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Document 52000AE1413

Opinion of the Economic and Social Committee on:the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EEC) No 218/92 on administrative cooperation in the field of indirect taxation (VAT), andthe Proposal for a Council Directive amending Directive No 77/388/EEC as regards the Value Added Tax arrangements applicable to certain services supplied by electronic means

OJ C 116, 20.4.2001, p. 59–67 (ES, DA, DE, EL, EN, FR, IT, NL, PT, FI, SV)


Opinion of the Economic and Social Committee on:the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EEC) No 218/92 on administrative cooperation in the field of indirect taxation (VAT), andthe Proposal for a Council Directive amending Directive No 77/388/EEC as regards the Value Added Tax arrangements applicable to certain services supplied by electronic means

Official Journal C 116 , 20/04/2001 P. 0059 - 0067

Opinion of the Economic and Social Committee on:

- the "Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EEC) No 218/92 on administrative cooperation in the field of indirect taxation (VAT)", and

- the "Proposal for a Council Directive amending Directive No 77/388/EEC as regards the Value Added Tax arrangements applicable to certain services supplied by electronic means"

(2001/C 116/14)

On 11 September 2000 the Council decided to consult the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the above-mentioned 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 7 November 2000. The rapporteur was Mr Walker.

At its 377th plenary session on 29 and 30 November 2000 (meeting of 29 November), the Economic and Social Committee adopted the following opinion by 106 to two, with four abstentions.

1. Introduction

1.1. E-commerce is revolutionising business. The physical locations of a business's management, of its core activities and of ancillary services are coming to matter less and less. National boundaries are irrelevant; the global nature of the competitive electronic marketplace means that it is not constrained by traditional geographic, economic or political boundaries; it will be exploited by those who are best positioned to benefit from its characteristics. This constitutes a major challenge to the world of national tax systems, in which each country expects to tax sales or profits arising within its own territory; for tax administrations, this is perhaps the most important issue which they face today.

1.2. E-commerce holds the promise of significant wealth generation for Europe. It is, therefore, essential that taxation is not a barrier to its growth but rather fosters a climate of confidence within which growth can take place while protecting the interests of all stakeholders. The provision of a clear and certain regulatory environment is accepted by businesses and governments alike as an indispensable prerequisite to creating a climate of confidence in which business will invest and trade. Whilst onerous rules can be stifling to the creative process that drives economic activity, regulatory indecision can be equally disruptive.

1.3. The Lisbon European Council of 23/24 March 2000 concluded that, as part of the measures needed for e-commerce to reach its full potential in the EU, the rules for e-commerce must be predictable and inspire both business and consumer confidence. The Commission's proposal is being put forward in furtherance of this objective.

1.4. Recognising that the emerging electronic business environment - and, in particular, the growth of the Internet as a medium for international commerce - raised a number of issues for the future of the EU's VAT system, the European Commission began examining the tax implications in 1997. Working closely with representatives of the fifteen national tax administrations, the likely impact of the growth of e-commerce on Community taxes was examined in detail. The Interim Report(1) on the implications of electronic commerce for VAT and Customs found that, in a good many instances, the existing mechanisms and legal base would be sufficient to ensure that taxes were collected, although administrations would need to be mindful of the likely impact of the changes in pattern and in the volume of transactions.

1.4.1. A fundamental recommendation of the Interim Report was, therefore, that existing taxes can, and would, be made to work and consequently there was no need to consider new or special taxes for e-commerce. Achieving this would require changes in the existing legislative structure.

1.4.2. It was also clear that a purely legislative approach to taxing e-commerce was not the sole answer. E-commerce is a truly global process and no tax jurisdiction, acting in isolation, can resolve all the issues that it raises. A level of international collaboration is needed. The successful administration and application of taxes will depend to a great extent on, inter alia, achieving an international consensus on avoiding double taxation or unintentional non-taxation, while giving businesses security and certainty as to their obligations. To this end, the Commission adopted a set of guidelines(2) in June of 1998 as a basis for progress and, in particular, to set an agreed framework for advancing the debate within the Community. The intention was that they would also serve as a common basis for the role to be taken by the EU and its Member States on indirect tax issues in the OECD ministerial conference scheduled for October of that year in Ottawa. These guidelines gave due recognition to the need for international accord. The underlying principle of the guidelines was that the interface between the Community's indirect tax system and those of its trading partners should be neutral - in effect, all supplies for consumption within the EU should be subject to EU VAT while supplies to other jurisdictions should not. This reflects the nature of the Community's VAT system as a general and comprehensive tax on consumption.

