  reduce  this  burden,  for 
example  by  encouraging  close  cooperation  of  Member  States  on  audit.  Effective 
administrative coordination is crucial also from the tax authorities’ perspective.  

Member States’ perspective 

The main outcome from the assessment is that it is still too early to draw conclusions on the 
effectiveness  of  the  administrative  cooperation  and  the  MOSS  audit,  as  the  experiences  are 
very limited. Member States seem to  expect  difficulties in administrative cooperation in the 
near future. It may be therefore useful to continue monitoring their experiences and arrange 
discussions  to  pre-empt  the  difficulties  and  find  solutions  to  the  identified  potential  issues. 
Therefore, this area needs to be further assessed in 2016. 

It is positive to note that a large majority of Member States have endorsed the MOSS audit 
guidelines  and  are  getting  ready  for  further  cooperation  on  audit  and  other  information 
exchange. The future direction towards a single audit mechanism is generally seen as a right 
way forward, although the Member States expect it to take a long time and significant effort. 
Meanwhile, full application of audit guidelines and effective cooperation on audits would be 
desirable. 

Businesses’ perspective 

Businesses  have  so  far  no  experience  with  the  MOSS  audits,  although  a  few  have  received 
information  requests  from  Member  States  of  Consumption.  Despite  the  lack  of  direct 
experience, the businesses have a negative perception of a potential audit by multiple Member 
States. Their main concerns are linked to a lack of awareness of the process, an expected high 
administrative burden, but also language issues. Businesses have therefore a strong preference 
for audits conducted by the Member State of Identification.  

2.6.  Assessment of the overall impact of the 2015 place of supply changes and MOSS 

on SMEs 

From a quantitative point of view, for 2015, about 6 500 companies with an annual turnover 
of less than EUR 10 000 were registered for the MOSS. In total, the MOSS revenue generated 
by these companies amounted to EUR 1.1 million, which is less than 0.5 per cent of the total 
VAT revenue reported through MOSS in 2015.110  

In general, the analysis has confirmed that SMEs and microbusinesses have been significantly 
more  impacted  by  the  2015  POS  rules  than  larger  companies.  The  administrative  burden 
resulting from the 2015 POS rules, as described in this report, is often higher for small and 
micro  companies  as  they  have  less  resources  at  their  disposal.  A  number  of  medium  and 
large-sized businesses had already decided to register for VAT purposes in several Member 
States for other reasons, and were thus more prepared to cope with the legislative changes.  

110 See table 12 - MOSS revenue distribution under and above EUR 5 000 in 2015. 

79 

 
                                                 
On  the  contrary,  the  sole  implementation  of  the  destination  principle  would  have  brought  a 
major  burden  on  micro  and  small  businesses  (EUR  5 000  annually  per  Member  State  they 
trade),  which  would  have  forced  many  of  them  to  stop  trading  cross-border  or  to  be  non-
compliant,  as  their  turnover  from  such  transactions  does  not  cover  such  costs.  The 
introduction of a simplification measure like the MOSS was necessary to support the change 
in the legislative framework, and was considered very positively by businesses, even if some 
concerns on some of the current features were expressed.  

Despite  the  simplification  provided  by  the  MOSS  (and  the  related  reduction  of  the 
administrative  burden),  microbusinesses  and  small  businesses  still  face  challenges  in 
implementing the 2015 place of supply rules. 

In particular, SMEs and microbusinesses often do not have the necessary resources (including 
personnel,  budget  and  knowledge)  to  identify  the  customer’s  location  and  to  deal  with 
divergent  foreign  VAT  law  in  all  EU  Member  States.  This  could  result  in  a  competitive 
disadvantage and reduced market access for SMEs.111 Additionally, in case of an audit, SMEs 
would possibly have to deal with multiple foreign tax authorities, which seems an even more 
disproportionate burden on SMEs. 

It should be noted, however, that article 9a of the VAT Implementing Regulation can greatly 
reduce  compliance  costs  for  SMEs  who  make  supplies  through  intermediaries  as  the 
obligation is on the intermediary to account for the tax. The absence of a threshold could also 
work to the advantage of intermediaries as the compliance costs may act as a barrier to a small 
business selling products to the customer directly or taking a multi retail channel approach. At 
the  same  time,  operating  via  an  intermediary  could  result  in  a  lower  profit  margin  as  the 
supplier  is  obliged  to  pay  a  commission.  The  upside  is,  of  course,  that  these  intermediaries 
can assist business in accessing markets.  

2.7.  Overall assessment of whether the policy objectives were met 

Given  the  rules  have  been  in  place  since  January  2015,  it  is  too  early  to  assess  if  the 
legislation  has  fully  met  its  objectives.    Therefore,  the  analysis  below  provides  first 
indications of whether the legislation has been successful and is on track to meet its long-term 
objectives. 

Policy intervention 

Broad Policy objectives 

Assessment  of  whether  the  policy 
objectives were met 

Place  of  Supply  rule 
changes 

Ensuring  that  tax  revenues  from 
supplies  of  electronic  services 
accrue  to  the  Member  State  of 
consumption 
the 
based 
destination principle. 

on 

Overall,  this  objective  has  been  met 
as  supplies  of  electronic  services 
which  were  previously  taxed  in  the 
Member State where the supplier was 
based  are  now  be 
the  
Member  State  of  the  consumer  and 
tax  revenues  will 
therefore  such 
accrue to that Member State. 

taxed 

in 

Neutrality  for business  –  supplies 

Under the 2015 changes, all supplies 
irrespective of origin are taxed at the 

111 For more detail, see “2.3.5. Other difficulties encountered by businesses” under “Reduced market access for 

SMEs”. 

80 

 
 
 
 
 
                                                 
Introduction 
MOSS 

of 

the 

in a Member State would be taxed 
at the same VAT rate irrespective 
of the origin of the supply. 

same  VAT  rate  in  a  given  Member 
States. The early evidence shows that 
this  have  assisted  with  providing  a 
level playing field. 

burden 

Simplifying 
on 
the 
businesses  which  are  required  to 
account for VAT in other Member 
States as a result of the changes to 
the Place of supply rules. 

Overall the results were positive. The 
reduced  costs  by  95% 
MOSS 
compared  to  the  alternative  of  direct 
registration, with total savings in year 
1 of approximately EUR 500 million. 

Difficulties faced by SMEs due to the 
lack  of  a  cross-order  threshold  and 
the  need  for  identifying  customers. 
Important  to  note  that  the  former 
could  have  had  implications  for  the 
neutrality  objective  as  different  rates 
would  be  charged  dependent  on 
origin. 

Further  possible  simplifications  have 
been identified in the areas of audits, 
currency  conversions  and  corrections 
to past return. 

A further analysis below links the needs of the policy intervention to the results.  

Needs 

Results 

Implementation of the Destination System 

Simplification of cross-border VAT obligations 

Increase compliance on cross-border B2C trade 

Remove distortion of competition 

lack  of  a  cross-border 

The  2015  changes  were  an  important  step  in 
applying the destination system of VAT. However, 
the 
threshold  caused 
difficulties  for  micro-businesses,  particularly  those 
who  are  below  the  domestic  VAT  exemption 
thresholds.  

The  move  to  destination  system  for  intra-EU 
supplies  of  electronic  services  whereby  supplies  of 
such services are now taxed where the consumer is 
located  rather  than  where  the  business  is  based 
increases complexity for such businesses. However, 
the  introduction  of  the  Mini  One  Stop  Shop  has 
mitigated to a great degree the increase in costs for 
business  with  an  estimated  cost  saving  for  a 
business  of  EUR  40  000  annually  compared  to  the 
alternative  of  direct  registration  in  each  Member 
State supplied to. 

It is too early to determine compliance arising from 
the introduction of the new rules. The study did not 
identify any widespread non-compliance. However, 
there  has  been  a  marked  increase  in  VAT  paid  by 
non-EU  business  through  the  scheme  compared  to 
the VOES scheme. 

As  a  result  of  the  changes,  supplies  of  electronic 
services  will  attract  the  same  rate  of  VAT  in  a 
Member State regardless of where the suppliers are 

81 

 
 
 
 
Promote the digital economy 

based. Therefore, this is expected to have a positive 
impact  on  a  level-playing  field.    It  is  too  early  to 
determine the size of this effect. 

The removal of distortions means that many SMEs 
can  now  compete  on  equal 
the 
businesses who were previously able to avail of the 
VAT rate differentials of the origin system for such 
supplies.  It  is  too  early  to  assess  to  what  extent  it 
has  impacts  on  the  promotion  of  the  digital 
economy.  

terms  with 

However,  the  lack  of  an  intra-EU  threshold  has 
acted  as  a  barrier  to  micro-businesses  who  have 
seen the new rules as a barrier to growth and cross-
border trade.  

3.  RECOMMENDATIONS FOR IMPROVEMENT 

This section presents the recommendations by the external consultant for improvements in the 
current  application  of  the  2015  place  of  supply  changes,  based  on  the  conclusions  from  the 
assessment. 

