52022SC0393

The Union One Stop-Shop (OSS) is an optional simplification measure that traders established in the EU can use to declare and pay the VAT due on all their cross-border supplies of services to non-taxable persons taking place in the EU, as well as all their intra-Community distance sales of goods 3 . Exceptionally, Electronic Interfaces (EIs) who become the ‘deemed’ supplier for certain supplies of goods within the EU can also declare certain domestic supplies of goods in the Union OSS. Traders that opt to use this simplification do not need to register for VAT in each Member State in which their eligible supplies of goods and services to consumers take place. Instead, the VAT due on those supplies is declared via a single quarterly electronic VAT OSS return, followed by a single quarterly payment, which are submitted to their Member State of identification.

The Import One Stop-Shop (IOSS) is an optional simplification used for the declaration and payment of VAT due on distance sales of low value goods imported into the EU with an intrinsic value not exceeding EUR 150, excluding excisable goods. Where a trader registers to use IOSS, their supplies of eligible goods are effectively taxed at the time of purchase. Consequently, these low value goods are exempt from import VAT upon importation into the EU. The VAT due on eligible supplies of low value imported goods can be declared via a single monthly electronic IOSS VAT return, accompanied by a single payment to the Member State of identification. Suppliers and electronic interfaces who are not established in the EU need to appoint an intermediary to be able to use the import scheme, unless they are established in a third country with which the EU has concluded a VAT mutual assistance agreement which is similar in scope to EU legal acts in that area.

Place of supply

The place of supply is the Member State in which the VAT is due. Under that general rules, the place of supply of goods is where those goods are located at the time of the supply, or if they are transported, where the goods are located when the transport begins. For services, the place of supply is the Member State of the customer for B2B supplies, and the supplier for B2C supplies. However, there are a number of exceptions to these rules, for example relating to services connected to immoveable property (where the place of supply is where the property is located), and electronically supplied services (where the recipient is established in both B2B and B2C cases).

Recapitulative statement

When a business sells goods or services to a business in another Member State, it is obliged to submit a recapitulative statement to its Member State detailing the business to whom it has made the supply, and the total amount of supplies to that business. This information is submitted monthly, although Member States may allow for quarterly submission where the value of supplies does not exceed EUR 50,000 per quarter. The information is shared between Member States, and is used to help ensure compliance (for example, Member States can check whether the business acquiring the goods or services has made a domestic supply in their own Member State).

Reverse charge

When a business makes certain supplies of services or goods to a business in another Member State and the place of supply is the Member State of the customer, that business would be required to register in the Member State of the customer in order the account for the VAT. In order to avoid this, the business can use the reverse charge. This is a system by which the supplier does not account for the VAT on its invoice, and instead the customer accounts for the VAT in its VAT return. The supplier should clearly indicate on its invoice that the reverse charge applies.

SAF-T

A SAF-T is a file containing reliable accounting data exportable from an original accounting system, for a specific time period and easily readable by virtue of its standardisation of layout and format that can be used by revenue authority staff for compliance checking purposes. One of its possible uses is the reporting of transaction data.

SME scheme

VAT is, in essence, applied to every taxable transaction by a taxable person. This means that small and micro enterprises should account for VAT on every transaction. However, due to the historical difficulties of a) ensuring compliance on these small businesses, and b) the relatively high administrative burdens VAT registration would impose on these businesses, the VAT Directive 4 contains an optional SME scheme, where Member States allow for small businesses to eschew some or all of the burdens imposed on a business. In practice, this means that, where the SME scheme applies, businesses are not required to account for VAT on their sales, but neither can they deduct VAT on their purchases. The eligibility of a business to use a SME scheme is based on their annual turnover, with thresholds differing across Member States, ranging from EUR 5,000 to EUR 88,500 5 .

Value Added Tax (VAT) and VAT system

The Value Added Tax (VAT) is a general tax on consumption. The term ‘general’ refers to the fact that the tax is paid on most goods and services, with relatively few exceptions (e.g. medical treatment, teaching). Purchasers pay a percentage-based tax on what they buy, based on the value and the nature of the product. VAT is collected fractionally by businesses who pay it on to the government. The term ‘fractional’ refers to the fact that each business only pays for the added value on its turnover, i.e. the difference between its sales (output) and purchases (inputs). In practice this is done by charging VAT fully on each sale but granting businesses the right to recover (deduct) the VAT they themselves paid on their purchases. An exception to that rule is that businesses whose sales are lower than a certain threshold are allowed to stay out the system and not pay VAT; however, if they do so they are not entitled to any reimbursement of the VAT (SME scheme). This exemption system has the advantage of sparing micro-enterprises from red tape but can create some distortions.

The VAT Directive is the main piece of EU VAT legislation. Recitals 4 and 5 of this Directive provide:

“A VAT system achieves the highest degree of simplicity and of neutrality when the tax is levied in as general a manner as possible and when its scope covers all stages of production and distribution, as well as the supply of services. (…) It is therefore necessary to achieve such harmonisation of legislation on turnover taxes by means of a system of value added tax (VAT), such as will eliminate, as far as possible, factors which may distort conditions of competition, whether at national or Community level”.

In brief: in order to work as intended, the VAT rules need to be harmonised and applied uniformly by the Member States.

1.Introduction: Political and legal context

VAT is a major source of revenue 6 for Member States’ budgets, representing approximately 7% of gross domestic product (GDP). In 2019, the VAT revenue for the 27 Member States (EU-27) amounted to over one trillion euro. Moreover, VAT revenues contribute to the EU budget, since 0.3 percent of VAT collected at domestic level is transferred to the EU as own resources, representing 12% of the total EU budget.

However, the VAT system has not kept pace with the digitalisation of the economy, which poses new challenges to tax authorities and the VAT system due to, for example, the emergence of new business models and the increasing amount of data with which tax authorities need to deal. Nevertheless, digitalisation also creates opportunities, providing new digital tools and solutions to help tax authorities cope with their tasks while allowing for the simplification of tax compliance and reducing its costs. This initiative thus seeks to adapt the EU VAT framework to the digital era, in line with one of the six top priorities of the Commission 7 , “A Europe fit for the digital age”.

The Commission announced this initiative as part of its Action Plan for fair and simple taxation supporting the recovery (hereafter “Tax Action Plan”) 8 and is included in the 2022 Commission work programme 9 . The objectives of this initiative, as indicated in several actions of the Tax Action Plan, are as follows:

-Modernising VAT reporting obligations 10 (Action A4),

-Addressing the challenges of the platform economy 11 (Action A23), and

-Avoiding the need for multiple VAT registrations in the EU and improving the functioning of the tool implemented to declare and pay the VAT due for distance sales of goods imported from outside the EU 12 (Actions A1 and A5).

Following the announcement of the Commission’s Tax Action Plan, the Council stated that it “supports the Commission’s suggestion to clarify, simplify and modernise the EU VAT rules”, “welcomes the initiative announced by the Commission to modernise reporting obligations for cross-border transactions (…) and the Commission’s intention to examine the need to adapt the VAT framework to the platform economy” 13 . The European Parliament resolutions generally support initiatives to fight VAT fraud 14 . Further, the Parliament mentioned its explicit support for the initiative in that it “looks forward to the legislative proposal for modernising VAT reporting obligations” 15 . More recently, the European Parliament adopted a resolution 16 noting the potential of data and digital tools to reduce red tape and simplify various taxpayer obligations, in particular in the area of VAT returns and recapitulative statements, (…) and welcoming the Commission's proposal to modernise, simplify and harmonise VAT requirements, using transaction-based real-time reporting and e-invoicing. Moreover, the resolution underlines that the diversity of the Member States’ tax regulations constitutes a cumbersome challenge and, while endorsing the Union One Stop Shop (OSS), asks to broaden its scope to encompass a wider range of services.

By exploiting digital technologies, the current initiative offers a huge potential in the fight against VAT fraud, in particular missing trader intra-Community (MTIC) fraud 17 , estimated in the range of EUR 40-60 billion 18 , which is a significant part of the ‘VAT Gap’, which itself was recently estimated at EUR 134 billion in the VAT Gap Study. 19 In the same study, the underlying reasons for the VAT Gap were grouped into four broad categories that include (i) VAT fraud and VAT evasion, (ii) VAT avoidance practices and optimisation, (iii) bankruptcies and financial insolvencies and (iv) administrative errors. Since VAT fraud is part of the VAT gap, even if the exact size of the VAT fraud is difficult to measure, the VAT gap still offers a useful and unique EU-wide indicator of the fraud. MTIC fraud is linked to the way cross-border EU transactions are taxed under the current VAT regime 20 , which dates from 1993 and was intended to be a transitional system. While several Member States have made significant technological investments to improve risk assessment and tax control processes, the possibilities offered by new technologies have not yet been reflected in the VAT Directive, whose mechanism to report intra-Community transactions, the recapitulative statements 21 , is outdated compared to the digital reporting systems implemented by Member States.

The Commission tabled in 2018 a proposal 22 for a definitive VAT system for the taxation of trade between Member States, which is still under discussion in Council. This proposal aimed to replace the transitional system referred above by treating intra-Community transactions in the same way as domestic ones. VAT would be due in the Member State of destination of the goods 23 at the rate of that Member State but would be charged and collected by the supplier in its own Member State 24 . The VAT in the Digital Age initiative has the potential to strengthen both the current and the definitive VAT system.

In addition, over recent years, issues relating to the taxation of the digital economy have become the subject of discussions regarding possible changes to fiscal policies 25 . The growing importance of the platform economy in the collection of VAT was recognised, notably the potential for digital platforms to significantly enhance the effectiveness of VAT collection given their role in generating or facilitating online sales 26 . This is particularly relevant considering the large number of natural persons and small businesses who operate on these platforms, many of whom are unaware of their potential VAT obligations.

The VAT in the Digital Age initiative runs alongside further Commission initiatives relating to the Digital Economy 27 , such as the recently adopted Digital Services Act 28 , the recent proposal for a Directive to improve working conditions in platform work 29 , or the ongoing work relating to Short Term Rental 30 . Under these initiatives the general direction of travel is to make platforms more responsible and play a greater role in the regulatory framework.

Furthermore, from 1 July 2021, the VAT rules on cross-border business-to-consumer (B2C) e-commerce activities changed to address challenges arising from the VAT regimes for distance sales of goods and for the importation of low value consignments. Online sellers, including online marketplaces/platforms can register in a single Member State using the One Stop Shop (OSS) for the declaration and payment of VAT on their distance sales of goods and cross-border supplies of services to customers within the EU and the Import One Stop Shop (IOSS) for goods coming from outside of EU 31 . An evaluation of the first six months since the entry into application of these new rules can be found in Annex 6. Improvements to the current schemes will be considered in this initiative. Moreover, an e-commerce study 32 focussing on the import process as well as an evaluation of the Union Customs Code is currently being carried out and could impact on the IOSS extension.

The initiative supports the EU’s sustainable growth strategy 33 that refers to better tax collection, the reduction of tax fraud, avoidance and evasion and the reduction of administrative burdens and compliance costs for business, individuals, and tax administrations. Improvement of the taxation systems to favour more sustainable and fairer economic activity is also included in the EU’s competitive sustainability’s agenda.

2.Problem definition

The causes and consequences of the problems to be tackled by the Commission initiative are summarised in the Problem Tree.

Figure 1 – Problem tree

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* i) Some transactions are not covered by the OSS and IOSS schemes and ii) the SME simplification scheme reduces VAT equality and neutrality in the platform economy

2.1.What are the problems?

Two main problems were identified in the supporting study 34 :

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 the development of 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 (related to problem 1) and burden reduction (related to problem 2) are not fully seized. The problems are especially visible in three areas:

§VAT reporting (including digital reporting),

§VAT administration (treatment) of the platform economy, and

§VAT registration.

VAT reporting and digital reporting requirements (DRR)

The VAT Directive ( Directive 2006/112/EC ) 35 , which is the main piece of EU legislation in the field of VAT, dates from the 1970s and, as such, the default reporting requirements are not digital. However, the Directive grants Member States a wide discretion to introduce the obligations they deem necessary to ensure the correct collection of the tax and to prevent evasion.

Taking advantage of this possibility, several Member States have introduced various types of digital reporting requirements (DRR) 36 which have proven successful in increasing tax collection, thanks to both the improvements to tax control and the deterrent effect on non-compliance 37 . Different types of DRRs are currently in place in several Member States: clearance e-invoicing (Italy), real-time reporting (Hungary, Spain), SAF-T reporting (Lithuania, Poland, Portugal), VAT listing (Bulgaria, Croatia, Czechia, Estonia, Latvia, Slovak Republic) – see Box 1 and Annex 4: Analytical methods . In addition, some Member States have requested a derogation to introduce obligatory e-invoicing (France, Romania, Poland) or announced upcoming reporting requirements (Greece), while mentioning in the targeted consultation that they prefer to wait for an EU solution before introducing a unilateral solution. Other Member States (Belgium and Denmark) have announced their intention to apply mandatory e-invoicing, even though they are not linked to a reporting obligation yet. Germany has also confirmed its intention to implement mandatory e-invoicing for B2B transactions. This shows the high degree of complexity generated by the lack of EU regulation in the field, and how the situation, far from being settled, continues to evolve, and requires increasing administrative and adaptation costs for businesses.

An econometric model 38 based on a panel regression method with fixed effects was used to estimate the impact on VAT revenue associated with the introduction of DRR solutions. The model looked at the development of VAT revenue in Member States which had introduced DRRs as opposed to a control group which had not. The assessment of the changes to VAT revenues has been done by means of an econometric analysis based on panel-data, to determine whether and to what extent the existing DRRs have resulted in an increase in VAT compliance in the Member States concerned. The increase in VAT revenue during the 2014-2019 period is estimated to be between EUR 19 and EUR 28 billion in the Member States which have introduced DRRs in this period, corresponding to an annual increase of VAT revenue of between 2.6% and 3.5%. 39

Several Member States (Belgium, Denmark, Germany, Ireland, Cyprus, Luxembourg, Malta, Netherlands, Austria, Slovenia, Finland, and Sweden) have not yet introduced DRRs. The decision appears to be mainly driven by their relative lower level of VAT fraud (the 2016-2019 average VAT Gap of the Member States currently having or announcing to adopt DRRs is 15.2% compared with an average of 8.6% for the ones who do not yet have DRRs in place). There are other aspects that may influence the decision on whether to introduce or not DRRs, such as the IT-related ones (e.g. the particularities of the national IT systems), the adoption of similar requirements in other Member States (e.g. a neighbouring/important trade partner Member State takes the decision to introduce DRR), or other local particularities (e.g. the general readiness of the business population for such measures or the administrative organisation). None of the Member States that have implemented DRRs had recorded a VAT Gap lower than 10% prior to their introduction, except for Spain (where the VAT Gap was 6.5% in 2016) 40 and the top Member States constantly registering the highest VAT gaps (Romania, Greece, Lithuania, and Italy) are among those that have introduced or announced the introduction of DRRs.

As can be seen, the DRRs adopted, which provide information to tax authorities on a transaction-by-transaction basis, vary substantially from one Member State to the other. They can consist in the transmission of monthly reports of business transactions, submissions of invoices in real-time, the transmission of invoice data in real or quasi-real time, or the submission of tax and accounting data or VAT records. Further, other Member States have implemented non-digital tools for reporting of transactions, such as listings which do not provide data at transactional level, but only the values of sales or purchases per customer or supplier (listings of suppliers and customers). All these requirements are additional to the submission of VAT returns. The global trend shows a move from traditional VAT compliance (i.e. filing forms with periodic aggregate data) towards real-time sharing of transaction-based data with the tax administration (generally based on e-invoicing). However, the VAT Directive 41 represents a significant barrier towards the adoption of e-invoicing requirements, due to the need for Member States to obtain an explicit derogation to adopt digital reporting requirements based on e-invoicing requirements. This has also influenced both the adoption and the design of national digital reporting requirements.

The importance of this problem and the need to act has been confirmed by stakeholders during the public consultation: “the rapid introduction of divergent digital VAT requirements (…) since the adoption of modifications to Article 273 of the VAT Directive via Directive 2010/45 have shown that it is important not only that Member States formally go along with a consensus, but are actually committed to harmonization”. 42

The resulting fragmented regulatory framework brings additional compliance costs for businesses operating in different Member States that have to comply with diverse local requirements and creates barriers within the Single Market. With an increasing number of Member States implementing different models of digital reporting obligations, the costs of fragmentation for multinational companies (MNCs) 43 are significant, estimated at about EUR 1.6 billion per year EU-wide, of which 1.2 billion are borne by small-scale and 0.4 billion by large-scale MNCs 44 .

Further, the current reporting system of intra-Community transactions (referred to in the VAT Directive as “recapitulative statements”) does not allow Member States to effectively tackle VAT fraud linked to these transactions 45 . It should be noted that the current recapitulative statements date from 1993 and have not substantially changed since then. They are ill-prepared for the digital economy and can hardly be compared to the much more modern digital reporting systems implemented by the Member States for domestic transactions.

Among other shortcomings, recapitulative statements provide aggregated data for each taxable person, and not transaction-by-transaction data. They do not allow cross-matching of the data from supplies with that of acquisitions, as the VAT Directive leaves optional for Member States the reporting of intra-Community acquisitions and less than half Member States have introduced this obligation. Further, due to time-reporting differences across Member States, the data may be available to tax authorities in other Member States too late, not only because of the filing frequency, but also because of the time it takes for local tax authorities to upload data on the system. Such shortcomings were rightfully noticed by almost two-thirds of informed stakeholders publicly consulted (also see Figure 4 specific to tax administrations) who totally or partly agree that recapitulative statements would be more effective in fighting intra-EU fraud if data is collected on a transaction-by-basis and closer to the moment of the transaction.

It is worth noting that the reform of the reporting of cross-border transactions inevitably entails changes to administrative cooperation and exchange of data between the competent authorities of the Member States and the VAT Information Exchange System (VIES) 46 . The Tax Action Plan also mentions the “reinforcement of verifications of cross-border transactions”, and a 2023 proposal for VIES 2.0 is expected to complement the current initiative.

Figure 2 – VAT reporting: stakeholders’ views on current situation

Concerning the identified problem, stakeholders in different groups (private individuals – ‘PI’; business organisation/federation – ‘BF’; economic operators – ‘EO’; service providers – ‘SP’; and others, non-specific – ‘O’) agree on the negative impacts stemming from the current situation with regards to DRRs. During targeted interviews, Member States also validated the problem.

In conclusion, while the EU legislation leaves substantial freedom to Member States to implement reporting systems, without providing guidance or a common framework, it still remains difficult for Member States to apply mandatory e-invoicing. Consequently, businesses operating cross-border are confronted with completely divergent systems which in addition cannot be used to exchange information between tax authorities of different Member States. Therefore, Member States cannot address cross border fraud effectively, and in particular MTIC fraud, which is a fraud specifically deriving from the way the VAT rules deal with intra-Community trade. That is why it is necessary to reform the VAT framework right now both to avoid the proliferation of divergent digital reporting systems, preventing unnecessary costs for businesses and to have a common digital transaction-based reporting of intra-Community transactions to tackle cross-border VAT fraud.

VAT treatment of the platform economy

Under the VAT rules a taxable person means any person (natural or legal) who, independently, carries out any economic activity 47 . Such a taxable person is normally required to register for VAT and charge VAT on its sales. Individuals, acting in their private capacity, i.e. not involved in an independent economic activity, are not therefore considered as taxable persons. In addition, the VAT Directive allows for various simplification measures, in particular the special scheme for small enterprises (see glossary) which was introduced in order to a) remove the need to tax administrations to ensure the compliance of a large number of small businesses, and b) reduce the administrative burdens on these businesses. In the past, these businesses were not considered to have any impact on market competition with VAT registered businesses.

The platform economy has, however, introduced new business models in which an indefinite number of private individuals and small businesses can provide their services via a platform. Here the economies of scale and network effect 48 means that these providers are now in direct competition with traditional VAT registered suppliers. For the accommodation sector, for example, over 50% of users of a particular accommodation platform specifically access the offer of the platform over a traditional hotel, and, in Europe, the cost of accommodation offered via the accommodation platform can be, on average, some 8% to 17% cheaper than a regional hotel’s average daily rate 49 . The traditional hotel can be competing with a large number of short-term accommodation providers (for example, in Barcelona, one platform alone provides over 15,000 listings (rooms/apartments/houses etc. for rent), which represents around 50% of the total hotel rooms in the city) 50 .

The information provided by the supporting study indicates that the number of underlying suppliers who are not registered for VAT, whilst varying depending on the type of platform, can be up to 70% 51 . This means that, for example, a hotel in Barcelona could be competing with over 10,000 accommodation listings which do not charge VAT on their services. During the public consultation, more than 70% of respondents having an opinion on the issue said they experience distortions of competition with other domestic firms offering the same services via platforms due to very uneven or uneven treatment of similar services and providers in their Member States 52 . This experience was reported most strongly by business federations. On another hand, the platforms themselves did not see distortions due to uneven treatment at all.

The transport and accommodation sectors have been explicitly identified by the supporting study 53 as sectors in which a) the VAT inequality is at its most apparent (in that the accommodation platform model is competing directly with the hotel sector direct distribution model, and the transportation platform model is competing directly with private taxi firms); and b) these are the two largest sectors of the platform economy 54 , behind e-commerce, which has its own rules regarding the supply of goods. 55 The transport and accommodation sectors together are accounting for more than half of the total value of the platform economy and, by contrast, financial services represent a far smaller sector whose supplies are mostly VAT exempt (See Table 4 ). Other sectors include a variety of areas which suffer less from distortions of competition (e.g. hairdressers, swimming instructors), thus the issue of VAT inequality is not that manifest.

In addressing the distortions of competition in the transport and accommodation sectors, attention should be paid not to impose new obligations on SMEs and natural persons. A system should be found to resolve the existing distortions by looking at the role platforms could play in the collection of VAT, while not imposing disproportionate burden on them.

Furthermore, there are various rules in the VAT Directive which have been applied differently by Member States 56 . For example, the treatment of the facilitation service charged by the platform – in some Member States this is regarded as an electronically supplied service, whilst in others it is regarded as an intermediary service. This is relevant because it can lead to different places of supply 57 , which can subsequently lead to double or non-taxation. Therefore, clarification of these rules is necessary.

Platforms also face difficulties relating to the establishment of the taxable status of the provider of the service. This is because whether the provider is a taxable person or not influences how the platform accounts for the VAT on its facilitation service (for example, if the provider is established in a different Member State to the platform, the platform could use the One Stop Shop for a non-taxable person, or the reverse charge for a taxable person 58 ). Often the platform does not have sufficient information to establish this tax status.

Finally, under Article 242a of the VAT Directive, platforms are required to keep certain information 59 relating to supplies made via the platform and to make it available on request to Member States. Platforms can sometimes find it difficult to obtain that information from the underlying supplier 60 . In addition, they find that they are supplying information which they have already supplied to the tax authorities (for example, under DAC 7 regulations relating to direct taxes). Therefore, it is necessary to look at the information obligations required by platforms to find synergies with other legislation where possible, and consider other means of facilitating record keeping obligations, such as standardising the format in which the records should be made available to Member States, and the frequency with which the records are made available. Such an approach was strongly suggested and supported by the stakeholders during consultations.

During the public consultation, a majority of 161 informed respondents (excluding “do not know” answers) considers ensuring a level-playing field between traditional and platform economy (equal treatment) as very important (107) and important (47) For a minority it is either not important (4) or not so important (2).

In conclusion, the main issue with the platform economy is the inadequacy of the current VAT legal framework to ensure a level playing field with traditional businesses, specifically in the transport and accommodation sectors. Supplies made by small underlying suppliers via a platform are not taxed and the facilitation services made by platforms are taxed differently in different Member States. This leads to difficulties for the platforms, suppliers, and Member States. The business models of the platform economy in particular expose the legislative weaknesses of the VAT Directive with some Member States applying challenging joint and several liability rules on platforms, for example, or treating the supply of short-term accommodation differently depending on arbitrary elements such as the supply of towels etc. Uniform rules are therefore not only required, but also demanded by traditional businesses which are suffering from distorted competition.

VAT registration requirements in the EU

Where businesses perform cross-border transactions which are taxed in other Member States, they face considerable compliance burdens and costs, as presented in the table below.

Table 1 – Minimum VAT-related costs 61 of cross-border trade for businesses (EUR)

Business type	Per MS
Minimum costs of VAT registration (one-off)
Average business	1,200
SME	1,200
Minimum annual VAT compliance costs of doing cross-border trade - implying VAT registration (ongoing) 62
Average business	8,000
SME	2,400

Source: elaboration based on the targeted consultation and Deloitte “VAT Aspects of cross-border e-commerce report” (2015)

From this table, it is to be concluded that the minimum one-off cost of obtaining a VAT registration in another Member State is EUR 1,200. The minimum ongoing cost, on a yearly basis, for VAT compliance in another Member State is EUR 8,000 for an average business and EUR 2,400 for a SME. In fact, being registered in another Member State entails ongoing reporting and other obligations in that Member State (such as the obligation to complete and submit VAT returns or listings, to pay the VAT due, or to request VAT refunds) which are included in the annual VAT compliance costs.

The VAT e-commerce package introduced a number of simplification schemes including the One Stop Shop (OSS) and the Import One Stop Shop (IOSS), which have alleviated the registration burden for non-established business carrying out transactions in other Member States. These optional schemes simplify compliance by avoiding the potential VAT registration obligations of the supplier/deemed supplier in each Member State of establishment of the customer. They cover cross-border supplies of services and intra-EU distance sales of goods (OSS) and the distance sales of imported goods to the EU from a third country/territory in consignments not exceeding EUR 150 (IOSS). As expected, minimising the need for taxable persons to hold multiple VAT registrations was considered as important/very important by stakeholders participating in the public consultation, only less than 2% (3 out 197 answers) seeing it as “not important”.

The implementation of the OSS and IOSS has proven to be a great success as shown by the evaluation of the e-commerce package (see Annex 6). Almost EUR 8 billion in VAT in the first 6 months of application of the new rules was collected via the OSS and the IOSS. The removal of the EUR 22 VAT exemption on imported goods allowed for the collection of a significant amount (EUR 0.7 billion) of VAT on previously exempted transactions. At the same time, the costs of implementation represent only 0.01% of that EUR 8 billion. In addition, the common EU-wide threshold that replaced the previously disparate VAT rules reduced the risk of non-compliance while new record keeping obligations for traders, including for platforms, support tax audits carried out by tax administrations. The success of the VAT e-commerce package was also confirmed by Member States at the Council Working Party on Taxation in January 2022 and further endorsed by the March ECOFIN 63 . A large majority of respondents to the public consultation (75%) acknowledged the progress made by the OSS in minimising the need for taxable persons to hold multiple VAT registrations, with only 2% (4 out of 193 answers) seeing “no progress” and 23% not expressing their opinion.

While this success has been recognised, a number of operational improvements (see Annex 6) have nevertheless been identified as a result of the evaluation. These improvements will be addressed in this initiative.

There are some remaining B2C transactions which are not covered by these simplification schemes. These include certain types of supplies of goods that, even though they may have a cross-border aspect, do not fall within the definition of intra-EU distance sales of goods and are not covered by the OSS. This is also the case, for instance, in the distance sale of goods imported with an intrinsic value exceeding EUR 150, or the supply of goods subject to excise duties (i.e. alcohol, tobacco and energy), which are not under the current scope of the IOSS. Certain B2B transactions that are also triggering registration in another Member States are also assessed. The type and prevalence of these transactions are depicted in the table below.