1.4.3. The Commission's guidelines were considered by the ECOFIN Council on 6 July 1998, where the Member States endorsed three main principles:

- no new or additional taxes need be considered for e-commerce; existing taxes, and specifically VAT, should be adapted so that they could be applied to e-commerce;

- for the purposes of consumption taxes, electronic deliveries should not be considered as goods; in the case of the EU VAT system, they should be treated as supplies of services;

- only supplies of such services consumed in Europe should be taxed in Europe. The Council also highlighted the following matters:

- the issue of control and enforcement of VAT on e-commerce;

- the need for rules for the acceptance of paperless invoicing;

- the fact that compliance for non-EU operators should, having regard to international agreements, be made as easy and simple as possible;

- the need to provide for the discharge of fiscal obligations by electronic means. Internationally, the Taxation Framework Conditions, subsequently endorsed by government and business representatives at the Ottawa Conference, identified as a particular priority the implementation of a consumption tax system that conformed to traditional broad taxation principles, including neutrality, efficiency, certainty and simplicity. Such a system is effectively in line with the principles adopted by the Council.

1.4.4. As one step in an extensive consultation process, more than one hundred European business representatives, including representatives of SMEs, attended a Round Table on the options for the European union VAT system in Brussels in January of 1999. The consistent message which the business interests expressed was that clarity in the tax rules for e-commerce is a priority and that there is a need for certainty as to what the rules are and how they will be applied. The Commission fully recognises the importance of eliminating the uncertainties and distortions in the present tax system.

1.5. The intention is to improve the functioning of the single market, but without putting in question the long-term legal and political commitment to a definitive system of taxation and the degree of harmonisation that this will require. The proposal now being made on the taxation of certain services supplied by electronic means is a first step in implementing this strategy.

2. The Commission proposals

2.1. VAT on certain services supplied by electronic means

2.1.1. The present proposal addresses the issue of on-line supply of digitised products, in particular those destined to final consumers in the European union, which was identified as a potential tax problem in the Interim Report. This is a new type of business transaction, which had not been envisaged when the existing legislative base was drawn up. Furthermore, the compliance, control and enforcement models currently available to tax administrations are likely to be inadequate in certain respects.

2.1.2. The consultations undertaken by the Commission have confirmed the view that the modifications should be based as closely as possible on the operation of the current VAT system. What is being proposed, therefore, is predicated on the continued use of the reverse charge system for transactions involving registered traders, linked to the imposition of a registration obligation on non-EU operators supplying to EU non-taxable persons.

2.1.3. The approach taken is to amend Article 9 of the 6th VAT Directive. The current rules of this Article, and, in particular, paragraphs (1) and (2) (c) and (e) of the 6th Directive, provide that:

- supplies of third country-based operators to non-taxable persons in the EU are exempt from VAT while EU-based operators have to charge VAT on such services, since the place of supply of such services is usually the place where the supplier is established (such cases are not covered by Article 9 (2) (e) and fall under the basic rule in Article 9 (1);

- supplies by EU-based operators of the services mentioned in Article (9) (2) (c) to customers in third countries or to taxable persons established in the Community but not in the same country as the supplier may have to be made with VAT because the place of supply is the place where the services are physically performed. This creates distortions of competition and places EU-based suppliers at a disadvantage vis-à-vis non-EU operators. The remedy proposed is to introduce a new paragraph (2) (f) to Article 9 which transfers as a basic rule the taxation of the services caught by this proposal to the place where the customer has established his business or has a fixed establishment to which the service is supplied or, in the absence of such a place, the place where he has his permanent address or usually resides. Where the customer is a registered trader established in a country other than that in which the supplier is established, the customer will assume liability for the tax. When supplies are made by taxable persons (established inside or outside the Community) to non-taxable persons established in the Community the proposal introduces a specific provision establishing the place of supply in the Member State where the supplier is identified for VAT [Article (9) (2) (f)].