The recommendations are grouped into immediate improvements (i.e. recommendations that 
can be implemented easily in a short period of time within the existing legislative framework) 
and recommendations for future improvements (i.e. recommendations that need longer time, 
legislative changes and/or more effort to be implemented).  

Whenever  relevant,  a  distinction  is  made  between  recommendations  at  EU  level  (i.e. 
recommendations  to  be  implemented  at  central  level  by  the  Commission  and  European 
institutions)  and  at  Member  States  level  (i.e.  recommendations  to  be  implemented  by  the 
Member States).  

3.1.1.  Recommendations for immediate improvement 

Based  on  the  key  findings  and  conclusions  on  the  2015  place  of  supply  rules,  the 
recommendations for immediate improvement are the following:  

Recommendations at EU level 

Recommendations at Member State level 

in  relation 

Provide  more  clarity  in  the  Explanatory  notes 
regarding  the  scope  of  the  new  rules  in  order  to 
encourage  further  alignment  in  national  practices, 
specifically 
the  services  where 
mismatches  are  most  likely,  such  as  electronically 
supplied services, gaming, educational services and 
financial  services.  Further  elements  on  considering 
the  notion  of  minimal  human  intervention  would 
also be welcomed. 

to 

Discuss the national implementation of the rules for 
intermediaries  (Article  9a  of  the  Implementing 
Regulation) to reduce the mismatches and clarify or 
expand  the  explanatory  notes  if  necessary,  to 

Improve  guidance  for  and  communication  with 
them 
small  and  micro-businesses 
regarding  the  understanding  of  the  scope  of  the 
2015 place of supply rules and the use of evidence 
that will be needed to determine the location of the 
customer. 

to  support 

Provide  clearer  guidance  on 
for 
intermediaries  (e.g.  requirements  for  rebuttal)  and 
trading  through  intermediaries  (e.g.  calculation  of 
the taxable turnover). 

rules 

the 

82 

 
 
 
provide further alignment in national rules and more 
clarity and certainty for businesses.   

Explore options for addressing the consequences of 
mismatches  in  national  place  of  supply  rules,  such 
as more effective use of cross-border rulings. 

Continue developing the Commission’s MOSS web 
portal to improve business access to and awareness 
of 
the 
identified  mismatches  in  scoping  or  other  country 
specific implementations. 

the  relevant  national  rules, 

including 

Prepare a simpler version of tailored guidance (e.g. 
explanatory notes) for small and micro businesses. 

3.1.2.  Recommendations for future expansion 

In relation to the aim for further expansion of the rules to supplies of goods and other services 
and  related  EU  and  national  legislative  and  administrative  changes,  the  recommendations 
based on the lessons learned are the following:  

Recommendations at EU level 

Recommendations at Member State level 

Include  specific  simplification  measures  for  small 
and  micro  businesses  or  businesses  with  limited 
cross-border  trade,  e.g.  a  threshold  or  use  of  one 
piece of evidence. 

Remove  the  right  to  require  an  invoice  on  cross 
border B2C supplies. 

the 

inclusive  approach  on 

Continue  with 
the 
preparation  of  the  future  changes  and  related 
guidance,  aiming  for  a  high  level  of  alignment  in 
the national implementation of the changes. 

Although politically difficult, a strong request from 
businesses  is  that  VAT  rules  concerning  rates  (one 
single  VAT  rate)112,  invoicing,  sanctions  and  audit 
be (more) harmonised. 

Involve  businesses  in  the  implementation  process 
from  early  on  for  better  awareness  and  preventive 
management  of 
the 
the  potential 
administrative  burden  on  businesses,  especially  on 
the small and micro-businesses. 

impact  on 

In 
the  communication  strategy  on  upcoming 
changes, consider using a tailored approach for the 
small and micro businesses. 

Prepare  comprehensive  national  guidance  on 
legislative and administrative changes, preferably in 
cooperation with businesses, and publish it as early 
as possible. 

3.2.  Recommendations on the MOSS system 

3.2.1.  Recommendations for immediate improvement 

Based  on  the  key  findings  and  conclusions  on  the  implementation  of  the  MOSS,  the 
recommendations for immediate improvement are the following: 

112 The Commission position on VAT rates is outlined in the April 2016 VAT Action Plan, which is currently 

under discussion at Council.  

83 

 
 
 
 
 
                                                 
Recommendations at EU level 

Recommendations at Member State level 

All the EU level recommendations require a change 
of  the  law  and  have  therefore  been  included  in  the 
below section on future expansion. 

Consider  being  lenient  on  spontaneous  disclosures 
as the current system sets a very high entry bar for 
businesses wishing to comply. 

Send warnings or notifications for businesses when 
the deadline for filing the MOSS return approaches. 
Make  a  balance  statement  available  to  businesses 
reporting through MOSS. 

Provide  more  technical  assistance  on  compliance 
especially for the smallest businesses. 

Provide  a  national 
businesses reporting through MOSS. 

testing  environment 

for 

More flexibility on uploading formats for reporting 
through MOSS. 

The  portals  could  be  fed  with  prepopulated 
information  such  as  VAT  rates  (these  could 
possibly come from TIC). The information relating 
to  MSCs  should  also  be  published  as  soon  as 
possible. 

Remove the invoicing requirements on the supplies 
covered  by  the  new  rules  to  reduce  administrative 
burden on businesses. 

3.2.2.  Recommendations for future expansion 

In relation to the aim for further expansion of the rules to supplies of goods and other services 
and related EU and national legislative and administrative changes, as well as the extension of 
MOSS  to  these  supplies,  the  recommendations  based  on  the  lessons  learned  are  mentioned 
below.  

Recommendations at EU level 

Recommendations at Member State level 

Consider  the  extension  of  the  deadline  to  file  the 
MOSS return. 

Enable correcting VAT in the current return instead 
of having to correct the original return, especially in 
case of the credit notes. 

Involve  businesses  in  the  implementation  process 
from  early  on  for  better  awareness  and  preventive 
management  of 
the 
the  potential 
administrative  burden  on  businesses,  especially  on 
the  small  and  micro-businesses.  A  use  of  the  early 
testing environment is recommended. 

impact  on 

Reduce  the  requirement  to  store  transactional  data 
for 10 years. 

Remove  the  block  for  non-EU  suppliers  to  register 
for MOSS when they are already VAT registered in 
one of the EU Member States. 

Harmonise the national MOSS portals (or set up an 
EU  portal),  in  order  to  avoid  the  problems  of 
interoperability of the systems. 

Introduce  more  flexible  currency  exchange  rules, 

In  communication  strategy  on  upcoming  changes, 
consider  using  tailored  approach  for  the  small  and 
micro businesses. 

Prepare  comprehensive  national  guidance  on 
administrative  changes,  preferably  in  cooperation 
with businesses, and publish it as early as possible. 

Regular  communication  efforts  are  advised  since 
there  will  likely  remain  uncertainty  about  the 
applicable regime. 

84 

 
 
 
such as allowing businesses to apply the same rates 
they use for their regular business activities. 

Consider  possibilities  to  combine  the  local  VAT 
return with the MOSS return. 

Revisit  the  revenue  sharing  mechanism  and  its 
appropriateness for the effectivity of the MOSS. 

Enable  the  offset  of  a  MOSS  payment  against  an 
input VAT refund on the national VAT return. 

Continue with the inclusive approach, involving all 
relevant  stakeholders  (all  Member  States  and 
businesses), on preparation of the future IT changes 
and  related  guidance,  aiming  for  high  level  of 
alignment  in  the  national  implementation  of  the 
changes. 

Regular  communication  efforts  are  advised  since 
there  will  likely  remain  uncertainty  about  the 
applicable regime. 

Member  States  should  have  sufficient  time  for 
implementation of IT changes. Any specs on further 
changes that would be made to the IT set up of the 
MOSS portal (or similar), should be communicated 
well in advance. 

3.3.  Recommendations on the administrative cooperation and audit 

Based on the assessment, the recommendations for improvements in the current application of 
the administrative cooperation and audit in relation to the 2015 place of supply changes are 
the following. 

3.3.1.  Recommendations for immediate improvement 

Recommendations at EU level 

Recommendations at Member State level 

Provide  comprehensive  guidance  to  businesses  on 
the  national  approach  to  MOSS  audits,  to  provide 
clarity and certainty and help businesses to comply. 

Continue monitoring the administrative cooperation 
between the Member States and arrange discussions 
to pre-empt the difficulties and find solutions to the 
identified potential issues, such as clarity in contact 
points and procedures. 

Continue  promoting  the  application  of  the  audit 
guidelines  and  arrange  discussions  between  the 
Member  States 
improve 
cooperation on MOSS audits.  

to  encourage  and 

Continue  and  widen  discussions  with  non-EU 
countries  on  administrative  cooperation  on  VAT 
matters. 

Create  an  EU  MOSS  audit  team  formed  by  the 
Member States, which may have a coordinating and 
advising function. 

85 

 
 
 
 
 
 
3.3.2.  Recommendations for future expansion 

In relation to the aim for further expansion, the recommendations based on the lessons learned 
are as follows.  

Recommendations at EU level 

Recommendations at Member State level 

Consider  possibilities  of  changing 
the  audit 
guidelines  into  a  legislation,  e.g.  in  the  form  of  an 
implementing regulation.  

