"The present onerous VAT compliance requirements prevent small
and medium sized companies in particular from benefiting fully from
the Internal Market," said Frits Bolkestein, Commissioner for the
Internal Market and Taxation.
"The Commission intends to take steps to try
to rectify this problem. This consultation will help us to
fine-tune the forthcoming proposal. It is further proof of the open
way in which the Commission wishes to draw up its proposals to
eliminate obstacles in the tax field."
The present VAT system requires businesses to pay VAT in the
Member State where consumption takes place. Complex rules have been
created in order to determine where that place is. The result is
that many businesses have to pay VAT in a Member State where they
have no permanent establishment.
For intra-EU supplies of goods between taxable persons, this
problem has been solved by moving to the customer the
responsibility for paying the tax. But in other cases (on-line
sales to individuals, for example), the supplier has to register
and pay VAT in the other country, which is very difficult when the
trader is not fully acquainted with the language and legislation of
that other country. This is a major obstacle to the smooth
functioning of the Internal Market.
The optimum solution in the Commission's view would be for all
companies to levy VAT at their place of origin (or establishment),
with an appropriate mechanism for reallocation of revenues in the
case of goods traded between Member States.
However, Member States are not at present willing to take any of
the necessary steps that would be needed for such an origin-based
VAT system.
The consultation is based on a study carried out on behalf of
the Commission that presents an overview of VAT compliance
obligations (registration, declarations, payment and refunds) in
each Member State.
The study points out that these obligations are extremely
burdensome for cross-border traders. It concludes that ultimately
there should be a single, harmonised EU VAT-compliance regime
(harmonisation of when and how VAT obligations have to be
fulfilled) linked to a single place of compliance (where VAT
obligations have to be fulfilled) in the Member State where the
trader has his main establishment.
However, the study acknowledges that a single, harmonised
compliance regime may be difficult to achieve in the short or
medium term at the EU level. It therefore suggests a step by step
approach to achieving these goals.
The Commission intends to launch a new VAT proposal in 2004
taking into account both the conclusions of the study and the
opinions expressed during the public consultation, which is open
for comments until the end of August 2003.