2.1.4. The effects of this proposal may be summarised as follows:

- for services supplied by a non-EU operator to an EU customer the place of taxation will be within the EU and the transaction will be accordingly subject to VAT;

- where these services are provided by an EU operator to a non-EU customer, the place of taxation will be where the customer is located and the transaction will not be subject to VAT;

- where an EU operator provides these services to a registered trader in another Member State, the place of supply will be the place where the customer is established;

- where an EU operator provides these services to a non-registered person in the EU, or to a registered trader in the same Member State, the place of supply will be where the supplier is located.

2.1.5. The proposal does not have any impact on services, whether defined in Article 9 (2) (f) or not, for which no charge is made, such as free Internet access or free downloads. (Article 2 of the 6th Directive makes it clear that only services effected for consideration are subject to VAT). Nor does it affect transactions involving the physical movement of goods, even where the transactions are conducted by electronic means. Its scope is limited to the following services when supplied by electronic means against consideration and includes also the supply of the rights to use several services:

- cultural, artistic, sporting, scientific, educational, entertainment and similar activities, including the activities of their organisers and also ancillary services [Article 9 (2) (c), 1st indent]. This includes all forms of broadcasting as well as other sound and images released and delivered by electronic means;

- software, including, for example, computer games;

- data processing (Article 9 (2) (e), 3rd indent) and explicitly including computer services, including web-hosting, web design and similar services;

- the supplying of information. For convenience, in the remainder of this document all of the above services will be collectively referred to as the supplies which are caught.

2.1.6. A number of additional measures have been necessary to facilitate the proposed legislation. The effect of these can be summarised as follows:

- tax on supplies to registered traders will be accounted for by the customer; registration for tax purposes by non-EU suppliers will only be necessary if supplies are made to unregistered customers;

- registration will not be required for non-EU established traders whose annual level of sales in the EU is below EUR 100000;

- a single place of registration (which will, in practice, normally be the Member State to which the first taxable supply is made) will be possible; this will enable the non-EU operator to discharge all obligations for EU VAT with a single tax administration; this latter measure effectively puts EU and non-EU operators on an equal basis when supplying EU customers;

- it will also be possible to complete electronically all procedures in relation to registration and the filing of tax returns;

- tax administrations will provide operators with the means to distinguish easily the status of their customers (i.e. whether the customer is a VAT-registered business or not) and this will normally provide the means whereby a supplier, acting with all possible diligence, can determine whether or not a transaction should bear tax.

2.1.7. Under the current legislation, the rate of tax to be applied for sales to customers within the Community is the standard rate of VAT for the Member State in which the supplier is registered. In this context, there is a potential issue to be addressed concerning the possibility of different rates of tax applying to ostensibly similar goods and services. The Commission intends to address this matter in a future review of Annex H of the 6th VAT Directive, which lists the supplies of goods and services which may be subject to reduced rates of VAT.

2.2. Aims and contents of the proposal amending Regulation (EEC) No 218/92

2.2.1. The above proposals necessitate a change in the current legal basis for confirming the validity of VAT identification numbers. The current wording of Article 6 of Regulation (EEC) No 218/92 allows Member States to confirm the validity of the VAT identification number of any specified person. However, the scope of this confirmation is limited to "persons involved in the intra-Community supplies of goods or of services". As services supplied by electronic means, as defined in the Proposal to amend Directive No 77/388/EEC, may involve non intra-Community supplies of services, an amendment to the scope of the Regulation is necessary to allow Member States to give confirmation of the validity of a customer's VAT identification number to any person supplying services by electronic means.

