COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the documents Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC as regards VAT rules for the digital age Proposal for a COUNCIL REGULATION amending Regulation (EU) No 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital age Proposal for a COUNCIL IMPLEMENTING REGULATION amending Implementing Regulation (EU) No 282/2011 as regards information requirements for certain VAT schemes
Date: 2022-12-08
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: VAT, administrative cooperation, distance selling, e-invoicing, electronic government, exchange of information, goods and services, intra-EU trade, provision of services, supply, tax harmonisation

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   EUROPEAN COMMISSION  Brussels, 8.12.2022  SWD(2022) 394 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT    Accompanying the documents   Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC as regards VAT rules for the digital age  Proposal for a COUNCIL REGULATION amending Regulation (EU) No 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital age  Proposal for a COUNCIL IMPLEMENTING REGULATION amending Implementing Regulation (EU) No 282/2011 as regards information requirements for certain VAT schemes {COM(2022) 701 final} - {COM(2022) 703 final} - {COM(2022) 704 final} - {SEC(2022) 433 final} - {SWD(2022) 393 final}  
 
 
Executive Summary 

Impact assessment on VAT in the digital age 

A. Need for action 

What is the problem and why is it a problem at EU level? 

The discrepancy between the 30 year-old VAT rules and the current digital reality creates a two-
faceted problem: 

1.  Sub-optimal VAT collection and control – the EU VAT legislative framework is not fully 

adapted to deal with the new digital reality and is prone to fraud. 

2.  Excessive burdens and compliance costs – the digital economy and new business models 

create new challenges and costs for tax administrations and businesses. 

The challenges and potential benefits of digitalisation in terms of control/fight against fraud and 
burden reduction are currently not being fully addressed. The problems are especially visible in 
three  areas:  (1)  VAT  reporting  (digital  reporting  requirements  (‘DRR’)),  where  the  reporting 
obligation is  not  digital  and Member States  are introducing varying  DRRs  in  an uncoordinated 
manner; (2) VAT treatment of the platform economy, where traditional and digital business are not 
treated equally; and (3) VAT registration, where the number of instances where businesses need to 
register in more than one Member State can still be reduced. The VAT rules for cross-border EU 
trade  involve  more  than  one  Member  State,  by  their  very  nature,  and  VAT  is  a  tax  that  is 
harmonised at EU level. 

What should be achieved? 

The general objectives of the VAT in the digital age initiative are related to modernising the VAT 
system: (1) improving VAT collection and control; and (2) simplifying, modernising and clarifying 
certain VAT rules. 

The  initiative's  specific  objectives  are  to:  i)  improve  reporting  requirements,  unlocking  the 
opportunities provided by  digitalisation; ii) promote  the convergence and interoperability of  IT 
systems;  iii)  create  a  level  playing  field  for  businesses,  regardless  of  their  business  model;  iv) 
reduce burden, fragmentation and associated costs; and v) minimise the need to register for VAT 
in multiple EU countries. 

What is the value added of action at the EU level (subsidiarity)? 
The intra-EU dimension of VAT fraud requires EU intervention. The size of the VAT gap1 (and 
its persistence over time) indicates that national instruments are not sufficient to fight cross-border 
and e-commerce fraud, which can only be fought efficiently and effectively by coordinated action 
and uniform application at EU level. 

Harmonised VAT rules are needed to ensure the proper functioning of the single market. To reap 
the full benefits of the single market, businesses need VAT rules that are applied uniformly across 

1 
The  VAT  Gap  is  the  overall  difference  between  the  expected  VAT  revenue  based  on  VAT  legislation  and 
ancillary regulations and the amount actually collected: https://ec.europa.eu/taxation_customs/business/vat/vat-gap_en. 

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the EU instead of having to comply with different rules at national level. This can only be ensured 
by action at EU level. 

B. Solutions 

What are the various options to achieve the objectives?  Is  there a preferred option or 
not? If not, why? 

