Official Journal of the European Union

C 267/45

Opinion of the European Economic and Social Committee on the Proposal for a Council Directive amending Directive 77/388/EEC with a view to simplifying value added tax obligations and the Proposal for a Council Regulation amending Regulation (EC) No 1798/2003 as regards the introduction of administrative cooperation arrangements in the context of the one-stop scheme and the refund procedure for value added tax

(COM(2004) 728 final — 2004/0261 (CNS) — 2004/0262 (CNS))

(2005/C 267/07)

On 24 January 2005 the Council decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the abovementioned proposals.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 15 April 2005. The rapporteur was Mr Burani.

At its 417th plenary session, held on 12 May 2005, the European Economic and Social Committee adopted the following opinion by 90 votes nem. con. with one abstention.

1.   Introduction: the Commission document


In October 2003, the Commission presented a communication (1) reviewing the VAT strategy it had launched in June 2000 and setting out a series of new initiatives to be taken under that strategy. Essentially, the strategy consists of pursuing four main objectives: the simplification, modernisation and more uniform application of current rules, and closer administrative cooperation.


The document referred to the EESC (2) is in three parts:


a proposal for a Council Directive amending Directive 77/388/EEC with a view to simplifying value added tax obligations;


a proposal for a Council Directive laying down rules for the refund of value added tax, provided for in Directive 77/388/EEC, to taxable persons not established in the territory of the country but established in another Member State;


a proposal for a Council Regulation amending Regulation (EC) No 1798/2003 as regards the introduction of administrative cooperation arrangements in the context of the one-stop scheme and the refund procedure for value added tax.


Only proposals a) and c) require comments from the EESC. The general comments apply to both proposals, as they are both part of a single strategy.


The simplification of business obligations, which had been under consideration for some time, was addressed by a European Council decision of 26 March 2004, which called upon the Competitiveness Council to identify areas for simplification. A decision on the matter was adopted in June 2004 and the Commission issued the document addressed by this opinion in October 2004. Meanwhile, at the informal ECOFIN meeting of 11 September 2004, the Dutch Presidency had raised the issue of ‘Fostering growth by reducing administrative burdens’. The Commission feels that its proposal fits perfectly within this objective.


The Commission surveys (3) published in the second half of 2003 stressed that one of the main objectives had to be to simplify the system for ‘taxable persons who have VAT obligations in a Member State where they are not established’ (in practice, exporters of goods and services — EESC note). Indeed, the administrative burden on those persons is so great and complex that many potential exporters prefer not to engage in any activities subject to VAT whatsoever in another Member State. In addition, the refund procedure is so complex and burdensome that 54 % of large companies have abandoned their claim at some stage in the proceedings.


The proposals listed in point 1.2 seek precisely to avoid such difficulties by providing for six practical measures:


the introduction of the one-stop scheme for non-established taxable persons;


the introduction of a one-stop scheme to ‘modernise’ the refund procedure;


harmonisation of the scope of the goods and services for which Member States may apply restrictions to the right to deduct;


extension of the use of the reverse charge mechanism;


a review of the special scheme for small and medium-sized enterprises;


simplification of the distance selling arrangements.


To help achieve these objectives, the Commission has proposed three legislative initiatives:

modification of the Sixth VAT Directive (4);

replacement of the Eighth VAT Directive;

modification of Council Regulation (EC) No 1798/2003 on VAT administrative cooperation (5).


The initiatives proposed in the document have already been extensively discussed with the Member States and have been the subject of a wide consultation process with stakeholders on the Internet.


2.   The one-stop-shop project


The concept of a ‘one-stop-shop’ is not new: it was actually proposed for the first time in Council Directive 2002/38/EC, which, however, limited its scope to e-commerce operators (6) supplying cross-border services to non-taxable persons. Essentially, the one-stop (OS) scheme currently being proposed would extend to all exporters of goods and services the option of being included in an electronic register in the country in which they are established, which would be valid for all EU countries, thus eliminating the obligation for exporters to be included in the VAT registers of all the Member States to which they export and allowing them to keep their national registration number.