Table 2 – Transactions requiring non-established businesses to VAT register (1 July 2021)

			Type of transaction	Prevalence
B2C	GOODS	Domestic supply	•Domestic B2C supplies of goods made by suppliers not established in the Member State of taxation, including: supplies with installation and assembly; supplies of goods made on board means of transport; supplies of gas, electricity, heat or cooling energy; supplies of goods on a weekly market by a vendor; supplies of goods made by vendor when participating in an exhibition, trade fair or similar event.	Specific market segments
		Second-hand goods 64 (Margin scheme supplies)	•Second-hand movable goods sold by a supplier not established in the Member State of the customer, including: certain works of art, collectors’ items and antiques.	Specific market segments
		Distance sales of imported goods by the supplier from a third country/ territory	•B2C Distance sales of imported goods by the supplier from a third country/territory with an intrinsic value exceeding €150, or products subject to excise duties.	Specific market segments
B2B	GOODS	Domestic supplies B2B where the reverse charge does not apply	•Domestic B2B supplies where the reverse charge does not apply, including: local supplies of goods after import; supplies of fuel; supplies of goods with installation or assembly; supplies of goods previously rented or leased in the Member State of taxation.	Specific market segments
		Transfer of own goods cross-border	·Transfer of own goods cross-border: Transfer of own stock to be stored and sold in a Member State closer to the customer, or the transfer made by an electronic interface on behalf of the owner where the goods are being sold using the electronic interface .	Widespread (representing significant parts of business turnover)
	SERVICES	Domestic supplies of services where the reverse charge does not apply	•B2B supplies of services under Articles 47-48, 53, 55-57 if Article 194 does not apply (Member State and/or transaction specific), including: services connected with immovable property; passenger transport services; services in respect of admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events, such as fairs and exhibitions, and of ancillary services related to the admission; restaurant and catering services; short-term hiring of means of transport.	Specific market segments

Source: own elaboration

With the IOSS being currently optional, its impact on the need for multiple VAT registrations is limited and the complexity of import process is not reduced to the optimum level possible. The risk of undervaluation of the economic value of goods declared for importation is mitigated where the IOSS is used because the VAT is paid upfront at the time of purchase. Potential undervaluation remains a significant risk if the IOSS remains optional as VAT is only collected at the time of import, not at the time of purchase.

At present, imports of goods in the EU below the threshold of EUR 150 are not subject to customs duties. However, there is no similar VAT exemption 65 . As a result, the declared value of B2C shipments is frequently inaccurate, often intentionally falling under EUR 150 in order to fraudulently benefit from the Customs duties exemption. These misdeclarations of value affect not only the assessment of customs duties but also the VAT to be collected on those goods 66 .

Despite the introduction of the OSS and the IOSS, 124 respondents to the public consultation (90% of those providing an opinion on the matter) thought that the requirement to obtain and maintain multiple VAT registrations continues to be a problem, at least to some extent. Over two-thirds thought it is a problem to a large or even very large extent.

Figure 3 – Current situation: the need of multiple VAT registrations is still an issue

In general, regarding VAT registration, the problem resides in the scope of the existing EU One Stop Shop mechanism that was recently expanded but is still not covering specific transactions. Driven by the recognised success of the latest improvements, businesses and Member States have strongly advocated for an immediate expansion of the simplification measures to include the missing transactions. Moreover, in order to establish equal treatment, stakeholders suggested making the IOSS mandatory for all deemed suppliers.

2.2.What are the problem drivers?

Some of the drivers generating problems are exogenous to the VAT framework (i.e. the evolving technology and business models, value chains and trading practices), whilst others are about the VAT framework itself (i.e. the complex and fragmented regulatory environment). Businesses operating in multiple Member States are especially impacted. The drivers in both categories combine exposing the discrepancy between the 30 year-old rules and the current digital reality to create the two-faceted problem regarding the sub-optimal VAT collection and control and administrative burden.

Table 3 – Overview of the drivers

	EXOGENOUS DRIVERS (outside of the VAT framework)		INTRINSIC DRIVERS (related to the VAT rules and their application)
	Increasing scale of the platform economy and e-commerce	Multiplicity and complexity of the new business models driven by technological changes	Fragmented regulatory framework	Outdated reporting mechanism for intracommunity transactions	Scope of the application of the simplification schemes
a) VAT reporting	☒	☒	☒	☒	☐
b) VAT treatment of the platform economy	☒	☒	☒	☐	☒
c) VAT registration	☒	☒	☒	☐	☒

I.Increasing scale of the platform economy and e-commerce

This driver generally affects all three VAT areas. Over 1,500 digital platforms 67 have a significant presence in the EU27 (about 1,800 including the UK). Overall, in 2019 the revenue of the digital platforms in the EU27 market reached EUR 66.9 billion. The revenue of their providers 68 is estimated at about three times the platform revenue, at EUR 191.1 billion. The value of VAT revenue from the digital platform ecosystem 69 is estimated at about EUR 25.7 billion per year for the EU27, i.e. 2.6 percent of total VAT revenue 70 .

Table 4 – Scale of platform economy operation, by sectors (EU27, EUR billion, 2019)

Sector	Revenue of digital platforms (EU27)	Revenue of platforms’ providers (EU27) 71	Ecosystem value (EU27)
Accommodation	6.3	36.9	43.2
Advertising*	32.8	n.a.	32.8
E-Commerce	16.6	93.8	110.4
Finance	0.6	6.7	7.3
Household and Professional Services	1.4	7.1	8.5
Real Estate	0.7	3.8	4.5
Transportation	7.2	31.0	38.2
Other	1.3	11.8	13.1
TOTAL	66.9	191.1	258.0

Source: Targeted consultation. *Revenue of digital platforms only. The numbers may not add up perfectly due to rounding.

Additionally, and importantly, the scale of the platform economy has increased rapidly over the last years. Considering the aggregate growth rate of the seven sectors 72 involved, platforms’ revenue grew three times, or 32 percent per year between 2015 and 2019 73 . The increasing scale and prevalence of the platform economy and e-commerce naturally magnifies the consequences of any VAT problem but in particular those identified in the three areas under examination. More transactions under the platform economy and in e-commerce means an incremental increase in the problems linked to the VAT registration and the administration of the rules and puts also additional pressure on the outdated VAT reporting system.

II.Multiplicity 74 and complexity of the new business models driven by technological changes

This driver generally affects all three VAT areas. The multi-sided nature (where there are three or more parties involved) and complexity of the business models have become a ‘difficult fit’ for the VAT rules which were developed when these business models were unknown. For example, the distinction between a consumer and a supplier is becoming blurred, as one party can be both whilst operating via a platform. Also, the explosion in e-commerce has led to exponential increases in cross-border trade and an increased complexity of business models of the marketplaces (for example goods being sold from fulfilment centres rather than directly from the underlying supplier) for which the VAT system is ill-suited. Again this intensifies the problems linked to the VAT registration, the administration of the rules and the VAT reporting system.

III.Fragmented regulatory framework (divergent requirements)

The wide discretion afforded to Member States by the VAT Directive in imposing reporting obligations and the need to apply the existing VAT rules to new business models has led to a divergence of the rules applicable within the EU as well as to differing interpretations of the existing rules. This affects differently the VAT areas as follows:

a) VAT reporting

There are 12 Member States which have in place digital reporting requirements, while three more are considering or have taken the first steps for their introduction 75 . These reporting requirements differ over several dimensions, including:

·Frequency. The main distinction is between periodic and real-time reporting. This can be further differentiated according to the exact frequency (either jointly with the VAT return or monthly), and “how real-time” real-time requirements are (within four days in Spain, daily in Hungary and before the invoice is issued in Italy).

·Scope – Taxpayers. National rules can include a turnover threshold below which VAT-registered taxable persons are not subject to the reporting obligations, and can exclude certain sectors or specific VAT regimes from these obligations. Furthermore, requirements can apply to resident entities only or to all registered taxable persons.

·Scope – Transactions. In a number of countries, only transactions above a certain value threshold are to be reported in detail. Besides, the reporting systems can differ in whether they cover (i) purchase and/or sale transactions; (ii) domestic, intra-EU or extra-EU transactions; and (iii) B2B, B2G or B2C transactions.

·Data content and format. The various systems differ in terms of the type and amount of data extracted from taxpayers, the format of submission as well as the communication architecture.

This lack of harmonisation of digital reporting requirements across the EU results in legal uncertainty and additional administrative burdens and compliance costs for companies with fixed establishments or VAT registrations in different Member States.

b) VAT treatment of the platform economy

Member States have different views on the treatment of the facilitation service of a platform - whether to regard this as an electronically supplied service or an intermediary service which in turn leads to a different place of supply.

c) VAT Registration

The VAT Directive provides the rules for determining in which Member State the VAT on a transaction is due, and the person liable to pay and report it. These rules are complex and depend on numerous factors, which differ according to the type of transaction, where suppliers and customers are based, and the Member States involved. The complexity increases when the taxable person carrying out a supply is not established in the Member State where the tax is due. Thus, the fragmentation in VAT registration area should actually read as the need to register in multiple Member States.

IV.Outdated system for the reporting of intracommunity transactions

VAT reporting

This driver specifically affects the area of VAT reporting. The current VAT rules for the taxation of cross-border trade between Member States date back to 1993, just after the creation of the Single Market and the abolition of “fiscal frontiers”. At the time, they were meant to be transitional, but they are still in place. The rules do not take account of the last 30 years of technological developments, changes in business models or the globalisation of the economy. These rules divide each EU Business-to-Business cross-border supply of goods into two transactions - a) an exempt intra-Community supply in the Member State of departure and b) a taxable intra-Community acquisition in the Member State of arrival of the goods. As a result, taxable persons acquire goods cross-border without having to pay VAT 76 .

The fact that goods can be acquired free of VAT creates a big incentive for fraud. Fraudsters acquire goods from other Member States, without paying VAT, and sell them on the domestic market charging VAT without remitting it to the treasury (basic fraud scheme) or pass them through a chain of transactions possibly involving several Member States (more sophisticated and typically referred to as MTIC fraud) where in the end no VAT is paid to the treasury. The result is that the acquirers of these goods can deduct the VAT charged while the fraudsters disappear without paying that VAT to the treasury.

In order to help detect and react to this fraud, a mechanism for reporting intra-Community trade flows (the recapitulative statements 77 ) is in place. However, while business and also fraud models evolved and became more complex and technologically driven, the recapitulative statements have remained basically unchanged since the pre-digital age. They are outdated and not adapted to the current reality, with the relevant data reaching the tax administration between two to four months after the transaction date, thus often too late to prevent VAT loss and fraud 78 .

Recapitulative statements provide aggregated information to national tax administrations about the supplies of goods and services made to their territory from other Member States. They allow tax administrations to follow the flow of goods and services in order to help fight intra-EU fraud. However, they are regarded as rather ineffective by the majority of Member States interviewed on this subject. During the interview carried out as part of the supporting study 79 , out of 12 tax authorities that replied, eleven provided a negative assessment of this reporting mechanism to tackle intra-EU VAT fraud (see Figure 4 ).

Figure 4 – Effectiveness of recapitulative statements against MTIC fraud (Member States)

Source: elaboration based on the targeted consultation; views from tax authorities questioned whether the recapitulative statements are effective to tackle intra-EU Fraud

The reasons for such a widely held negative assessment are largely coherent across Member States, who unanimously criticize:

§The lack of data granularity, since data are not available at transaction level but aggregated;

§The inadequate timeframe of data exchange, further amplified by time reporting differences across Member States, as data can be filed monthly or quarterly and also because of the time it takes for local tax authorities to upload the data that will be later exchanged with other Member States;

§The partial scope of the tool, which mandatorily covers only intra-Community supplies (data on acquisitions are not automatically exchanged between Member States). In this regard, reporting of intra-Community acquisitions is not required by the VAT Directive and less than half Member States have introduced this obligation; and

§The poor quality of the data reported.

The shortcomings of the current system to address intra-Community VAT fraud have also been stressed by the European Court of Auditors 80 .

As a result, crosschecks of intra-Community trade data and VAT anti-fraud controls are not as comprehensive, effective and as real-time as they should be to tackle fraud linked to intra-Community transactions.

V.The scope of the application of the simplification schemes

This mainly affects the VAT areas as follows:

a) VAT treatment of platform economy

SMEs using the SME simplification scheme do not charge VAT whilst enjoying the economies of scale and network effects offered by platforms. As outlined in the study 81 , this gives them a competitive advantage over traditional VAT registered businesses making similar or identical supplies. In the past this competitive advantage was minimal because of the limited outreach and resources of SMEs, but platforms have allowed SMEs access to global markets, therefore allowing them to directly compete with traditional businesses without charging VAT or facing the regulatory or compliance burden of being a VAT registered business.

b) VAT registration

Some transactions are not covered by OSS and IOSS schemes - The complex and fragmented regulatory environment 82 creates costs and hassle for businesses operating in multiple Member States. The newly introduced One Stop Shop (OSS) helps businesses by reducing the instances in which registration in another Member State is required. However, the implementation of the OSS 83 and IOSS 84 schemes has not totally addressed the problem. A number of cross-border transactions still trigger the need for registration in another Member State forcing the businesses to face costs and burden associated with the VAT obligations in different Member States. Table 2 is providing the typology of these transactions constituting the framework for assessing the magnitude of the problem.

2.3.How likely is the problem to persist?

VAT Reporting

Member States will continue to adopt national Digital Reporting Requirements (DDR) over the next decade, worsening the fragmentation and the administrative burden. The main trend is represented by the Member States considering the introduction of mandatory e-invoicing. The problem of intra-EU fraud is not addressed at all, therefore it will persist.

VAT treatment of the platform economy

Member States are expected to introduce additional rules and guidelines concerning the status of the provider and the nature of supplies facilitated by platforms, but to do so in an uncoordinated fashion, as with reporting obligations. These additional rules and guidelines are expected to increase the administrative burdens and will not solve the level-playing field issue.

VAT Registration

Some key sectors, such as the fuel cards sector, and the supply of gas and electricity, construction works in another Member State etc. will continue to face the burden of multiple VAT registrations when supplying goods and/or services in other Member States.

3.Why should the EU act?

3.1.Legal basis

According to the principle of subsidiarity 85 , action at EU level may only be taken if the envisaged aims cannot be achieved sufficiently by the Member States alone and can be better achieved by the EU. The VAT rules for cross-border EU trade involve more than one Member State by nature and VAT is a tax harmonised at EU level. The problems identified in Section 2 are embedded in the rules of the VAT Directive. Therefore, any initiative to change the VAT system as regards intra-EU trade requires amending the VAT Directive.

The Treaty on the Functioning of the European Union, Article 113, gives the EU the right to act and adopt provisions to harmonise legislation in the area of indirect taxation, including value added tax. In addition, since net VAT revenue collected by each Member State is used to determine the harmonised base, the loss of VAT impacts both Member States’ revenue and the EU’s VAT own resource amounts 86 .

3.2.Subsidiarity: Necessity of EU action

The legislative proposal must be adopted at Union level, as it amends the existing common system of value added tax governed by the VAT Directive (Directive 2006/112/EC). Given the need to modify the VAT Directive, the objectives sought by the present initiative cannot be achieved by the Member States themselves. Therefore, it is necessary for the Commission, which has responsibility for ensuring the smooth functioning of the internal market and for promoting the general interest of the European Union, to propose action to improve the situation. Moreover, the VAT rules have the potential for distorting intra-EU trade if introduced in an uncoordinated way.

3.3.Subsidiarity: Added value of EU action

The Commission is responsible for ensuring the correct application of the harmonised VAT assessment base. Each Member State is responsible for the transposition of the VAT provisions into national legislation and their correct application within its territory. Member States implement common rules set out in the VAT Directive into their national legislation, thus the practical application and the administrative practices of each Member State vary. However, the intra-EU dimension of VAT fraud requires EU intervention regarding reporting obligations. In addition, for several Member States the size of the VAT gap (and its persistence over time) indicates that national instruments are not sufficient to fight cross-border and e-commerce fraud, as shown by the estimated levels of MTIC fraud, which can only be fought efficiently and effectively by coordinated action at EU level.

The harmonised VAT rules are needed to help businesses benefit from the potential of the internal market. In the targeted consultation, businesses doing cross-border trading repeatedly stated their preference to have VAT rules applied uniformly at EU level than to comply with different reporting or registration obligations at national level. This can only be ensured by EU action.

4.Objectives: What is to be achieved?

4.1.General objectives

The general objectives of the VAT in the Digital Age initiative are related to the modernisation of the VAT system. The general objectives address each of the two main identified problems:

General objectives are directly linked to the treaty-based goal of establishing a functional internal market and reflect the Commission priorities and EU strategic agenda for 2019-2024 87 . In this respect, the VAT in the Digital Age initiative aims to render the VAT rules more proportionate, effective and efficient by updating the 30-year old VAT system to the current realities of the digital age.

4.2.Specific objectives

The two general policy objectives will be achieved by pursuing five specific objectives in VAT reporting, VAT treatment of platform economy and VAT registration:

1.Improve reporting requirements to unlock the opportunities provided by digitalisation

The VAT reporting specific objective intends to improve reporting requirements by optimising the use of digital technologies, notably by utilising digital reporting to fight VAT fraud, and in particular MTIC fraud.

This specific objective is linked with and supports an effective and fair VAT system (3rd specific objective), helping the fight against VAT fraud and reducing the taxpayers’ administrative burden and compliance costs (4th specific objective) by allowing tax authorities the provision of additional services to taxpayers and the removal of other compliance obligations.

2. Promote convergence and interoperability of IT systems

Besides the complications the digital evolution brings, it also provides opportunities linked to IT systems, business automation and digitalisation. Businesses, Member States and the Commission have up and running IT systems that must be enhanced and at the same time be made compatible with each other. Thus, this specific objective, common to both VAT registration and VAT reporting, aims to promote the convergence and interoperability of existing IT systems and support the necessary developments. It covers both adapting the Commission’s IT environment (e.g. for exchanges of information between Member States on cross-borders transactions, for IOSS/OSS registration) and providing guidelines to Member States and businesses for preparing their IT systems in the short to medium term 88 .

3.Create a level-playing field for businesses, regardless of the business model

The specific objective aims to provide a level-playing field for EU businesses by imposing similar VAT liabilities regardless of the traditional or digital business model, their location or their engagement in domestic or cross-border transactions.

4.Reduce burdens, regulatory fragmentation and associated costs

The specific objective is expected to contribute to the simplification and modernisation of the VAT rules by reducing regulatory fragmentation, and to increase legal certainty, by reducing the multiplicity of the existing national frameworks.

5.Minimise the need for multiple VAT registrations in the EU

Minimising the need for multiple VAT registrations will not only reduce the costs for businesses but also allow authorities to better focus their control activities.

5.What are the available policy options?

5.1.What is the baseline from which options are assessed?

VAT Reporting

Based on the supporting study, the available information regarding the existing and planned introductions of DRRs 89 can be summarised as following:

·as of September 2021, DRRs had been introduced in 12 Member States (Bulgaria, Croatia, Czechia, Estonia, Hungary, Italy, Latvia, Lithuania, Poland, Portugal, Slovak Republic and Spain);

·between 2021 and 2023, Greece and France will also introduce DRRs;

·public acts were adopted or official announcements were made in Romania towards the introduction of SAF-T and in Bulgaria, Croatia, Hungary, Poland, Spain and the Slovak Republic towards the introduction of mandatory e-invoicing;

·a study has been launched in Finland on the possible adoption of DRRs, but no public act has been adopted by the government;

·given the amount of time necessary to deploy the national systems after the decision to introduce them, countries that have not taken steps in that direction so far are unlikely to be able to adopt their own DRRs within the next five years.

If the above information provides a sufficient degree of certainty for the short-term, i.e. the next five years, in terms of the countries which are likely to adopt or update domestic DRRs, as well as of those which are not going to do so, reasoned probabilistic incremental scenarios need to be built for the medium term. In the dynamic baseline scenario underpinning this Impact Assessment, Member States will continue to adopt national digital reporting requirements over the next decade.

Table 5 – Medium-term adoption scenarios 90

Scenario	Description	New adopters	Likelihood
No adoption	The adoption of national DRRs has reached its peak and the remaining countries do not adopt any national reporting mechanism, except for Finland where preparatory work has already started. Czechia opts for e-invoicing, in line with its neighbouring countries.	Finland	10%
Central-Eastern	Slovenia, the only Central-Eastern Member State without a DRR, adopts one.	Finland, Slovenia	20%
Evolution of existing obligations	Belgium, Austria, and Luxembourg, which already have annual listing or SAF-T on demand systems, adopt a DRR.	Austria, Belgium, Finland, Luxembourg, Slovenia	40%
Southern	Malta and Cyprus, the only Southern Member States without a DRR, adopt one.	Austria, Belgium, Cyprus, Finland, Luxembourg, Malta, Slovenia	20%
All	National DRRs are adopted in all Member States	Austria, Belgium, Cyprus, Denmark, Finland, Germany, Ireland, Luxembourg, Malta, the Netherlands, Slovenia, Sweden	10%

Based on the available information and the above scenarios, the dynamic baseline regarding the adoption of DRRs is presented in the table below.

Table 6 – Dynamic baseline: adoption of Digital Reporting Requirements (2023 – 2028) 91

Year	Time for the analysis	Number of Member States with DRR	Type of DRR	Adopters
2023	T0	14 (Domestic)	VAT listing	BG, CZ, EE, HR, LV, SK
			SAF-T	LT, PL, PT
			Real-time	ES, EL, HU
			E-invoicing	IT, FR
2025	T2	15	VAT listing	CZ, EE, LV
			SAF-T	LT, PT, RO
			Real-time	EL
			E-invoicing	BG, ES, HR, HU, IT, FR, PL, SK
2028	T5	20.1*	VAT listing	BE, CY, DE, DK, EE, FI, IE, LV, MT, NL, SE, SI
			SAF-T	AT, LT, LU, PT, RO
			Real-time	EL
			E-invoicing	BG, CZ, ES, HR, HU, IT, FR, PL, SK

* weighted average across scenarios.

Tax control efficiency and effectiveness is also expected to increase with the introduction of various DRRs, and whilst this will help fight fraud at national level, it will not solve the problem of intra-EU fraud. Furthermore, since no harmonisation measure is introduced, fragmentation costs would grow as more numerous and divergent DRRs are introduced. Confidentiality risks will increase as a result of more transactional data being exchanged. The current trend of Member States considering the introduction of mandatory e-invoicing would further spur business process automation.

VAT revenue and burdens	Environment	Tax control	Business automation	Data confidentiality
More MS adopt national DRRs. This will result in overall positive net impacts, due to the higher base for VAT revenues	No impact	Tax control efficiency and effectiveness is expected to increase with the diffusion of DRRs.	The current trend of MS considering the introduction of e-invoicing would spur further business automation	The diffusion of DRRs would mean that more data are exchanged; this increases confidentiality risks

The sections assessing the current situation regarding Member States and taxpayers (domestic and multinational companies) in the supporting study 92 are based on both information from the targeted consultation of public authorities and data collected during targeted consultation activities with economic operators, VAT practitioners and service providers, as well as information from secondary sources, VAT revenue statistics, and studies at national levels. As mentioned in the problem section, the quantification of the DRRs’ outcomes on tax control activities and fraud detection is based on the comparison of data before and after the introduction of these requirements.

Since the VAT Gap represents the difference between the theoretical VAT liability and the VAT revenues accrued, more revenues are a clear sign of improved compliance where the liability does not change. The assessment of changes to VAT revenues has been done by means of an econometric analysis based on panel-data (See Annex 4: Analytical methods ), to determine whether and to what extent the existing DRRs have resulted in increased revenues, thus a decrease in VAT non-compliance in the adopting Member States.

Both costs and benefits are expected to grow over the 2023-2032 period; however, benefits will remain higher than costs (EUR 371 billion vs. EUR 121 billion) and will grow faster, resulting EUR 250.7 billion in positive net impacts:

	Costs			Benefits
	Administrative burden for businesses	Implementation cost tax authorities	Fragmentation costs	Environmental benefits	Savings pre-filled VAT returns	Removal of recapitulative statements benefits	E-invoicing benefits	VAT collection/ C-efficiency	Max. VAT Gap reduction
Dynamic baseline (cost and benefits)	EUR 79.1 billion	EUR 1.7 billion	EUR 40.4 billion	EUR 0.03 billion	EUR 30.7 billion	0	EUR 5.6 billion	EUR 335.6 billion	-3 p.p. 93
EUR 250.7 billion net benefits	EUR 121.2 billion total costs			EUR 371.9 billion total benefits

The VAT collection is measured using the C-efficiency model as the base model. The impacts of DRRs are estimated on two dependent variables: the VAT Gap and C-efficiency. 94 C-efficiency is the ratio of the actual VAT revenue to the theoretical revenue derived from the product of the VAT standard rate and the aggregate final consumption. Thus, it measures the departure of a country’s actual VAT system from a perfectly enforced tax levied at a single rate on all consumption. This ratio takes a value lower than one for various reasons: the application of VAT reduced rates and exemptions, as well as less-than-perfect compliance. In other words, the C-efficiency is an intensive measure, i.e. expressed in relation to the tax base, of both the level of VAT compliance as well as VAT policy choices, such as the adoption of differentiated rates and exemptions. The VAT Gap is defined as the difference between the expected VAT revenue (i.e. the VAT Total Tax Liability, VTTL) and the amount of VAT actually collected over the same period. It includes aspects that are directly influenced by the introduction of reporting obligations, such as VAT fraud and evasion, as well as other elements which are not impacted (e.g. insolvencies, bankruptcies, legal tax optimisation). The VAT Gap directly links with the level of VAT compliance in a country.

Since the VAT Gap model relies on annual data, while the C-efficiency model relies on quarterly data, thus providing larger number of observations and degrees of freedom, the latter was retained as the base model and is being used to fundament this impact assessment. Nevertheless, for reasons of transparency, both the base model based on C-efficiency and the alternative model based on VAT Gap data are presented in the Annex 4: Analytical methods .

In terms of other ongoing initiatives reflected in the baseline, the EU Directive on electronic invoicing in public procurement (B2G) 95 currently in place has the goal of facilitating the use of a common European Standard on electronic invoicing across Member States to promote interoperability and convergence at EU level (See Annex 5: other initiative s ). In the baseline scenario, the IT platform used to handle B2G transactions is often leveraged by the tax authorities for handling and reporting B2B transactions. 96

In addition, the work on the proposal for a definitive regime 97 that is still to be adopted was used as a starting point to identify the problems of cross-border VAT fraud. It already reflected the magnitude of the fraud derived from the way intra-Community transactions were taxed, and how the existing tools, including the recapitulative statements, were not sufficient to tackle it. The definitive regime was seen as a solution to address the risk of VAT fraud (MTIC fraud) that is linked to the current VAT rules build common ground for possible digital solutions such as the DRRs.

VAT treatment of the Platform economy

Under the dynamic baseline scenario, the growth of the platform economy will increase VAT revenue in both absolute and relative terms. However, Member States are expected to introduce additional rules and guidelines concerning the status of the provider and the nature of supplies facilitated by platforms, but will do so in an uncoordinated fashion, as with reporting obligations. These additional rules and guidelines are expected to increase the administrative burdens for businesses by EUR 1.9 billion 98 . The distortion of competition will not be solved and will evolve in line with the development of the platform economy.