2.2.2. Taxable persons supplying services in accordance with Article 9 (2) (e) of Directive No 77/388/EEC have no legal obligation to confirm that their customer has a valid VAT identification number. Nevertheless, the possibility of verification of customers' VAT identification numbers should, the Commission believes, also be extended to these suppliers. As a trade facilitation measure, it is necessary that the confirmation of validity of VAT identification numbers can be made by electronic means. To that end, the current proposal allows for this possibility by means of a Council Decision made in the framework of the Commission exercising its implementing powers. Because the Council has decided to amend the procedures for the exercise of implementing powers conferred upon the Commission, the opportunity provided by the necessity to amend the Regulation is being used to update the comitology procedures. The Commission is making this proposal under Article 95 of the Treaty because the measures proposed do not constitute fiscal harmonisation provisions but are intended to ensure the proper functioning of the internal market for services offered by electronic means. By choosing Art. 95 EC as the legal basis, the Commission is consistent with its proposal for Regulation No 218/92/EEC of 19 June 2000 (COM(90) 183), where it already suggested Art. 100A EC-Treaty (now Art. 95 EC) as the appropriate legal basis. The fact that the content of this information can be used for a correct tax assessment does not mean that taxation, as such, forms the principal objective of Regulation No 218/92/EEC or its proposed modifications. The legal basis for the harmonisation of indirect taxation is Art. 93 EEC.

3. General comments

3.1. The Committee welcomes the Commission's proposals on VAT and electronic commerce on the basis that they should contribute significantly to the establishment of a "level playing field" between EU businesses supplying services by electronic means to consumers and non-EU operators addressing the same markets.

3.1.1. In principle, the approach to supplies to final consumers is correct, as it establishes the EU's right to tax digitised products supplied to EU consumers. For supplies exceeding the threshold this would remove the competitive advantage currently enjoyed by non-EU suppliers of digitised products by requiring them to charge EU VAT on supplies to EU consumers, thereby putting them in the same position with regard to their sales within the Community as EU traders.

3.1.2. Similarly, the ability of EU traders to make supplies to non-EU customers free of VAT will remove a significant competitive disadvantage.

3.2. The Committee has consistently supported the introduction of a new definitive system of VAT based on taxation in the country of origin at the earliest possible opportunity and has repeatedly called upon the Member States to recognise the importance of this measure and to stop blocking initiatives for VAT reform(3). It therefore welcomes the Commission's assurance that the present proposals do not put in question the long-term legal and political commitment to a definitive system of taxation.

3.3. The Committee agrees with the objectives of achieving simplicity, clarity and certainty for businesses with regard to their legal obligations. For businesses, lack of certainty constitutes a greater hazard and a stronger disincentive than a known burden.

3.3.1. It also agrees that there is a need to protect law-abiding businesses from the unfair competition of traders who evade their tax obligations. It is clearly inequitable that the honest business should, in effect, be subsidising those with a lower standard of ethics. The payment of taxes is a social and legal obligation which should not be circumvented.

3.3.2. The Committee agrees that new forms of taxation are not necessary and that existing taxes can and should be adapted to cope with e-commerce.

3.3.3. It endorses the principle that the necessary modifications should be based as closely as possible on the operation of the current VAT system until such time as a new definitive system can be introduced.

3.4. The issue is not primarily one of revenue retention at this stage. The total existing volume of sales of digitised products would yield no more than EUR 35 million per annum in the EU as a whole. However, the potential for growth in e-commerce is exponential and this could give rise to serious tax losses at a later stage if the position is not regularised. The Committee approves the principle of getting the tax structure right before revenue loss becomes a serious issue.

3.5. It is important that these proposals, which are a useful starting point in adapting the VAT system to cope with e-commerce, are not allowed to prejudice or adversely affect any work by the OECD Consumption Tax Working Group. As the Commission itself acknowledges, e-commerce is a truly global process and the issues which it raises can only be solved by a process of international co-operation involving the widest possible constituency.

3.6. The main concern with regard to these proposals must relate to the question of enforceability. This, in turn, will depend on three factors:

- the willingness of non-EU traders to submit to voluntary registration;

- the willingness of non-EU tax administrations to cooperate in enforcement procedures;

- the possibility of securing enforcement by other means.