The objectives can be achieved by a mix of several policy options in the three areas. 

-  VAT reporting: the options are: (1) recommending an EU DRR; (2) ask businesses to record 
transactional  data  in  pre-determined  format(s);  (3)  introducing  DRR  at  EU  level;  and  (4) 
introducing DRR at both EU and domestic level. 

-  VAT  treatment  of  the  platform  economy:  the  options  are:  (1)  legal  clarification  of  the 
nature of the services provided and the status of the supplier, combined with streamlining 
record  keeping  obligations;  (2)  introducing  a  ‘deemed  supplier’  provision,  whereby  the 
platform  collects  the  VAT  on  the  supply  for  (i)  certain  accommodation  and  transport 
services, (ii) for all accommodation and transport services or (iii) for all services supplied 
via platforms. 

-  VAT  registration:  the  options  relate  to  intra-EU  trade  (the  one-stop  shop  or  OSS)  and 

importing low-value consignments (the import one-stop shop or IOSS): 

o  OSS options include: (1) a minor OSS extension covering all domestic B2C2 supplies 
of goods; (2) a broader OSS extension covering all domestic B2C supplies of goods 
and the transfer of (own) goods cross-border; and (3) the introduction of a reverse 
charge for B2B3 supplies by non-established persons; 

o  IOSS options include: (1) making the IOSS mandatory for a) deemed suppliers, b) 
taxable  persons  who  distance  sell  into  the  EU  above  a  certain  limit,  or  c)  taxable 
persons who distance sell into the EU, with no limit; and (2) removing the EUR 150 
threshold for using the IOSS. 

Since  the  total  number  of  options  in  the  three  problem  areas  allows  for  hundreds  of  possible 
combinations,  five  successive  approaches  (status  quo,  minimalist,  moderate,  enhanced  and 
maximal) which progressively increase the intensity of the EU intervention were considered. 

The enhanced approach (which combines the introduction of DRRs at EU level, a deemed supplier 
provision  for  all  accommodation  and  transport  sectors  and  a  combination  of  a  broader  OSS 
extension,  a  reverse  charge  and  mandatory  IOSS)  is  better  balanced  in  terms  of  effectiveness, 
proportionality  and  subsidiarity,  while  the  maximal  approach  (which  additionally  includes 
domestic  DRRs,  all  services  supplied  via  platforms  and  the  removal  of  the  EUR 150  IOSS 
threshold) has the greatest efficiency.  

What are different stakeholders’ views? Who supports which option? 

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Business-to-Consumer. 
Business-to-Business. 

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Stakeholders agreed there was a conflict between the old VAT rules and today’s digital age. On 
VAT reporting, they agreed that a DRR could bring benefits and made clear their preference for 
an e-invoicing solution that can also be used for their internal automation. Member States called 
for  more  autonomy  in  deciding  on  domestic  DRR.  Stakeholders  generally  recognised  the 
problems with the platform economy. The views of business are more nuanced, depending on 
their  business  model.  Those  that  would  be  impacted  rejected  the  deemed  supplier  option  and 
expressed their preference for the status quo. On VAT registration, stakeholders unanimously 
agreed  that  the  OSS/IOSS  scope  needs  to  be  extended.  Businesses  also  asked  for  a  deduction 
mechanism to be included in the OSS or, at least, for the reverse charge for B2B supplies by non-
established persons. There is also support for making the IOSS mandatory, but less support for 
removing the EUR 150 threshold.  

C. Impacts of the preferred option 

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

The  enhanced  approach  is  more  balanced  and  scores  better  in  terms  of  proportionality  and 
subsidiarity.  Between  2023  and  2032,  it  is  expected  to  bring  between  EUR 172  billion  and 
EUR 214 billion net impacts against baseline. The maximal approach scores better in terms of 
efficiency, with net impacts ranging between EUR 303 billion and EUR 386 billion. 