VAT revenue	Legal certainty and administrative burdens	Competition / Internal Market
EUR 410 billion	EUR 1.9 billion	No change to the tax treatment means no effect on market conditions (current distortion of competition persists)

The scale of the platform economy was estimated by using financial data from Crunchbase and Dun & Bradstreet databases, web application download statistics from SEMrush, questionnaires for platform operators and tax administrations, previous reports, and Eurostat’s sectoral statistics. 99 A VAT liability simulation model with two blocks (for platforms’ facilitation services and for the underlying services) was used in the sectoral analysis. The model is presented in Annex 4: Analytical methods and in the supporting study. 100

The share of the VAT revenue from the platform economy is expected to increase between 0.19 and 0.35 percentage points per year reaching 3.7 percent in 2032. As the pace of growth of the platform economy will decline in the medium-term, the VAT revenue as a share of overall revenue will start stabilising in ca. 10 years’ time. In nominal terms, VAT revenue in the platform economy 101 will grow to about EUR 57 billion in 2032. In addition to revenue growth resulting from the increase in tax base, the availability of information on transactions and providers in the platform economy resulting from reporting and record-keeping obligations is expected to increase the effectiveness of control activities and, as a result, VAT compliance. Though it is not possible to assess the magnitude of this enhancement 102 , the improvements in compliance are expected to have a lower contribution to the VAT increase than the increase in tax base.

In an increasingly digitalised world in which online platforms play a fundamental role, the P2B Regulation 103 aims to protect, in this specific case, the business users of such services (See Annex 5: other initiatives ). It contains transparency rules and protection for business users’ accounts. The ‘DAC7’ 104 extends the automatic exchange of information in the field of taxation. It creates an obligation for platforms to report annually the income earned by sellers and for the Member State where reporting takes place, to exchange this information automatically, thus being fully coherent - but complementary as an ex-post control tool - with the current initiative.

In addition, the Digital Services Act (DSA) 105 enhances the responsibility and transparency obligations for providers of online intermediary services, including online platforms. For instance, online platforms allowing the conclusion of contracts between traders and consumers will have to gather information on the identity of traders. The Digital Markets Act (DMA) 106 will ensure fair markets in the digital sectors across the Union by addressing the unfair practices of certain undertakings. The DSA and the DMA covers services such as online intermediary services, including online marketplaces, online search engines, social networking, video sharing, operating systems, and cloud services, thus having an impact on the VAT in the Digital Age initiative, especially in the accommodation and transport sectors.

The proposed Platform Workers Directive 107 aims to ensure the legal employment status for the workers. This proposal may have an impact on the VAT in the Digital Age initiative, in that, if adopted, a number of platform workers may become employees, and therefore taken out of the scope of the measure concerning the VAT rules for platforms (because employees are not required to charge VAT on their services, instead this responsibility would fall on the platforms).

VAT Registration

Some transactions requiring non-established businesses to VAT register (see Table 2 ), such as the transfer of own goods cross-border 108 are mostly relevant within the context of distance sales made in the e-commerce sector. An estimate of 20,000 ‘average businesses’ and 280,000 SMEs are experiencing registration costs (see Table 1 ) associated with VAT registration in the EU in a Member State other than that of establishment 109 . At the EU level, this translates in up to EUR 0.36 billion (one-off) and EUR 0.83 billion yearly VAT compliance costs of doing cross-border trade implying VAT registration.

Administrative burdens	VAT collection (revenue) and fraud	Level playing field
Burdens related to VAT registration in another Member State: EUR 0.36 billion (one-off) and EUR 0.83 billion (recurring annual costs)	No sizable impact	No change

Distance sales of goods cross-border were estimated to amount to about EUR 72 billion across the EU-27 in 2020 (EUR 43 billion within the EU and EUR 29 billion from outside the EU – distance sales of imported goods). 110 Moreover, in terms of the number of parcels, although it is difficult to estimate their volumes precisely, the order of magnitude is likely to be in the billions of units transferred cross-border across the EU every year. In addition to the significance of the scale of these transactions, the continued growth of e-commerce means they will become more so, exacerbating the problems if the status quo is left to continue.

The existing burdens (and additional costs) in these specific sectors will persist if the status quo remains in place.

5.2.Description of the policy options

An overview of the policy 111 sub-options in the three areas can be found in the table below.

Table 7 – Description of the policy sub-options by VAT area

Sub-option	VAT reporting area
Sub-option 1 (Baseline)	§No measure to harmonise the DRRs is introduced at EU level. §The introduction of mandatory e-invoicing remains subject to a derogation. §Recapitulative statements are not modified.
Sub-option 2 (Recommendation & Removal)	§The introduction of DRRs remains optional for Member States. §The core elements of the EU design are described in a non-binding Recommendation and their introduction is encouraged for those Member States with a significant VAT Gap. §The derogation currently needed to introduce mandatory B2B e-invoicing is removed. §Recapitulative statements are not modified.
Sub-option 3 (Keep data with the taxpayers)	§Taxpayers will be required to record transactional data according to a pre-determined format. The tax authority could access such records upon request. §Member States remain free to maintain (or introduce) national DRRs. §For the Member States which introduce a DRR, compliance with the reporting mechanism would also ensure compliance with the new obligation (hence, no duplication).
Sub-option 4a (Partial harmonisation) 112	§An EU DRR is introduced for intra-EU transactions and the recapitulative statements are abolished. §The derogation currently needed to introduce mandatory B2B e-invoicing is removed. §DRRs for domestic transactions remain optional for Member States. Member States wishing to introduce such mechanisms shall conform to the system used for intra-EU transactions. §Where DRRs for domestic transactions are already in place, ensure interoperability 113 with EU system already in the short-term; national DRRs to converge to the EU DRR system in the medium-term (i.e. five to ten years).
Sub-option 4b (Full harmonisation)	§An EU DRR is introduced for intra-EU and domestic transactions alike. §The recapitulative statements are abolished. §The derogation currently needed to introduce mandatory B2B e-invoicing is removed. §For Member States where DRRs for domestic transactions are already in place, the interoperability clause applies in the short-term; then, national DRRs are required to converge to the EU DRR system in the medium-term (i.e. in five to ten years).
VAT treatment of platform economy
Sub-option A (Baseline)	§Under this option, the Commission would produce no legislative initiatives in this area, with the possible result of increase fragmentation as Member States adopt unilateral legislative measures to deal with the platform economy. §In order to reduce this risk of fragmentation, the Commission could publish guidelines or recommendations.
Sub-option B1 (Clarification of the nature of the service facilitated by the platform)	§Currently Member States treat the facilitation service made by the platform as either an electronically supplied service or an intermediary service, with the corresponding impact on the place of supply. §A legislative amendment clarifying the nature of the services provided by the platform (intermediary or electronically-supplied services), and hence their place of supply will be introduced.
Sub-option B2 (Clarification of the tax status of the provider)	§One of the major difficulties for platforms is establishing the status of the supplier, that is whether they are a taxable person or not. This is important for platforms, as it allows them to know whether to apply the reverse charge or not on their facilitation services. §A rebuttable presumption whereby the platform could regard anyone who does not provide a VAT number as not being a taxable person is outlined 114 .
Sub-option B3 (Streamlining of record keeping obligations)	§Amending the Administrative Cooperation Regulation 115 , which would aim to harmonise the technical means by which platforms supply information required by Member States, and the frequency of requests.
Sub-option C (The narrow deemed supplier)	§Where the underlying supplier does not charge VAT 116 , the platform will be deemed as the supplier (the functioning of the deemed supplier model is explained in the Box 2 below). §The platform will charge VAT on the supply. §Option C applies to certain 117 accommodation and transport services (ride on demand and short term residential accommodation), which were identified by the study as having the largest negative impact on VAT equality and neutrality.
Sub-option D (The sectoral deemed supplier)	§As Option C, but applying to all accommodation and transport services 118 .
Sub-option E (The full/inclusive deemed supplier)	§As Option C, but applying to all services supplied via platforms.
VAT registration area – OSS (intra EU)
Sub-option 1 (Baseline)	Leave in place the VAT system as of 1 July 2021, with only minor refinements (e.g. additional guidance, quick fixes) to improve the implementation and use of the OSS.
Sub-option 2 (Minimal OSS extension)	§Extension of the OSS so that it covers all B2C supplies of goods by non-established suppliers. §Additional transactions covered (compared with status quo): odomestic supplies of B2C goods
Sub-option 3 (Moderate OSS extension)	§Includes sub-option 2. §Remove the obligation to register in case of transfer of (own) goods. §Additional transactions covered (compared with status quo): odomestic supplies of B2C goods, transfers of (own) goods cross-border 119
Sub-option 4 (Reverse charge)	§Introduce a mandatory 120 reverse charge for B2B supplies by non-established persons. §Can accompany any other sub-options 121 .
VAT registration – IOSS (importation)
Sub-option 1 (Baseline)	§Leave in place the VAT system as of 1 July 2021, no changes regarding the IOSS.
Sub-option 2 122 (removal of the current threshold)	§Removal of the EUR 150 threshold for use of the IOSS and / or extension to excise goods. §Additional transactions covered: oB2C distance sales of goods imported by the supplier from a third country/territory with an intrinsic value exceeding EUR 150 and / or excise goods
Sub-option 3a (IOSS mandatory for deemed suppliers)	§Removal of the optional character of the IOSS for deemed suppliers.
Sub-option 3b (IOSS mandatory above a threshold)	§Removal of the optional character of the IOSS for taxable persons distance selling into the EU over a certain threshold.
Sub-option 3c (IOSS mandatory - no threshold)	§Removal of the optional character of the IOSS for all taxable persons making eligible distance sales into the EU.

Box 1

Types of DRR (also see the Annex 4: Analytical methods - Mapping of digital reporting requirements)

Two types of DRR can be distinguished based on the time at which information is to be submitted:

·Periodic Transaction Controls (PTCs), in which transactional data are reported to tax authorities at regular intervals.

·Continuous Transaction Controls (CTCs), in which transactional data are submitted electronically to tax authorities just before, during or shortly after the actual exchange of such data between the parties.

Among PTCs, the most common models are VAT listing and SAF-T requirements. The former requires the periodic transmission of transactional data to be compiled and transmitted according to a nationally defined format, while the latter relies on the national specification of an OECD standard, i.e. the Standard Audit File for Tax.

Among CTCs, the two possibilities are real-time and e-invoicing systems. Under a real-time system, the taxpayer should submit certain data shortly after carrying out a transaction but does not need to mandatorily use and share e-invoices with the tax administration. Under an e-invoicing system, the taxable person is mandated to use for his transactions a structured e-invoice according to a pre-determined and machine-readable format, allowing them to automatically share the whole invoice or a subset of the data with the tax administration.

What type of DRR is optimal for VAT reporting? Interoperability, complexity, costs and benefits

From a taxation point of view, interoperability would be ensured by accepting invoices issued according to the European e-invoicing standard that is already in place, and the best solution is to combine flexibility with standardisation. Businesses could have the freedom to use the electronic invoice system they prefer, while the standardisation will refer to the data file to be submitted to the tax administration. That transmission of the data will be done directly by the taxpayer or by a service provider on its behalf. Given that the data in the invoice will be machine-readable, this system will avoid interference with the way invoices are exchanged between businesses while facilitating the reporting through the automation of the process, avoiding mistakes and manipulation of the data. This approach strongly points out the e-invoicing to be the most suitable option for digital reporting. A standardised reporting based on the e-invoice, without a central clearance that is perceived by most MSs and business representatives as unnecessary and intrusive, is the solution preferred by vast majority of the Group on the Future of VAT and the VAT Expert Group. In addition, after conducting a feasibility study in consultation with the Member States, a Central System with data fed by Member States also appears to be the most future-proved solution. 123 The main features of such system are:

-the freedom for the taxpayers to adopt the e-invoicing solution that they prefer

-reporting of a subset of the data and not of the whole invoice,

-harmonised subset of data to be reported for intra-Community transactions,

-reporting in real-time and on a transaction-by-transaction basis,

-reporting by the taxpayer or by a third party on his behalf,

-the possibility for the taxpayer to always use the European standard, while Member States can put at the disposal of the taxpayer additional possibilities for reporting.

However, no final decision has been taken yet and technical specifications for the exchange of data between tax administrations will be further analysed and developed.

The administrative burdens for businesses and implementation costs for tax administrations closely reflect the complexity of the DRRs: costs are higher for real-time requirements, and lower for VAT listing, with SAF-T systems in between. 124 Since the quantitative analysis did not provide solid findings on the impact of the choice of the type of DRR, a qualitative analysis (See Table 31 ) 125 was performed to indicate e-invoice as a possible choice for an EU DRR. Moreover, since real-time reporting requirements and e-invoicing are the most costly and complex types of digital reporting requirements, the e-invoicing was further considered in this impact assessment, especially to fundament the cost-effectiveness analysis. In addition, during the public and targeted consultation, businesses expressed a clear preference in favour of an e-invoicing solution because it can easily be used for their internal automation and not limited to tax-related reporting, as it is the case with VAT listings or SAF-T. Moreover, e-invoicing appears to be the most future-proof digital reporting requirement, and Member States have also expressed a preference for e-invoicing during the targeted consultation. This further supports the conservative approach that was taken to consider the costs derived from the most complex option, e-invoicing when analysing the impacts of different options in Sections 6 and 7.

Box 2

The deemed supplier model

The “deemed supplier” model is a simplification measure intended to facilitate the collection of VAT in specific situations. This is typically the case when the intermediary in a transaction (in the envisaged initiative, a platform) is for some reasons better placed than the “real” supplier (i.e. the underlying supplier) to ensure the collection of the VAT due on this transaction. The reasons are either because it would be too burdensome for this underlying supplier to collect the VAT (e.g. when the underlying supplier is a natural person or a taxable person using special schemes for small enterprises), or because it is more secure to collect it from this intermediary (when the underlying supplier is not established /VAT registered in the EU).

In a practical sense, when a supplier (the underlying supplier) uses a platform and does not provide the platform with a VAT number, the platform will adopt the role of the deemed supplier, and add the VAT to the price of the supply. If the customer pays the amount directly to the platform, the platform will pass the VAT amount due on the transaction of the supplier onto the tax authority (via their existing VAT return), and the rest (minus their facilitation fee) will be passed to the supplier. Where the customer makes the payment directly to the supplier, that supplier will be required to pass the VAT to the platform.

Where the supplier does provide a VAT number to the platform, the deemed supplier regime will, ordinarily not apply, and the supplier will charge and account for the VAT via their VAT returns. However, there are certain situations where the underlying supplier will have a VAT number, but will not charge the VAT (for example, some Member States allocate VAT numbers to businesses using the special scheme for small enterprises). In such cases, the supplier will be required to identify themselves as such to the platform, and the deemed supplier model will apply.

5.3.Options discarded at an early stage

Certain options have been discarded at an early stage as inconsistent with the EU legal framework or the objectives of this initiative. Other options were discarded because of their technical unfeasibility or considering their clearly inferior impacts.

1.VAT reporting

a.Adopting different designs for EU and domestic transactions.

It would be inappropriate to design a different DRR for domestic and intra-EU transactions. From the analysis, no evidence emerged suggesting that domestic and intra-EU transactions require a different reporting mechanism, and this choice would duplicate costs without any significant benefit for tax authorities and taxpayers. However, the possibility of introducing a DRR only for intra-EU transactions is considered among the policy options. This could, for example, allow substituting the ineffective recapitulative statements and thus reducing intra-Community VAT fraud, while limiting compliance costs for taxpayers that only operate domestically.

b.Harmonising existing DRRs in the short-term.

Any policy proposal on an EU DRR does not work on a tabula rasa, given that national mechanisms have been introduced or adopted in a majority of Member States. Therefore, any proposal needs to incorporate a strategy for dealing with the existing requirements. Expecting to immediately retrofit all these systems into a new EU system would be politically very complex, and, most importantly, would generate duplicated burdens, since the investment in IT solutions and know-how borne by tax authorities and taxpayers in these Member States would become sunk costs.

2.VAT treatment of platform economy

a.Adding a common simplified VAT scheme for persons providing their services via platforms by applying a flat VAT rate without input tax deduction. Under this option, a new special scheme would be introduced for providers supplying services using a platform, subjecting them to a flat VAT rate without input tax deduction. The additional complexity in the VAT system and the limited impact on VAT equality and neutrality are the main factors for discarding the option. Also, it would be difficult to apply, considering that a number of underlying supplies may be exempt (e.g. provision of real estate services). Accordingly, the option received little support from both platform operators and tax authorities consulted.

b.A system whereby the provider becomes a taxable person upon exceeding a set turnover threshold. The enforcement of such an option presents significant feasibility problems. In particular, it would not be possible for platforms to monitor the revenue obtained over other platforms and sub-platforms. Also, it would lead to certain problematic characterisations of the provider. E.g. an individual may provide occasional supplies in different sectors (for example, short term rental and ride-on-demand transport services), which, once combined, would bring them over the threshold. Finally, the threshold could hardly be applied to platforms which operate in markets with high-value transactions (e.g. sales of properties or second-hand cars), since individuals may risk being considered as a taxable person from the very first, occasional, transaction.

3.VAT registration

a.One possibility could be to include also B2B transactions in the OSS. In practice, this means that any cross-border sales made by a business supplier to another business would fall within the scope of the OSS, hence not require multiple VAT registrations. Such transactions are very prevalent in the Single Market. However, without including a deduction mechanism in the OSS, the lifting of the VAT registration requirement alone may not solve the problem if the burden of claiming back input VAT through the VAT refund mechanism (Directive 2008/9/EC) is deemed higher than the burden of VAT registering and filing local VAT returns. Due to the impossibility to deduct input VAT through the OSS mechanism, the uptake of this possibility will be very limited.

b.Introducing the input VAT deduction mechanism within the OSS is expected to make the OSS more attractive for businesses carrying out applicable B2B transactions, as the impossibility to deduct VAT through the OSS was perceived as a major stumbling block. However, the feasibility of this option is questionable for different reasons. Because it would entail the Member State of establishment deciding on the quantum of deductible VAT incurred in another Member State it is technically challenging, as VAT deduction rules vary by country. Tax authorities also discarded this solution both because they would be obliged to make financial outlays based on decisions made outside their country, and because of the practical barriers to conducting audits and controls on companies based in other Member States. In addition, there are obvious similarities between this option and the proposal on a definitive VAT system (see Section 1 and Annex 5: other initiative s ), whose adoption at the Council is presently stalled due to comparable issues.

Figure 5 – Intervention logic

6.What are the impacts of the policy options?

6.1.Description of impacts

The impacts of the VAT in the digital age initiative are described by type and by area (see Table 8 ): VAT reporting, VAT treatment of platform economy, VAT registration. The section will also focus on the impact on small and medium enterprises.

Table 8 – Overview of impact types by VAT area (reporting, platform economy, registration)

Impact type	VAT area
	Reporting	Platform economy	Registration
Administrative burdens and implementation costs	☒	☒	☒
Fragmentation and legal certainty	☒	☒	☐
VAT collection (revenue) and fraud	☒	☒	☒
Environment	☒	☐	☐
Social	☐	☒	☐
Business automation	☒	☐	☐
Level-playing field (Internal Market)	☐	☒	☒
Tax control efficiency	☒	☐	☐
Data confidentiality	☒	☐	☐

Administrative burdens and implementation costs

Administrative burdens represent the largest impact for businesses, spanning all VAT areas. Measures under analysis may have a negative impact in terms of administrative burden (for example the introduction of DRRs generates burdens for businesses due to the need to invest in new IT solutions and because of the routine costs of compliance) but also a positive one (the very same DRR could reduce burdens by introducing an EU wide harmonised system of reporting allowing for pre-filled VAT returns, removing the recapitulative statements and other domestic obligations and encouraging business automation. The use of e-invoicing could also provide benefits linked to the dematerialisation of paper invoices (savings in printing and postage costs, quicker issuance, invoice integrity and security, etc.).

Both the administrative burdens and their reduction are assessed using the Standard Cost model (SCM) 126 based on the findings from the current situation.

Fragmentation and legal certainty

Fragmentation is reduced, and legal certainty enhanced for reporting obligations and the rules regarding the platform economy. For example, the introduction of a standard EU DRR will reduce the current fragmentation in the unilateral application of DRRs, and clarifications of the VAT rules for platforms (i.e. in establishing the status of the underlying supplier) will improve the legal certainty. Fragmentation costs due to the diversity of the DRRs in place increase the more (and more diverse) DRRs are introduced at national level and decrease by harmonising policy interventions; these are quantified via the SCM based on the findings from the current situation. VAT collection (revenue) and fraud

Impacts on VAT collection (which are expressed by the evolution of VAT revenue) and VAT control/fraud (which are measured by the evolution of VAT Gap) would be the largest impact generated by the introduction of DRRs and are measured via the econometric model (See Annex 4: Analytical methods ).

Environment

The introduction of mandatory e-invoicing implies the dematerialisation of paper invoices, thus reducing consumption of paper and transport services (for postage) while increasing the costs for IT infrastructure and energy consumption. These net savings are converted into CO2 savings per invoice and monetised by considering the price of EU emission allowances.

A second-order environmental impact derives from the savings associated with the reduction of administrative burden and digitalisation, where taxpayers will interact less with the authorities and distance audits will require less resources.

Social

The social impacts derive from the increase of tax fairness and as a second-order effect of the impacts on competition (VAT neutrality and equality), and the corresponding impact on those working in the relevant sectors (for example those working in the platform economy). The platform economy can boost employment not only by creating work opportunities both for unskilled, part-time and high-skilled individuals, but also by fostering employment opportunities in smaller cities and disadvantaged zones. The burden reduction also generates some favourable social impacts, as administrative barriers have the greatest negative effect on micro and individual businesses, which typically create the most job opportunities for disadvantaged workers.

Business Automation

The VAT in the Digital Age initiative contributes to the digital transformation 127 by pushing for more business automation and the use of digital. The initiative supports digital transformation as VAT digital reporting further incentivises the natural trend of business automation. In this respect, the introduction of specific reporting obligations (listings, SAF-T etc.) for tax purposes only are rather seen as an additional burden by the stakeholders consulted. However, stakeholders unanimously agree that when the reporting obligations are combined with standardized e-invoicing, economic benefits are also expected. The introduction of mandatory electronic invoicing is the cornerstone in this context and could create benefits such as the use of structured data to analyse and optimize value chains, quicker invoicing processes, faster VAT reimbursement and strong business automation gains.

Level playing field (internal market)

Impacts on the functioning of the Internal Market and competition (level-playing field), are linked to the equality and neutrality of VAT for different business models (digital vs. traditional) in the platform economy area and the possibility of benefiting from the OSS and IOSS for VAT registration (domestic vs. cross-border).

Tax control and efficiency

Tax control efficiency for tax authorities is expressed by there being better/fewer audits and requests for information and quicker VAT reimbursement 128 .

Data Confidentiality

Data confidentiality is defined as the protection against the disclosure of information – in this case the taxpayers’ transactional data – by ensuring that access to the data is limited only to those who are authorised. Confidentiality can be ensured in various ways (e.g. by limiting data collection or transmission) and is assessed based on risk variation (increase, decrease), since no IT system is completely ‘confidential’ (or secure) in absolute terms.

6.2.Impacts by VAT area

The policy sub-options in each of the VAT areas were individually assessed by the supporting study. Table 9 (VAT reporting), Table 13 (platform economy) and Table 14 (VAT registration) present an overview of this assessment.

Table 9 – Impacts in VAT reporting area by policy sub-option (net impacts, 2023-2032)

	Impacts Sub-option	VAT revenue, and burdens (net impacts)	Environment	Tax control	Business automation	Data confidentiality
VAT reporting	1 – Baseline	N/A	N/A	N/A	N/A	N/A
	2 – Recommendation and Removal	-Higher VAT revenue and burden, due to more widespread diffusion of DRRs + EUR 16.5 billion	No impact	-More widespread adoption of DRRs leads to better risk analysis, and improves audit	-Adoption of mandatory e-invoicing spurs more companies to automate	-More widespread adoption of DRRs increases the risks of attacks on companies’ data
	3 – Keep the data with the taxpayers	-Some savings in administrative burdens; limited effect on VAT revenue + EUR 27.5 billion	No impact	-Audits would become better; no improvements to risk analysis possible	-Electronic data may increase automation; benefits from e-invoicing fail to materialise	-No data transferred reduces the surface attack; risk at the company's premises (SMEs especially) remains
	4a – Partial harmonisation (intra EU)	-Increased burdens and higher VAT revenue -Domestic DRRs adoption increases + EUR 138.9 billion	Estimated environmental benefits up to EUR 0.05 billion	-Better risk analysis, and improves audit effectiveness and efficiency	-Electronic handling of transactional data may increase automation	-Risks to data confidentiality increase significantly the more fiscal data are stored and exchanged
	4b – Full harmonisation (intra EU and domestic)	-Highest burdens and highest VAT revenue + EUR 231.1 billion	Estimated environmental benefits up to EUR 0.06 billion	-Maximum improvements of risk analysis and audits due to the highest coverage	-Electronic handling of transactional data may significantly increase automation	-Highest risks to data confidentiality

The net impacts on VAT revenue and burdens are composed of the elements detailed below.

Table 10 – VAT reporting: net impacts on VAT revenue and burdens (2023-2032)

	Costs		Benefits
	Administrative burden for businesses	Implementation cost tax authorities	Fragmentation costs (elimination) 129	Environmental benefits	Savings pre-filled VAT returns	Removal of recapitulative statements	E-invoicing benefits	VAT collection/ C-efficiency**	Max. impact on VAT Gap***
Recommendation and removal (Sub-option 2)	EUR 2.8 billion	EUR 0.1 billion	EUR 4.4 billion	No impacts	EUR 0.7 billion	No impacts	EUR 0.3billion	EUR 14.1 billion	- 0.13 p.p.
Keep the data with the taxpayers (Sub-option 3)	EUR 6.5 billion	EUR 0.05 billion cost reduction	EUR 1.1 billion	No impacts	No impacts	No impacts	No impacts	EUR 32.8 billion	- 0.29 p.p.
Partial Harmonisation (Sub-option 4a)	EUR 11.3 billion*	EUR 2.2 billion	EUR 24.2 billion	EUR 0.01-0.05 billion	EUR 4.3 billion	EUR 11 billion	EUR 1.9 billion	EUR 111 billion	- 0.99 p.p.
Full Harmonisation (Sub-option 4b)	EUR 43.5 billion*	EUR 3.4 billion	EUR 24.2 billion	EUR 0.01-0.06 billion	EUR 7 billion	EUR 11 billion	EUR 14.5 billion	EUR 221.4 billion	- 1.98 p.p.

* To fundament the cost-effectiveness analysis, the most costly and complex type of digital reporting requirement (e-invoicing) was considered.

** The impact of the introduction of DRRs on VAT revenue is estimated based on the results of the econometric model (see Annex 4: Analytical methods ).The introduction of DRRs is estimated to increase C-efficiency by 1.9 percentage points, based on the C-efficiency (quarterly data) model. The alternative methodology using the VAT gap projects a reduction in the VAT Gap by 2.6 percentage points. The VAT Gap reduction refers to the models used, not accounting for the dynamic baseline. However, Member States will, if nothing is done on an EU level, introduce domestic reporting requirements to deal with their specific problems. Thus, the figures in Table 10 reflect this situation. 130

*** The impact on the VAT Gap mainly comes from the introduction of digital reporting, which is an antifraud measure. Calculations are made by notionally increasing the 2021 VAT revenue (VAT Gap Study), amended to exclude the UK with the additional VAT revenue obtained under C-efficiency model

DRRs: Cost-benefit comparison against baseline

	Costs (EUR billion)	Benefits (EUR billion)	Net impacts (EUR billion)
Sub-option 2	2.9	19.4	16.5
Sub-option 3	6.4	33.9	27.5
Sub-option 4a	13.5	152.4	138.9
Sub-option 4b	46.9	278.1	231.1

Tax control and efficiency

The benefits to tax control would increase with the volume, quality, timeliness and granularity of data. Therefore, options which entail the provision of data on both domestic and cross-border transactions provide the highest benefits for tax control.