With the introduction of the OS scheme, the situation would be as follows:

if the customer is liable to pay VAT, they must submit their declaration in the Member State in which they are established, in which case the exporter has no declarative obligation;

if, on the other hand, the non-established trader (vendor/exporter) is the person liable to pay the tax, they can fulfil their obligations by using the OS scheme instead of — as is currently the case — making their declaration in the Member State of destination. The rate will, of course, be that in force in the destination country.


The Commission is convinced that the one-stop model could simplify tax obligations for a considerably larger number and wider range of traders than it does today: in addition to distance selling arrangements, which are already addressed by the current provisions, all direct sales to consumers in other Member States would be covered. However, an even more important aspect is the inclusion in this scheme of transactions between taxable persons for which the reverse charge is not applicable.

It has been predicted that the OS scheme could be used by around 200 000 operators. It is also likely that export firms — particularly large firms — already included in VAT registers in a country other than their own will continue to use the current system. The OS scheme is an option rather than an obligation.


However, the one-stop scheme is not the solution to all the problems. In the first place, all the domestic rules on declaration periods, payment and refund rules and implementing arrangements will continue to apply; the Commission explicitly acknowledges that the new scheme is not intended to lead to a complete harmonisation of national rules, which it ‘considers to be neither realistic nor necessary at this stage’.


The issue of transfers of money remains unresolved: these will have to be carried out directly between the taxable person and the Member State of consumption. The Commission notes that experience gained hitherto with the existing electronic commerce special scheme (a scheme with under 1 000 participating businesses in non-EU countries) has shown that dealing with the redistribution of monies received is ‘very burdensome’ for the recipient Member State. Again according to the Commission, extending the scheme to cover a much greater number of operators and transactions would not be ‘a realistic option’: major treasury systems would have to be developed to handle the money flows. However, this task could be performed by financial intermediaries, who might offer a payment handling function to operators. Such services are only to be offered on a voluntary basis and could be particularly attractive to smaller operators ‘but would have to be based on commercial realities’ — in other words, be provided under acceptable conditions.


In conclusion, the OS scheme leaves all existing payment and refund procedures unchanged. The special system for the supply of electronic services to private consumers also remains in place; this provides for a single payment to the exporting Member State, which is responsible for redistributing the monies owed to the States to which the service is being supplied. These arrangements are to be reviewed before 30 June 2006 and, as part of the review, the possibility will be explored of bringing all electronic service-supply operations under the umbrella of the OS scheme.

3.   Other aspects of the proposal


A 1998 Commission proposal — intended mainly to reform the refund system — also provided for a number of reforms relating to expenditure not eligible for a deduction of VAT, or only eligible for a partial deduction. The aim was to approximate, if not harmonise, the national rules, which differed widely — as they still do. The proposal was not adopted, mainly because of some Member States' concerns regarding their VAT receipts.


The current proposal is along the same lines, seeking to harmonise the categories of expenditure that can be excluded from the right to deduct (non-deductible expenditure). Broadly speaking (with a few exceptions and restrictions), this exclusion would apply to:

motorised road vehicles, boats and aircraft;

travel, accommodation, food and drink;

luxuries, amusements and entertainment.

All other types of expenditure not included in these categories would be subject to the normal deduction rules.


For business-to-business (B2B) transactions, the Member State of destination is liable to pay the VAT, which can be refunded under the reverse charge mechanism, which is obligatory for some transactions but can be applied at the discretion of the Member States for others. The Commission is now proposing to extend the scope of the obligatory reverse charge mechanism to include supplies of goods which are installed or assembled by or on behalf of the supplier, the supply of services connected with immovable property, and services covered by Article 9(2)(c) of the Sixth Directive.


According to the Commission, the current rules on VAT exemption are inflexible and inconsistent, because of the way exemptions have been granted to individual Member States at the time of their accession to the EU or on other occasions. There are large discrepancies between the treatment received by the different States on the matter: far from being reduced, these discrepancies have increased with the extension of temporary authorisations, or even of their scope. The proposal provides for more flexibility in determining the ceiling below which exemptions can be granted: a ceiling of EUR 100 000 is proposed, but each Member State would be free to set lower thresholds, which could differ according to whether goods or services were being supplied.


The current provisions on distance selling lay down two different ceilings: a total value supplied over a year of EUR 35 000 or EUR 100 000, to be decided by each Member State of destination. Above these thresholds, the supplier has to charge the customer VAT at the rate in force in the Member State of destination. In order to make life easier for operators, the Commission proposes the adoption of a single ceiling of EUR 150 000 which would take into account all sales to all EU countries.