3.6.1. VAT is a tax which imposes considerable administrative burdens on the businesses which are registered traders; refusal to comply may well stem as much from an unwillingness to incur the costs of undertaking the work involved in completing the returns as from a desire to achieve an illicit competitive advantage. The existence of a single place of registration would greatly simplify the process for non-EU traders and is obviously a key factor in securing their compliance. It is questionable whether this measure will be acceptable to a majority of Member States but, without it, the chances of persuading non-EU businesses to register in the EU would be substantially reduced. The main problem is likely to arise from fears by some Member States that they might lose revenue to those with lower rates of VAT, since the proposal that registration should take place in the Member State where the first taxable supply takes place is clearly open to manipulation and non-EU traders would effectively have a choice of the Member State in which they chose to register. This could be dealt with by setting up a "clearing house" system to redistribute tax revenues between the Member States on the basis of consumption but previous experience has shown that such arrangements are inevitably so complex as to be unworkable.

3.6.2. It is unlikely that tax administrations in other countries would be prepared to expend much effort in collecting tax revenues on behalf of EU Member States or in pursuing tax evaders. The level of co-operation on these issues even between Member States has been disappointing.

3.6.3. The efficacy of other measures which might be introduced to secure compliance on a non-voluntary basis is uncertain. As the Commission says, failure to comply with self-assessment obligations does nothing to reduce or remove a debt owed in respect of taxation, but if the debt is not enforceable that is an academic point. Given the amount of tax fraud which is acknowledged to take place in the EU under existing regulations, it is clear that reliance cannot be placed entirely on voluntary compliance; tools for direct enforcement will need to be developed if the scale of evasion is not to bring the system into disrepute. One possibility is, as the Commission suggests, through credit cards but there are problems associated with this approach. The use of the country indicator in the credit card number would only be practicable when the non-EU supplier was prepared to co-operate. A more radical approach would be to require credit card issuers to levy VAT on the transactions charged to each card. Apart from being difficult to implement, this approach is open to a number of objections. In the first place, banks, which control most credit card issues, may be reluctant to release this information; in some cases, they may be constrained by legal restrictions in their Member States. Secondly, it is quite possible for people to hold credit cards issued by banks located in countries other than their own; if it became obvious that there was a significant commercial advantage to be obtained by issuing credit cards on which tax could not be levied, then there would be a number of financial institutions, located in off-shore tax havens, which would offer this facility. Finally, as the Commission says, credit card payments are likely to be superseded by other payment systems for e-commerce transactions. There is also the question of whether credit-card companies would be willing to undertake the additional work involved in providing this information. Similar considerations apply to other intermediaries whose help might be enlisted, such as Internet service providers, telephone companies and inter-active television companies. There is an implied threat in the Commission's paper that non-EU operators who refused to comply might have protection for their intellectual property rights withdrawn in the EU. This would be a strong inducement, given that many of the products involved in e-commerce are easily piratable, but such a course of action would put the EU in breach of international agreements which it has concluded on this subject; it would also risk violating WTO rules. The Commission looks towards new tools to ensure enforcement against non-compliant businesses and expects such tools to become available as technology and e-commerce procedures develop but experience suggests that legislation, especially in the field of taxation, tends to lag behind technology. The technological advantage lies with the evader rather than the legislators. The prevention of tax evasion, as in other areas of criminal activity, depends for its effectiveness primarily on a reasonable and realistic expectation that non-compliance will be detected. The difficulty in the area of e-commerce lies in knowing that the transaction has even taken place. The proliferation of the use of portable personal computers enables the transaction to be generated from anywhere in the world regardless of the domicile of the consumer. Failure to secure compliance, whether voluntary or involuntary, from the vast majority of traders whose transactions would be liable to EU VAT under these proposals would precipitate defections amongst those non-EU operators who had previously submitted to registration, because they would then be in a position of competitive disadvantage.