Measures which only cover domestic supplies, would provide benefits in this regard (for example, through better targeted audits, or allowing faster processing of reimbursements). However, these benefits would be limited on fight against cross-border fraud, and in particular MTIC fraud, as the current system of information on intra-EU supplies would remain in place (the recapitulative statements).

Measures which apply to cross-border transactions would significantly improve the current control capabilities for these transactions which are currently based on the recapitulative statements, allowing a more efficient and effective fight against cross-border fraud.

Therefore, the optimal option for tax control purposes would be one which applies both to domestic and cross border transactions. However, this option would need to be fully interoperable with the systems already in place in Member States.

In any case, any option increasing the volume, quality, timeliness and/or granularity of the data would improve the abilities of Member States to control their taxpayers, leading to increased efficiency in tax collection, and the ability to better target fraudulent traders and problematic supplies.

Business Automation

The introduction of digital reporting requirements, in particular through the implementation of mandatory electronic invoicing, allows a more efficient management of the business’ invoicing process, significantly reducing the cost for receiving and recording invoices. Further, the dematerialisation of invoices reduces the costs related to their archiving.

The benefits derived from the business automation could be significant. However, they unevenly distribute among taxpayers. These benefits seem to be more important for large companies, which keep accounting and invoicing activities in-house, while they will be reduced for small companies, which frequently outsource these activities to external tax advisors.

The more extended the implementation of digital reporting requirements, especially if they take the form of electronic invoicing, the bigger the benefits for taxable persons derived from the automation of their processes.

Data Confidentiality

The more data are exchanged, the greater the risk to data confidentiality. In that sense, an option which keeps the data with the taxpayers gives the lowest risk to data confidentiality, and that which has the most data travelling from taxpayers to tax administrations, and between tax administrations, has the highest risk.

Box 3

Implementation of an EU DRR: difference between options 4a and 4b (Part I)

Under both options 4a and 4b, Member States shall implement an EU DRR for intra-EU transactions and the recapitulative statements are abolished.

The difference between both options is that the implementation of a DRR system for domestic transactions is voluntary in option 4a while it is mandatory under option 4b. The impacts on Member States can summarised as follows:

-All Member States will be obliged to implement the EU DRR for intra-EU transactions under both options.

-Member States having in place a DRR for domestic transactions shall ensure interoperability with the EU DRR in the short term and shall converge to the EU DRR in the medium term. This will happen under both options.

-Member States that do not have in place a DRR for domestic transactions, when implementing such DRR shall adopt the EU DRR. The implementation of such a DRR for domestic transactions is obligatory under option 4b and voluntary under option 4a.

The difference between both options is that under option 4a there will be less Member States having in place a DRR for domestic transactions in the medium term that under option 4b. The study made the following assumptions: 131

Table 11 – Option 4a: Adoption of Digital Reporting Requirements (2023-2032)

Year	Time for the analysis	Number of Member States with DRR	Type of DRR	Adopters
2023	T0	14 (Domestic) 27 (intra-EU)	VAT listing	BG, CZ, EE, HR, LV, SK
			SAF-T	LT, PL, PT
			Real-time	ES, EL, HU
			E-invoicing	IT, FR
2025	T2	20.1* (Domestic) 27 (intra-EU)	VAT listing	BG, CZ, EE, HR, LV, SK
			SAF-T	LT, PL, PT
			Real-time	ES, EL, HU
			E-invoicing	IT, FR
			EU DRR	AT, BE, CY, DE, DK, FI, IE, LU, MT, NL, RO, SE, SI
2028	T5	20.1* (Domestic) 27(intra-EU)	EU DRR	All Member States

Therefore, even if there is no obligation for Member States to implement a DRR for domestic transactions, it is more than likely that all of them will implement such systems in the medium-long term. This assessment is backed by the following recent developments:

-Some Member States without DRR systems in place have recently announced their intention to adopt mandatory e-invoicing as a basis for digital reporting. This is the case for Romania and Belgium.

-Other Member States are studying the implementation of a reporting system based on e-invoicing, even though they have not yet announced if they will adopt it. This is the case of some Nordic Countries, which are carrying out the “Real-time economy” project.

6.2.1.Impacts on SMEs of the digital reporting (SME test)

The introduction of DRRs will impact all taxable persons. However, this impact will be different for each type of business. In this regard, it is worthwhile providing an additional analysis on the impacts on SMEs of the introduction of digital reporting at an EU level. Such SME analysis (SME test) aim to identify the possible effects of introduction of DRRs on SMEs.

The table below provides the range of net impacts. The analysis assumes that additional services, and in particular pre-filled VAT returns, will be provided by the tax authorities under the new digital reporting requirements that are to be introduced.

Table 12 – Administrative burdens by category and type; net impacts, EUR per year; ranges

	Active only domestically		Active cross-border
	Micro/Small 132	Medium/Large	Micro/Small	Medium/Large
	Per company (EUR/year)		Per company (EUR/year)
Administrative Burdens	100 / 500	600 / 4,400	100 / 500	600 / 4,400
Administrative burdens savings*	0 / 300	0 / 16,700	500 / 700	4,900 / 21,600
Net impacts for businesses	- 200 / 100	- 1,400 / 12,300	300 / 600	3,600 / 17,200

* the analysis does not account for the benefits from business automation

The results show that companies engaged in cross-border transactions get a net benefit from the introduction of an EU DRR. These are smaller for micro and small entities, but still positive. This is due to the removal of the recapitulative statements, which come on top of the other benefits generated by the DRR, and in particular the pre-filled VAT returns. On the contrary, the analysis shows mixed findings for companies that are not active cross-border, which represent the vast majority of micro and small entities. For purely domestic micro and small enterprises, net benefits may be negative; this is because they do not gain benefit from the facilitation of cross-border transactions. About the ranges, in line with the overall cost analysis, the costs are higher if more complex types of DRRs are selected, such as e-invoicing. The taxpayers made it clear in the public consultation that “the VAT reporting should not be planned only to fulfil the information requests of tax administrations but also to make real-time data available for companies, so that they can benefit from detailed financial data in their own business”. Therefore, appropriate support measures, for instance for the investment in e-invoicing services or the provision of free software could be considered, to make sure that the net costs for taxpayers are lowered or compensated. In any case, the minimisation of net impacts also depends on the provision of pre-filled VAT returns by the tax authorities. Such support was also requested by stakeholders during the public consultation, precisely pointing at possible compensation measures.

However, it should be underlined that the costs for businesses of the implementation of DRR systems would materialise even in the case that no action is taken at EU level. This is because under the current status quo, Member States will continue to implement DRR systems to improve tax collection. According to the technical study 133 carried out to assess the different policy sub-options, in the medium term the same number of Member States will have in place DRR systems for domestic transactions if no action is taken at EU level, regardless of whether systems for the reporting of domestic transactions are harmonised at EU level or left at the discretion of Member States. Therefore, the main difference of the EU action would be that the process will speed up. Therefore, the negative impact for certain businesses which are only engaged in domestic transactions are not a consequence of the EU action.

Table 13 summarises the main impacts in VAT treatment of platform economy area that are visible on VAT revenue, legal certainty, administrative burdens, and internal market – level playing field.

Table 13 – Main impacts in VAT treatment of platform economy area

	Impacts Sub-option	VAT revenue	Legal certainty and administrative burdens	Competition / Internal Market
VAT treatment of platform economy	A – Baseline	N/A	N/A	N/A
	B – Clarification of VAT rules (nature of service, provider status, records)	+ EUR 2.5-2.6 billion (due to increased compliance compared to the baseline)	+ EUR 0.5 billion savings in administrative costs resulting from streamlining and clarifications	-More harmonised level-playing field across MS
	C – Deemed supplier: certain accommodation and transport services	+ EUR 19-45 billion due to increased compliance and broader tax base compared to the baseline	+ EUR 0.5 billion savings from inclusion of clarifications -Burdens due the administration of the deemed supplier regime (low) -New legal uncertainties linked to the boundaries of the system (high)	-Reduction of distortions between same services offered via different channels, minor negative impact on competition among exempt suppliers
	D – Deemed supplier: all accommodation and transport services	+ EUR 24-66 billion due to increased compliance and broader tax base compared to the baseline	+ EUR 0.5 billion savings from inclusion of clarifications -Burdens due the administration of the deemed supplier regime (low to moderate) -New legal uncertainties linked to the boundaries of the system (low to moderate)	-Reduction of distortions between same services offered via different channels, minor negative impact on competition among exempt suppliers
	E – Deemed supplier: all services for monetary consideration	+ EUR 63-146 billion due to increased compliance and broader tax base compared to the baseline	+ EUR 0.5 billion savings from inclusion of clarifications -Burdens due the administration of the deemed supplier regime (high) -New legal uncertainties linked to the boundaries of the system (low)	-Reduction of distortions between same services offered via different channels, significant negative impact on competition among exempt suppliers

VAT Revenue

Whilst VAT revenue will grow in absolute and relative terms if nothing is done, this is due to the growth of the platform economy and not to any increase in compliance efficiencies. The inconsistencies in the application of the rules will remain, along with the lost revenue collection opportunities.

Clarifying the existing rules to any extent will increase revenue as suppliers become more aware of the rules, however the difficulties would remain in how a tax authority would ensure the compliance of a large number of small suppliers. The clarification of the rules regarding the treatment of the platforms’ facilitation services (whether they are regarded as an electronically supplied service or an intermediary service) will lead to a shift in revenue between Member States.

With the introduction of the deemed supplier regime, VAT revenue increases substantially, because it introduces an extension of the tax base, and because it shifts the compliance burden from the small supplier to the platform, which would be also easier for the Member States to control. The wider the scope of the measure, the higher the additional VAT revenue.

Legal Certainty and Administrative Burdens

Currently compliance issues surrounding the determination of the status of the supplier and various record keeping obligations generate burdens of around EUR 1.9 billion. Any clarification of the current rules will reduce this burden and increase the legal certainty.

In judging the impact of any measure, it is difficult to assess the numbers of individuals providing services via platforms. For example, the study ‘VAT in the Digital Age’ assesses 410,000 full time employees deriving income from the transportation sector, and 458,000 in the accommodation sector. The Impact Assessment Report on the proposal for a Directive on improving working conditions in platform work estimates that 28.3 million people have at least occasionally worked through digital labour platforms.

It should be noted, however, that the impact due to the administration of the deemed supplier measure will fall not on the underlying suppliers, but on the platforms themselves, who will account for the VAT on the underlying transactions via their existing VAT accounting procedures.

In addition, the legal uncertainties due to the boundaries of the system will decrease with the scope of the measure. There is less legal uncertainty regarding the scope of a measure which applies to all accommodation and transport services rather than certain accommodation and transport services, and indeed if the measure is applied to all services the legal uncertainties would be minimal.

Level playing field (internal market)

Whilst clarification of the existing rules will help with legal certainty, it will not address the problem of competition, which, of the options listed, can only be addressed by a deemed supplier measure. This will eliminate the VAT advantage of occasional and very small suppliers when operating via a platform and benefiting from the network effect and follows a model adopted in other countries when faced with similar competitive imbalances (most recently the Canadian deemed supplier model for residential letting 134 ).

However, the introduction of the deemed supplier rule would create a new impact on competition, between very small and occasional suppliers within or outside a platform. Such impact is in direct proportion with the scope: minor for more restricted or sectoral deemed supplier options and more significant for the inclusive ones.

6.2.2.Impacts on SMEs of the platform economy

The stakeholder consulted asked for a global and reasonable solution, this being valid especially for the SMEs.

Under the deemed supplier regime options, the platform would account for the VAT in the place of small underlying suppliers. This means that the underlying supplier would not be required to register and account for the VAT itself, thus bearing no additional burden.

Table 14 summarises the main impacts in VAT registration area that are visible on administrative burdens, VAT collection and fraud and internal market – level playing field.

Table 14 – Main impacts in VAT registration area

	Impacts Sub-option	Administrative burdens	VAT collection (revenue) and fraud	Level playing field
VAT registration (OSS)	1 – Baseline	N/A	N/A	N/A
	2 – Minimal OSS extension	Addresses the problem of multiple VAT registrations, but only in a limited number of market segments, such as electric vehicle charging, and supplies of goods on a weekly market.	Likely impacts on non-compliance and fraud are assessed as marginal	Minor benefits are expected in terms of functioning of the Single Market, that are limited to the market segments involved
	3 – Moderate OSS extension	Eliminate the need to VAT register for distance sellers, and for many businesses outside the e-commerce sector.	By making compliance easier for SMEs, it would also reduce non-compliance.	Reducing distortions to the functioning of the Single Market in line with the wider scope
	4 – Reverse charge	Positive impacts for businesses operating where there is currently no access OSS simplification schemes.	Adoption of DRRs (4a/4b VAT registration) facilitates the implementation and reduce the risk of abuse by making it easier for the tax authorities to verify the transactions	Relying pragmatically on the reverse charge for wider B2B transactions improves the functioning of the Single Market
VAT registration (IOSS)	1 – Baseline	N/A	N/A	N/A
	2 – Removal of the current threshold	Can be combined with any other sub-option. Minor benefits expected for businesses that would be able to use the IOSS to avoid VAT registration. Preparing the IT systems of Commission and Member States takes time and is costly.	Some reduction in fraud risks could materialise	Levelling of the playing field in the Single Market could be expected by allowing, via the IOSS, suppliers to import in any Member State.
	3a – IOSS mandatory for deemed suppliers 3b – IOSS mandatory above a threshold 3c – IOSS mandatory, no threshold	Minor benefits expected for certain actors, such as postal operators and express carriers. Any introduction of thresholds complicates the schemes and adds complexity. While in practice the variations work differently, similar impacts are expected for 3a, 3b and 3c.	The IOSS is also likely to help the authorities identify fraud and increase compliance. However, it is difficult to enforce.	As a knock-on effect of increase compliance, the level playing field will improve.

Administrative burdens

OSS

The e-commerce sector will continue to grow, and as such, if nothing is done, an increasing number of businesses, and in particular SMEs, will face the burden of having to register for VAT in (an)other Member State(s) and comply with the specific VAT obligations of these Member States in respect of transactions not yet covered by the OSS.

Any measure which increases the scope of the OSS will decrease the necessity of businesses making B2C supplies (and other specific transactions such as own movements of goods) to register in other Member States – this could be targeted to specific sectors/problem areas (such as electric vehicle charging) where the sectoral burden reduction could be significant, or have a broader scope, enabling a wider use of the OSS.

Similarly, broadening the scope of the reverse charge will reduce the necessity of businesses being required to register in other Member States when they have made B2B supplies.

IOSS

Removing the current threshold of EUR 150 will mean that some businesses will no longer be required to register in the Member State of destination, thus reducing their burdens. However, it can be seen that any of the proposed changes to make the IOSS mandatory will have minimal impact on administrative burdens (because the majority of businesses who see a benefit from using the IOSS are already doing so).

VAT collection (revenue) and fraud

OSS

The wider use of the OSS is likely to improve compliance as businesses find the OSS easier to administer, and the wider use of the reverse charge may help detect and reduce certain types of MTIC fraud.

IOSS

Increasing the scope of the IOSS will reduce the levels of fraud, particularly from non-EU third party suppliers, however, it will not eliminate it completely (i.e. there remain the opportunities for the undervaluation of parcels or the misuse of IOSS numbers).

Level playing field

OSS

The disparity which currently exists between SMEs and large businesses will continue to exist (because a large business is more likely to be either a) already established in another Member State or b) if not, will face proportionately lower registration costs) and will rise as the value and volume of distance sales increases. To increase the scope of the OSS will go some way to redress this imbalance, reducing the necessity for SMEs to register in other Member States.

IOSS

There are ongoing opportunities for fraud, in particular from non-EU based suppliers, which impact on the competitiveness of EU businesses. Improvements to the scope and functioning of the IOSS will reduce this unfairness by improving the compliance of non-EU based suppliers.

6.2.3.Impacts on SMEs of the VAT registration

Approx. 280,000 SMEs will benefit from the extension of the scope of the OSS/IOSS. The number of SMEs was extrapolated from the 2015 study (Deloitte’s VAT Aspects of cross-border e-commerce report), which estimates 248,581 companies engaged in B2C cross-border e-commerce, among which 232,118 SMEs. These figures were extrapolated by the supporting study to 300,000 companies in total (and the same proportion of SMEs), resting on the assumption that the growth of e-commerce since 2015 not only reflects growth in the number of active e-commerce businesses but also in the growth of volumes and values of sales of already existing businesses; hence the growth of the number of businesses should be significantly smaller than the growth of e-commerce sales over the same period (see Table 1 ) 135 . Conservatively, for SMEs only this translates in a cost saving up to EUR 0.34 (one-off) and up to EUR 0.67 (recurrent), thus a total of EUR 7 billion for the period 2023- 2032. Since the total savings are EUR 8.7 billion, SMEs will benefit the most from the measures.

6.3.Stakeholders’ views on the options

Regarding the VAT reporting options stakeholders generally support the introduction of an EU DRR for intra-EU transactions, with or without the inclusion of the domestic transactions. Agreement was less pronounced for options referring to recording data on VAT transactions in a standard digital format, adopting non-binding Commission recommendations providing a common design for reporting obligations across the EU, and for no longer requiring Member States to have to ask for an explicit derogation for introducing mandatory e-invoicing for B2B transactions.

Figure 6 – Options for VAT registration (DRRs): stakeholders’ views

The need for changes to the VAT rules to ensure proper VAT treatment of the platform economy was considered necessary by most stakeholders. On the policy options, stakeholders noted that (1) keeping a legal clarification up to date with the business developments and with the exact nature of services offered by platforms will be difficult or impossible and it was remarked that the nature of the service and distinction between an intermediary and electronic supply of service cannot always be clearly defined; (2) to presume the VAT status of the service provider is difficult and may add complexity for platforms, thus a simple and secure mechanism should be found; (3) the imposition of new record-keeping obligations could increase costs and put platforms at a disadvantage compared to non-platform businesses; and (4) while being seen as a solution by the majority of respondents, a deemed supplier role for digital platforms may create difficulties for platforms, a burden which might be unreasonable for smaller or purely domestic platforms which may choose to shift the burden towards their users by imposing strict conditions and requirements.

Figure 7 – Options for VAT treatment of platform economy: stakeholders’ views

On the VAT registration proposed options, the strongest agreement among stakeholders was to extend the OSS to cover all B2C supplies of goods and services by non-established suppliers. Only slightly less respondents agreed or at least partly agreed with extending the OSS to intra-Community supplies and acquisitions of goods, and to B2B supplies of goods and services, together with the introduction of a deduction mechanism into the OSS. The latter was in fact the most popular option among economic operators. More than half of the answers indicated that they agree with the options of making reverse charge available for all B2B supplies carried out by non-established suppliers, and with removing the EURO 150 threshold for the IOSS. Two more options were at least partly agreed by a majority: to extend the OSS to B2B supplies of goods and services but leaving the current VAT refund mechanism in place and making the IOSS mandatory for all distance sales of imported goods. The former, however, was not supported by economic operators. The options of making the IOSS mandatory either for all distance sales of imported goods above a certain threshold or for marketplaces only did not find agreement among a majority of the responding stakeholders.

Figure 8 – Options for VAT registration (OSS and IOSS): stakeholders’ views

6.4.Policy intervention – gradual approach

Even if some options were discarded, the total number of remaining valid options in the three areas still allows for hundreds of possible combinations.

Therefore, the sub-policy options in each areas are combined in five successive approaches for further analysis of their combined impacts. These approaches are: status-quo, minimalistic, moderate, enhanced and maximal. With the exception of the status-quo which represents the baseline, each approach is progressively increasing the intensity of the intervention, thus also helping to strike the right balance in terms of proportionality and subsidiarity. The logic behind the grouping was to gradually raise the intensity of the intervention in each of the VAT policy areas: reporting, treatment of platform economy and registration compared with the preceding choice. Since the VAT registration area has two components, OSS (intra-EU) and IOSS (outside EU/ importation), the intervention started with the intra-EU component (OSS), and was then extended to the IOSS.

In addition, combining the various sub-options can produce synergies. For example, the OSS VAT registration sub-option 4 requires the use of a reverse charge mechanism. Such a system, where the customer accounts for the VAT on its VAT return instead of the supplier, can be enhanced by the provision of operational data to tax administrations to reassure them of its good functioning. The same data that will be made available by the introduction of digital reporting requirements (VAT reporting options 4a and 4b) can also be used for that purpose. Therefore, the combination of such sub-options in VAT registration and VAT reporting areas generates greater impacts than the sum of their separate effects.

“Status-quo”

VAT reporting Sub-option 1:

No measure to harmonise the DRRs is introduced at EU level. The introduction of mandatory e-invoicing remains subject to a derogation, and recapitulative statements are not modified.

VAT treatment of platform economy Sub-option A:

No legislative intervention to revise the VAT Directive and Implementing Regulation will be proposed to address the problems identified regarding the platform economy.

VAT registration Sub-option 1 (OSS) and Sub-option 1 (IOSS):

This would leave in place the VAT system as of 1 July 2021, with only minor refinements (e.g. additional guidance, quick fixes) to improve the implementation of the OSS and IOSS.

“Minimalistic approach”

VAT reporting Sub-option 2:

Under this sub-option, the introduction of DRRs remain optional for Member States whilst being encouraged for those Member States with a significant VAT Gap or evidence of VAT frauds 136 , provided that the new system conforms to the EU design. The core elements of the EU design which Member States are invited to consider are described in a non-binding recommendation. In parallel, the requirement for a derogation to introduce mandatory e-invoicing is removed. Member States can thus choose any reporting mechanism they deem fit. Recapitulative statements are not modified.

VAT treatment of platform economy Sub-option B:

Clarifying the current VAT treatment of the platform economy. The nature of the services provided by the platform and their place of supply will be clarified and a rebuttable presumption on the status of providers of services using a platform will be introduced.

VAT registration Sub-option 2 (OSS):

An extension of the OSS so that it covers all B2C supplies of goods and services by non-established suppliers. This option would address the problem of multiple VAT registration, but only in a limited number of market sectors, particularly electric vehicle charging, supplies of goods made on board means of transport and certain companies operating in border regions. This would entail a minor increase in the scope of the OSS. The IOSS will remain unchanged.

“Moderate approach”

VAT reporting Sub-option 3:

Under this option, no EU DRR is imposed; rather, a new provision would be included in the VAT Directive requiring taxpayers to record transactional data according to a pre-determined format.

VAT treatment of platform economy Sub-option C:

Under the deemed supplier options, the platform would be deemed to be the supplier, and liable to collect and charge the VAT in cases where the provider does not charge VAT. A narrow deemed supplier regime would apply to the supply of certain accommodation and transport services (i.e. short term residence renting, ride-on-demand) for monetary consideration.

Certain elements from the Sub-option B regarding clarification of the existent VAT treatment should also be included or adapted, for example, new rules for the place of supply of the platform’s facilitation services and a presumption determining the status of the provider using the platform.

VAT registration the “Minimalistic approach” + Sub-option 4 (OSS):

It will add that Member States shall provide for the possibility of reverse charge for B2B supplies by non-established persons. The IOSS will remain unchanged.

“Enhanced approach”

VAT reporting Sub-option 4a:

A DRR is introduced for intra-EU transactions and the recapitulative statements are abolished 137 . The introduction of a DRR for domestic transactions remains optional for Member States. Member States wishing to introduce such a mechanism shall ensure that it conforms to the system used for intra-EU transactions. For Member States where a DRR for domestic transactions is already in place, interoperability 138 with the intra-EU digital reporting is required in the short-term, and national DRRs are required to converge to the EU system in the medium-term.

VAT treatment of platform economy Sub-option D:

A sectoral deemed supplier regime would apply to the supply of all accommodation and transport services for monetary consideration. This also includes those elements from sub-option B described in the moderate approach.

VAT registration “Moderate approach” + Sub-option 3 (OSS) + Sub-option 3a (IOSS):

Extension of the OSS so that it covers all B2C supplies of goods and services by non-established suppliers and the transfer of own goods cross-border combined with the introduction of a reverse charge for B2B supplies by non-established persons. The optional character of the IOSS will be removed for the deemed suppliers combined with additional data exchange prior the importation.

“Maximal approach”

VAT reporting Sub-option 4b:

A DRR is introduced for intra-EU and domestic transactions alike, and the recapitulative statements are abolished. For Member States where DRR for domestic transactions are already in place, interoperability with the intra-EU digital reporting is required in the short-term, and national DRRs are required to converge to the EU system in the medium-term.

VAT treatment of platform economy Sub-option E:

Under this option, the deemed supplier regime would apply to all services for monetary consideration. This also includes those elements from sub-option B described in the moderate approach

VAT registration “Enhanced approach” + Sub-option 2 (IOSS):

Extension of the OSS so that it covers all B2C supplies of goods and services by non-established suppliers and the transfer of own goods cross-border combined with the introduction of a reverse charge for B2B supplies by non-established persons. Both, the EUR 150 threshold for use of the IOSS and its optional character will be removed combined with additional data exchange prior the importation.

7.How do the options compare?

7.1.Evaluation criteria and the gradual approach

The options are assessed and compared with regard to their effectiveness, efficiency and coherence. Because the approaches include a mix of policy options in three areas of VAT (reporting, platform economy and registration), the synergies are also mentioned, where applicable. In addition, the proportionality and subsidiary are also taken into account for the full evaluation (see Table 17 ):

Effectiveness

The specific objectives against which the effectiveness is evaluated are (1) to improve reporting requirements to unlock the opportunities provided by digitalisation; (2) to promote convergence and interoperability of IT systems; (3) to create a level-playing field for businesses, regardless of the business model; (4) to reduce burdens, regulatory fragmentation and associated costs; and (5) to minimise the need for multiple VAT registrations in the EU.

Table 15 – Effectiveness table

	Effectiveness (specific objectives)
	Improve reporting requirements	Convergence and interoperability of IT systems	Create a level-playing field	Reduce burdens and fragmentation costs	Minimise multiple VAT registrations
Minimalistic approach	+	0/+	0/+	+	0/+
Moderate approach	0/+	0	+	+	+
Enhanced approach	++	+++	++	++	++
Maximal approach	+++	++	++	++	++

Efficiency

To measure the efficiency (cost-effectiveness) of policy sub-options in each area, a combination of net benefits and scoring system was used to denote the nature and scale of impacts in comparison to the continuation of the status quo for all policy sub-options in the areas of VAT reporting, VAT treatment of platform economy and VAT registration. A score of 0 indicates no or only marginal change. The scale ranges from ‘much worse’ (---) to ‘much better’ (+++).