4.   The one-stop scheme: comments


In general, the EESC endorses the setting-up of the one-stop scheme. However, it wishes to make some comments, with a view to helping to make the cross-border VAT mechanism more effective. These comments seek to provide pointers for future developments and additional measures: as far as the current situation is concerned, the Commission has endeavoured to put forward a programme which is realistic but minimalist and therefore — it is hoped — achievable.


As regards tax harmonisation in general and harmonisation of VAT rules in particular, the situation does not inspire great optimism. Progress is slow and fraught with obstacles, the mechanisms are unclear and often ineffective and the rules complex and, at times, difficult to interpret. It is the people and businesses, and, ultimately, the entire economy which are paying for this situation. Paradoxically, however, the principal victims are the Member States themselves, which often give the impression — confirmed by facts — of wishing to preserve the status quo at all costs for reasons which may or may not be justifiable, continuing to use complex, costly systems because they are afraid of change: red tape thus becomes self-perpetuating.


The initial results of the OS scheme, which has already been set up and is operational in the field of cross-border electronic services, would seem to suggest a low level of interest from operators: indeed, fewer than 1 000 (non-resident) operators have used it, most of which are ‘large’ operators, although it is too early on for that figure to mean much. According to the Commission, support for the one-stop scheme should become more extensive, as 200 000 of the 250 000 resident potential cross-border operators are likely to use it. If this happens, the one-stop scheme will run into difficulties: the Commission notes that the system adopted for electronic commerce is already creating administrative problems and heavy management burdens. The proposed solution is to make the financial authorities responsible for collection and redistribution of monies owed (described by the Commission as ‘burdensome’ processes) and for refunds, rather than including these in the one-stop scheme. This may be necessary but is clearly an unsatisfactory solution.


The EESC notes that the task of managing these monies would be just as ‘burdensome’ for the financial authorities as it is for the tax authorities, although the financial authorities are certainly equipped to provide this service. This management of monies would, however, have a cost, which would be borne by the taxpayers or tax authorities. Indeed, it is not specified clearly who would have to bear the cost of the system to be put in place, although the authorities assume that it would be the operators. On the basis of studies carried out, the Commission believes that the new system — based on the one-stop scheme and on a system of reimbursement/settlement of the amounts owed — would still be less costly than the present system.


The EESC does not have the resources to ascertain whether and to what extent the one-stop shop project as a whole, with responsibility for the service entrusted to the financial authorities, would lead to additional costs, or whether it would bring appreciable benefits. Alongside the costs, the financial benefits of simplifying and speeding up procedures for operators and national administrations should be assessed. It is thought that the benefits for operators could be appreciable but limited: the one-stop scheme would remove the need to register in the different destination countries and for documents to be exchanged in paper form, but national rules would still continue to apply (declaration periods, payment and refund rules) and, most importantly, there will continue to be many different national taxation rates if these are not harmonised.


In short, the EESC endorses the Commission proposal but would draw the decision-makers' attention to the following essential point: if the OS scheme is to be the sole interface between operators and the different national administrations, it must genuinely be solely responsible for procedures and the handling of the sums owed and to be received. In any case, the process will never be complete until tax rates and national rules have been harmonised; this is also essential for the creation of a genuine single market. Another issue which warrants attention is languages: although the one-stop scheme uses a code system for the exchange of information, proper dialogue may prove to be necessary and could involve formulas which it is not always possible to standardise.

5.   Other aspects of the proposal for a directive: comments


The EESC fully endorses the Commission's proposal (point 3.1.1) to harmonise the categories of expenditure that can be excluded from the right to deduct VAT. Its adoption would finally launch a process of approximating tax rules, although it appears at present that the process would not be completed for quite some time.


The EESC also endorses the proposal to extend the scope of the reverse charge mechanism (point 3.2), but a more decisive step would be to extend it to all B2B transactions carried out within the EU.