Continue  developing  the  Single  Audit  Mechanism, 
to simplify the cross-border auditing and reduce the 
related compliance cost for businesses. 

Change  the  approach  to  audits  by  starting  to  audit 
processes rather than transactions. 

4.  CONCLUSION 

The new place of supply rules for intra-EU supplies of telecommunications, broadcasting and 
electronically supplied services are an important step in ensuring the destination principle of 
VAT  which  is  the  agreed  position  of  the  Commission  and  Member  States.  However,  it  is 
recognised  that  the  destination  principle  also  makes  life  more  difficult  and  costly  for 
businesses  who  are  required  to  account  for  the  VAT  due  to  the  Member  States  of  their 
consumers, and therefore simplification measures are needed.  

Overall,  the  findings  of  the  assessment  show  that  the  new  rules  have  been  implemented 
effectively. Given  that they have  been applicable only  since January  2015, it is too early to 
assess if the legislation has fully met its objectives; however the available evidence shows that 
the first results are positive and in line with the expectations.   

In  particular,  the  business  community  has  been  very  satisfied  with  the  introduction  of  the 
2015 changes,  Business has  recognised the efforts taken to communicate these  changes  and 
the issuance of comprehensive guidance material. Business has also recognised the benefits of 
bringing  together  business  and  Member  States  prior  to  the  introduction  of  the  changes  to 
ensure that these were workable.   

The introduction of the MOSS is seen by business and the majority of Member States as an 
essential system for the collection of taxes and making compliance as easy as possible. The 
timely  and  relatively  error-free  introduction  of  28  individual  but  intra-connected  IT  portals 
now used by approximately 14 000 businesses is a significant achievement.    

The MOSS has been very successful with EUR 3 billion paid through it in 2015, representing 
up to EUR 18 billion in trade and 70% of the total in this sector. This mechanism has saved 
business EUR 500 million or EUR 40 000 per business compared to the alternative of direct 
registration  (95%  reduction  compared  to  the  alternative  of  direct  registration),  and  thus 
contributed  to  reducing  unnecessary  burdens  on  business,  which  is  a  key  objective  of  the 
REFIT programme. 

It  should  also  be  recognised  that  such  a  system  whereby  Member  States  are  collecting 
substantial tax revenues on behalf of each other is not only a key milestone for the EU VAT 
system but also for the single market.  

86 

 
 
There are, however, lessons to be learned from the 2015 changes notably regarding the lack of 
a cross-border threshold as well as the rules for the identification of the location of customers 
has caused difficulties for micro-businesses and start-up. These issues can be addressed in this 
new  initiative  without  causing  distortions  in  the  single  market.  Another  key  consideration, 
driven  by  the  spirit  of  the  DSM  strategy,  is  that  doing  business  cross-border  should  be  as 
similar as possible as doing business within your own Member State.   

In bringing forward a new proposal in 2016 to extend the Mini One Stop shop to cross-border 
supplies  of  tangible  goods,  the  Commission  and  Member  States  should  consider  both  the 
positives  and  the  learning  points  from  the  2015  changes.  The  need  to  have  clear  rules  and 
robust  IT  specifications  together  with  ongoing  support  from  the  Commission  services  is 
essential. It is also critical that any changes are communicated to those businesses who will be 
affected, whether in the EU or in third countries. In this respect, particular attention needs to 
be  focused  on  SMEs  with  both  the  Commission  and  Member  States  reaching  out  to  such 
businesses.  In  addition,  it  is  essential  that  Member  States  introduce  a  cross-border  e-
commerce  compliance  strategy  to  ensure  that  any  abuses  are  identified  and  addressed,  and 
therefore businesses will face a level playing field.  

87 

 
ANNEX 4 – WHO IS AFFECTED BY THE INITIATIVE AND WHY? 

The table below sets out the practical implications of the preferred option on the key 
stakeholders including business, postal operators, member States and consumers. 

Stakeholder 
Member States 

Key obligations 
Additional modules will need to be 
developed for the exiting Single 
Electronic Mechanism. 

Timescale/Costs 
These will be developed over the 3 
year period with an implementation 
date of 2021. 

Commission services 

Postal operators/Express couriers 

Enterprises 

Tax and customs administrations 
will need to put in place a 
compliance regime to ensure VAT 
is paid on small consignments.  

DG TAXUD will support Member 
States in developing the additional 
modules for the SEM in addition to 
the preparation of guidance 
material and the development of a 
communication strategy. 

Postal operators and express 
couriers will need to adapt their 
systems to ensure that 
consignments are either VAT pre-
declared or tax is paid at the 
border. 

The compliance programme should 
be risk based. In terms of customs, 
it will require liaison between the 
importers and the customs 
authorities to ensure compliance 
and that adequate records are kept. 

Given the SEM is an evolution of 
an existing system costs should not 
be very high. 

Commission will intensify work 
once the proposal is firmed up by 
Council and adopted.  

The envisaged implementation date 
of 2021 has been chosen to align 
with other developments for these 
operators as a result of the union 
customs code.  

Therefore, the preferred option 
should minimise any additional 
costs. 

Enterprises who are currently 
registered for VAT in other 
Member States may need to de-
register. 

There may be a small cost in de-
registering, but there will be 
immediate savings through using 
the SEM. 

Enterprises who engaged in cross-
border trade but were not registered 
in other Member States due to 
being below thresholds will need to 
adapt their systems to ensure the 
correct VAT rate is charged and 
register for the SEM. 

Registrations will open in mid-
2020. Member States and the 
Commission will assist business in 
implementation.  

88 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
Effect on consumers 

In terms of effects on consumers, the proposal may lead to a slight increase in prices, but this 
is as a result of the fact that VAT will be applied on certain goods which are currently exempt 
or through non-compliance. One notable benefit for consumers is that they will be able to pay 
VAT at the point of sale when purchasing goods to be imported. This compares to the current 
situation where postal operators or express carriers collect VAT from the consumer on 
importation together with an administrative fee before releasing the goods. Consumers will, 
in addition, benefit from greater choice as e-commerce grows.   

89 

 
 
 
 
 
 
 
Annex 5 -Methodology 

1.  OVERVIEW OF THE METHODOLOGY 

The  study  was  tailored  to  meeting  the  requirements  of  the  EC  guidelines  on  Impact 
Assessment  methodology113,  which  includes  the  analysis  of  both  the  business  and 
government perspective regarding VAT aspects of cross-border e-Commerce. Covering these 
aspects  requires  the  collection  of  both  quantitative  and  qualitative  information  and  the 
application of a range of  methodological tools.  This  part of the assignment builds upon the 
results of both Lot 1 and Lot 3, as well as on the analysis of a series of secondary data.  

Given the large relevance of the quantification of a large number of economic impacts for the 
analysis of the Policy Options, a micro-oriented approach is combined with a macro-oriented 
approach.  This  involves  using  the  Standard  Cost  Model  methodology  and  the  Computable 
General Equilibrium methodology. The key models adopted for the analysis required a series 
of  secondary  data  and  assumptions,  Data  collection  and  analysis  relied  on  a  number  of 
sources of evidence 

1.1.  Approach to analysing the impacts 

The large set of impacts to analyse required the use of different models for analysis, different 
sets of assumptions and of data gathering tools.  

Table  below provides an overview of the approach and tools used to assess each impact, of 
the key sets of assumptions and sources used. As mentioned earlier, each of them is explained 
in more detail afterwards.  

113 See: http://ec.europa.eu/smart-regulation/guidelines/tool_16_en.htm  

90 

 
 
 
 
 
                                                 
 
 
Table 1 – Approach to the analysis of impacts 

Impact 

Approach used  Tools 

for 

analysis 

SCM 

Quantitative 
analysis 

Qualitative 
analysis 

Impacts 
for 
Member  States’ 
revenues,  costs 
and  benefits  for 
Member  States 
to implement the 
Option 

Impacts 
administrative 
burden 
businesses 

on 

for 

Quantitative 
analysis 

SCM 

Impacts 
on 
competition  and 
growth  

Quantitative 
analysis 

CGE model 

91 

Key sources 

Lot 

Data from Lot 1 
3 
and 
(Member 
States’ 
interviews  and 
questionnaires) 

Stakeholder 
workshops 

Desk research 

Member  States’ 
interviews 

Data from Lot 1 
and 
3 
Lot 
(businesses 
interviews) 

Stakeholder 
workshops 

Business  online 
survey 

Consumer 
survey 

SCM  

Desk research 

Key 
assumptions 

Costs  similar  to 
the MOSS 

Different 
scenarios  for  e-
Commerce 
growth 

Compliance 
monitoring 
based  on  risk 
profiling 

Impacts  of  OSS 
similar  to  those 
of MOSS 

Number 
businesses 

of 

and 
of 

Number 
behaviour 
micro-
businesses 
engaged 
in 
cross-border  e-
Commerce 

Different 
scenarios  for  e-
Commerce 
growth 

Number 
businesses 

of 

Number 
behaviour 
micro-

and 
of 

 
 
Impacts 
compliance  

on 

Quantitative 
analysis 

Projections  

Qualitative 
analysis 

businesses 
engaged 
in 
cross-border  e-
Commerce 

Different 
scenarios  for  e-
Commerce 
growth 

Lot 

Data from Lot 1 
3 
and 
(Member 
States’ 
interviews  and 
questionnaires) 

Stakeholder 
workshops 

Desk research 

Mock purchases 

1.2.  Tools for the analysis 

This sub-section provides a very brief description of the two main models used to conduct the 
analysis. For each of them, we indicate where to find more detailed explanations.  