Table 16 – Efficiency table (against baseline)

	Impacts Sub-option	VAT revenue, and burdens (net impacts compared to the baseline)	Environment		Tax control	Business automation		Data confidentiality
VAT reporting	Sub-option 2	0/+ (EUR 16.5 billion)	0		+	0/+		–
	Sub-option 3	+ (EUR 27.5 billion)	0		0/+	+		+
	Sub-option 4a	++ (EUR 139 billion)	+		++	+		– –
	Sub-option 4b	+++ (EUR 231.1 billion )	+		+++	++		– – –
	Impacts Sub-option	VAT revenue 139		Legal certainty and administrative burdens			Competition / Internal Market
VAT treatment of platform economy	Sub-option B	0/+ (EUR 2.5 - 2.6 billion)		++			+
	Sub-option C	+ (EUR 19 - 45 billion)		+			+
	Sub-option D	++ (EUR 24 - 66 billion)		+			+
	Sub-option E	+++ (EUR 63 - 146 billion)		0/+			0
	Impacts Sub-option	Administrative burdens		VAT fraud and compliance levels			Functioning of the Single Market
VAT Registration (OSS)	Sub-option 2	+		0/+			+
	Sub-option 3a	++		+			++
	Sub-option 3b	0/+		0			0/+
	Sub-option 3c	++		+			++
(IOSS)	Sub-option 2	+		0/+			0/+
	Sub-option 3	0/+		+			+

Coherence

Other Commission initiatives (see Annex 5) either do not impact the coherence or translate into a minimal impact on the VAT in the Digital Age initiative. Therefore, the coherence with EU policy objectives is assessed against the provisions of the Tax Action Plan, more specifically against Actions A1, A4, A5, and A23 (see the Introduction).

The comparison of the options is made using the aforementioned five gradual approaches in policy intervention: status-quo as a baseline, minimalistic, moderate, enhanced and maximal. The gradual approach is used to ensure the intervention does not go beyond what is necessary to achieve the objective.

7.2.Policy comparison

“Status-quo”

The “status-quo” approach is analogous to no intervention. This approach fails to meet all specific objectives. It also fails the coherence objectives, since it is not aligned with the Tax Action Plan.

“Minimalistic approach”

Effectiveness in meeting the specific objectives

The minimalistic approach does not improve reporting requirements in a systematic way. The recapitulative statements that are the main source of the ineffective reporting system are not modified. Some positive impacts are possible due the non-binding recommendations addressed to Member States with significant VAT Gap levels. The IT systems are already running and do not need further preparation, since also the scope of OSS changes is limited and can be easily absorbed by the current system. Clarifications in the platform economy add some certainty and reduce burden but fail in addressing the distortion of competition. An extension of the OSS so that it covers all B2C supplies of goods and services by non-established suppliers would address the problem of multiple VAT registration, but only in a limited number of market sectors. No synergies and/or multiplication factors manifest.

Coherence and efficiency

The approach is only partly coherent with the Tax Action Plan, since it falls short in four action areas of the Plan: A1, A4, A5, and A23. The cumulative impact in efficiency (see Table 17 ) is minimal, however marginally positive in all areas, bringing EUR 16.5 billion net benefits from VAT reporting, approx. EUR 2.5 billion in platform economy area

“Moderate approach”

Effectiveness in meeting the specific objectives

The moderate approach still limits the ambition levels in all areas. However, the approach has the merit of allowing convergence and interoperability of IT systems and it is the first one to score more consistently across all specific objectives. Thus, some savings in administrative burdens are expected, however they will be combined with a more limited effect on VAT revenue as the DRRs are still optional for the Member States. The approach reduces the distortions between the same services offered via different channels in platform economy area, thus creating a more level-playing field, but adds new legal uncertainties linked to the limits of its application, since only part of the accommodation and transport sectors are in the scope. The combination of VAT registration minimalistic approach with the reverse charge (including the chain transactions into the scope) helps generating positive impacts for more business that will not have to register in multiple Member States.

Synergy factor

Because the moderate approach combines clarification elements from platform economy sub-option B with the deemed supplier regime and also combines multiple sub-options in area of VAT registration, it punches above the added impacts by integrating some synergies. However, because the digital reporting obligations are not introduced which would complement the reverse charge, the synergies are more limited.

Coherence and efficiency

The moderate approach achieves the minimum operational efficiency in all areas of the Tax Action Plan, except A4 140 . It streamlines the mechanisms that can be applied for domestic transaction using a pre-determined format, but does not provide a quicker, possibly real-time, and more detailed exchange of information on VAT intra-EU transactions. However, the cumulative impact in efficiency is largely positive compared with the previous approach and it is mainly driven by the introduction of a limited deemed supplier role in platform economy area that increases the VAT revenue several times (EUR 19-45 billion). The net benefits almost double compared with the previous approach in the VAT reporting area and amounts to EUR 27.5 billion.

“Enhanced approach”

Effectiveness in meeting the specific objectives

The enhanced approach further increases the ambition level and the intensity of intervention in all areas. With the introduction of intra-EU digital reporting (VAT reporting Sub-option 4a), over 2 billion intra-EU transactions per year 141 are to be considered.

The convergence and interoperability of IT systems specific objective is met by introducing the short-term interoperability and medium-term convergence of the domestic reporting obligations with the EU DRR system. The interoperability and convergence combine with the non-inclusion of the removal of EUR 150 threshold for the use of IOSS that would further complicate the IT environment and lead to a maximum score regarding the IT-specific objective. The IT specific objective also has an inherent time-related component: this enhanced approach will reach the fastest the full convergence and interoperability for the Member States who have domestic DRRs in place or planned. Because of the introduction of an intra-EU digital reporting obligation, the enhanced approach is the first one to fulfil the improvement of reporting requirements using the opportunities provided by digitalisation specific objective. The benefits are driven mostly by higher VAT revenue, but the savings for businesses due to reduced burdens and improved business automation also contribute to the positive impacts. The introduction of an EU DRR and the wider and more targeted use of DRR for domestic transactions (being optional, it is expected that Member States with high VAT Gap or with specific fraud issues will be the first ones to use it) will also positively impact tax controls and business automation, especially if an e-invoicing solution is adopted, while the increased storage and exchange of fiscal data increases risks to data confidentiality.

In the platform economy field, the enhanced approach addresses the distortion of competition in the accommodation and transport sectors where the problems where identified. In addition, it achieves a good balance in dealing with burdens related to (1) the administration of the deemed supplier regime (2) legal uncertainties linked to the boundaries of the new system and (3) limiting the possible new distortion between very small and occasional suppliers within or outside a platform to these two sectors.

In the VAT registration area, combining the OSS sub-option 4 with 3a would maximise the likely positive impacts, by extending the OSS to transfers of own goods cross-border, and relying pragmatically on the reverse charge for wider B2B transactions. In addition, the removal of the optional character of IOSS for deemed suppliers will remove administrative burdens for certain actors, such as postal operators and express carriers, helping the authorities identify fraud, increase compliance and, as a consequence, improve the level playing field.

Synergy factor

The enhanced approach helps create greater synergies not only inside the VAT areas (mixing parts of and sub-options in reporting, platform economy and registration), but the multiplication effect is visible across the areas, by combining the reverse charge with the reporting obligations that are now in the scope. Thus, the synergy score is significantly improved.

Coherence and efficiency

The enhanced approached is better balanced to achieve the coherence in all areas of the Tax Action Plan, without exception. It provides a quicker and more detailed exchange of information on VAT intra-EU transactions and offers a very important and targeted incentive for Member States to introduce domestic reporting.

Additional EUR 139 billion net benefits in VAT reporting area are expected, and VAT revenue will increase by EUR 24-66 billion due to increased compliance and a broader tax base in the platform economy. Driven mainly by the introduction of digital reporting obligations, the cumulative impact in efficiency increases several times compared with the previous approach.

“Maximal approach”

Effectiveness in meeting the specific objectives

The maximal approach increases the intervention to the maximum extent possible. The majority of the specific objectives are fully met, with the exception of the IT-related one. The extension of the digital reporting requirements to include domestic transactions dramatically increases the number of transactions and the IT-related burdens for tax authorities and businesses. In principle, IT demand regarding the introduction of a DRR for intra-EU transactions should be lower than those necessary to apply the requirements to both intra-EU and domestic transactions. This may be especially true for operating costs, which are more closely linked to the number of transactions processed, but less so for investment costs.

Moreover, the maximal approach includes the elimination of the EUR 150 threshold for the use of the IOSS (VAT registration IOSS sub-option 2) wich also has a significant impact on customs, even more prominent when linked with the abolition of the threshold also for the customs duties. The inclusion has an additional negative impact on the IT-related specific objective that adds to a similar negative impact on the same specific objective linked with the possible adoption of the domestic digital reporting obligations

The benefits are driven mostly by higher VAT revenue, but the savings for businesses due to reduced burdens and improved business automation also contribute to the positive impacts. The introduction of an EU DRR and the wider use of DRR for domestic transactions will also positively impact tax controls and business automation, especially if an e-invoicing solution is adopted, while the increased storage and exchange of fiscal data increases risks to data confidentiality.

In the platform economy field, the maximal approach solves the identified distortion of competition. It deals better with the burdens related to the legal uncertainties linked to the boundaries of the new system but worsens the burdens related to the administration of the deemed supplier regime. It is increasing the possible distortion among very small and occasional suppliers within or outside a platform.

In the VAT registration area, the maximal approach further expands the scope by including the removal of the EUR 150 threshold, thus adding marginal benefits.

The synergy score is similar with the enhanced option.

Coherence and efficiency

The maximal approach has the highest cost and also displays superior net benefits. In VAT reporting area the benefits amount to EUR 231 billion. VAT revenue will also increase by EUR 63-146 billion due to the extension of the scope of deemed supplier broadening the base in platform economy. Driven by the introduction of domestic digital reporting obligations and the extension of the scope in platform economy, the cumulative impact in efficiency takes a step further compared with the previous approach.

Proportionality and subsidiarity

Under the minimalistic approach the action taken are subpar and they do not meet the minimum needs to achieve the goals. The moderate approach observes better the proportionality and subsidiarity, however it still falls short. The enhanced approach is the better balanced one, while the maximal approach is pushing the limits of proportionality and subsidiarity. The stakeholder consultation pointed to the fact that the maximal approach is more uncertain from a political feasibility point of view, having in mind the general rule in the European treaties that EU Member States must agree tax proposals unanimously before they can be adopted. The stakeholder consultation indicates that at least in the area of VAT reporting, where some Member States strongly expressed their preference for optional domestic DRRs, and in the platform economy, where the possible distortion and network effects manifest in specific areas, reaching the level of ambition required by the maximal approach could be challenging.

To summarise, the minimal and moderate approaches are the lowest hanging fruits, the enhanced approach is balanced, although cautious, and the maximal approach is very ambitious.

Table 17 – Comparison of gradual policy intervention

	Effectiveness	Efficiency	Coherence	Synergy factor	Proportionality and subsidiarity
Minimalistic approach	0/+	0/+	–	0	0/+
Moderate approach	0/+	+	0/–	0/+	+
Enhanced approach	++	++	++	++	+++
Maximal approach	++	+++	++	++	++

Table 18 – Comparison of policy intervention: total net benefits (2023-2032)

	Costs (EUR billion)	Benefits (EUR billion)	Net benefits (EUR billion)	Average benefit/cost ratio	Average benefit/cost (proportionality factor included) *
Minimalistic approach	2.9	31.1 – 31.2	28.2 – 28.3	10,6	10.6
Moderate approach	6.4	62.1 – 88.1	55.7 – 81.7	11,7	11.7
Enhanced approach	13.5	185.6 – 227.6	172.1 – 214.1	15,4	46.1
Maximal approach	46.9	350.3 – 433.3	303.3 – 386.3	8,3	16.7

* A multiplication factor of 1, 2, and 3 (see corresponding column in Table 17 ) was used to amend the benefit/cost ratios to better account for proportionality and subsidiarity

8.Preferred option(s)

From the comparison, it can be concluded that the best policy choice results from the introduction of digital reporting requirements (EU DRR), combined with a deemed supplier provision and an extension of the scope in VAT registration. This points to the maximal and enhanced approaches.

The enhanced approach introduces an EU DRR for intra-EU transactions with an option for Member States to introduce this system for domestic transactions and a deemed supplier regime in the accommodation and transport sectors in the platform economy. It also entails the modification of VAT registration by extending the coverage of OSS to all B2C supplies, extending the reverse charge to B2B supplies and making the IOSS mandatory. The maximal approach goes one step further by including mandatory domestic DRR, a deemed supplier regime in all sectors of the platform economy and also removes the EUR 150 threshold for the use of IOSS.

The maximal and the enhanced approaches are effectively addressing all specific objectives of improving reporting requirements to include digital opportunities; providing a level playing field for businesses; ensuring convergence and interoperability of IT systems; reducing burdens, regulatory fragmentation and associated costs; and minimising the need for multiple VAT registrations.

The most significant expected benefits are from the options that cover the greatest proportion of these situations. Both the maximal and enhanced approaches have a wide coverage, hence the greatest potential benefits. For example, in the VAT registration area where the focus is more on the issue of ‘high administrative and compliance costs’, the sub-options for OSS and IOSS mainly differ in terms of the scope of the situations currently triggering multiple VAT registrations that would be addressed. However, for a business to benefit from any change, it would need to avoid all situations that still require additional VAT registrations. In other words: even if 99% of the transactions of a business currently requiring VAT registration could be dealt with using the OSS or via the reverse charge, it would still need to register for VAT for the remaining 1%, meaning that the availability of the OSS would hardly affect its administrative burdens. Having this in mind, the greatest coverage of the enhanced and maximal approaches address the issue.

There is no clear single preferred option for the following reasons:

1. The maximal approach scores highest in efficiency: between 2023 and 2032 it will bring between EUR 303 billion and EUR 386 billion 142 (net impacts against baseline), compared to between EUR 172 billion and EUR 214 billion 143 for the enhanced approach. The difference will certainly be lower due the fastest adoption of domestic DRRs by the Member States. 144 From the cost-benefit analysis without including any potential risks, the maximal approach should be the obvious choice.

2. If in terms of efficiency the maximal approach is a clear winner, adding the effectiveness and especially proportionality and subsidiarity criteria tips the balance towards the enhanced approach. More precisely, the enhanced approach respects to a greater degree the principles of subsidiarity and proportionality. For example, Member States will have the possibility to decide at a national level whether to introduce domestic reporting requirements, (whilst ensuring the interoperability with the EU solutions).

Box 3 (cont.)

Implementation of an EU DRR: difference between options 4a and 4b (Part II)

In the VAT reporting, the enhanced approach is restricted to the introduction of a mandatory EU DRR for intra-EU transactions, leaving the domestic DRR optional, while the maximal approach foresees the introduction of mandatory DRRs for both intra-EU and domestic transactions ( Table 11 ). It should be noted that the mandatory implementation of the EU DRR for intra-EU transactions (this affects both option 4a and 4b) would make much easier the future adoption of a DRR system for domestic transactions, given that all Member States will have already in place the IT developments necessary to receive and process the data from the taxpayers. Therefore, the extension of the EU DRR to domestic transactions would be a logical following step.

Another factor is that certain Member States drew the attention to the possibility that the adoption of DRRs by a majority of Member States could create an incentive for fraudsters to target those Member States which have not adopted such systems. That would push for a generalised adoption of a DRR system for domestic transactions.

Therefore, it can be concluded that the difference between options 4a and 4b relies more in the pace of adoption of DRRs for domestic transactions than on the number of Member States that will adopt such systems. The trend points to a scenario where, in the medium-long term, all Member States will have an EU DRR for domestic and intra-EU transactions, irrespective of the choice made between options 4a and 4b.

3. The enhanced approach follows the targeted consultation more closely, therefore making any gains politically feasible. Member States strongly indicated during targeted consultations and in various forums that they value a higher degree of freedom regarding the introduction of domestic digital reporting obligations and manifested the strong support for a more moderate intervention. Moreover, they were equally concerned about the impacts of a wide deemed supplier regime on the sector as a whole, and indicated that it should begin with a more targeted approach, approving the Commission’s suggestion of introducing it into the transport and accommodation sectors.

A final word should be said on the compatibility of the enhanced and maximal approaches. If the maximal approach is a best case scenario, the enhanced approach is a self-standing viable set of measures that can be extended in scope in the future depending on aspects such as (1) the further evolution of the drivers, e.g. platforms that may become dominant and impose their specific business model, and (2) the evolution of IT solutions, thus being ready for the VAT in the digital age now and fit-for-future. For instance, Member States that do not adopt a DRR for domestic transactions immediately, could implement it once the DRR for intra-Community transactions is consolidated and businesses progress towards automation, fully achieving in the long term the benefits on VAT fraud reduction estimated for the maximal approach.

8.1.REFIT (simplification and improved efficiency)

VAT in the Digital initiative will fully compensate the costs of its implementation; however, the different parts of the initiative act differently in this regard: VAT reporting comes with additional costs and possible cost reductions, platform economy and VAT registration are mainly reducing costs. The Fit for Future Platform included VAT in the Digital Age in its annual work programme for 2022, recognising its potential for reducing the administrative burden in the policy field. The evidence produced by the Platform informed the impact assessment, as explained below.

The Platform’s evidence pointed out to the need of avoiding additional registration through change of VAT rules on processing in another Member State before exporting and extension of the VAT One-Stop-Shop to the transfer of own goods. The need to minimise the number of instances where a business has to register in other Member States than its Member State of establishment is accounted for in the preferred options under the VAT registration. Also, the aspect of e-invoicing features in the preferred options on VAT reporting. From a taxation point of view, interoperability would be ensured by accepting invoices issued according to the European e-invoicing standard that is already in place, and the best solution is to combine flexibility with standardisation.

While the registration process is under national responsibility, the preferred option on VAT registration (OSS, IOSS) addresses as well the Platform’s call for a more efficient registration process by proposing solutions for VAT registration in a way that will limit the number of instances where businesses have to register and deal with tax administrations of other Member States.

By removing the optional character of the IOSS for deemed suppliers, one of the measures proposed will indirectly limit the number of mistakes made by businesses. This is done by transferring certain responsibilities towards the platforms and hence lowering the risk of businesses receiving heavy penalties. This is also an aspect brought up by the Fit for Future Platform evidence pointing out to changing rules on VAT exemptions for services related to the importation of goods.

The introduction of a DRR could generate net costs for businesses, especially for those operating purely domestically, these could be partly compensated by the introduction of additional services, such as the pre-filling of VAT return, as well as by the removal of recapitulative statements.

The removal of recapitulative statements alone does not compensate for the higher costs associated with the introduction of digital reporting in the maximal approach. Therefore, to fully compensate the remaining costs, possible solutions would be:

§Introducing or promoting the introduction of support measures for investments in IT systems, such as support to the purchase of e-services for complying with the new requirement 145 , and/or

§Introducing other simplification measures. For instance, once the tax authority receives all transactional data from the digital reporting, it may consider that VAT returns are no longer necessary, thus, in the medium-to-long-term, VAT returns could become an optional obligation, at least for Member States which have implemented a DRR for all transactions.

In the platform economy area, the disparate reporting obligations introduced by several Member States at national level will certainly be removed, because a deemed supplier regime makes them obsolete and transforms them in a redundant burden for businesses and tax administration alike.

In the VAT registration area, the costs generated by the need to VAT register for distance sellers will be eliminated almost completely.

Under the one-in-one-out (OIOO) principle, the Commission committed to offset new burdens from legislative proposals by reducing existing burdens in the same policy area, so that negative impacts for businesses are limited. The offset concerns administrative burdens and not necessarily adjustment costs (e.g. the investment needed to upgrading production lines, reducing damage to the environment, improving public health or raising the level of consumer or worker protection), and the one-in-one-out table below includes adjustment costs (which do not need to be off-set and administrative costs (that will have to be off-set) and are more of recurrent nature.

Table 19 – One-in-one-out comparison table (enhanced/maximal approach)

	ADMINISTRATIVE COSTS – IN (2023-2032, EUR billion)					ADMINISTRATIVE COSTS – OUT (2023-2032, EUR billion)
		One-off	Recurrent				One-off	Recurrent
VAT reporting (DRRs)	Costs related to the introduction of DRRs		3.77 / 14.5		Reduction of costs generated by fragmentation			24.2
				Environmental benefits from the introduction of DRRs				0.01 / 0.02
				Savings from pre-filled VAT returns				4.3 / 7
				Removal of recapitulative statements				11
				E-invoicing benefits				1.9 / 14.5
Platform economy				Compliance and the status of providers determination				0.5
VAT registration				VAT registration in another Member State			0.4	8.3

Reflecting the high and growing level of automation, most of the costs of digital reporting requirements fall in the one-off (set-up) category. Unlike other DRRs such as the listings or SAF-T, the e-invoice does do not serve exclusively for the purpose of reporting obligations i.e. the e-invoicing is largely used today without any obligation as a measure of automation/efficiency gain; thus, they are generally adjustment costs. The one-off costs represent approx. two-thirds of the total costs. The costs are higher for larger companies than for smaller ones due to the complexity of their internal systems and the number of transactions and their diversity. There is also an inverse relation between one-off and recurring implementation costs, so that companies that invest more upfront have lower recurring expenses, and vice versa. 146

Finally, since the digital reporting obligations and the deemed supplier regime introduced at the EU level are harmonised, it will reduce the administrative burden derived from multiple divergent domestic obligations created by national authorities. However, the Commission cannot control the removal of national obligations, but is contra intuitive to think such obligations will be maintained. Moreover, in the targeted consultation the Member States having in place similar obligations declared they are in favour of an EU already indicated that on one hand, they are thinking to remove similar national obligations.

9.How will actual impacts be monitored and evaluated?

In line with the Tax Action Plan and following, inter alia, the views of stakeholders, the measures grouped under VAT in the digital age initiative are to be introduced progressively via legislative steps by amending the VAT Directive 2006/112/EC, supplementing the Council Implementing Regulation (EU) No 282/2011 and Council Regulation (EU) No 904/2010 on administrative cooperation. The measures are expected to contribute to better VAT collection and control, to improve fairness and reduce burdens.

Table 20 – Monitoring and evaluation framework

Objectives	Indicator	Measurement tool	Operational objectives
Better VAT collection, control and fairness	- VAT revenue (VAT collection) - VAT gap - MTIC fraud	- VAT revenue data (Eurostat) - VAT gap study and other specific studies (e.g. ‘MTIC/e-commerce fraud VAT gap’ studies currently under consideration) - Data provided by the Member States	- Improved efficiency in VAT compliance: min. EUR 134 billion / EUR 284 billion (enhanced approach/maximal approach) net positive impact on EU VAT revenues (2023-2032) - Positive trend in VAT Gap – up to 4 percentage points decrease, (to approx. 6.5% including the baseline) until 2032 - Substantial decrease of MTIC fraud (approx. 80% decrease at EU level)
Excessive burdens and compliance costs	- Compliance costs for businesses	- Study to estimate the compliance costs - Data and feedback provided by the business via VEG 147	- Min. 20% reduction of compliance costs in cross-border trade for businesses subject to the measures

Implementation	Indicator	Measurement tool	Operational objectives
DRR	-DRR health check	-Number, frequency and completeness	- Reducing the reporting time from up to 2-4 months to less than 5 days
Platform Economy	-Platform Economy	-Data from platform providers (provided by VEG and Member States)	- Platforms managing VAT obligations for their users
VAT registration	-OSS/IOSS statistics (flow of revenue)	- Real time reports in OSS and IOSS	- Better re-distribution of VAT revenues between Member States

9.1.Monitoring structures

The VAT Committee, an advisory committee on VAT issues in which representatives of all Member States participate and which is chaired by Commission officials from Directorate General Taxation and Customs Union (DG TAXUD), will monitor the implementation of the VAT in the Digital Age initiative, discuss and clarify possible interpretation issues between Member States regarding the new legislation. It is also envisaged that the Standing Committee on Administrative Cooperation (SCAC) will deal with all possible issues regarding administrative co-operation between Member States resulting from the new rules on the taxation of intra-EU trade. In case new legislative developments are required, the Group on the Future of VAT (GFV) and the VAT Expert Group (VEG) 148 might be further consulted.

9.2.Evaluation

Member States and the Commission shall examine and evaluate the functioning of the VAT rules provided for in the new legislation. To that purpose, Member States shall communicate to the Commission any relevant information as regards the level and the evolution of the administrative costs, MTIC fraud and the OSS and IOSS data necessary for the evaluation of the effectiveness, efficiency, coherence with other interventions with similar objectives, and continued relevance of the new legislation. The evaluation should also seek to collect input from all relevant business stakeholders as regards the level and the evolution of their compliance costs. The Commission will prepare a retrospective evaluation of the functioning of the new legislation five years after its entry into force.

10.Figures and Tables Overview

Figure 1 – Problem tree

Figure 2 – VAT reporting: stakeholders’ views on current situation

Figure 3 – Current situation: the need of multiple VAT registrations is still an issue

Figure 4 – Effectiveness of recapitulative statements against MTIC fraud (Member States)

Figure 5 – Intervention logic

Figure 6 – Options for VAT registration (DRRs): stakeholders’ views

Figure 7 – Options for VAT treatment of platform economy: stakeholders’ views

Figure 8 – Options for VAT registration (OSS and IOSS): stakeholders’ views

Figure 9 – Targeted consultation – stakeholder coverage

Figure 10 – Type of Respondent (Call for Evidence)

Figure 11 – Type of Respondent (public consultation)

Figure 12 – Digital Reporting Requirements in the EU

Figure 13 – Problem tree (VAT registration)

Figure 14 – Linking the objectives to the problem

Figure 15 – E-commerce deployment map of 23 March 2022

Figure 16 – Estimated number of (cross-border) e-commerce consumers in the EU, 2014-2029

Figure 17 – Estimated volume of cross-border e-commerce in the EU, 2014-2029

Figure 18 – MOSS Total Revenues 2015-2020

Figure 19 – VAT revenue collected in the OSS between 1 July 2021 and 31 December 2021

Figure 20 – Total of VAT amounts declared via OSS/IOSS (1/07/2021 to 31/12/2021)

Table 1 – Minimum VAT-related costs of cross-border trade for businesses (EUR)

Table 2 – Transactions requiring non-established businesses to VAT register (1 July 2021)

Table 3 – Overview of the drivers

Table 4 – Scale of platform economy operation, by sectors (EU27, EUR billion, 2019)

Table 5 – Medium-term adoption scenarios

Table 6 – Dynamic baseline: adoption of Digital Reporting Requirements (2023 – 2028)

Table 7 – Description of the policy sub-options by VAT area

Table 8 – Overview of impact types by VAT area (reporting, platform economy, registration)

Table 9 – Impacts in VAT reporting area by policy sub-option (net impacts, 2023-2032)

Table 10 – VAT reporting: net impacts on VAT revenue and burdens (2023-2032)

Table 11 – Option 4a: Adoption of Digital Reporting Requirements (2023-2032)

Table 12 – Administrative burdens by category and type; net impacts, EUR per year; ranges

Table 13 – Main impacts in VAT treatment of platform economy area

Table 14 – Main impacts in VAT registration area

Table 15 – Effectiveness table

Table 16 – Efficiency table (against baseline)

Table 17 – Comparison of gradual policy intervention

Table 18 – Comparison of policy intervention: total net benefits (2023-2032)

Table 19 – One-in-one-out comparison table (enhanced/maximal approach)

Table 20 – Monitoring and evaluation framework

Table 21 – Sample for the targeted consultation

Table 22 – Consultation strategy

Table 23 – Targeted consultation – geographical coverage

Table 24 – Country of residence or main headquarter (Call for Evidence)

Table 25 – Country of residence or main headquarter (public consultation)

Table 26 – Variables and Descriptive Statistics (econometric model)

Table 27 – Baseline approach model estimates: C-efficiency quarterly data (econometric model)

Table 28 – Alternative approach model estimates: VAT Gap annual data (econometric model)

Table 29 – Baseline approach model estimates with lags and leads: C-efficiency quarterly data

Table 30 – Baseline approach model estimates with lags and leads of distinguished types of reporting obligations: C-efficiency quarterly data

Table 31 – Type of DRRs: multi-criteria analysis

Table 32 – VAT digital reporting obligations: annual administrative burdens per company (EUR/year)

Table 33 – VAT digital reporting obligations: implementation costs for tax authorities

Table 34 – Administrative burdens from recapitulative statements

Table 35 – Share of companies active in intra-EU trade and annual burden from recapitulative statements

Table 36 – Burden savings from pre-filled VAT return

Table 37 – Number of invoices issued in the EU (million per year)

Table 38 – Parameters to estimate the benefits from e-invoicing (per e-invoice issued)

Table 39 – Estimated amount of taxable persons potentially covered by the EU DRR (domestic and intra-EU transactions)

Table 40 – Annual administrative burdens per multinational subsidiary (EUR/year)

Table 41 – Number of registrations in OSS/IOSS on 1 February 2022

Table 42 – OSS/MOSS – Comparison of the number of registrations

Table 43 – OSS/MOSS – Comparison of the VAT declared on an annual basis

11.Annex 1: Procedural information

11.1.Lead DG, Decide Planning/CWP references

Lead Directorate-General: Taxation and Customs Union (TAXUD)

Decide Planning Reference: PLAN/2021/11943

CWP references: The initiative is included in the Commission Work Programme 2022 (listed under No 20 in CWP Annex) 149

11.1.1.Organisation and timing

Organisation and timing of Inter Service Steering Group’s meetings: the Inter Service Steering Group included representatives of the Directorates General BUDG, COMP, CNECT, DIGIT, ECFIN, EMPL, ESTAT, FISMA, GROW, JRC, JUST, MOVE, OLAF, REFORM, TAXUD, TRADE, the Legal Service (SJ) and the Secretariat General (SG and SG-RECOVER).