VAT exemption (point 3.3) warrants comments of a different kind. The EESC has already addressed the issue in its opinion, where it criticised the custom of giving certain categories of operators special, more favourable treatment, not just when new Member States have joined the EU in the various waves of enlargement, but as past situations in the longer-standing Member States have been allowed to continue. The EESC noted — and now reiterates — that exempting some categories of operators from VAT causes distortion of competition both in transnational transactions and — possibly with greater impact here — within the Member States themselves.


It should, moreover, be noted that the Commission's comments refer to ‘small and medium-sized enterprises’, whereas most of the official documents, particularly the accession protocols, only refer to ‘small’ enterprises. This is a clear indication of the intention to play down the importance of the concession and extend it in practice to much larger enterprises. The proposal does not make a distinction, merely referring to ‘persons’ with intracommunity turnover no greater than EUR 100 000: it is clearly intended, therefore, to extend the benefit of the exemption to all businesses, irrespective of their size.


The purpose of the exemption is not, therefore, to exempt a particular category of business from VAT but a category of minor transactions , and the EESC fully endorses this. It remains to be clarified whether businesses exempt from national VAT on the basis of general provisions would be subject to the limit of EUR 100 000 for intracommunity transactions. If so, an absurd situation would arise in which businesses legally exempt would have to pay VAT if they exceeded this limit.


In principle, the EESC does not endorse the proposal to give each Member State the option of setting a ceiling lower than EUR 100 000, or even of setting different ceilings for goods and services. This would merely perpetuate the deplorable diversity of existing rules, which make operators' work more complicated, increase administrative costs and ultimately, once again, clearly run counter to the principles underlying the internal market. At the same time, the EESC is quite aware that particular national situations could require derogations from a general rule, and so harmonising the exemption ceiling would not have any significant effect, while there are many other, more substantial discrepancies.


As regards distance selling (point 3.4), the EESC warmly appreciates all the Commission's endeavours — including this proposal — to remove the onerous obligations placed on operators by the diversity of national tax rules. Along with the setting-up of the one-stop scheme, the establishment of a single ceiling applying to all Member States should represent genuine progress.


6.   The Commission document


The proposal amends Regulation (EC) 1798/2003; this amendment would be necessary if the directive were to be adopted. It contains implementing provisions which do not call for particular comment, as they largely concern arrangements relating to communications between Member States, to the publicising of rules and to cooperation with the Commission. The most important provisions are laid down in Article 34g, relating to the control of taxable persons and their returns.


The principle underlying the audits is cooperation between the Member States. Audits carried out through the OS scheme can be performed either by the Member State of the OS scheme or by any other Member State of destination, each party being under obligation to inform the other interested parties in advance; the latter are entitled to take part in the audits if they so wish. The procedures to be used to establish cooperation are those laid down in Articles 11 and 12 of the basic regulation.


Since the regulation deals essentially with procedural matters, the EESC has no particular comments to make. However, it wonders whether the arrangements for cooperation provide for all possibilities in a field which, despite the fact that no completely new elements are introduced (the OS scheme already exists for distance selling), is highly complex in some respects. In the first place, the scheme is virtual , and does not, therefore, involve personal contact between representatives of national administrations; furthermore, the abovementioned problem of linguistic diversity will do nothing to facilitate cooperation, or, at any rate, effective cooperation.


It should be noted that it is not always possible for audits to be carried out using codes or standardised formulas alone. Although the problem of liaison between administrations and with users is considered to be minor or even non-existent, for reasons that are well known, operators in the sector make no secret of their current difficulties or their concerns for the future.


Last but not least, the directive fails to deal with something that is of paramount importance to operators: data protection. It is assumed that communications sent by operators to authorities will be protected from disclosure to third parties by the rules on the protection of privacy. However the real danger is not addressed: the danger that third parties will hack into public authorities' databases. In the case in point, data on market shares and clients' names could fall prey to industrial espionage, which can cause serious harm. Before entrusting any public authority with information, individuals and firms are entitled to know what mechanisms and systems are in place to protect them from hackers.

Brussels, 12 May 2005.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

(1)  COM(2003) 614 final

(2)  COM(2004) 728 final of 29.10.2004

(3)  SEC(2004) 1128

(4)  See Council Directive 2004/66/EC of 26.4.2004.

(5)  See Regulation (EC) No 885/2004 of 26.4.2004.

(6)  See EESC Opinion in OJ C 116 of 20.4.2001, p. 59.