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 rates of value added tax
Date: 2018-01-18
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: EU Member State, VAT rate, goods and services, provision of services, tax collection, tax harmonisation, tax relief

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   EUROPEAN COMMISSION  Brussels, 18.1.2018  SWD(2018) 8 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 rates of value added tax {COM(2018) 20 final} - {SWD(2018) 7 final}  
 
 
Executive Summary Sheet 
Impact assessment on VAT rates  

A. Need for action 

Why? What is the problem being addressed?  
When  the  common  system  of  VAT  was  established  in  1967  a  commitment  was  made  to  establish  a  definitive 
VAT system on the basis of the principle of taxation in the Member State of origin. With the creation of the single 
market in 1993 the aim of introducing an origin-based VAT system was kept and transitional VAT arrangements 
together with the current rules on VAT rates entered into force. The proposal on the definitive system abandons 
this aim and provides for the implementation of a definitive VAT system based on taxation in the Member State 
of  destination.  However,  the  current  rules  on  VAT  rates  are  still  consistent  with  an  origin-based  system  and 
excessively  restrictive  for  a  destination-based  VAT  system.  In  addition,  special  provisions  allowing  certain 
Member States to derogate from the restrictions will expire with the entry into force of the definitive VAT system.  

What is this initiative expected to achieve?  
The  initiative  sets  a  permanent  minimum  of  15%  of  the  standard  VAT  rate.  In  a  definitive  VAT  system  equal 
treatment  of  Member  States  will  be  achieved  and  Member  States  will  no  longer  be  prevented  from  granting 
reduced  rates  to  certain  goods  and  services,  if  there  is  no  risk  of  distortion  for  the  functioning  of  the  single 
market.  

What is the value added of action at the EU level?  
The subsidiarity requirements of Article 113 TFEU are implemented in the VAT Directive. 

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
Two policy options, both requiring a change of the VAT Directive and making permanent the 15% minimum for 
the standard VAT rate, were considered. Option 1 aims at granting existing derogations to all Member States by 
integrating  the  national  provisions  in  the  VAT  Directive,  which  would  however  be  difficult  to  achieve.  The 
preferred option 2 solves the derogations problem by abolishing the constraints that created the need for such 
derogations, viz. the 5% minimum for reduced VAT rates and the list of goods and services to which reduced 
VAT rates can be applied (Annex III), which would be replaced by a negative list to which the standard rate must 
be applied. 

Who supports which option?  
Member States and respondents to the Open Public Consultation support equal treatment of Member States.  

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?                                       
The  selected  option  successfully  removes  restrictions  on  Member  States  that  are  no  longer  justified  under 
destination-based taxation and provides the a solution to expiry of derogation.  

What are the costs of the preferred option (if any, otherwise main ones)?                                       
The preferred option requires safeguards to avoid potential risks.  

How will businesses, SMEs and micro-enterprises be affected?  
The risk of increase of compliance costs stemming from higher complexity will be limited by providing operators 
with information on VAT rates based on a statistical classification in a modified web portal. 

Will there be significant impacts on national budgets and administrations?  
Member States will continue to determine any budgetary impact. Extending the scope of reduced VAT rates or 
lowering reduced VAT rates without offsetting measures would decrease VAT revenue.  

Will there be other significant impacts?  
The risk of increased litigation could be a consequence of increased flexibility for Member States. 

D. Follow up 

When will the policy be reviewed?  
Before the entry into force of the definitive VAT system Annex III would be reviewed and after the entry into force 
the negative list would require a regular review. 

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