§1st Meeting on 3 December 2021: to discuss the Consultation strategy, the Call for evidence and Questionnaire for the Public Consultation

§2nd Meeting on 31 March 2022: to discuss the first draft impact assessment related to the problem and objectives

§3rd Meeting on 5 May 2022: to discuss the impact assessment including the impacts and the chosen solution.

11.1.2.Consultation of the RSB

The draft Impact Assessment was submitted to the Regulatory Scrutiny Board on 25 May 2022, for consideration at a meeting on 22 June 2022. The Regulatory Scrutiny Board issued a positive opinion with reservations on 24 June 2022 (ARES(2022) 4634471).

The board gave a positive opinion with reservations because it expects the following rectifications to be made:

(1) To provide sufficient evidence and detail of the identified problems, in particular in terms of Member State and sectoral perspectives.

(2) To better set out the evidence base behind the expected impacts. To provide a clear description of the modelling behind the VAT revenue estimates and of the methodology used for estimation of costs and benefits in the scope of the One In, One Out approach.

(3) To sufficiently explain the future configuration of the options, in particular the expected structure of the EU digital reporting requirements and the degree of flexibility envisaged for Member States.

What to improve (RSB suggestions)	What was improved
(1) The problem section should more clearly outline the reasoning behind the problem scope as well as the urgency to act. It should set out clearly why Member States with digital reporting requirements (DRR) apply different methods and better explain why some Member States have not yet introduced DRR. When discussing the VAT treatment of the platform economy, the report should explain to what extent the identified problems are significant for sectors beyond accommodation and transport (such as finance, and professional services). It should also clarify what drives the VAT Gap and how the quantitative level provided was calculated.	The reasoning was better outlined and the urgency to act was added in the reasoning. Additional evidence from the supporting study was added, the link with the VAT Gap Study clarified. More evidence from previous impact assessments such as the one on definitive regime was included. A section explaining which Member States introduced DRRs was added, different types of DRRs explained and a figure illustrating the distribution of DRRs in the EU was added in the in the Annex 4: Analytical methods . An explanation of why some Member States have not yet introduced DRR was also provided. It was underlined that in the area of platform economy the problem is not pregnant for some sectors, especially for specific sectors such as finance and professional services. It was explained how the VAT Gap and VAT fraud are linked and why the VAT Gap was used as a proxy for fraud. The econometric model based on panel regression method with fixed effects was described, as it was used for the estimation of VAT revenues. It was made clearer the distinction between the theoretical models used to estimate VAT revenues (C-efficiency and VAT Gap). The dynamic baseline (attempting to anticipate the domestic actions and business patterns going into the future) was also accounted for.
(2) The report should explain better how the baseline reflects the other ongoing and existing related initiatives. It should be clear to what extent Member States can be expected to introduce DRR (and similar solutions) domestically in the absence of further EU measures.	Apart from the Annex 5: other initiative s , a specific part related to other ongoing and existing initiatives was included in the main report. The link with the VAT in the Digital age was made clearer. A specific table referring to the adoption of Digital Reporting Requirements was introduced for baseline (status quo), together with the adoption scenarios used.

(3) The report should provide more information on the methodology, underlying assumptions and sources used in the impact analysis. It should summarise in the main report the key methodological aspects, assumptions, and limitations. It should provide a stronger connection between the impacts presented and the underlying methodology. It should be clear how the two econometric models (C-efficiency and VAT Gap) are applied across the analysis. The same metrics should be used to enable better comparison of impacts. The report should better explain how different options will reduce the estimated VAT Gap.	More information on methodology from the Supporting Study and Annex 4: Analytical methods was added in the main report. The assumptions and sources are explicitly mentioned, or a reference to the supporting study was added. It was made clear that the C-efficiency is the used model (base model). A presentation of the VAT Gap and C-efficiency concepts (Box 5, Volume I, p. 37 of the supporting study) was added, clarifying that the C-efficiency model was used and explaining why. An explanation of what is the VAT Gap and how it works was added. The influence of the introduction of DRRs on the VAT Gap was determined by imputing the additional VAT revenue in the corresponding figures from latest VAT Gap Study: an increase of revenues implies a reduction of the VAT gap if the VAT liability does not change. An indicative calculation of the VAT gap reduction was added in the baseline as well as in Table 10 .

(4) Given the scale of the presented estimates in scope of the One In, One Out approach, the report should provide a more detailed description of the method behind the estimates and clearly outline the metrics (in particular one-off versus recurrent costs).	The methods behind the estimates were detailed for quantitative impacts under the description of impacts area. The figures for One In, One Out and especially the one-off vs. recurrent were reviewed in the Section 8.1, a table was added in the same section. In addition, the Annex 3 was aligned and clarified.
(5) The report should present a more final outline of the options and the sub-option elements. It should clarify to what extent a future harmonised EU DRR system is tied to a specific type of digital reporting requirement, such as SAF-T or e-invoicing. It should also be clear about the future degree of flexibility for the Member States. It should clarify what political choices exist and present their differences in terms of costs and benefits.	It was clarified in Box 1 why we chose the e-invoicing for the IA and what are the benefits of such approach. Moreover, the Box 1 also offers more details on what type of reporting will be implemented and an overview of the features of such system.

(6) The report should strengthen the comparison of options. It should present the net benefits and benefit cost ratios and compare them across the option packages, including in terms of proportionality.	A table presenting net benefits and cost ratios was added to strengthen the comparison of options. Moreover, the table also accounts for proportionality, amending the ratios by using a proportionality factor between, 1 and 3 on the basis of a proportionality score determined before.

(7) The report should better present the views of different stakeholder groups in the main report, for example, stakeholder views on VAT treatment of the platform economy. It should more systematically present the divergent views of different stakeholder groups on the problems, options and their impacts.	Stakeholders’ views were included in the report, especially on the problem and options and their impacts. Explanations and visuals (graphs and figures) were added in the main report using more data from the stakeholders’ consultation (public and targeted). On the options, a specific section (5.3) named ‘Stakeholders’ views on the options’ was added. In addition, in the report (including in the new section added), the views of different stakeholder are presented in five main groups, as suggested: individuals, business federations, economic operators, service providers and others (non-specific, such as academia).

11.1.3.Evidence, sources and quality

Evidence used in the impact assessment came from a variety of sources, including:

-Targeted consultation with stakeholders and Member States.

-Public consultation and Call for Evidence 150 . Feedback period: 20 January to 5 May 2022.

-Meetings of the Group on the Future of VAT (GFV) 151 on 6 December 2021, 9 February 2022 and 6 May 2022.

-Meetings of the VAT Expert Group (VEG) 152 on 29 November 2021 and 10 June 2022.

-Nine meetings (between January and July 2021) of the GFV and VEG subgroups on the “VAT aspects of the platform economy”.

-Technical Study “VAT in the Digital Age” by ‘Economisti Associati’. Final Report submitted on 1 April 2022.

-VAT Gap Study (2021) 153

-Impact assessment for the VAT definitive regime 154

-Implementing the ‘destination principle’ to intra-EU B2B supplies of goods 155

-Fiscalis events in May and October 2021 with Member States, businesses and stakeholders to discuss the Interim Report and the draft Final Report prepared by the external consultant.

-Eurofisc meeting with Member States on 18 and 19 November 2021 to discuss the objectives and findings of the VAT in the Digital Age package, with special focus on DRR.

-Heads of CLO (Central Liaison Office) meeting with Member States on 28 April 2022 to discuss and deepen the reflection of the Commission on the DRR part of the VAT in the Digital Age package and its impact on exchange of information between the member States.

-Evaluation of the e-commerce package.

12.Annex 2: Stakeholder consultation (Synopsis report)

12.1.Targeted consultation

In total about 272 stakeholders participated to consultation activities, including 25 during the familiarisation interviews and 247 during the targeted consultation. The Targeted Consultation spanned over 15 Member States. More in detail, for Part 1 and Part 2, the sample consists of 12 Member States each, resulting in nine core Member States, relevant to both Parts, as well as three Part-specific-countries. For Part 3, the sample is smaller, as it consists of ten Member States. The sample is shown in the table below.

Table 21 – Sample for the targeted consultation

		Region	Size	VAT reporting	Platform economy	VAT registration
1	Czechia	CE	M
2	Estonia 156	CE	S
3	France	NW	L
4	Germany	NW	L
5	Hungary	CE	S
6	Italy	S	L
7	The Netherlands	NW	M
8	Poland	CE	L
9	Spain	S	L
10	Portugal	S	M
11	Greece	S	M
12	Finland	NW	S
13	Austria	NW	S
14	Denmark	NW	S
15	Sweden	NW	M

Notes. NW: North-Western; CE: Central-Eastern; S: Southern. S: Small; M: Medium; L: Large. In green: Member States included in the part-specific samples; in dark blue: Member States not included in the part-specific samples.

Given the multi-faceted nature of the Study, the consultation strategy (shown in Table 22 ) had to identify which category of stakeholders was relevant for each part of the Study. This was done, first, to ensure that the necessary primary information could be collected; secondly, to limit the burden on interviewees, by focusing the exchange on the themes that were most relevant to them.

Table 22 – Consultation strategy

VAT reporting	VAT treatment of Platform economy	VAT registration
Business Federations	Business Federations	Business Federations
·General BFs ·SME BFs	·Digital BFs	·General BFs ·SME BFs (including local associations)
Companies (only in Member States with digital reporting requirements)	Platform operators	Companies
·Large ·SMEs ·MNCs	·E-commerce ·Other industries	·MNCs ·Cross-border operators (including SMEs)
VAT experts	VAT experts	VAT experts
·Practitioners ·Tax advisors	·Practitioners (lighter involvement, given legal mapping)	·Practitioners ·Tax advisors
Service providers		Others
·Pan-European ·National (in Member States with reporting requirements)		·Customs authorities, brokers
Tax Authorities	Tax Authorities	Tax Authorities
·Via interviews in all EU-27 (including non-sampled Member States)	·Via interviews in all EU-27 (including non-sampled Member States)	·Via interviews in all EU-27 (including non-sampled Member States)

In total, 247 stakeholders participated in the targeted consultation.

The Figure 9 provides an overview of the distribution per stakeholder groups. Businesses represent the most important category with 157 stakeholders, of which 15 platform operators and 15 service providers. Company interviews were complemented with those with business federations (27, including 7 SME associations and 7 digital industry federations) and VAT practitioners (33 interviews). Among tax authorities, 15 interviews were carried out in the fieldwork Member States, and 12 written replies were received, therefore covering all Member States.

Figure 9 – Targeted consultation – stakeholder coverage

In terms of geographical distribution (shown in Table 23 ), the bulk of stakeholders obviously originate from fieldwork Member States (185). This figure includes 71 stakeholders from Italy, where a business survey on the costs and benefits of the only e-invoicing system currently in place in the EU was carried out with the support of the local business federation, Confindustria. In addition, 14 stakeholders came from non-sample Member States (mostly the local tax authorities) and another interview was carried out with the Commission services; finally, 47 interviews involved multinational operators, including a number of non-EU based entities.

Table 23 – Targeted consultation – geographical coverage

MS	# Stakeholders	MS	# Stakeholders	MS	# Stakeholders
AT	5	ES	13	PL	15
CZ	15	FI	6	PT	10
DE	12	FR	7	SE	5
DK	4	HU	9	MNC	47
EE	4	IT	71	Other	15
EL	5	NL	4

Familiarisation interviews. An initial round of interviews was conducted between October and December 2020 to identify the most important issues for subsequent examination and collecting broad insights on the topics covered by the three Parts of the Study, as well as to gather opinions on the likely impacts of possible policy interventions. Moreover, these interviews were functional for the collection of suggestions on available data sources, as well as for securing support by EU umbrella organisations representing national-level stakeholders, which have been contacted during the targeted consultation.

A total of 25 interviews were organised with public institutions and private stakeholders, following a tailored semi-structured list of themes and questions to allow sufficient flexibility during the discussion. The Study Team also took part in two focus group discussions, namely: (i) one organised within the framework of Business Europe’s VAT Group meeting; and (ii) one with certain members from the European E-invoicing Service Providers Association. The interviews conducted involved different categories of stakeholders, namely 10 EU-level business federations; six institutional stakeholders (including five Commission services and the OECD), three VAT Practitioners or federations thereof; four providers of eVAT services or federation thereof, and two Economic Operators.

12.2.Call for Evidence

A Call for Evidence was launched on 20.01.2022, together with the Public Consultation and it remained open until 05.05 2022, for a total of 15 weeks. A total of 322 responses were received, from 22 Member States and 7 non-EU countries.

Table 24 – Country of residence or main headquarter (Call for Evidence)

Geographical origin of respondent	Number of respondents	Geographical origin of respondent	Number of respondents
Germany	113	Switzerland	2
Slovakia	62	Croatia	2
Austria	25	United States	2
Italy	22	Canada	2
Slovenia	13	Luxembourg	1
Netherlands	13	Bulgaria	1
Czechia	10	Denmark	1
France	10	Portugal	1
Lithuania	10	Norway	1
Poland	8	Romania	1
Belgium	7	United Kingdom	1
Hungary	3	Russia	1
Greece	3	Finland	1
Latvia	3	Philippines	1
Sweden	2	Total	322

The vast majority (86%) of responses came from citizens, as businesses and tax administration preferred to answer via more structured channels: targeted and public consultation.

Figure 10 – Type of Respondent (Call for Evidence)

In their answers, the 277 citizens responding to the Call for Evidence were almost unanimously against the initiative. The reasons for rejection are (one or a combination of) the following:

-Respondents were rejecting any intervention because they are generally against European Union;

-Respondents are against any form of digitalisation; notably and out of the scope of the consultation many declared themselves against the digital vaccination certificate

-Citizens are against taxation in general and VAT in particular, as they would prefer fewer or no taxes and especially consumption taxes such as VAT which they have to pay rather than being taken at source

The businesses are generally welcoming the initiative. As mentioned, they generally preferred the more structured public consultation questionnaire for their feedback.

12.3.Public consultation

12.3.1.Overview

The Public Consultation was launched together with the Call for Evidence. The Public Consultation was structured using a dedicated questionnaire consisting of 71 questions 157 , divided into four sections: one introductory section about the respondent’s profile, and three thematic ones dedicated to VAT reporting, VAT treatment of Platform economy and VAT registration. A total of 193 responses were received, from 22 Member States and 5 non-EU countries. Questions targeted stakeholders’ views on the adaption of VAT rules to the digital age, the use of digital technology to fight fraud and to benefit businesses.

The stakeholders could upload additional documents at the end of the PC, and 55 respondents did so. A total of 62 documents were uploaded, of which 24 addressed VAT reporting, 9 added to their responses on the VAT treatment of the platform economy, and 14 delved further into the VAT registration. 18 stakeholders noted further comments on all three parts of the public consultation. Belgian and German stakeholders were the most active in uploading further documents, with 18 and 11 respondents from the countries doing so, respectively. An additional 10 documents were added by stakeholders to the Call for Evidence.

12.3.2.About the respondents

The public consultation resulted in a total of 193 valid responses. The vast majority – 159 – of respondents replied to the public consultation in their professional capacity or on behalf of their organisation, while 34 private individuals (PI) answered in their personal capacity. Among professional respondents, business organisation/federation was the largest category with 58 replies, followed by the categories of company and VAT practitioner / VAT expert / tax advisor with 34 and 30 responses respectively. A lower number of participants was recorded for the categories of company – platform operator (9), self-employed person (1), provider of IT or tax compliance services (8), academic institution / think tank (2), public authority (5).

For the most part of the following analysis, professionals have been grouped into four categories: (i) Business Federations (BF), (ii) Economic Operators 158 (EO), Service Providers of Tax-Related Services 159 (SP), and Others 160 (O). In certain instances, the distinction will be limited to PIs and Business Stakeholders (BS), the latter combining BFs, EOs, and SPs.

Figure 11 – Type of Respondent (public consultation)

Across all respondents, 22 Member States are represented in the PC. While private individuals answering come from 16 Member States, those replying in their professional capacity present 17 different Member States. Overall, the country with the highest number of replies is Germany with a total of 54, followed by Belgium with 29 respondents (due to the fact that a number of pan-EU organisation have their seat there). A considerable number of replies have also been registered from Italy (18), France (12), and Ireland (11). Non-EU countries are also prominently represented with 22 replies coming from outside the EU, namely from Brazil, Panama, Switzerland, the United Kingdom, and the United States. Among those, the United Kingdom shows the highest number of participants with 9.

Table 25 – Country of residence or main headquarter (public consultation)

Geographical origin of respondent	Number of respondents	Geographical origin of respondent	Number of respondents
Germany	54	Malta	2
Belgium	29	Austria	1
Italy	18	Bulgaria	1
France	12	Croatia	1
Ireland	11	Cyprus	1
Netherlands	8	Hungary	1
Finland	6	Luxembourg	1
Sweden	6	Romania	1
Poland	5	Slovak Republic	1
Spain	4	Non-EU countries	22
Czechia	3	Total	193
Greece	3
Denmark	2

Concerning the size of participating companies, respondents represented predominantly large companies with 250 employees or more (33 replies, i.e. more than three quarters of company respondents). Among the remaining companies, 3 responses were from micro companies with less than 10 employees, 5 from small-sized companies with 10 to 49 employees, and 2 from medium-sized ones with 50 to 249 employees.

12.3.3.VAT reporting (Digital Reporting Requirements)

The first thematic part of the questionnaire deals with Digital Reporting Requirements (DRRs). It was open to all respondents, although certain questions were filtered according to the status of the respondent or preceding questions. The section deals with the various types of reporting and e-invoicing requirements.

Concerning the current situation, a majority of all stakeholders view negative impacts stemming from the current situation with regards to DRRs. Respondents agreed the most with the statements that the wide discretion left to Member States together with the lack of EU guidance result in a fragmented regulatory framework for DRRs, and that this fragmented regulatory framework is generating unnecessary costs for EU companies operating cross-border. Across all stakeholder groups, more than 80% of respondents agreed or partly agreed with those statements. Among business federations and economic operators, the rate is even higher with over 90% stating they agree or at least partly agree. At a lower rate (65-70% agree or partly agree), respondents also agreed to the statements that the optional nature of DRRs for Member States have a negative impact on the fight against VAT fraud intra-EU and domestically, respectively. Here, the agreement is strongest among private individuals, economic operators, and other stakeholders, while business federations and service providers had ‘neither agree nor disagree’ as the most common single reply.

As for recapitulative statements for intra-EU transactions, around half of the respondents considered them at least partially effective in fighting intra-EU fraud, but also think their effectiveness could be improved. Business federations found them less effective. Respondents did not consider recapitulative statements as effective in fighting VAT fraud as domestic DRRs. A clear majority of stakeholders agreed or partly agreed that recapitulative statements would be more effective in fighting intra-EU fraud if data is collected on a transaction-by-transaction (rather than per customer) basis and closer to the moment of the transaction. This statement generated marginally more disagreement from business federations and economic operators than from other groups.

The role of the EU in fostering the adoption of reporting and e-invoicing requirements was considered crucial by stakeholders. Over two-thirds of respondent perceived to a large extent that EU action is necessary in ensuring a more widespread adoption of reporting and e-invoicing requirements. This opinion was shared by a majority of respondents across all groups of stakeholders (only service providers perceived this to a more limited extent).

When asked whether the EU should promote uniform DRRs for domestic transactions or rather leave Member States free to adapt requirements to their local needs, stakeholders expressed a strong preference for the EU to promote uniform DRRs for domestic transactions. Across both private individuals and business stakeholders, the distribution was leaning towards DRRs being promoted at the EU-level, but private individuals showed a less pronounced preference in this direction compared to business stakeholders.

In the case of an EU initiative in the field of DRRs, a majority of stakeholders agreed on the importance of its possible objectives. Across all groups, almost all respondents viewed it as very important or important that possible EU initiatives both foster the adoption of digitally-savvy DRRs, and reduce the fragmentation of DRRs.

Of the suggested possible revisions, a majority of the stakeholders agreed, at least partly, to all of them. The revisions with the most support include:

·introduce an EU DRR for intra-EU transactions and harmonise existing systems for domestic transactions (Sub-option 4a), and

·introduce an EU DRR for both intra-EU and domestic transactions (Sub-option 4b).

Agreement was less pronounced for recording data on VAT transactions in a standard digital format, adopting non-binding Commission recommendations providing a common design for reporting obligations across the EU, and for no longer requiring Member States to have to ask for an explicit derogation for introducing mandatory e-invoicing for B2B transactions. For the publishing of a non-binding recommendation, the disagreement among service providers and private individuals was higher than for other groups. Over one-third of responding economic operators disagreed at least partly with removing the need for an explicit derogation for Member States to introduce mandatory B2B e-invoicing.

When it comes to exchanging information on intra-EU transactions between Member States, stakeholders were fairly split between preferring a decentralised or a centralised model 161 . Overall, a centralised model showed the highest support, but, if added together, the decentralised option and the option of a decentralised model with additional features gained more consensus. Economic operators and service providers indicated a stronger support for a centralised model than others, while business federations preferred a decentralised one, ideally with additional features.

In assessing the risks in terms of data protection, respondents viewed the centralised model as the one with the highest data confidentiality risk. A decentralised model, possibly with additional features, gathered more confidence among stakeholders, with around two-thirds of replies assessing the risk to be average or lower. In these cases, less than or around one third of respondents viewed the risk as high or very high.

Rating the models with regards to their interoperability with national systems, stakeholders assessed the interoperability of a decentralised system as more difficult. For the centralised model, stakeholders were fairly evenly split across their assessments, but more participants thought it would be easy or very easy to ensure interoperability.

Concerning existing reporting and e-invoicing requirements, about one-third of replies come from countries with reporting or e-invoicing requirements in place. Slightly less respondents live or operate in countries that have such requirements planned. Among replies coming from countries with reporting or e-invoicing requirements in place, the effects for which a majority of respondents perceive a strong or moderate intensity were (i) significant compliance costs for companies operating cross-border, (ii) a lack of support from tax authorities, and (iii) limited time to handle error and warning messages. In particular business stakeholders were concerned with compliance costs for cross-border operators.

Significant compliance costs for the overall business population were reported by more than two-thirds of respondents, but most answers assessed the intensity of this effect as minor. More than half of the stakeholders considered that national DRR systems do not allow for sufficient time to implement changes in IT systems, or feature too frequent changes to requirements, and generate risks to the confidentiality of transaction and invoice data. Concerning those effects, more than one-third of stakeholders thought it was too early to experience them, or they did not observe them at all.

The compliance with existing reporting and e-invoicing requirements did not appear to be a significant difficulty for a majority of responding stakeholders. Around one-third of the respondents said that complying with the requirements is either very difficult or difficult. Another third viewed the compliance as neither difficult nor easy. Business stakeholders assessed compliance to be more difficult in comparison to other respondents.

Confronted with outcomes after the introduction of reporting and e-invoicing requirements, a majority of stakeholders replied that significant benefits have manifested. A majority of responding stakeholders saw major or moderate benefits because of the promotion of structured e-invoices, quicker invoicing processes, and business automation. Business stakeholders in particular viewed a quicker invoicing process as a beneficial outcome. Around one-third also assessed major or moderate benefits to come from quicker audits, but most participating stakeholders qualified it as being too early to tell. At least minor benefits were mentioned by one-third of respondents to come from fewer audits, fewer information requests, the pre-filling of VAT returns, and the removal of other VAT obligations, but the single answer provided most often for those four outcomes was that these benefits have not materialised. Quicker VAT reimbursements were not perceived as a significant benefit.

For those stakeholders not established or resident in countries with reporting or e-invoicing requirements, all seven suggested possible outcomes were deemed likely after the introduction of reporting and e-invoicing requirements. Around two-thirds of respondents viewed a major or moderate risk of the following outcomes materialising: significant compliance costs; significant compliance costs for companies operating cross-border; insufficient time allowed to implement changes to IT systems; lack of support from tax authority; frequent changes to requirements; limited time to handle error and warning messages; and risks to the confidentiality of data. Business stakeholders were most concerned about the risks of insufficient time to implement IT system changes and a lack of support from tax authorities materialising.

With regards to the expected difficulty of compliance, a majority thought that compliance with digital reporting and e-invoicing requirements is going to be very difficult or difficult. None of the respondents expected compliance to be very easy and only a marginal number of answers was assuming it is going to be easy.

Concerning possible effects of the introduction of DRRs, major or moderate benefits were expected to materialise for all nine suggested outcomes by a majority of participating stakeholders. The most positive expectations were expressed for the promotion of structured e-invoices, for quicker invoicing processes, for quicker audits, for fewer information requests, removal of other VAT obligations, and for quicker VAT reimbursements, for which more than two-thirds of replies expected major or moderate benefits. Around two-thirds of respondents also expected major or moderate benefits to manifest from business automation gains, fewer audits, and pre-filling of VAT returns.

The additional comments provided to this section can be grouped under the following main themes:

·There is an urgent need for an EU-level standard, which should be limited – at least at first – to intra-EU transactions. At the same time, domestic systems should share an obligatory basis to avoid further fragmentation. Existing models at the EU-level should be maintained and further developed for this purpose, namely the CEN Norm 16931.

·The granted derogations have led to a fragmented situation across the EU, which creates barriers for economic operators in entering markets in certain Member States. This creates particular problems for SMEs. Mandatory e-invoicing might be favourable for economic operators, as DRRs potentially require further administrative work.

·SMEs must be supported when it comes to DRRs and e-invoicing, for example through cost-free software or by allowing hybrid file formats.

·The data to be submitted and stored should be kept to a minimum in order to reduce the risk to data confidentiality.