1.2.1.  Standard Cost Model 

The  Standard  Cost  Model  (SCM)  methodology  was  applied  to  estimate  the  administrative 
burden for enterprises in order to comply with legal requirements translated into Information 
Obligations (IOs).  

Our  objective  was  to  identify  and  quantify  the  costs  a  ‘typical’  business  engaged  in  cross-
border B2C e-Commerce transactions of goods and/or in TBE services has to face to comply 
with  the  current  VAT-related  requirements  (Status  Quo),  and  how  such  costs  are  likely  to 
change under the different Options considered.  

The key elements (including IOs, frequency of the obligations, average costs) derive from the 
analysis carried out under Lot 1 and Lot 3.  

The detailed description of on the SCM approach and the key parameters used are part of Lot 
1 and Lot 3 reports. A more detailed description of the key elements used for Lot 2 and the 
detailed figures elaborated are presented in Annex 4.  

92 

 
 
 
 
 
 
1.2.2.  Computable General Equilibrium (CGE) model 

In order to assess the magnitude of the effects on cross-border e-Commerce arising from the 
administrative burden, a Computable General Equilibrium (CGE) model has been developed. 
The CGE model is a dynamic single-region, multi-sector representation of the EU economy. 
Through  a  series  of  equations  it  describes  the  behaviour  of  key  agents  in  the  economy  – 
households, firms, the government and the foreign sector – and how their interactions shape 
the markets for factors of production, goods and services, and savings and investment. Within 
the  retail  sector,  the  model  distinguishes  between  online  and  offline  trade  and  between 
domestic, intra-EU and non-EU e-Commerce.  

For the purposes of this assignment (Lot 2) the CGE model was used in order to estimate the 
impact  of  the  administrative  burden  by  calculating  the  response  of  the  economy  to  the 
removal of this burden, drawing on the outputs of the Standard Cost Model and the consumer 
survey. These impacts are estimated under a number of different scenarios for the growth of 
e-Commerce (see section 2.2.3 and Annex 5 for more detail.)  

1.3.  Quantification of the impacts 

Along with the qualitative analysis, this report also aims to quantify the impact of the Policy 
Options on businesses, government revenues and the Single Market.  

The  assessment  of  the  impacts  of  the  options  rests  on  a  large  number  of  analysis  and 
assumptions, which are explained in detail in annex 4.  

Here we only provide the key elements for the analysis of the policy options, i.e.  

Number of businesses;  
Timeline adopted:  
Growth rates;  
VAT revenues and compliance.  

1.3.1.  Number of businesses 

The total value of cross-border e-Commerce is estimated to be EUR 96.8 billion (calculated 
from the consumer survey and MOSS receipts as part of Lot 1); the revenues of businesses of 
different  sizes  are  then  estimated  based  on  this  total  figure  and  the  revenue  contributions 
shown  in  the  table  above.  Based  on  these  figures  and  data  on  the  number  of  businesses 
engaged in cross-border trade collected as part of Lot 1, the average cross-border revenues of 
firms of different sizes can be estimated. 

Table 2 – Average cross-border e-Commerce revenues of firms, by size 

All 
businesses 

Micro 
businesses 

Small 
businesses 

Medium 
businesses 

Large 
businesses 

93 

 
 
 
 
Number of firms 

Share of e-Commerce 
revenues by firm size 
Cross-border e-
Commerce revenues 
(EUR billions) 
Average cross-border 
e-Commerce revenues 

557 908 

442 444 

81 716 

24 594 

9 154 

100% 

4.1% 

12.6% 

21.6% 

61.7% 

96.8 

4.0 

12.2 

20.9 

59.7 

173 505 

9 041 

149 298 

849 801 

6 521 739 

Source: Eurostat, Business Enterprise Statistics, Information Society Statistics, 2013 

1.3.2.  Timeline 

The analysis of the financial impacts (which includes the quantification of the administrative 
burden for businesses and of VAT revenues for Member States, as well as of the processing 
costs for postal operators and couriers) uses 2015 as baseline.   

This  assumption  implies  that  all  the  changes  introduced  by  each  Option  are  implemented 
immediately. The same assumption is also taken for the take-up rate (e.g. of the SEM). This 
assumption implies that operators (EU and non-EU businesses, postal operators and couriers, 
marketplaces,  etc.)  will  be  ready  to  implement  the  necessary  changes  and  thus  achieve  the 
maximum expected take-up immediately 

1.3.3.  Growth rates 

In order to ensure a consistent like-for-like comparison of the policy options, it is important 
to  assume  the  same  growth  rates  across  all  scenarios  including  the  status  quo.  The  policy 
options are then compared relative to this baseline.  

These  growth  rates  capture  exogenous  trends  in  the  e-Commerce  market,  including 
underlying trends in consumers’ propensity to buy online, the expansion of the cross-border 
online  market  due  to  the  DSM  strategy  and  the  growth  of  international  online  markets.  In 
keeping with the assumptions agreed for the Lot 1 analysis, three rates are considered: 6%, 
12% and 18%. The same rates of growth are used for EU and non-EU trade. For simplicity 
and  to  reduce  the  number  of  scenarios  presented  in  each  chapter  of  the  report,  only  the 
medium  growth  scenario  results  have  been  included  in  the  main  body  of  the  report;  the 
additional scenarios are included in section 5.  

1.3.4.  VAT revenues and compliance 

In Option1 and in all the other Options covered by the study, we estimated the volume and 
value of parcels imported to the EU from thirds countries due to B2C e-Commerce purchases 
of EU consumers for the following groups of parcels:  

94 

 
 
 
 
Small value consignments, i.e. parcels below the 10-22 EUR threshold; and  
Parcels  above  the  small  value  consignment  threshold  and  below  the Customs  threshold, 

i.e. parcels between 10-22 EUR and 150 EUR.  

The  estimates  are  based  on  the  data  provided  by  two  recent  studies  on  volume  and 
corresponding value of small value consignments (parcels below 10-22 EUR) in 2013114, and 
on the distribution of parcels by value115.  
The table below provides an overview of the volume and value of parcels below the Customs 
threshold estimated for the study under the medium growth scenario (CAGR of 12%).  

Table 3 – Volume and value of parcels below the Customs threshold  

Small value consignments 

144 067 840 

2 967 797 504 

Volume 

Value (EUR) 

Parcels  between  EUR  10-
22 and EUR 150  

Total  parcels  below  EUR 
150 

Source: Deloitte analysis 

43 220 352 

1 685 593 728 

187 288 192 

4 653 391 232 

The corresponding value was estimated using an average value of EUR 20 per parcel, in line 
with  available  literature,  and  the  corresponding  (theoretical  maximum)  VAT  revenue 
estimated applying a standard VAT rate of 20%.  

Different  assumptions  on  compliance  were  considered  under  the  different  policy  options 
covered by the study.  

1.4.  Data gathering tools 

In  this  sub-section  we  briefly  recall  the  several  tools  used  to  gather  qualitative  and 
quantitative  inputs  throughout  the  entire  assignment  (thus  including  Lot  1  and  Lot  3).  For 
each of them we provide references to more detailed explanations.  

114  European  Commission  (2015),  Assessment  of  the  application  and  impact  of  the  VAT  exemption  for 
importation 
at 
http://ec.europa.eu/taxation_Customs/resources/documents/common/publications/studies/lvcr-study.pdf  on 
June 12th 2015 

consignments, 

prepared 

accessed 

small 

EY, 

by 

of 

115 Hintsa J., Mohanty S., Tsikolenko V., Ivens B., Leischnig A., Kähäri P., Hameri AP., and Cadot (2014), The 
import  VAT  and  duty  de-minimis  in  the  European  Union  –  Where  should  they  be  and  what  will  be  the 
impact?,  accessed  at  http://www.euroexpress.org/uploads/ELibrary/CDS-Report-Jan2015-publishing-final-
2.pdf on January 26th 2015. 

95 

 
 
 
 
                                                 
1.4.1.  Consumer survey 

The  consumer  survey,  carried  out  in  25  countries,  was  used  to  gather  information  on  the 
status quo. In particular, the data gathered from the survey acted as inputs for the CGE model 
and also formed part of the analysis of the model’s outputs. For information on the range of 
data collected from the survey see section 1.2.1 and Annex 2 of Lot 1 report.  

1.4.2.  Interviews and Questionnaires 

Data  gathered  from  the  interviews and  questionnaires  informed  the  parameters  used  for  the 
impact  assessment  analysis.  In  particular,  insights  from  business  engaged  in  B2C  e-
Commerce  on  the  administrative  cost  associated  with  current  VAT  rules  was  particularly 
useful to this assignment.  