3.7. It will obviously be necessary for non-EU traders who choose to comply with the self-assessment obligation to have the means of verifying the tax status of their customers. This process would be greatly facilitated if national tax administrations were to publish directories of VAT-registered traders in their jurisdiction, in the same way that telephone directories or voters lists are published; these directories could be updated on a three-monthly basis.

3.8. The list of supplies which are caught by this proposal is far from exhaustive and this gives rise to the possibility of litigation concerning whether a specific service is or is not covered by one or other of these defined categories and, if so, which one. This creates a degree of uncertainty, which the Commission has said that it is trying to avoid. There is also the problem that lists may become outdated by technological developments leading to the introduction of new types of services. It would be preferable to have a more general categorisation. There is a strong case for replacing lists with something couched in more general terms, which would be better able to deal with future developments.

3.9. The Commission's proposals represent an effective extension of the use of the reverse-charge procedure. This is contrary to the Commission's former stance, which has, in general, been hostile to extensions of the reverse-charge principle on the grounds that it moves the VAT system further from the definitive, origin-based system of VAT towards which it is working.

3.10. The Committee particularly welcomes the Commission's assurance that it, "will continue to work to ensure that any aspects of the EU tax system which can be construed as obstacles to growth of e-commerce are removed." The Committee regards this as an indispensable prerequisite for the taxation of e-commerce.

3.11. The proposal refers to the use of "all possible diligence". The Committee feels that this could potentially constitute a very onerous requirement if it were interpreted too rigidly. It is also concerned that differences between the Member States in the way in which this term is interpreted and applied could result in a further fragmentation of the system and increased difficulties for cross-border traders. The Committee feels that a requirement to exert "all reasonable diligence" would be less prejudicial.

4. Specific comments

4.1. This proposal is the latest in a series of amendments to Article 9 of the 6th VAT Directive, the cumulative effect of which has been to produce a degree of complexity which is less than desirable. While major restructuring of the 6th Directive may seem unnecessary in the context of an impending new definitive system, it has to be recognised that this definitive system has been a long time in gestation; given the reluctance of Member States to agree to changes to the VAT system, the emergence of a new definitive system in the immediate future must be viewed with a degree of scepticism; if its advent is to be much further delayed, then the Committee would advocate that, without calling into question the commitment to a new definitive system or further delaying its implementation, there should be a major re-write of Article 9 as part of a comprehensive modernisation of the existing system.

4.2. The proposals permit some tax-free transactions across borders, and this is broadly welcomed, but a greater emphasis on Article 9 (2) (e) is required, and not just for e-commerce. For cross-border supplies of all services and digitised products, Article 9 (2) should be the default, not Article 9 (1).

4.3. The addition of Article 9 (2) (f) to cover digitised products with different rules from Article 9(2)(e) could create administrative complexity and distortion in favour of non-EU suppliers where "bundled" or composite supplies with elements falling within the different sub-paragraphs are made.

4.3.1. Broadcasting has not been included as a specific item in Article 9 (2) (f), which seems very odd considering the preamble. TV broadcasting supplies that fall within Article 9 (2) (c) will be included in the new Article 9 (2) (f). This seems to include certain aspects of broadcasting but not all. This area needs redrafting to identify clearly what is included in Article 9 (2) (f). The problem would be largely removed if digitised products and broadcast services were subject to the same rules.

4.3.2. Data processing remains in Article 9 (2) (e) but when supplied by electronic means it becomes an Article 9 (2) (f) service. A large proportion of data processing is carried out by computers (data processing machines) and the inclusion under both articles will clearly produce difficulties. Article 9 (2) (f) defines computer services as "including web-hosting, web-design or similar services". Without clearer definition, there will be significant differences of interpretation. For example, computer hire could be included here or under Article 9 (2) (e), while maintenance of computer equipment could fall either here or under 9 (2) (c).

4.4. There is potential for anomalous situations to arise where a service provided by electronic means is taxed at a different rate from that applied to an identical service provided by conventional means because, for example, the conventional service is taxed at a reduced rate in a given Member State while the electronic service is taxed at the standard rate.