12.3.4.VAT treatment of the Platform economy

In the initial questions of this section, stakeholders answered about their usage of platforms in order to buy and sell goods. A majority of respondents use platforms to buy goods or services at least once or twice a month. Slightly less than half of the participating stakeholders replied that they buy goods or services via platforms several times per month. Around two-fifths also stated that they do not buy via platforms at all. Over two-thirds of participants purchase goods via platforms, while around half uses platforms to buy accommodation services and other services, and over one-third to buy transport services. Moving from buying to selling via platforms, the vast majority of respondents do not offer goods or services via platforms. More than a quarter of respondents offer goods or services via platforms at least once or twice per year. Of those supplying goods or services via platforms over half do so several times per week. Around two-thirds of the stakeholders state that they are supplying goods via platforms, while the supply of services is more fragmented. The most regular answer concerning the supply of services via platforms was ‘other services’, which are supplied by about half of the respondents using platforms. One-fifth replied that they offer transportation services via platforms. At a lower rate, participants indicated that they supply financial services, professional and household services, accommodation services, and advertising / exchange of information services.

When supplying goods or services via platforms, a vast majority of business stakeholders declared to be charging VAT on those supplies made via a platform. Among private individuals and other stakeholders selling goods or services via platforms the rate is significantly lower, as less than half replied that they charge VAT on such supplies.

Concerning the absence of specific provisions in the VAT Directive dealing with the treatment of services supplied via platforms, two-thirds of responding stakeholders thought that this is creating major or moderate problems for platforms and their users. Business federations and service providers viewed the situation as more problematic.

More than two-thirds of respondents reported that they have not experienced specific problems concerning the VAT treatment of services supplied via platforms. Among those stakeholders that have stated that they offer goods or services via platforms, the share was slightly higher. The remaining ones mentioned specific issues that can be summarised into five general problems:

1)Stakeholders reported difficulties with Member States applying different VAT treatments, ranging from different rates over different treatment of electronically supplied and intermediary services to different thresholds for the application of VAT to SMEs.

2)Some respondents noted having experienced problems with either double-taxation or no-taxation.

3)Problems were mentioned concerning the definition of supplies, the status of the supplier and customer, and the place of supply.

4)Problems arise due to the platform providers, for example because of a lack of appropriate invoicing from their side or because the wrong VAT rate is being applied by them.

5)Some respondents have experienced problems when dealing with non-EU counterparts, such as uncertainty over whether VAT must be applied and what rate is correct to apply or that foreign entities must register in Member States.

With regards to specific problems, the definition of when providers and consumers would qualify as VAT taxable persons is the most difficult issue. This result is particularly driven by the accommodation sector, where the issue was mentioned the most often. Across the five sectors, the question of determining the status of the service as to whether it is taxable or exempt (and taxed at what rate) was noted as the least pronounced. This was viewed differently by stakeholders for the financial services sector, where it was in fact the most frequently mentioned issue. For transport services, the assessment of the consumer’s VAT status, which could define the place of supply in cross-border transactions, was the most indicated issue. Also often indicated across all sectors was the issue of defining whether a platform’s services should be classified as intermediation or electronically supplied services.

The majority of stakeholders shared the view that the differences in VAT treatment across Member States has led to them experiencing at least moderate distortions to cross-border competition with other firms offering the same services. Responding business federations, economic operators, and service providers viewed those distortions as minor at a higher rate than private individuals and other stakeholders.

Asked about competition with non-platform-supplied services, over two-thirds of total respondents said they experience distortions of competition with other domestic firms offering the same services due to very uneven or uneven treatment of similar services and providers in their Member States. This experience was reported most strongly by business federations. Almost half of the responding economic operators did not see distortions due to uneven treatment at all.

There does not emerge a clear consensus among the different stakeholders as to whether the current VAT treatment represents an important driver of or an obstacle to the digital platform business model. Economic operators said at a majority that the current VAT treatment is a strong or moderate driver of the digital platform business model, while business federations were pretty evenly split. Across all stakeholders, slightly more participants said that the current VAT treatment is a driver rather than an obstacle to the digital platform business model.

Concerning VAT evasion in the platform economy, about three quarters of respondents considered it a specific problem for the platform economy, for trade in either or both goods and services. Responses coming from business federations show a different assessment of the situation than the other stakeholder groups, as half of this group did not think that VAT evasion and avoidance represents a specific problem for the platform economy all together.

The need for changes to the VAT Directive and its Implementing Regulation in order to ensure proper VAT treatment of the platform economy was considered necessary by a majority of all stakeholders. The different groups of stakeholders largely agreed on this question, and only among business federations those believing changes are necessary to a large or very large extent were in a slight minority.

When provided with six different objectives for potential EU initiatives, a majority of respondents considered all six objectives as at least important. The objective with the highest importance is the simplicity of application, which was considered very important by more than three quarters of participants, and in particular by business federations. Around two-thirds of respondents considered it very important that potential EU initiatives aim at reducing costs for economic operators, ensuring a level-playing field between the traditional and platform economy, and ensuring harmonised treatment of the platform economy across Member States. Slightly less highly rated, but still significant, was the importance of ensuring a broad tax base and tax compliance.

Clarifying the nature of services provided by the platform was the most supported intervention across different stakeholders. Over two-thirds also at least partly agreed with initiatives concerning the introduction of a rebuttable presumption on the status of platform providers and the streamlining of record-keeping obligations. The latter found high agreement among business federations and economic operators. A lower support, but still majoritarian, concerned the remaining interventions, namely a deemed supplier regime for digital platforms, especially among business federations and economic operators.

Stakeholders were asked about possible practical difficulties (for businesses or the public budget) due to the suggested legislative interventions at the EU level. For each of the interventions, the responses can be summarised as follows:

§Clarification of the nature of the services provided by the platform: Stakeholders noted that keeping a legal clarification up to date with the business ideas and offered services of platforms will be difficult or impossible; it was remarked that the nature of the service and distinction between an intermediary and electronic supply of service cannot always be clearly defined

§Rebuttable presumption on the status of the service provider using a platform: Respondents stated that presuming the VAT status of the service provider is difficult as even a taxpayer with a VAT ID might not be VAT taxable on certain transactions; other replies warned that this adds complexity for platforms and a simple and secure mechanism should be found.

§Streamlining of record-keeping obligations: Some stakeholders were worried this would in fact increase costs and put platforms at a disadvantage compared to non-platform businesses; additional difficulty could be caused by difficulties for platforms to verify whether the underlying service provider is resident or non-resident; some responses also indicated that problems with data protection regulations could occur.

§Deemed supplier role for digital platforms: Respondents said that this creates difficulties for platforms as they become liable to charge and collect VAT in certain cases, a burden which might be unreasonable for purely domestic platforms; there is also a worry that the platforms would shift burdens to users of platforms by imposing strict conditions and requirements, a problem related to the often existing power imbalance in favour of platforms; some stakeholders also thought it could be difficult to correctly calculate the VAT rate in some cases

A majority of respondents said that the deemed supplier model would have at least moderate positive impacts on the equal treatment of the traditional and platform economy. Concerning the supply of certain accommodation and transport services (i.e. residence renting, ride on demand and home delivery services), around three-quarters of stakeholders thought it would have a moderate or major positive impact. Still over two-thirds had this view on a deemed supplier model for the supply of all accommodation and transport services. Among business federations, the responses were slightly less positive. The fear of at least moderate negative impacts was even higher among business federations for a deemed supplier model for all services for monetary considerations.

The additional comments provided to the VAT treatment of the Platform economy can be grouped into three main themes, which are the following:

·Any intervention should foster a level-playing field not only between traditional and platform economies, but also between platforms operating in different sectors and platforms of different sizes. Requirements targeted at cross-border supplies could cause unnecessary burdens on platforms with a domestic scope. Certain changes, such as using the ‘group of 4’ as a requirement for deemed supplier rules, might be impossible to apply in some sectors.

·The platform economy has been addressed by other initiatives and any action should be aligned with those. Stakeholders recall that the platform economy is part of the focus of CESOP, DAC7, the eCommerce Directive, and ‘improving working conditions for platform workers’.

·The platform economy is one dimension of an overall economy, and it should not be subject to a specific VAT regime. Furthermore, specific digital taxes targeted at platforms might undermine the Digital Single Market.

12.3.5.VAT registration

At first, participants to the public consultation were asked about their view on the importance of some objectives to them or their organisation. Overall, all four suggested objectives were seen as very important by a majority of the responding stakeholders. The objective with the highest importance was the simplification and facilitation of VAT compliance, particularly among business federations and economic operators. Business federations also rated the importance of minimising the need for taxable persons to hold multiple VAT registrations across the EU as more importantly than other respondents. Still over two-thirds of replies viewed it as important to reduce fraud and maximise VAT revenue, and to modernise VAT rules linked to VAT registration as important objectives.

When asked whether the launch of the OSS brought progress towards those objectives, stakeholders believed by a majority that the OSS has led to at least moderate progress towards all four objectives. The most significant progress due to the OSS was towards the minimisation of the need for taxable persons to hold multiple VAT registrations. The progress on the other objectives – the simplification and facilitation of VAT compliance, and the reduction of fraud and maximisation of VAT revenue – was seen less positively by economic operators than by others. More than half of the responding economic operators saw minor or no progress towards these objectives due to the launch of the OSS.

The same question posed about the progress towards the objectives caused by the IOSS shows very similar results. More than half of the responding stakeholders thought that the launch of the IOSS has led to significant or moderate progress towards all four objectives. A slightly different outcome was visible concerning the objective to modernise VAT rules linked to VAT registration obligations for distance sales of goods, for which around one-fifth of answers assessed no or minor progress due to the IOSS launch.

Stakeholders predominantly expressed their view that the OSS is at least mostly, if not very, consistent with other EU policies, requirements, and regulations in the four suggested fields (the SME strategy for a sustainable Europe, the European digital single market, and the EU administrative cooperation in the field of indirect taxation). In particular, replies from business federations assessed the consistency positively. The consistency was viewed slightly less high by respondents when it comes the Union Customs Code.

The consistency of the IOSS with EU policies, requirements, and regulations in the listed fields was still assessed positively, but at a slightly lower level than for the OSS. The consistency with the SME strategy for a sustainable Europe and the European digital single market was still appreciated by over two-thirds of responses. For the Union Customs Code, around half of responding stakeholders thought the IOSS is very or mostly consistent with policies, requirements, and regulations in this area. The answers coming from economic operators valued the consistency less than other participants across all four fields, in particular for the Union Customs Code.

Around half of the participating stakeholders have direct experience with either IOSS, OSS, or both. About one-fifth stated that they only have experience with the OSS, about one-fourth with both mechanisms, and only a very small amount has experience only with the IOSS. The most experience with the IOSS and OSS can be found among service providers.

Many businesses confirmed that, thanks to OSS, they no longer need to maintain previously held VAT registrations in other Member States, and that the OSS is particularly helpful for SMEs. Over 70% of stakeholders held this view, and more often so among business federations. The perception is less positive when it comes to whether the OSS has been implemented smoothly, a view which was shared, at least partly, by less than 50% of stakeholders. Among economic operators, more than half of respondents did not consider that OSS is allowing businesses to pursue new customers and/or markets, and that it is easy to use the OSS. Private individuals, on the other hand, did not agree by a majority that the OSS helps to reduce discrepancies in the application of VAT rules in the EU.

Among the factors determining whether businesses use the OSS or not, the types of transactions the business is engaged in and the Member States in which they would otherwise face VAT registrations obligations were noted as the most important. The importance of these two factors is especially underlined by the responding business federations. The size of the business, the sector/market where the business operates, and whether the business is a deemed supplier were still seen as a very important or important factor by over 70% of those stakeholders providing a response. Slightly less importance was assigned to the Member States in which the business is established, but a majority of replies still qualifies this at least as important.

The stakeholders considered that the IOSS is making it easier for businesses to engage in new transactions which would require them to register in other Member States. Around one-third of respondents agreed with this statement and another third partly agreed. Agreement was especially high among replies from business federations, but considerably lower from economic operators. Over two-thirds of participating stakeholders agreed or partly agreed that the IOSS improves VAT compliance. Still a majority agreed at least partly that the IOSS is simplifying the process of importation for low-value consignments, that it is particularly helpful for SMEs, that it helps reducing discrepancies in the application of VAT rules in the EU, and that it reduces administrative burdens for businesses. The latter was, however, not perceived by a majority of economic operators. Less than half of respondents considered that the IOSS has been implemented smoothly, that it is easy to use, and that it helps to reduce discrepancies in the application of Customs and VAT rules in the EU.

Out of four possible impacts from the changes of the VAT exemption for low-value goods, stakeholders mentioned the level playing field between EU and non-EU businesses as the most significant impact. This impact was agreed to by almost two-thirds of respondents, with only private individuals and economic operators showing a slightly lower rate of agreement. A majority also mentioned the minimisation of the risk of undervaluation and the increase of VAT revenue. A stop to businesses relocating outside the EU to benefit from VAT savings was an impact that around 50% of responding stakeholders agreed or partly agreed to.

The most important factor in determining whether a business uses the IOSS or not is the types of transactions in which a business is engaged. Around 90% of replies viewed this factor as very important or important. Around 80% of respondents thought it is at least important what the size of the business is, the sector/market where the business operates, whether the business is a deemed supplier, the desire of a business to be compliant, and the customer experience. The latter was viewed as less important by private individuals. A lower percentage of stakeholders said that whether the business has an EU place of establishment is an important factor, but still around two-thirds noted it as important or very important.

Other observations in relation to OSS/IOSS experience can be summarised in four categories:

§There appear to be certain dangers of fraud and/or misuse of the IOSS number. One stakeholder noted that the IOSS is in practice used for VAT fraud, in particular with relation to drop shipping. Other stakeholders described a separate issue with the IOSS number and a misuse of the number, for example that there is a conflict with the number being considered semi-secret by sellers but the buyer needing it to declare the parcel to customs or the IOSS number being used fraudulently.

§The lowering of the distance selling limit to EUR 10.000 is creating problems for some stakeholders. In particular SMEs run into the obligation to register in other EU countries or use the OSS due to the change. This requires them to obtain the necessary information about the respective national VAT law, which can be time-consuming and costly.

§Several respondents remarked that the OSS could be improved by including both B2C and B2B transactions.

§A number of problems were being mentioned with the overall functioning of the IOSS and OSS, such as: certain operators being still inexperienced in managing imports through the IOSS; the IOSS/OSS being difficult to apply for deemed suppliers; occurrences of double-taxation when VAT is collected at customs and through the IOSS; Member States requiring businesses to include OSS/IOSS transactions in domestic VAT returns leading to additional complexity

Despite the introduction of the OSS and the IOSS, there are still transactions that require taxpayers to obtain and maintain multiple VAT registrations across the EU. Stakeholders were asked to assess the importance of these transactions by assessing whether they are widespread among businesses or in specific segments, and the affected share of turnover. Among the listed transactions, stakeholders assessed the transfer of own goods cross-border as the most widespread transaction, representing a significant share of their turnover. Close to 60% of respondents expressed this view. Export from a Member State in which the exporter is not established was considered to be either relevant only in specific market segments or affecting a limited proportion of turnover. The domestic supply of B2B services where the reverse charge does not apply was considered a more marginal transaction in terms of both prevalence and turnover significance. Overall, however, none of the proposed transactions was seen as marginal by a majority of replies, meaning a majority thinks each of them has at least sectoral prevalence, or is widespread among businesses, albeit with a low turnover significance.

Despite the introduction of the OSS and the IOSS, 124 responding stakeholders (90% of those providing an opinion) thought that the requirement to obtain and maintain multiple VAT registrations continues to be a problem, at least to some extent. Over two-thirds thought it is a problem to a large or even very large extent.

With a majority of stakeholders still seeing problems with multiple VAT registrations, over two-thirds of respondents believed that it should be a high priority for the European Commission to take further action to reduce the need for taxpayers to hold multiple VAT registrations. An additional fifth of replying stakeholders said that it should be a medium priority, and less than 10% thought it being a low priority is appropriate.

According to more than 90% of stakeholders, VAT registration requirements lead to high administrative and compliance costs for businesses. Especially business federations supported this view. Over 80% of respondents considered that difficult compliance with VAT registration requirements contributes to high levels of fraud and non-compliance, and that taxpayers do not pursue certain markets or transactions due to them wanting to avoid VAT registration in multiple Member States.

In addition to their opinion on the proposed policy options, stakeholders were asked to put forward suggestions to make the IOSS more fraud-proof. A suggestion brought forward by a range of stakeholders was the introduction of a robust system to avoid the misuse of the IOSS number, for example by introducing a two-factor-authentication or by making it easier for intermediaries to spot fraudulent uses of IOSS numbers by allowing them access to EU databases logging all imports using the relevant IOSS number. It was also suggested by some respondents to improve communication with Customs authorities, such as providing additional data to the authorities or sharing information collected by Customs with businesses to reconcile their IOSS VAT returns. Finally, a stakeholder suggested to introduce a solution for the calculation and collection of VAT immediately on all IOSS sales at the time of sales, eliminating the intermediary role

For VAT registration, additional comments provided by stakeholders can be classified under five main topics:

·Extend the OSS – several respondents called for the OSS to be extended. In particular the transfer of own goods and the subsequent domestic sale of that inventory was mentioned repeatedly as an area that should be included in the OSS. In addition, it is suggested by some to include the remaining areas of B2C transactions, in order to fully develop the already achieved simplification brought by the OSS.

·Remove €150 threshold for IOSS – the scope of the IOSS should also be broadened according to a number of stakeholders, who argued for a removal of the €150 threshold in order to do so. Yet, one respondent warned that this removal would need to be accompanied with a review of how customs duty is paid/collected.

·Making IOSS mandatory and its risks – while there were replies wishing for the IOSS to become mandatory, others did not wish to see this change. Certain stakeholders warned that this would make small overseas companies much less likely to sell to EU customers, if they only occasionally have sales into the EU market.

·General complexity – it was underlined by a range of answers that, while they do simplify things, the IOSS and OSS do not manage to solve the general complexity of the VAT system and also bring their own complexities. One respondent believed that the simplifications should be less targeted on how to declare VAT but rather on how to apply VAT, as the main problems of determining the right VAT rate or finding the proper place of supply rule remain. Other stakeholders outlined that certain complexities arise due to administrative issues with the OSS and IOSS, such as determining residency, trying to understand how to correct invoices, and the lack of information about transactions within a VAT group. Furthermore, the mechanisms are still perceived as complex by smaller entities. Finally, it was mentioned that the interaction between the OSS and the margin regimes for second-hand goods needs to be examined, as they cannot be used together at the moment.

·Importance of reverse charge – a couple of respondents underlined the importance of the reverse charge mechanism and that it has proven simpler than the OSS system. Therefore, they insisted that the OSS should not override the reverse charge model.

13.Annex 3: Who is affected and how?

13.1.Practical implications of the initiative

The initiative will impact businesses and Member States directly and citizens indirectly, trough possible price changes.

13.1.1.Businesses (taxpayers)

Businesses will be impacted in the way they comply with their VAT obligations.

13.1.2.Member States

On one hand, Member States will be impacted by the need to implement the new VAT rules and on another hand by how they audit the application by businesses.

13.1.3.Citizens

Citizens should not be affected by the changes as they will continue to purchase goods and services with payment of VAT. However, citizens only theoretically described as such, but who in the economic reality act like a business will be impacted by the initiative because they will need to pay VAT as businesses do. In this situation, the impact is transferred to the platforms who will bear the burden of complying with the VAT obligations. Finally, citizens may be indirectly impacted by a price variation as the playfield levels and the undetected businesses surface, although the price change will not be substantial. In normal market conditions, a better competition, fraud detection and burden reduction as result of simplification are expected to lead to a reduction of the final price paid by citizens.

13.2.Summary of costs and benefits

I.a. Overview of Benefits (total for all provisions) – Enhanced approach, 2023-2032
Description	Amount		Comments
Direct benefits
Compliance cost reductions	Pre-filling of VAT returns: EUR 4.3 billion savings		Businesses will benefit from the savings
	The more widespread use of e-invoicing (due to quicker issuance and the reduction in postage and printing costs) will save EUR 1.9 billion		Businesses will benefit from the savings
	EUR 11 billion savings from removal of recapitulative statements		Businesses will benefit from the savings
	EUR 0.5 billion savings in administrative costs resulting from streamlining and clarifications for the from the platform economy		Platforms to benefit from the savings
	VAT registration: almost completely eliminating the need to VAT register for distance sellers will save up to EUR 8.7 billion registration costs (EUR 0.4 billion one-off and EUR 8.3 billion recurrent)		Businesses doing cross-border trade who otherwise have to register will benefit
Reduction of fragmentation costs (costs of non-harmonisation)	EUR 24.2 billion (after the 5th year when the full interoperability and convergence is reached) 162 .		Businesses will benefit
Additional VAT revenue	Between EUR 135 billion and EUR 177 billion: EUR 111 billion (digital reporting) and EUR 24 billion to EUR 66 billion (platform economy) 163 Being a simplification measure, the VAT registration will only bring minor additional VAT revenue.		Member States will benefit
Tax control	The introduction of DRRs is expected to bring positive impacts on the efficiency and effectiveness of tax control activities		This would mainly result from the improvement of the risk analysis systems, which is the main positive impact acknowledged by tax authorities that will benefit Taxpayers will also benefit because of more targeted audits and sometimes less audits
Levelling the playfield	VAT reporting: reduction of MTIC and intra-Community VAT fraud Platform economy: competition made fairer between actors performing in the same economic reality VAT registration: Benefits on levelling the playing field derived from the extension of the scope		VAT reporting: In particular, it will be more difficult for fraudsters to operate, since the good faith trading partner in the chain will disclose (possibly in real-time) the transactions to the authorities. Platform economy: Part of the increase in VAT collection will come from participants in economic life that are not VAT taxable while enjoying the network effects will make the competition fairer VAT registration may not be responsible for substantial amounts of fraud, regulatory costs and complexity can increase non-compliance, especially among SMEs. Thus, reducing the scope of situations requiring VAT registration for non-established businesses would make compliance simpler and cheaper, and likely to improve it.
Indirect benefits
Quicker introduction of a DRR for domestic transactions across Member States, due to the model-role played by the EU DRR	Some specific benefits under option 4b (introduction of domestic digital reporting requirement) will also materialise because the voluntarily adoption of domestic DRRs.		Member States will benefit
Interoperability and reduction of fragmentation	Under selected option, any new introduction of domestic reporting obligation must ensure the compatibility and interoperability with existing intra-EU solution		Member States and businesses will benefit
Indirect compliance benefits are very likely under the deemed supplier regime.	First, the reduction of the number of taxpayers in charge of paying VAT from millions of providers to hundreds of (sometimes very large) platforms will markedly increase the ability of tax administrations to monitor VAT liability in the platform economy. Secondly, the understatement of turnover to remain below the VAT Scheme threshold, which is one of the main sources of non-compliance in the platform economy pointed out by tax authorities, will no longer lead to the evasion of the VAT due on their supplies.		Businesses and member States to benefit
Benefits from business automation	An important benefit is the automation of business processes driven by the introduction of digital reporting requirements, due to the electronic handling of transactional data		Larger, more structured, business entities are likely to obtain more savings due to larger scale of their invoicing and accounting processes and because they have more means and know-how to invest in business automation
Environmental benefits, i.e. the monetary value of the CO2 saved	Between EUR 0.01 billion and EUR 0.5 billion
Administrative cost savings related to the ‘one in, one out’ approach*
Direct cost	Pre-filling of VAT returns	EUR 4.3 billion
Direct cost	E-invoicing related savings	EUR 1.9 billion
Direct cost	Removal of recapitulative statements	EUR 11 billion
Direct cost	Costs of compliance and to determine the status of providers	EUR 0.5 billion
Direct cost	VAT registration costs	EUR 8.7 billion
Direct cost	Fragmentation costs for MNCs	EUR 24.2 billion

I.b. Overview of Benefits (total for all provisions) – Maximal approach, 2023-2032
Description	Amount		Comments
Direct benefits
Compliance cost reductions	Pre-filling of VAT returns: EUR 7 billion savings		Businesses will benefit from the savings
	The more widespread use of e-invoicing (due to quicker issuance and the reduction in postage and printing costs) will save EUR 14.5 billion		Businesses will benefit from the savings
	EUR 11 billion savings from removal of recapitulative statements		Businesses will benefit from the savings
	EUR 0.5 billion savings in administrative costs resulting from streamlining and clarifications for the from the platform economy		Platforms to benefit from the savings
	VAT registration: almost completely eliminating the need to VAT register for distance sellers will save up to EUR 8.7 billion registration costs		Businesses doing cross-border trade who otherwise have to register will benefit
Reduction of fragmentation costs (costs of non-harmonisation)	EUR 24.2 billion (after the 5th year when the full interoperability and convergence is reached) 164 .		Businesses will benefit
Additional VAT revenue	Between EUR 284.4 billion and EUR 367.4 billion: EUR 221.4 billion (digital reporting) and EUR 63 billion to EUR 146 billion (platform economy) 165 Being a simplification measure, the VAT registration will only bring minor additional VAT revenue.		Member States will benefit
Tax control	The introduction of intra EU and domestic DRRs is expected to bring maximum positive impacts on the efficiency and effectiveness of tax control activities		This would mainly result from the improvement of the risk analysis systems, which is the main positive impact acknowledged by tax authorities that will benefit Taxpayers will also benefit because of more targeted audits and sometimes less audits
Levelling the playfield	VAT reporting: reduction of MTIC and intra-Community VAT fraud Platform economy: competition made fairer between actors performing in the same economic reality VAT registration: Benefits on levelling the playing field derived from the extension of the scope		VAT reporting: In particular, it will be more difficult for fraudsters to operate, since the good faith trading partner in the chain will disclose (possibly in real-time) the transactions to the authorities. By inclusion of domestic DRRs the chain of transaction will be complete. Platform economy: Part of the increase in VAT collection will come from participants in economic life that are not VAT taxable while enjoying the network effects will make the competition fairer VAT registration may not be responsible for substantial amounts of fraud, regulatory costs and complexity can increase non-compliance, especially among SMEs. Thus, reducing the scope of situations requiring VAT registration for non-established businesses would make compliance simpler and cheaper, and likely to improve it. The removal of EUR 150 threshold will help the competition by putting on equal footing the businesses inside and outside EU for certain transactions under the scope
Indirect benefits
Interoperability and reduction of fragmentation	Under selected option, the domestic reporting obligation must ensure the compatibility and interoperability with existing intra-EU solution		Member States and businesses will benefit
Indirect compliance benefits are very likely under the deemed supplier regime.	First, the reduction of the number of taxpayers in charge of paying VAT from millions of providers to thousands of platforms will markedly increase the ability of tax administrations to monitor VAT liability in the platform economy. Secondly, the understatement of turnover to remain below the VAT Scheme threshold, which is one of the main sources of non-compliance in the platform economy pointed out by tax authorities, will no longer lead to the evasion of the VAT due on their supplies.		Businesses and member States to benefit
Benefits from business automation	An important benefit is the automation of business processes driven by the introduction of digital reporting requirements, due to the electronic handling of transactional data. This is maximised by the inclusion of domestic DRRs		Larger, more structured, business entities are likely to obtain more savings due to larger scale of their invoicing and accounting processes and because they have more means and know-how to invest in business automation
Environmental benefits, i.e. the monetary value of the CO2 saved	Between EUR 0.01 billion and EUR 0.6 billion
Administrative cost savings related to the ‘one in, one out’ approach*
Direct cost	Pre-filling of VAT returns	EUR 7 billion
Direct cost	E-invoicing related savings	EUR 14.5 billion
Direct cost	Removal of recapitulative statements	EUR 11 billion
Direct cost	Costs of compliance and to determine the status of providers	EUR 0.5 billion
Direct cost	VAT registration costs	EUR 8.7 billion
Direct cost	Fragmentation costs for MNCs	EUR 24.2 billion
Indirect cost	Environmental benefits	EUR 0.02 billion