1.4.3.  Mock purchases 

In  order  to  assess  compliance  with  the  rules  for  intra-EU  B2C  supplies  of  goods  through 
distance selling and for B2C supplies of goods by non-EU suppliers, Deloitte conducted real 
and  mock  online  purchases  from  EU  and  non-EU  e-Commerce  traders.  Data  was  gathered 
from  150  companies  based  inside  the  EU  and  outside  the  EU.  A  detailed  description  and 
analysis  of  the  purchases  are  included  in  Annex  4  of  Lot  1  report,  while  the  main  findings 
from the exercise are summarised in section 4 of Lot 1 report. 

1.4.4.  Stakeholder workshops  

As  mentioned  earlier,  and  in  accordance  with  the  Commission’s  Guidelines  on  Impact 
Assessment,  we  had  a  cooperative  approach  to  impact  assessment,  discussing  relevant 
elements for the analysis with key stakeholders as well as with the Commission. During the 
assignment,  we  organised  two  stakeholder  workshops  to  discuss  and  validate  the  problem 
assessment (See Annex 8 of Final report for Lot 1). In addition, some elements of the Policy 
Options were discussed with stakeholders during the Fiscalis Group meeting held in Dublin 
on September 2015 (the key elements from the discussion on Options are in Annex 3).  

1.4.5.  Business online survey 

In  accordance  with  the Commission,  over the summer we  carried out a short  online survey 
among  the  businesses  already  contacted  for  the  study  to  gather  further  inputs  on  some 
elements of the Policy Options. An overview of the answers received is in Annex 3. 

96 

 
 
 
 
 
 
1.4.6.  Desk research 

In  order  to  collect  the  qualitative  and  quantitative  data  necessary  to  the  analysis,  and  to 
validate the assumptions  made,  we  conducted  extensive  research  among  available  literature 
and datasets. The full list of sources used is in Annex 1 

2.  CGE MODEL 

2.1. 

Introduction 

The objective of Lot 2 is to understand the costs, benefits, opportunities and risks in respect 
of the Options for the modernisation of the VAT aspects of cross-border e-Commerce. This 
includes an analysis of the economic impacts of the proposed Options on the EU. The 
primary methodological tool for this analysis will be a Computable General Equilibrium 
(CGE) model of the economy of the European Union.  

This model is used to accomplish the following objectives, encompassing parts of both Lot 1 
and Lot 2: 

  To estimate the impact of administrative barriers to trade on retail prices, e-

Commerce volumes and cross-border sales volumes. This analysis will also be 
used to identify the implications for European competitiveness and productivity 
(Lot 1, Task 3);  

  To develop scenarios for the growth of cross-border e-Commerce within the EU 

(Lot 1, Task 4);  

  To estimate the impact of the proposed Policy Options on e-Commerce volumes, 
cross-border e-Commerce volumes, and the wider economy (Lot 2, task 4).  

This section describes: 

  The scope and outputs of the CGE model; 
  The development of the methodology; 
  The data strategy used.  

97 

 
 
 
 
 
2.2. 

Scope of the CGE model 

The primary objective of the CGE model is to assess the impacts on e-Commerce, cross-
border trade and the wider economy of the current administrative barriers to e-Commerce and 
the Policy Options for modernisation. This model is be used in tandem with the Standard 
Cost Model designed to assess the impact of VAT policy on the costs facing firms. Based on 
the estimated impact on firms’ administrative costs and the costs of cross-border e-
Commerce, the CGE model is used to estimate the resulting impact on e-Commerce volumes 
and trade and the implications of the policy for the single market.  

This technical note sets out in more detail the scenarios incorporated into the CGE model and 
the outputs calculated as part of the model.  

2.3. 

Scenarios for the modernisation of VAT treatment 

The scenarios analysed in the CGE model focus on the administrative costs associated with 
cross-border e-Commerce VAT compliance. The scenarios include: 

Option1): The status quo; the impact of the current administrative burden is 
discussed in the Lot 1 report. 

Option2): Removal of small consignment exemption and distance selling thresholds;  

Option3): Replacement of small consignment and distance selling thresholds with a 
cross-border B2C sales threshold  (e.g. 5000 EUR, 10 000 EUR);  

Option4:) Option2 plus the Single Electronic Mechanism, structured as the existing 
Mini One Stop Shop system;  

In order to estimate the impact of these scenarios, the model incorporates three channels 
through which the Policy Options may affect businesses and the wider economy.  

  Impact on firms’ fixed administrative costs: Administrative costs affect both the 

firm’s production and the firm’s pricing decision. On the production side, 
administrative costs can be viewed as a fixed cost, i.e. an overhead cost the firm faces 
regardless of the level of output produced. To model this fixed cost element, a fixed 
cost can be incorporated into the production function in order to capture the effect on 
the production decision of firms. The assumption behind the fixed cost element, as 
discussed in the literature review, is that firms tend to use a proportion of their labour 
force for administrative tasks, which could have otherwise been used in the 
production process. A reduction of these costs as a result of a policy change means 
firms no longer require these unproductive workers and so the same level of output 
can be produced with less labour, increasing productivity and the value-added in the 
sector.  

  The current level of the administrative burden on firms and the impact of the proposed 
policy changes on this burden will be estimated using the Standard Cost Model.  

98 

 
 
  Impact on firms’ variable administrative costs: fixed costs would not be expected 
to affect firms’ pricing decisions, which will instead depend on the variable costs of 
production. Therefore a variable cost element will also be incorporated into the 
model, which will reflect any administrative costs incurred on a per-transaction basis. 
This includes the costs of making any VAT or Customs declarations, which are borne 
by couriers or postal operators but assumed to be passed on to businesses. This 
variable cost will introduce a wedge between the price paid by consumers for online 
goods and services and the price received by firms, effectively acting as an additional 
charge on online sales. The model will include the flexibility to set different variable 
administrative costs facing EU and non-EU firms, reflecting the fact that the costs 
associated with intra-EU trade and non-EU trade may vary across the Policy Options. 

  Supply of cross-border e-Commerce: Lastly, changes to the policy governing cross-
border e-Commerce in the EU may also affect businesses’ market entry decisions. In 
particular, the elimination of the registration thresholds may mean that smaller 
businesses choose to cease trading cross-border rather than incur the administrative 
costs. This is reflected in the CGE model by a reduction in businesses’ willingness to 
sell cross-border, with firms instead preferring to sell their goods domestically. 

The impact of the Policy Options are estimated based on the effect that the proposed changes 
will have on the fixed and variable costs and on the supply of e-Commerce. These effects are 
calculated based on the output of the Standard Cost Model, previous research on the VAT 
revenues at stake conducted by the Commission and research on VAT compliance. The 
inputs and data sources are discussed in more detail in section 3.  

2.4.  Outputs of the CGE model 

There are a number of macroeconomic and e-Commerce specific outputs that come directly 
from the model. The EU-wide outputs that the model calculates directly include the 
following: 

  Total value of e-Commerce; 
  Value of intra-EU cross-border e-Commerce; 
  Value of non-EU cross-border e-Commerce; 
  GDP by sector; 
  Output by sector; 
  Employment by sector; 
  Wages by sector; 
  Prices; 
  Household consumption and incomes; 

Due to the complexity surrounding the development of a multi-region CGE model and 
constraints on data availability, a number of simplifying assumptions are made in the CGE 

99 

 
 
 
 
 
model. These assumptions, their impact and the steps taken to mitigate the effects are 
described below.  

  Geographic scope: For tractability, the model treats the EU as a single region based 

on macroeconomic data aggregated from across the EU-27116. The direct outputs from 
the model are therefore at the EU-level.  

  Treatment of e-Commerce: The model distinguishes between two sales channels, 
online and offline. It is assumed that consumers’ choice of whether to buy online or 
offline depends on the relative price of online and offline goods and services and their 
own innate preferences117. For firms, it is assumed that the cost of producing goods 
and services does not depend on whether they are sold online or offline, but firms may 
face differential administrative and/or VAT costs by selling through different 
channels.  

  Within the online retail sector, the model distinguishes between goods and services 

that are purchased from domestic (same-country) suppliers, cross-border e-Commerce 
within the EU, and online imports from non-EU states. The administrative costs 
associated with each of these categories may change differentially based on the 
proposed Policy Options and this will be captured within the model, for example 
through a change in the relative costs of intra-EU and non-EU online purchases.  
  Sectors: The outputs of the model reflect two sectors: the retail sector (within which 
goods and services may be sold either online and offline) and a single aggregate non-
retail sector (in which there is no B2C e-Commerce). The impact on output, 
employment, wages, prices and demand for capital goods are calculated for each of 
these sectors.  

The diagram below provides an overview of the scope and outputs of the CGE model and the 
additional outputs that will be calculated.  

116 Data on Croatia is not currently included in Supply and Use tables for the EU; the impacts calculated for the 

EU-27 will therefore be scaled up to take account of this.  

117 Consumer’s preferences for shopping online versus offline will determine how readily they switch between 
different channels based on changes in relative prices. This willingness to switch could reflect a number of 
factors  including:  the  availability  of  products  online  vs  offline,  the  convenience  of  online  vs  offline 
shopping or a preference for choosing goods in person.  