4.5. The Committee notes that a turnover threshold of EUR 100000 will be applied to non-EU operators before registration will become mandatory. It considers that the distortion of competition between EU and non-EU traders would be further reduced if this threshold were standardised in all the Member States for both domestic and foreign operators.

4.6. The Committee warmly welcomes the proposal to allow traders to discharge their fiscal obligations, including the verification of the customer's VAT status and the payment of the tax, by electronic means. In particular the Committee considers that the electronic verification of the customer's VAT status is an indispensable precondition for e-commerce. It considers that such facilities should be extended to all registered traders and not just those who are engaged in e-commerce.

4.6.1. The Committee notes that some Member States may require derogations from this requirement for a transitional period because their tax authorities are not yet equipped with the requisite technology. An extended transitional period during which a number of Member States were not operating an electronic system would again create differences between the Member States which would undermine the continuity of the system; it would also discourage non-EU operators from registering in those countries. The Committee hopes that any derogations given in this context will be limited to the shortest possible time.

4.7. The Committee notes that the Commission intends to make a review of Annex H of the 6th VAT Directive, which lists the supplies of goods and services which may be subject to reduced rates of VAT. While this is obviously necessary, it is doubtful whether the Member States would accept further restrictions on their ability to apply reduced rates of tax.

4.8. The exponential expansion potential of e-commerce poses problems for the taxation of goods as well as services. The sheer volume of cross-border transactions in goods is likely to create severe difficulties for customs services, which have to levy VAT on imported goods at the border. It has already been necessary in some Member States to raise the threshold of unit value at which VAT becomes due; further increases in this threshold are likely to be necessary and it may be that some other system for taxing cross-border transactions in goods will have to be found.

4.9. There is a risk of an element of double taxation for European consumers. Where a non-EU supplier is required to charge sales tax in the country of origin on export sales and registers for self-assessment to EU VAT, there is no mechanism proposed for recovering or offsetting the foreign tax, in contrast with the situation which pertains for foreign dividends.

4.10. The Committee agrees with the Commission's decision to use Article 95 of the Treaty as the legal basis for the proposed regulation.

5. Conclusions

5.1. E-commerce is a global business and the taxation challenges which it raises can only be tackled effectively by the widest possible degree of international co-operation.

5.2. The Committee agrees with the Commission on the need to remove the existing competitive disadvantage for European traders vis-à-vis non-EU operators, the need to protect compliant businesses against unfair competition from traders who evade their fiscal responsibilities and the need to modify the VAT system to cope with the new challenges presented by e-commerce.

5.3. The Committee endorses the principle that taxation in general should exhibit the qualities of neutrality, efficiency, certainty and simplicity.

5.4. The Committee agrees that no new or additional taxes need to be considered and that existing taxes should be capable of being adapted to cope with e-commerce.

5.5. The Committee regrets the length of time which it is taking to introduce a new definitive VAT system and welcomes the Commission's assurance that it is still fully committed to this project.

5.6. The Committee approves of the proposals to allow traders to submit VAT returns, make payments, verify the VAT status of their customers and provide any other information required by the tax authorities by electronic means and hopes that any derogations granted to Member States in respect of their obligation to make this facility available to operators in their jurisdiction will not be unnecessarily lengthy.

5.7. The Committee welcomes the Commission's assurance that any aspects of the EU tax system which can be construed as obstacles to e-commerce will be removed.

5.8. The Commission's proposals fit well with the principles of VAT; if VAT is to remain the standard European tax on consumption, applicable to all forms of commerce, something along the lines proposed should be introduced. Unfortunately, there must be doubts about the enforceability of the Commission's proposals and their acceptability to the Member States in their present form.

Brussels, 29 November 2000.

The President

of the Economic and Social Committee

Göke Frerichs

(1) Document XXI/98/0359 dated 3 April 1998.

(2) COM(1998) 374 final.

(3) OJ C 82, 19.3.1996, p. 49, OJ C 296, 29.9.1997, p. 51, OJ C 101, 12.4.1999, p. 73, OJ C 116, 28.4.1999, p. 14.