COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Council Directive amending Directive 2006/112/EC as regards harmonising and simplifying certain rules in the value added tax system and introducing the definitive system for the taxation of trade between Member States
Date: 2017-10-04
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: European tax cooperation, VAT, goods and services, intra-EU trade, supplier, supply, tax collection, tax harmonisation, tax law, taxpayer

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   EUROPEAN COMMISSION  Brussels, 4.10.2017  SWD(2017) 326 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposal for a Council Directive amending Directive 2006/112/EC as regards harmonising and simplifying certain rules in the value added tax system and introducing the definitive system for the taxation of trade between Member States {COM(2017) 569 final} {SWD(2017) 325 final}  
 
 
Executive Summary Sheet 

Impact  assessment  on  the  Proposal  for  a  Council  Directive  Amending  Directive  2006/112/EC  as  regards 
harmonising and simplifying certain rules in the value added tax system and introducing the definitive system for 
the taxation of trade between Member States 

A. Need for action 

Why? What is the problem being addressed?  
Transitional  arrangements  in  the  VAT  Directive  regarding  intra-EU  transactions  in  goods  between  businesses 
result  in  (i)  revenue  losses  for  Member  States  (MS)  of  about  €  50  billion  due  to  MTIC  (Missing  Trader  Intra-
Community)  fraud,  which  finds  its  roots  in  the  endemic  weakness  of  such  system  that  allows  for  goods  being 
bought  cross-border  VAT-free;  (ii)  complexity  causing  higher  costs  for  businesses  trading  cross-border 
compared  to  businesses  trading  only  domestically  (11%  higher)  due  to  additional  obligations  for  cross-border 
traders and divergent application by MS of VAT rules. Without action at EU level solutions would continue to be 
fragmented and have limited benefits.  

What is this initiative expected to achieve? 
Definitive arrangements for the taxation of intra-EU trade are meant to make the EU VAT system more robust by 
addressing its endemic weakness and simpler by addressing its complexities and to provide a level playing field 
for businesses whether engaged in domestic or cross-border transactions. 

What is the value added of action at the EU level? 
A  modification  in  the  VAT  Directive  is necessary  to  change  the  transitional  arrangements which have reached 
their limits. 

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why? 
-  Option  1:  customers  continue  to  purchase  goods  cross-border  VAT-free  but  changes  affect  certain 

transactions (VAT number and simplifications granted to CTPs1); 

-  Option  2:  suppliers  charge  VAT  in  the  MS  where  the  goods  arrive  (except  for  CTPs).  A  One  Stop  shop 

(OSS) allows businesses to pay the VAT due in any MS in their home MS; 

-  Option 3: technical change equivalent to current system (discarded); 
-  Option 4: alignment with rules on services; 
-  Option 5: similar to Option 2 but taxation occurs in the MS where the customer is established. 

Option 2 is the preferred one (addresses fraud + complexity) combined with Option 1 that allows a soft transition 
to Option 2. 

Who supports which option? 

MS and businesses support Option 1. Further, MS could also support Option 2 and businesses Options 4 and 5. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?                                  
Option 2: MS: Reduction of MTIC fraud by EUR 41 billion. 

Businesses: Compliance costs decrease (EUR 1 billion). 

Internal  market:  Equal  treatment  of  domestic  and  cross-border  supplies  of  goods  and  net  increase  of 
EUR 18.5 billion in EU GDP over a 3-year period. 

Option 1 decreases compliance costs for businesses (EUR 0.5 billion annually). 

Environmental and social impacts are not significant. 

1 A Certified Taxable Person (CTP) is a business recognised as "reliable" by the tax administrations.  

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What are the costs of the preferred option (if any, otherwise main ones)?                                  

Option 2: MS: increase of administrative costs for MS by EUR 385 million in the year of implementation and EUR 
311 million in the years after. 

Businesses: Certain SMEs might experience an annual compliance cost increase of 6%. 

Option 1 increases administrative costs for MS by EUR 35 million and does not bring equal treatment between 
domestic and cross-border supplies of goods 

Environmental and social impacts are not significant. 

How will businesses, SMEs and micro-enterprises be affected?  
The initiative does not foresee a preferential treatment for SMEs. It addresses the problems for all businesses. 
Micro-businesses  will  continue  benefitting  from  the  VAT  exemption  scheme  and  from  new  simplification 
measures specifically targeted to them by the upcoming SME simplification package2. 

Will there be significant impacts on national budgets and administrations? 

At EU level, a net benefit of around EUR 43 billion is expected due to the reduction of MTIC fraud and cash flow 
incidence that would more than compensate for the increase in administrative costs. 

Will there be other significant impacts?  
Transition to the new system requires MS and businesses to adapt to the new rules (implementation + control). 

When will the policy be reviewed? 

D. Follow up 

Gradual implementation: 
First  Directive  (September  2017):    implementation  of  Option  1  ("quick  fixes"  with  CTP)  and  introduction  of  the 
cornerstones of Option 2. 
Second Directive (2018):  full implementation of Option 2. 
Monitoring  (e.g.  number  of  CTPs,  implementation  issues)  via  the VAT  Committee,  the Group  on  the  Future  of 
VAT and the VAT Expert Group. 
Evaluation: five years after entry into force of the second Directive. 

2 Commission Action Plan (COM(2016) 148 final). 

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