100 

 
 
                                                 
2.5.  Data strategy 

The CGE model draws on three main sources of data: 

  Macro-economic data for the EU-27: The majority of the data required for the 
baseline CGE model can be found in a social accounting matrix (SAM); this is a 
square matrix that represents the various transactions made between commodities, 
factors and institutions taking place in an economy. This matrix is constructed 

101 

Macro-economic data for the EU-27•Output•Contribution of e-Commerce•Employment and wages•Savings and investment•Government revenues•Foreign tradeBaseline model of the economy•Firms•Households•Investors•Government sector•Foreign sectorPolicy scenarios•Impact on firms’ fixed costs•Impact on firms’ variable costs•Impact on the effective VAT rate.Macro-economic impacts•Output•Prices•Sectoralmix•Wages and employment•Investment•ProductivityE-Commerce impacts•Total EU e-Commerce•Intra-EU cross-border e-Commerce•Online purchases from outside the EU•Price of intra-EU and non-EU online purchasesEU-wide estimates from the CGE modelMore granular outputs calculated off-modelData from the EU-wide consumer survey•e-Commerce by product category•Trade MatrixImpact by retail category•Impact on total e-Commerce by product category•Impact on cross-border e-Commerce by product categoryImpact by country•Impact on total e-Commerce by firms in each country•Impact on cross-border e-Commerce to and from each country 
 
 
using supply and use tables and national accounts data from Eurostat118, from 
2011; 

  E-Commerce data: In addition to this macroeconomic data, the baseline CGE 

model requires data on the split of online and offline trade and on domestic, intra-
EU and non-EU e-Commerce. This data is obtained from Eurostat and from the 
consumer survey conducted as part of Lot 1;  

  Data on the administrative burden: The information required for the scenario 
analysis comes from the outputs of the Standard Cost Model. This data includes 
the administrative burden associated with the different Policy Options and 
estimates of the impact of changing the VAT threshold.   

In addition to this data, the model requires some assumptions to be made about consumer 
preferences over domestic purchases and imports and over online and offline purchases. 
These assumptions are based on a review of the academic literature and on consultation with 
experts. Sensitivity analysis is conducted on key variables, such as elasticities119, 
administrative cost, and compliance levels (i.e. VAT collection rates), to check the robustness 
of the results of the model to changes in these assumptions; where necessary, a range of 
estimates will be reported so as to provide an upper and lower bound on the estimated 
impacts.  

2.5.1.  Macro-economic data 

The primary source of data used for the development of the core CGE model is found in a 
Social Accounting Matrix for the EU. This matrix accounts for flows of income expenditure 
between different actors in the economy – firms, households, the government and the foreign 
sector – and is based on the principle that one agent’s income must be another another’s 
expenditure. The Social Accounting Matrix therefore contains the following information: 

  Production activity by sector; 
  Demand for intermediate inputs by sector (the Input-Output table); 
  Payments to capital and labour by sector; 
  Final consumption expenditure by sector; 
  Capital formation and inventory investment by sector; 
 
  Taxes and subsidies by sector and by revenue base; 
  Direct taxation and transfers by domestic actors; 
  Payments made/received by domestic actors to/from the rest of the world; 

Imports and outputs by sector; 

118 Supply and Use data is not available for Croatia; the estimates will therefore be adjusted upwards based on 
Croatia’s  estimated  contribution  to  EU  GDP  and  its  contribution  to  e-Commerce  (from  the  consumer 
survey).  

119 See equations in the quantity section of Annex 1. 

102 

 
 
 
                                                 
  Domestic actors’ net savings and the net savings from the rest of the world;  

2.5.2.  Construction of the EU Social Accounting Matrix 

At present, a Social Accounting Matrix for the EU is not available and so its construction is a 
key task for the development of the CGE model. The information required to construct the 
matrix can be found in Supply and Use tables for the EU-27 and in National Accounts data 
for each of the Member States. Both have been made publicly available by Eurostat, albeit 
with the Supply and Use tables only being updated to 2011.120  

An important characteristic of the Social Accounting Matrix is that it is ‘balanced’ – i.e. for 
every actor, institution and activity, total income received must equal to total expenditure 
made (inclusive of savings). This requires a certain level of consistency and completeness in 
the data sources that is not always possible due to a lack of sufficient detail, measurement 
accuracy, or differences in data collection/collation methodology. The following is a general 
data reconciliation strategy to ensure consistency of the data sources used to complete the 
Social Accounting Matrix: 

  Where possible, data points from the Supply and Use tables are used without 

further assumptions or reconciliation121;  

  Where the Supply and Use tables have gaps in data points required, National 

Accounts data is used; 

  Where National Accounts data is lacking in sufficient granularity, suitable 

assumptions are made to estimate the data points required122; 

  Where for the same data point the Supply and Use tables are significantly 

different from National Accounts data, suitable assumptions are made using 
information from both sources to estimate a single data point123. If the differences 
are small, Supply and Use table data is used; 

  As a last resort, if the Social Accounting Matrix is complete but does not balance, 
an estimation procedure involving re-weighting of the data in the matrix will be 
conducted. 

Figure  1 illustrates the basic structure of the Social Accounting Matrix as well as the sources 
for each data point required.124 Columns represent expenditures/outlays made, while rows 
represent incomes received. For example, reading down from the Households column and 
across to the Commodities row represents household final consumption expenditure on goods 
and services. Table  describes the primary data inconsistencies encountered and the specific 
data reconciliation strategy used to correct for these inconsistencies.  

120 Due to the latest Supply and Use tables being updated only to 2011, Croatia is not included in the tables and 

so only an EU-27 aggregate can be calculated. 

121 The tables have been constructed by Eurostat with a high level of consistency (i.e. total supply of a good or 

service is equal to total use/demand) and in most cases a significant level of granularity. 

122 National Accounts data tables in Eurostat often do not provide data points in sufficiently granular detail. 
123 Due to differences in definitions or data collection methodologies, the Supply and Use tables and National 

Accounts data do not always report the same value for the same data point.  

124 Implied data points are calculated residually after filling the SAM with all other data points. 

103 

 
                                                 
Figure 1: Basic structure of the Social Accounting Matrix 

104 

SocialAccounting MatrixActivitiesCommoditiesLabourfactorCapital factorNet taxes on productionNet indirect taxesHouseholdsGovernmentRest of theWorldSavings-investmentActivitiesOutputCommoditiesIntermediate consumption(Derived from Input Output table)Household final consumption expenditureGovernmentfinalconsumption expenditureExportsGross CapitalFormationLabourfactorPayments to capitalCapital factorPayments to labourNet taxes on productionNet taxes on productionNetindirect taxesNet Indirect taxes on products (i.e. VAT receipts and other taxes)HouseholdsTotalpayments to capitalTotal payments to labourPayments from government to households(i.e. SocialBenefits and other transfers)Net payments from ROW to householdsGovernmentNet taxes on productionTaxes less subsidies on products (i.e. VAT receipts and other taxes on products)Totaldirect taxespaid by householdsRest of theWorldImportsNet payments from government to ROWNet foreignsavingsSavings-investmentNet Household SavingsNet Government SavingsNational Accounts dataSupply and Use tablesMix of National accounts data and Supply and Use tablesImplied data points 
 
Table 4 - Data reconciliation 

Data point 

Data inconsistency/challenge 

Data reconciliation strategy 

Payments 
to/from Rest 
of World  

Final 
consumption 
expenditure 
at market 
prices by 
households, 
government 
and gross 
capital 
formation 

Direct 
taxation and 
transfers 

Indirect 
taxes: 

VAT by 
sector 

National Accounts data: 

National Accounts data used.  

Provides payments to/from Rest of 
World 

Supply and Use tables: 

Provides no data on payments 
to/from Rest of World  

National Accounts data relative 
to Supply and Use tables: 

Reports slightly higher final 
consumption expenditure for 
households and government. 

Reports even higher gross capital 
formation 

Reports slightly higher total final 
consumption expenditure.  

Supply and Use tables used in 
conjunction with an assumed 
actor disaggregation of mixed 
income to compensate for the 
differences. 

National Accounts data: 

National Accounts data used. 

Reports total tax on income and 
wealth; Reports current transfers; 
Reports social contributions; 
Reports social benefits. 

Supply and Use tables: 

Provides no data on direct taxation 
and transfers 

National Accounts data: 

Reports total VAT but not by sector 
or by actor.  

Supply and Use tables: 

Reports taxes less subsidies on 
products paid in final consumption 
by households, government and 
gross capital formation. However, 
does not report by sector  

105 

VAT receipts in National 
Accounts data used as total 
VAT in SAM. 

Assumed to be contained 
completely within taxes less 
subsidies on final consumption 
products reported in Supply and 
Use Tables.  

After netting out VAT from 
taxes less subsidies, assumed 
that remainder is other net 
taxes on products. 

VAT and other net taxes 
disaggregated by sector and by 
agent using suitable 
assumptions. 