The enhanced approach will save EUR 50.6 billion between 2023 and 2032: 

-  EUR 41.4 billion from VAT reporting (EUR 11 billion from removing reporting obligations, 
EUR 24.2  billion  from  reducing  fragmentation  costs,  EUR 4.3  billion  by  using  pre-filled 
VAT returns, and EUR 1.9 billion from e-invoicing benefits); 

-  EUR 0.5 billion from streamlining and clarifications in relation to the platform economy; 

-  EUR 8.7 billion from removing VAT registration obligations. 

Between 2023 and 2032, the savings for the maximal approach are higher and they amount to 
EUR 65.9  billion:  EUR 56.7  billion  from  VAT  reporting  (EUR 11  billion  from  removing 
reporting  obligations,  EUR 24.2  billion  from  reducing  fragmentation  costs,  EUR 7  billion  by 
using pre-filled VAT returns, and EUR 14.5 billion from e-invoicing benefits), EUR 0.5 billion 
from streamlining and clarifications in relation to the platform economy, and EUR 8.7 billion 
from removing VAT registration obligations. 

For both approaches, there are also qualitative environmental, social and business automation 
benefits, as well as benefits related to the functioning of the single market (a more level playing 
field) and tax control efficiency.  

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

Businesses  will  bear  the  costs  of  the  additional  administrative  burden  arising  from  the 
introduction of DRRs. Between 2023 and 2032, these costs are expected to be EUR 11.3 billion 
for the enhanced approach and EUR 43.5 billion for the maximal approach. Tax authorities will 
bear the implementation costs associated with introducing DRRs, expected to be about EUR 2.2 
billion in the enhanced approach and EUR 3.4 billion in the maximal approach. 

There are also qualitative costs related to data confidentiality. These are expected to be higher 

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for the maximal approach, which implies more data exchanges, than for the enhanced approach. 
In  the  platform  economy  area,  additional  burdens  relate  to  the  administration  of  the  deemed 
supplier  scheme  (more  sectors  are  impacted  in  the  maximal  approach).  There  is  no  cost  for 
businesses in extending the scope of VAT registration, and they will receive more benefit from 
systems already in place.  

What are the impacts on SMEs and competitiveness? 

Introducing an EU DRR generates costs for businesses. This burden will be higher for micro 
and small enterprises, to the extent that they are less likely to benefit from business automation 
and are less likely to operate cross-border. Under the options for the deemed supplier scheme, 
the platform would account for the VAT instead of the small underlying suppliers. This means 
that  these  underlying  suppliers  would  not  be  required  to  register  and  account  for  the  VAT 
themselves  and  would  bear  no  additional  burden.  On  VAT  registration,  280 000  SMEs  will 
benefit from the extension of the scope of the OSS/IOSS, saving up to EUR 0.34 billion in one-
off costs and up to an average of EUR 0.67 billion in annual ongoing costs, making a total of 
EUR 7 billion for 2023- 2032.  

Will there be significant impacts on national budgets and administrations? 

Between EUR 135 billion and EUR 177 billion of additional VAT revenue (0.1% of GDP 
annual yearly average, 2023-2032) is expected for the enhanced approach and between 
EUR 284 billion and EUR 367 billion additional VAT revenue (0.2% to GDP annual yearly 
average, 2023-2032) is expected for the maximal approach. 
Between 2023 and 2032, national administrations are expected to have implementation costs of 
between EUR 2.2 billion (enhanced approach) and EUR 3.4 billion (maximal approach). 

Will there be other significant impacts? 

No other significant impacts. 

Proportionality? 

Both the enhanced and maximal approach meet the objectives of the initiative in a proportionate 
manner, but the enhanced approach appears to be more proportionate. 

D. Follow up 

When will the policy be reviewed? 

The Commission will evaluate the functioning of the new legislation 5 years after its entry into 
force. 

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