 
 
 
Data point 

Data inconsistency/challenge 

Data reconciliation strategy 

Payments to 
capital: 

Gross 
operating 
surplus, 
mixed 
income 

National Accounts data: 

Provides both gross operating 
surplus and mixed income but not 
by sector. 

Supply and Use tables: 

Provides gross operating surplus 
by sector but records no mixed 
income. 

Mixed income calculated by 
subtracting Supply and Use 
tables data from National 
Accounts data. 

Gross operating surplus 
reported by Supply and Use 
tables used in conjunction with 
an assumed sector 
disaggregation of mixed income 
as payments to capital. 

2.5.3.  Data on e-Commerce 

In order to account for the specific impacts on e-Commerce, data is required on the following: 

  The share of consumer expenditure in the retail sector that is online versus offline; 
  The share of online expenditure that is spent on domestic goods and services, on 

intra-EU goods and services and on non-EU goods and services;  
  The allocation of e-Commerce spending by product category; and 
  The value of e-Commerce spending by country of origin and country of 

destination (the trade matrix).  

The majority of this data has been obtained from the consumer survey conducted across 25 
EU Member States as part of the Lot 1 analysis. This survey asked 1,000 consumers in each 
of the markets surveyed about the value and volume of e-Commerce purchases of goods and 
services; the products purchased; and the country from which the product was purchased. The 
results of this survey were used to estimate the total value of e-Commerce purchases in the 
EU and the split of these purchases between domestic, intra-EU and non-EU transactions.  

To account for the markets that were not surveyed – Luxembourg, Malta and Cyprus – a 
number of additional sources were used: 

  Existing survey estimates from Civic Consulting were used to estimate the total 

value of e-Commerce and the value of cross-border e-Commerce in these 
markets125; 

  Averages from other 25 Member States were used to allocate online spending 

among product categories; 

  Estimates from the JRC trade matrix were used to construct the trade matrix126.  

125 Civic Consulting (2011) “Consumer market study on the functioning of e-Commerce” 

126  European  Commission  Joint  Research  Centre  (JRC)  ,  “The  Drivers  and  Impediments  for  Cross-border  e-

Commerce in the EU”, 2013 

106 

 
 
 
                                                 
The estimates of the total value of EU trade will be compared against data from the EU 
Supply and Use tables on consumer expenditure on the retail sector in order to estimate the 
share of expenditure that is online. Within online trade, the survey provides estimates of the 
split between domestic, intra-EU and non-EU trade.  

The more granular data required to calculate the impact by retail category and by country is 
also sourced from the consumer survey.  

2.5.4.  Data on administrative costs and VAT payments 

The other key input to the CGE model is data on the administrative costs associated with the 
VAT treatment of e-Commerce. This will cover three areas: 

  Fixed administrative costs associated with VAT compliance in regard to cross-

border e-Commerce; 

  Variable administrative costs associated with VAT compliance in regard to cross-

border e-Commerce; 

  Potential changes in businesses’ trading and market entry decisions.  

The first two items are obtained from the outputs of the Standard Cost Model, described in the 
Inception Report. These estimates are based on fieldwork interviews conducted across 10 
Member States. This is used to estimate both the total fixed administrative costs incurred by 
EU firms in connection to cross-border e-Commerce and any variable costs incurred on each 
transaction. These costs are then be compared to the total costs of production (from the EU 
Supply and Use tables) in order to estimate the burden that these costs represent for firms.  

The Standard Cost Model is also used to estimate the impact of the proposed Policy Options 
on firms’ fixed and variable administrative costs. The estimated change in cost is then 
inputted into the CGE model in order to assess the impacts on e-Commerce.  

The impact on businesses’ supply decision is estimated based on data on administrative costs 
relative to revenues for businesses of different sizes, described in Section 2.2.1 of this report. 
Given the uncertainty surrounding this effect, sensitivity analysis is included.  

2.6.  Modelling approach 

2.6.1.  Overview of the CGE model 

A CGE model is a multi-sector model based on a set of equations describing the behaviour of 
the key actors in the economy of the EU – households, firms, the government and the foreign 
sector – and how their interactions affect the markets for factors of production, goods and 
services, and savings and investment. By considering the reaction of these actors 
simultaneously, the model evaluates the aggregate impacts – direct and indirect – of a change 
in tax policy. 

107 

 
 
 
The CGE model is based on the circular flow of income, which describes the various inter-
linkages in the economy and how they determine the equilibrium in key markets. This is 
shown below.  

Figure 2 – Circular Flow of Income 

The interactions between households, firms, the government and the foreign sector determine 
equilibrium demand, supply and prices in each sector. This equilibrium is based on the 
principle that one agent’s expenditure is another agent’s income and therefore all spending 
throughout the economy is accounted for. Prices are determined by the fact that the markets 
for goods and services and for factors of production (labour and capital) must clear.  

The behaviour of each segment of the economy and how it will be modelled is described in 
more detail below.  

Households 

Households own the factors of production - skilled labour, unskilled labour, and capital - 
which they supply to firms for their use in the production process. Income from these factors, 
net of any taxes paid or social benefits received, may either be spent on goods and services or 
saved. It is assumed that households save a constant fraction of their net income, determined 
by their marginal propensity to save. The remainder is allocated to consumption, with 
consumption across sectors based on fixed shares.  

Within the retail sectors (i.e., those sectors in which there is some B2C e-Commerce activity), 
households are assumed to have preferences over buying online versus offline and over 

108 

KeyIncomeExpenditureTaxesExpenditure on capital and labourCapital and labour factor incomeHousehold expenditureIntermediate expenditureSubsidiesMarket for Factors of ProductionHouseholdsFirmsMarket for Goods and ServicesGovernmentForeign SectorInvestmentForeign income from domestic importsForeign expenditure on domestic exportsHousehold savingsIncreases in capital stockGovernment consumption and provision of goodsFirm’s income from domestic salesSubsidiesTaxes 
 
buying domestic, EU and non-EU goods. These preferences are modelled in the form of a 
nested CES consumption function, which takes the form: 

     (∑   

  )

where    represents the initial allocation of spending across the different types of products     
(where ∑       , and the product types may be online/offline goods or domestic/EU/non-EU 
goods) and σ represents consumers’ willingness to substitute between different types of goods 
or channels of purchase. Assuming that consumers optimise their consumption given the 
prices they face, the demand for domestic, EU and non-EU goods, online and offline, can then 
be expressed as a function of relative prices and aggregate household incomes. 

Firms  

As discussed above, the economy will be split into a single “non e-Commerce sector” that 
will include those sectors that do not contribute to B2C e-Commerce and a number of retail 
sectors that may engage in B2C e-Commerce.  

Within each sector, firm production is assumed to be a Cobb-Douglas function of the factors 
of production: labour and capital. The Cobb-Douglas coefficients will be calculated based on 
data from Eurostat supply and use tables, which detail payments to capital and labour. It is 
assumed that firms face a competitive market and therefore that demand for labour and capital 
in each sector will be such that their price is equal to their marginal productivity. Intermediate 
inputs do not directly enter into the production function; instead demand for intermediate 
goods is determined based on Input-Output coefficients.  

In the non-retail sector, goods produced may either be exported or sold domestically 
accordingly to a constant elasticity of transformation (CET) function that defines firms’ 
preferences based on the differential between domestic price and the world export price.  

In the retail sector, firms will additionally be able to sell either online or offline, as well as 
selling either domestically or internationally. It is assumed that this does not alter the cost of 
production, but that there may be different administrative costs or VAT payments associated 
with different distributional channels. The modelling of these costs is discussed in more detail 
below.  

Government 

The government receives tax revenues from households and firms which it uses to provide 
public goods for the use of households and firms and purchase goods and services for 
government consumption.  Data on government spending will be aggregated from National 
Accounts data in Eurostat. Aggregate data on government revenues by source, i.e. indirect tax 
payments can also be used to estimate an actual VAT rate for the retail sector. Alternatively, 
and as a way of corroborating these estimates, an actual VAT rate for the retail sector can be 

109 

 
 
  
   
 
   
 
calculated based on VAT rates in each country, weighted by each country’s share of total EU 
retail trade.  

Foreign Sector 

The model will treat the EU as a single economy and represent the interactions between the 
EU and the rest of the world through a number of channels: 

  Consumers may purchase EU goods (whether domestic or intra-EU) or non-EU 

imports. These imports may be purchased either online or offline;  

  Firms may consume EU and non-EU intermediate inputs;  
  Firms can either produce goods for EU or non-EU consumption.  

The world price of imports and exports will be treated as an exogenous numeraire in the 
model and it will be assumed that the proposed policy changes do not have an impact on 
world prices faced by firms.  

Modelling the behaviour and production functions of non-EU firms is beyond the scope of the 
model. Rather, it will be assumed that imports to the EU through different channels (i.e., 
online vs offline) may incur differential tariffs and administrative costs. This will not affect 
world trade prices, but may affect the final price faced by EU consumers and the volume of e-
Commerce purchases from non-EU suppliers.   

2.6.2.  Equilibrium of the model 

The interactions between these agents determine equilibrium output, factor demands, 
consumption and prices in each sector. This equilibrium is based on the principle that one 
agent’s expenditure is another agent’s income and therefore all spending throughout the 
economy is accounted for. Prices are determined by the fact that markets must clear: 

  Market for goods and services: demand from the government and domestic and 

foreign consumers and firms must equal supply from firms and imports in each sector. 
As noted above, world import and export prices are assumed to be exogenous and are 
therefore fixed in the model; however, domestic prices may adjust relative to their 
initial numeraire value of 1.  

  Market for factors of production: In equilibrium, total demand for labour and 
capital must equal supply. It is assumed that prices for labour and capital are 
determined competitively, and therefore the costs of labour and capital depend on the 
marginal productivity of these factors.  

o  In  the  baseline  model,  the  supply  of  capital  in  each  sector  is  given  by  the 
capital accumulation equation, whereby capital in each period is the sum of the 
previous  period’s  capital  net  of  depreciation  and  new  investment  in  capital 
goods.  To  simplify  the  analysis,  unemployment  will  not  be  modelled;  it  will 
therefore be assumed that the total demand for labour across sectors must equal 

110 

 
 
 
labour  demand.  This  approach  will  still  be  able  to  account  for  movement  of 
labour between sectors.  

  Savings and Investment: The level of domestic investment in the EU must equal the 
level of savings, net of any savings that are invested internationally. Within the EU, 
the total value of investment is allocated across sectors based on exogenous 
parameterised shares. This parameter determines investment in capital by sector of 
destination; purchases of capital goods by sector of origin are given by a capital 
coefficients matrix based on I-O tables.  

The behaviour of firms, households, the government and the foreign sector is fully specified 
by the system of equations that make up the CGE model, along with a set of closure rules that 
ensure that markets clear. Solving this system of equations simultaneously yields an 
equilibrium for the economy of the EU.  

The parameters of these equations are calibrated so as to ensure that the baseline solution to 
this system of equations matches the current data on the economy. These parameters are either 
calculated directly based on EU national accounts and supply and use data or are based on 
academic estimates. 

2.6.3.  Dynamics of the CGE Model 

The CGE model is used to estimate the behaviour of the economy over an eleven-year period. 
In the baseline case, in which there is no change in policy, the dynamics enter into the model 
in two ways: 

  Exogenous growth: the model incorporates exogenous increases in productivity 
over time, represented through an increase in the level of output generated by a 
fixed amount of inputs (labour, capital and intermediate goods). These 
productivity improvements lead to increased output in each sector and increased 
earnings from labour and capital, driving further growth in the economy;  
  Capital accumulation: in addition to these exogenous productivity gains, the 
economy of the EU will also grow as a result of capital accumulation as 
investment increases the capital stock available for use in the economy. Within 
each sector, the capital stock in period t+1 is assumed to be the capital stock in 
period t minus depreciation plus purchases of capital goods. 

The model can separately account for trends in e-Commerce in the EU and a potential shift 
towards a greater share of trade occurring online. These dynamics are captured through a 
change in consumer preferences over online versus online purchases of goods and services, 
which in turn affects the parameters δ and σ described above. An increase in δ represents a 
shift in consumers’ innate preferences towards e-Commerce; an increase in σ represents an 
increase in the extent to which consumers will switch between online and offline.  

As well as capturing baseline economic growth and changes in preferences, the model will 
also be used to estimate the dynamic response of consumer behaviour and the wider economy 
to a change in policy governing cross-border e-Commerce. In order to estimate the dynamic 
impacts resulting from a change in policy, the model reflects the fact that some variables take 

111 

 
 
longer to adjust to a policy change than others. For example, demand for labour is widely 
recognised to adjust more quickly than demand for capital. This is incorporated in the model 
via an adjustment cost related to the capital stock. It is assumed that new investment is subject 
to an adjustment cost of capital additional to the initial cost of investment; this enters into the 
capital adjustment equation and can be interpreted as installation costs or learning and training 
costs.  

2.6.4.  Modelling of the proposed Policy Options 

As discussed above there are three channels through which the proposed Policy Options may 
affect the model: 

  A reduced in fixed administrative costs; 
  A reduction in variable administrative costs; and 
  A change in the supply of e-Commerce. 

Fixed administrative costs: The fixed cost channel assumes that within the retail sector a 
fixed amount of labour LO is required for administrative tasks, over and above the labour 
used in productive activities. LO will enter the model through the following production 
function equation: 

Where X is output, a is the level of exogenous technological progress, K is the capital stock 
and L is the labour force, with the subscript i indicating the sector.  

The production function will determine how each sector allocates capital and labour to be 
used to produce output X. A reduction in fixed administrative costs is assumed to reduce the 
number of man-hours spent on unproductive administrative tasks, thereby reducing overhead 
labour LO. This will in turn increase the average productivity of labour in the economy and 
increase the value-added for firms, generating increases in output and cross-border e-
Commerce. On the other hand, the fact that less labour is required for administrative tasks 
may put downward pressure on wages and employment in the short term.  

Variable administrative costs: A change in variable administrative costs, that is, any 
administrative costs incurred on a per-transaction or per-consignment basis will enter the 
model through a change in the price received by EU firms from the sale of goods and services 
online and across borders. This is represented in the equation below through the parameter 
   that represents the costs per unit of selling online within the EU. This administrative cost 
    paid by consumers (for online imports within the 
will create a wedge between the price   
EU) and the price   
prices).  

    received by firms (a weighted average of the online and offline 

112 

 
 
 
       
   
          
    
  
     
          
            
       
   
 
A similar representation will be used to capture how changes in policy affect the costs of trade 
for non-EU suppliers. The production function and pricing decisions of non-EU firms will not 
be modelled. Instead, it will be assumed that non-EU firms sell their product at a world price, 
which may be subject to a mark-up within the EU as a result of Customs tariffs or 
administrative costs that are passed on to the consumer. The Standard Cost model will 
estimate the impact of the proposed policy changes on the administrative costs for non-EU 
sellers,    , which will affect the price of online non-EU imports as shown in the equation 
below: 

  is the price of online imports from outside the EU,    
as a numeraire), R is the world interest rate and   
rate on online imports and the additional costs associated with online imports relative to 
offline.  

 is the world import price (treated 
  and    are respectively the effective tariff 

Supply of cross-border e-Commerce: Lastly, changes to the policy governing cross-border 
e-Commerce in the EU may also affect businesses’ market entry decisions. In particular, the 
elimination of the registration thresholds may mean that smaller businesses choose to cease 
trading cross-border rather than incur the administrative costs. This is reflected in the CGE 
model by a reduction in businesses’ willingness to sell cross-border, with firms instead 
preferring to sell their goods domestically. 

3.  ANALYSIS OF NET VAT REVENUES IN OPTIONS 1 TO 6 

In order to supplement the work in the Study particularly in respect of VAT revenues which 
are  a  key  element  to  the  impact  assessment,  the  Commission  services  undertook  further 
analysis of the output from the Deloitte Study. 

It should be underlined that a series of assumptions are necessary to identify these revenues:  

The assumptions are as follows: 

  The  estimate  of  total  e-commerce  trade  of  EUR  970  billion  in  2020  is  based  on  the 
output  of  the  study  which  estimated  EUR  550  billion  in  2015.  The  Medium  Growth 
scenario 12% year on year growth applies to all data. 
  20% of trade is cross-border in line with the Deloitte study 
  A 15% average VAT rate has been taken, although this is quite conservative.  
  The  2015  compliance  loss  base  is  3.8  bn  (consultants  conclusion  is  that  losses  are 
conservative)  –  these  losses  come  from  online  and  offline  trade  due  to  lack  of 
neutrality. 

  Trade volume increase by 0.3% for options 2 and 3, and 0.35% for options 4,5 & 6. 

Table 5 – Net VAT revenues in options 1 - 6 

113 

 
  
          
        
             
 
  
 
 
Option 1  Option 2 

Option 3 

Option 4  Option 5 

Option 6 

970 bn 

970 bn 

970 bn 

970 bn 

970 bn 

970 bn 

20 bn 

20.1 bn 

20.1 bn 

20.2 Bn 

20.2 Bn 

20.2 Bn 

9 Bn 

8.5 bn 

8.5 bn 

8.5 bn 

8.5 bn 

8.5 bn 

116 bn 

116.85 bn 

116.85 bn 

116.8 bn 

116.8 bn 

116.8 bn 

145 bn 

145.45 bn 

145. 45 bn 

145.5 bn  

145.5 bn 

145.5 bn 

1. 3 bn 

0 

0 

0 

0 

0 

6.7 bn 

8.5 bn 

8.0 bn 

1.5 bn 

1.5 bn 

1.5 bn 

137 bn 

136.95 bn 

137.45 bn 

144 bn 

144 bn 

144 bn 

Total  Value 
of  EU  E-
Commerce 

Theoretical 
VAT 
revenues 

Intra  EU  E-
Commerce 

Non-EU  E-
Commerce 

Domestic E-
Commerce 

Total 

VAT 
foregone 

Compliance 
losses 

Net 
VAT 
Revenues 

Comparison 
to baseline 
Source – Commission analysis using Study data 

- 0.05 bn 

+ 0.45 bn 

+ 7 bn 

+ 7 bn 

+ 7 bn 

114