(1) Estimates are gross values relative to the baseline for the preferred option as a whole (i.e. the impact of individual actions/obligations of the preferred option are aggregated together); (2) Please indicate which stakeholder group is the main recipient of the benefit in the comment section;(3) For reductions in regulatory costs, please describe details as to how the saving arises (e.g. reductions in adjustment costs, administrative costs, regulatory charges, enforcement costs, etc.;); (4) Cost savings related to the ’one in, one out’ approach are detailed in Tool #58 and #59 of the ‘better regulation’ toolbox. * if relevant

II.a. Overview of costs – Enhanced approach (total costs 2023-2032)
		Citizens/Consumers		Businesses		Administrations
		One-off	Recurrent	One-off	Recurrent	One-off	Recurrent
Introduction of intra-EU digital reporting obligation	Direct costs	No cost impact	No cost impact	EUR 7.53 billion adjustment costs for businesses 166	EUR 3.77 billion compliance costs for businesses	EUR 0.43 billion implementation costs for tax authorities 167	EUR 1.7 billion implementation costs for tax authorities
	Indirect costs	No cost impact	No cost impact	No cost impact	Data confidentiality: more data will be collected, stored, and exchanged	Familiarisation and training costs; awareness campaigns.	Data confidentiality
Deemed supplier for accommodation and transport services	Direct costs	No cost impact	No cost impact	Initial higher costs related to the clarification of taxable status of the existing users	New burdens for platforms linked to the administration of the deemed supplier regime	No cost impact	No cost impact
	Indirect costs	No cost impact	Price variation (VAT/part of VAT currently not paid may be passed on the consumer)	No cost impact	No cost impact	No cost impact	No cost impact
Extension of the OSS, reverse charge	Direct costs	No cost impact	No cost impact	No cost impact	No cost impact	Minimal costs related to updates of the existing OSS schemes	No cost impact
	Indirect costs	No cost impact	No cost impact	No cost impact	No cost impact	No cost impact	No cost impact
Removal of the optional character of the IOSS	Direct costs	No cost impact	No cost impact	No cost impact	No cost impact	Marginal costs related to small increase in capacity of current systems in place	No cost impact
	Indirect costs	No cost impact	No cost impact	No cost impact	No cost impact	No cost impact	No cost impact
Costs related to the ‘one in, one out’ approach
Total	Direct adjustment costs	No cost impact	No cost impact	EUR 7.53 billion related to the introduction of DRRs	No cost impact
	Indirect adjustment costs	No cost impact	No cost impact	No cost impact	No cost impact
	Administrative costs (for offsetting)	No cost impact	No cost impact	No cost impact	EUR 3.77 billion

II.b. Overview of costs – Maximal approach (total costs 2023-2032)
		Citizens/Consumers		Businesses		Administrations
		One-off	Recurrent	One-off	Recurrent	One-off	Recurrent
Introduction of intra-EU digital reporting obligation	Direct costs	No cost impact	No cost impact	EUR 29 billion adjustment costs for businesses	EUR 14.5 billion compliance costs for businesses	EUR 0.7 billion implementation costs for tax authorities	EUR 2.7 billion implementation costs for tax authorities
	Indirect costs	No cost impact	No cost impact	No cost impact	Data confidentiality: much more data will be collected, stored, and exchanged	Familiarisation and training costs; awareness campaigns.	Data confidentiality
Deemed supplier for accommodation and transport services	Direct costs	No cost impact	No cost impact	Initial higher costs related to the clarification of taxable status of the existing users	New burdens for platforms linked to the administration of the deemed supplier regime	No cost impact	No cost impact
	Indirect costs	No cost impact	Price variation (VAT/part of VAT currently not paid may be passed on the consumer)	No cost impact	No cost impact	No cost impact	No cost impact
Extension of the OSS, reverse charge	Direct costs	No cost impact	No cost impact	No cost impact	No cost impact	Minimal costs related to updates of the existing OSS schemes	No cost impact
	Indirect costs	No cost impact	No cost impact	No cost impact	No cost impact	No cost impact	No cost impact
Removal of the optional character of the IOSS	Direct costs	No cost impact	No cost impact	No cost impact	No cost impact	Costs related to small increase in capacity of current systems in place and the IT systems for	No cost impact
	Indirect costs	No cost impact	No cost impact	No cost impact	No cost impact	No cost impact	No cost impact
Costs related to the ‘one in, one out’ approach
Total	Direct adjustment costs	No cost impact	No cost impact	EUR 29 billion related to the introduction of DRRs	No cost impact
	Indirect adjustment costs	No cost impact	No cost impact	No cost impact	No cost impact
	Administrative costs (for offsetting)	No cost impact	No cost impact	No cost impact	EUR 14.5 billion

(1) Estimates (gross values) to be provided with respect to the baseline; (2) costs are provided for each identifiable action/obligation of the preferred option otherwise for all retained options when no preferred option is specified; (3) If relevant and available, please present information on costs according to the standard typology of costs (adjustment costs, administrative costs, regulatory charges, enforcement costs, indirect costs;). (4) Administrative costs for offsetting as explained in Tool #58 and #59 of the ‘better regulation’ toolbox. The total adjustment costs should equal the sum of the adjustment costs presented in the upper part of the table (whenever they are quantifiable and/or can be monetised). Measures taken with a view to compensate adjustment costs to the greatest extent possible are presented in the section of the impact assessment report presenting the preferred option.

13.3.Relevant sustainable development goals 168

III. Overview of relevant Sustainable Development Goals – Preferred Option(s)
Relevant SDG	Expected progress towards the Goal	Comments
e.g. SDG no. 8 – Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all	A more efficient and sustainable VAT system will promote economic growth	The net impacts are reflecting an annual average increase of the EU GDP worth between EUR 17 billion and EUR 38 billion between 2023 and 2032. While significant as value, these amounts remain very limited when compared to the EU GDP are (between. 0.1% and 0.2% of EU GDP). Therefore, in line with the supporting study 169 , the effects on GDP are estimated by applying the appropriate multiplier to changes in VAT revenue and not via a full-fledged macroeconomic modelling.
e.g. SDG no. 9 - Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation	Although not possible to quantify, automation allows the integration of multiple services, apps, and technologies, translating in companies providing an overarching and highly customised service.	Technology and market needs dictate an increased level of security, data protection, integration, and trust. Digital reporting contributes to business automation and foster innovation.

14.Annex 4: Analytical methods

14.1.Econometric Model (estimate the DRR impact on VAT compliance)

As different types of DRRs are already in place in some Member States, their effectiveness could be verified by looking at actual figures on VAT non-compliance and using appropriate econometric methods. Using such methods means assessing how an independent variable, in this case the presence of DRRs and their features, impact on VAT non-compliance 170 while controlling other factors which may also explain changes in non-compliance (i.e. a country’s tax policy or economic structure) across analysed time horizon.

This note discusses initial choices that were made with respect to the data and methods used. Section 2.1 presents a general formula that formalizes the link between VAT efficiency, compliance, and revenue. Section 2.2 explains the choice of the dependent variables – the VAT Gap measure. Section 2.3 presents two alternative econometric approaches and econometric tests that are performed and discusses exogenous variables and methods for their imputation. Section 2.4 presents the results.

Section 2.1: General formula for measuring impacts on VAT revenue

The value of actual tax revenue for all ad valorem taxes can be decomposed into three basic components, which are helpful to understand its underlying sources of their evolution. Since revenue is a product of the theoretical liability and the compliance ratio, tax collection could be expressed as:

Actual Revenue = Theoretical Liability × Compliance Ratio ,

where Compliance Ratio is: 1 – Tax Gap (%).

As for all ad valorem taxes the Theoretical Liability is a product of the base and the average rate (WAR, Weighted Average Rate), the actual revenue could be further decomposed and expressed as:

Actual Revenue = Net Base × WAR × Compliance Ratio ,

where the WAR is the ratio of the Theoretical Liability to the Net Base.

Expressed as relative changes, the equation could be rewritten as:

As the impacts of additional reporting obligations are expected to come predominantly via change in VAT compliance the overarching formula for measuring impacts on tax compliance takes the form:

Section 2.2: Non-compliance measure

Due to unavailability of figures for certain components of the VAT Gap, the most precise indication of the evolution of non-compliance across countries with a sufficiently long time period is the overall VAT Gap measure 172 . The VAT Gap accounts for the difference between the expected and actual VAT revenues; still, it represents more than just fraud and evasion. The VAT Gap also covers VAT lost due to, for example, insolvencies, bankruptcies, administrative errors, and legal tax optimization, whose scale could only to a limited extent be affected by the reporting obligations. Despite this fact, the use of VAT Gap as the endogenous variable for assessing the impact of reporting obligations has an advantage as it directly links with the compliance ratio (as presented overleaf). The use of the VAT Gap figures also has a clear advantage over using VAT revenue as an explanatory variable because VAT revenue is also affected by other components, e.g. changes in policy structure and tax base. For this reason, the use of VAT revenue as the endogenous variable would not allow to disentangling the direct effect of reporting obligations on VAT compliance.

The VAT Gap measure which is used in the analysis comes from the most up-to-date Study published by the European Commission. The Study contains 532 panel observations from all past vintages of the Study transformed using so called backcasting method. The backcasting method allows the Study Team to minimise the problem of structural breaks between vintages of the Study. After running the procedure, the figures rely on the magnitude of values for a period of 5 years covered by the most recent estimates (2019 Study). At the same time, the dynamics, i.e. year-over-year changes in percentage points, for the years not covered by the full estimates, are based on older Studies, as more recent editions did not cover the relevant period of time. Overall, the VAT Gap observations (of country i in year t) cover 27 EU Member States and the UK for the 2000-2018 period initially derived for seven European Commission’s VAT Gap Studies (i.e. the 2013, 2014, 2015, 2016, 2017, 2018, and 2019 Studies).

The VAT Gap, which is the most accurate measure that could be used for the modelling of the impacts of reporting obligations on VAT compliance, is available only as yearly series. Unavailability of a more granular series poses two important limitations. Firstly, compared to quarterly data, yearly series reduce markedly the degrees of freedom of the model. As a result, the model lacks data points and their variability may prevent the inclusion of additional explanatory variables. Secondly, yearly series limit the possibility of observing dynamic effects of introducing additional reporting obligations. This is an important drawback as some countries introduced their measures in phases and often in the course of the year. Moreover, it may be expected that some of the measures may have some pre-emptive and/or delayed impact.

An alternative measure that could be used as a proxy of VAT-compliance in the situation when tax rules remain stable is C-efficiency 173 and its changes over time. C-efficiency is expressed as:

where, VR stands for VAT revenue, t for statutory standard rate and C for final consumption.

C-efficiency could be regarded as an indicator of the departure of the VAT from a perfectly enforced tax levied at a uniform rate on all consumption. 174 In other words, it is an intensive measure, i.e. expressed in relation to the tax base proxy, of both Compliance and Policy Gap. 175 C-efficiency can be computed on a quarterly basis, based on revenue and national accounts data from Eurostat. Thus, it allows addressing limitations of VAT Gap indicated above.

Section 2.3: Econometric methods

The approach to the econometric modelling implements two methods: (1) the base approach that uses quarterly C-efficiency data, and (2) the alternative approach that uses annual VAT Gap data. Two different methods were implemented to ensure the robustness of econometric estimates and to verify that the results do not depend on the choice of the dependent variable or data frequency.

The base approach uses the econometric setup of fixed-effects estimation for modelling determinants of quarterly C-efficiency. Such an approach could be regarded as a specific form of the difference-in-difference estimator in a panel data setting. The main advantage of the fixed effects estimator is that it can isolate the impact of reporting requirements from non-observed time and country-specific factors.

The model of the quarterly C-efficiency includes variables expected to determine the level of non-compliance but also controlling for factors behind C-efficiency. The base model could be expressed as:

(1)

where the endogenous variable is C-efficiency for country i in year t, CEit, which might be explained by the variables related directly to the actions taken by tax administrations (), control variables describing the current macroeconomic situation (), control variables describing the characteristics of specific Member States (economic structure variables - ). Those control variables are: . stands for the vector of variables describing reporting obligations. stands for fraud proxies (e.g. shadow economy) and the for the sectoral shares in the economy (e.g. share of agriculture in the total value added). Apart from these variables, country fixed effects () and time fixed effects () are included to control for the non-observed time and country-specific factors. Finally, is the error term with the classical statistical properties.

The dependent variable (CEit) and some of the explanatory variables (e.g. , ,) are available at quarterly frequency whereas the remaining explanatory variables (e.g. ,) are available only at annual frequency. Since all the variables should be aligned in terms of frequency, an interpolation technique to break the annual data into quarterly series was necessary. We employed linear interpolation to construct new data points within the range of a discrete set of known data points. The linear interpolation is a data imputation method that assumes a linear relationship between missing and non-missing values 176 . The gains of such approach are threefold; (i) the number of observations and degrees of freedom is substantially higher; (ii) addressing possible problem of omitted variable bias; and (iii) more granular series that enable us to estimate the dynamic effect of introducing reporting obligations in the base approach.

The alternative approach uses the econometric setup of fixed-effects estimation for modelling yearly VAT Gap series. This approach limits degrees of freedom and hinders the introduction of lead and lags but may prove better if the effective rate, which is one of the revenue components, cannot be accurately controlled for.

The structure of the model takes the form:

(2)

As mentioned above, the endogenous variable is the VAT Gap for country i in year t, VGit. Other variables are related directly to the actions taken by tax administrations (), control variables describing the current macroeconomic situation (), control variables describing the characteristics of specific Member States (economic structure variables - ).

As shown in Table 26 , the explanatory variables are often available for only a subset of observations even at annual frequency. The nature of the missing data varies across variables. Some data sources cover only specific Member States (e.g. OECD), other are available for most recent years only (Surveillance database) or were discontinued (e.g. Verification actions). However, there is one important similarity: data is not missing at random in most of the instances.

The problem of unavailability of observations decreases markedly the number of degrees of freedom in the models with numerous right-hand side variables. This creates a trade-off between two econometric problems – i.e. omitted variables and insufficient degrees of freedom.

To reduce the scale of the problem the values of the missing variables were imputed for the alternative approach as well. The Study Team decided to use a simple and intuitive method that partially controls the bias created by the non-random character of missing data. 177 The procedure for missing predictors in regression analysis that has been used is called dummy variable adjustment or missing indicator method. In this approach if X is an incompletely observed predictor in a regression model, then a binary response indicator for X is created (RX = 1, if the value in X is missing; RX = 0, if the corresponding value in X is present) and included in the regression model together with Missing values in X are set to the same value, i.e., any constant value c.

Reporting obligation proxies and control variables. The treatment dummies, i.e. indicator variables that capture the timing and location of the existing reporting requirements, are introduced in the model as independent variables. Proxies include dummy variables standing for countries in which were introduced (grouped by type, i.e. VAT listing, SAF-T, Real-time, e-invoicing).

In addition to reporting obligation proxies, the model specification includes variables from multiple sources, i.e. Eurostat, World Bank, the VAT Gap Study. The full list of variables, their sources along with coverage periods and frequencies, and number of observations are included in Table 26 .

Table 26 – Variables and Descriptive Statistics (econometric model)

	Source	Coverage	Frequency	Number of Observations
Dependent (Endogenous) Variables
C-Efficiency	Own elaboration	2007-2021	Quarterly	1 334
VAT Gap	VAT Gap reports, EC	2007-2019	Annual	273
Macroeconomic Variables
Real GDP growth	EUROSTAT	2007-2021	Quarterly	1 334
Deficit to GDP Ratio	EUROSTAT	2007-2021	Quarterly	1 334
Debt to GDP Ratio	EUROSTAT	2007-2021	Quarterly	1 334
Unemployment	EUROSTAT	2007-2021	Quarterly	1 334
Tax administration variables
Standardized fiscal rules index	EC	2007-2019	Annual	273
Number of staff	OECD	2011, 2013-2017	Annual	123
Verification actions	OECD	2007-2015	Annual	162
VAT electronic filing rate %	OECD	2009, 2011, 2013-2015	Annual	92
IT expenditure as a share of total costs	OECD	2007-2017	Annual	168
Shadow Economy
Size of the shadow economy	IMF	2007-2019	Annual	273
Fraud Proxies
Intra-EU Import at risk	Own calculation	2007-2019	Annual	273
Trade-at-risk	Own calculation	2007-2017	Annual	231
Economic Structure and Institutional Variables
Population at risk of poverty	EUROSTAT	2007-2019	Annual	273
Share of companies with no employees	EUROSTAT	2007-2018	Annual	195
Share of companies with over 10 employees	EUROSTAT	2007-2018	Annual	195
Gini Index	World Bank	2007-2018	Annual	236
Economic Risk Rating	ICRG	2007-2015	Annual	189
Political Risk Rating	ICRG	2007-2015	Annual	189
The Worldwide Governance Indicators: Rule of Law	World Bank	2007-2014, 2018-2019	Annual	189
The Worldwide Governance Indicators: Control of Corruption	World Bank	2007-2014, 2018-2019	Annual	189
Sector Shares
Agriculture, forestry and fishing	EUROSTAT	2007-2021	Quarterly	1 334
Industry	EUROSTAT	2007-2021	Quarterly	1 334
Wholesale and retail trade, transport, accommodation and food service activities	EUROSTAT	2007-2021	Quarterly	1 334
Information and communication	EUROSTAT	2007-2021	Quarterly	1 334
Financial and insurance activities	EUROSTAT	2007-2021	Quarterly	1 334
Real estate activities	EUROSTAT	2007-2021	Quarterly	1 334
Professional, scientific and technical activities; administrative and support service activities	EUROSTAT	2007-2021	Quarterly	1 334

Based on ‘VAT Gap Study, 2020’.

Section 2.4: Results measure

Baseline model

Base approach (C-efficiency quarterly data). The baseline econometric estimates using quarterly data and C-efficiency, where stand for a dummy variable that takes value 1 for country i if any type of DRRs is being implemented in country i at time t and zero otherwise. The simplest model, the baseline specification, is described in column (1) and the sample covers periods from 2007q1 to 2021q2. The econometric estimates include all EU-27 states except Bulgaria, Latvia, Luxembourg, and Malta 178 .

As can be seen in Table 27 , the estimated coefficients of the reporting obligations are statistically significant at 1 percent level. The other explanatory variables are statistically significant as well with GDP growth at 5 percent and general government surplus (deficit), and unemployment rate at 1 percent levels. According to the estimation results of the baseline specification, introducing reporting obligations lifts VAT revenue by 1.9 percent of the theoretical liability (liability that would be obtained if all consumption was taxed at standard rate).

The alternative specifications (columns (2) to (6)) show that the estimated coefficient of reporting obligations is statistically significant regardless of additional exogenous variables introduced 179 . The value of the parameter itself is relatively stable as it varies between 1.5 and 2.6 basis points. In summary, the results from the base model show that the countries that introduced DRRs have experienced an increase in their VAT revenue and this positive impact is found to be robust under different specifications.

Alternative approach (VAT Gap yearly data). The results of the regressions from the alternative set of models using annual data are shown in Table 28 . Similar to the base model, in Equation 2 is a dummy variable that takes value 1 for country i if any type of reporting obligation is being implemented in country i at time t and zero otherwise. The dependent variable is , VAT Gap for country i in year t. The simplest model, the baseline specification, is described in column (1) and contains the same explanatory variables of the baseline specification of the base approach except unemployment rate. The estimated coefficients of the reporting obligations and GDP growth are statistically significant at 1 and 10 percent levels, respectively, whereas general government surplus are not statistically significant at the p=0.1 level. According to the estimation results of the baseline specification, introducing reporting obligations decreases VAT Gap by 2.6 percentage point and thus the revenue increase by 2.6 percent of VAT Total Tax Liability (VTTL).

The alternative specifications (columns (2) to (5)) show that the estimated coefficient of the reporting obligations is statistically significant in all specifications at the 1 percent level and the estimated values vary between 2.4 to 2.6 basis points.

The results from the base model estimated on annual data confirm that the countries that introduced DRRs have experienced decrease in their VAT Gap and this positive impact of reporting obligations on VAT Gap is found to be robust under different specifications.

Moreover, and importantly, the magnitude of the reporting obligation coefficient estimated through annual data is similar to the coefficient estimated through quarterly data given in column (1) of Table 27 , as discussed in the following paragraph.

In order to compare the results from both modelling approaches, the relation between C-efficiency and the VAT Gap needs to be established. Using the equation presented in Section 2.2, the result is:

As :

The average Policy Gap in the EU was estimated at 44 percent in 2018 180 . Hence, one can expect that when the coefficient of reporting obligation is equal to -2.6 basis points when the dependent variable is VAT GAP, the same coefficient should be equal to 1.5 basis points when the dependent variable is C-efficiency based on the above formula. However, even though close, this does not hold perfectly in our regressions and the coefficient is equal to 1.9 basis points in the model with C-efficiency. The difference could be explained by considering that the quarterly data may better capture the timing of the impact since data are more granular, thus leading to a larger estimated impact of reporting obligations on VAT revenue and by different periods between quarterly and yearly data.

Econometric tests. All model specifications were thoroughly tested. Among others, the Study Team conducted a collinearity test for the exogenous variables to minimize the risk of multicollinearity. As this test proved, there was no case of Variance Inflation Factor with value above 10 in the specifications presented. 181 Since the model contains time series, the Study Team verified that the model does not suffer from the issue of spurious regression. For this purpose, unit root tests were performed – Levin-Lin-Chu (2002), Harris-Tzavalis (1999), and Im-Pesaran-Shin (2003). All tests indicated that the C-efficiency and explanatory variables included in the specifications are stationary. The tests showed that debt-to-GDP is non-stationary and cannot be included in levels in the base model equation.

Table 27 – Baseline approach model estimates: C-efficiency quarterly data (econometric model)

	(1)	(2)	(3)	(4)	(5)	(6)
	Baseline	Fraud	Shadow Economy	Economic Structure	Tax Administration	Sectors
Reporting Obligations	0.019***	0.015***	0.017***	0.016***	0.026***	0.020***
	(5.47)	(4.36)	(5.07)	(4.30)	(7.25)	(5.71)
GDP growth	0.122**	0.129**	0.095*	0.121**	0.120**	0.145***
	(2.15)	(2.33)	(1.70)	(2.11)	(2.17)	(2.63)
Government surplus(deficit)	0.136***	0.119***	0.107***	0.138***	0.150***	0.131***
	(6.26)	(5.63)	(4.90)	(6.30)	(7.07)	(6.21)
Unemployment rate	-0.465***	-0.493***	-0.533***	-0.537***	-0.427***	-0.248***
	(-9.22)	(-9.93)	(-10.45)	(-10.35)	(-8.42)	(-3.80)
Intra-EU import at risk		-0.190
		(-0.87)
Trade at risk		-0.287***
		(-8.57)
Shadow economy size			-0.011***
			(-6.06)
Poverty Index				0.505***
				(5.44)
Small size companies				0.006
				(0.35)
Large size companies				0.225**
				(2.23)
Standardised fiscal rules					-0.013***
					(-7.37)
Number of staff					-0.738**
					(-2.42)
Number of verifications					-0.006***
					(-3.90)
Electronic filling					22.208
					(0.62)
IT expenditure					0.003
					(0.30)
Agriculture share						-0.207
						(-0.85)
Industry share						-0.102
						(-1.07)
Retailers share						-0.137
						(-1.09)
Communication share						-0.568***
						(-3.83)
Finance share						-0.756***
						(-4.14)
Real estate share						0.125
						(0.78)
Scientific share						-0.572***
						(-2.80)
Constant	0.558***	0.574***	0.823***	0.499***	0.573***	0.647***
	(81.60)	(78.89)	(18.64)	(26.23)	(59.87)	(7.99)
Observations	1334	1334	1334	1276	1334	1334
R-sq overall R-sq – within R-sq – between	0.1850 0.3892 0.1569	0.0477 0.4235 0.0010	0.0000 0.4067 0.0072	0.1236 0.3968 0.0495	0.3132 0.4240 0.2938	0.0307 0.4631 0.0033
Number of countries	23	23	23	22	23	23

Table 28 – Alternative approach model estimates: VAT Gap annual data (econometric model)

	(1)	(2)	(3)	(4)	(5)
	Baseline	Fraud	Shadow Economy	Economic structure	Tax Administration
Reporting Obligations	-0.026***	-0.025***	-0.026***	-0.024***	-0.026***
	(-3.66)	(-3.38)	(-3.61)	(-3.17)	(-3.66)
GDP growth	-0.138*	-0.156**	-0.137*	-0.146*	-0.142*
	(-1.84)	(-2.08)	(-1.82)	(-1.94)	(-1.91)
Government surplus(deficit)	0.019	0.050	0.022	0.003	0.004
	(0.25)	(0.65)	(0.28)	(0.04)	(0.05)
Trade at risk		0.261**
		(2.00)
Intra-EU import at risk		-0.315
		(-0.74)
Shadow Economy			0.001
			(0.12)
Gini (Unequality) Index				-0.000
				(-0.18)
Poverty Index				-0.253
				(-1.11)
Small size companies				-0.039
				(-1.02)
Large size companies				-0.295
				(-1.49)
Standardised fiscal rules					0.000
					(0.02)
Verification Actions					0.000**
					(2.21)
Constant	0.142***	0.136***	0.131	0.215***	0.136***
	(19.72)	(13.95)	(1.36)	(3.63)	(18.24)
Observations	273	273	273	273	273
R-sq within	0.4439	0.4543	0.4440	0.4559	0.4600
Number of countries	21	21	21	21	21

Lagged and forward-looking effects

In the baseline estimations, the reporting obligations were allowed to have only contemporaneous impact on the VAT revenue (through C-efficiency). However, the impact of reporting obligations on VAT revenue may be ‘dynamic’. It could be expected that it may take some time to reach full impact, and some of the impact might also be seen already before the introduction (e.g. if taxpayers adjust their behaviours by anticipating the forthcoming obligations). For this purpose, the Study Team rerun the baseline estimation six different times and at each time was replaced with one or four quarter of the lagged or lead values of .

Base approach (C-efficiency quarterly data). The results of the base estimations are shown in the columns (2)-(5) of Table 29 . In the very last two columns, the Study Team rerun the baseline estimation with and it’s one quarter lagged and lead value, separately. 182

As can be seen in column (2) of Table 29 , the estimated coefficient of one quarter lagged reporting obligations (L.RO) is statistically significant at 1 significance percent level and its magnitude is similar to the coefficient of current reporting obligations (RO) given in column (1). The same holds for one and four quarter lagged reported as (L.RO) in column (2) and as (L4.RO) in column (4), respectively, and one lead reporting obligations reported as (F.RO) in column (3). When current and one quarter lagged values of reporting obligations are included in the explanatory variable vector, only current value coefficient becomes significant in column (6). Even though the coefficient of current is larger relative to the baseline estimation, its sum with the coefficient of the lagged reporting obligations gives the same magnitude as given in column (1). Finally, the coefficients of the current and lead values become insignificant in column (7) when both of them are used as explanatory variable. Even though both coefficients are statistically not different than zero, the magnitudes of reporting obligations given in column (1) and the sum of lead and current ROs are equal.

All in all, the regressions with lead and lag values for introducing reporting obligations show that the impacts of introducing reporting obligations do not vary significantly over time. The forward-looking impact, if any, appeared to be not larger relative to the lagged or contemporaneous impact. This proves that there is no reversed causality in the model. 183

Table 29 – Baseline approach model estimates with lags and leads: C-efficiency quarterly data

	(1)	(2)	(3)	(4)	(5)	(6)	(7)
	Current	One Quarter Lag	One Quarter Lead	Four Quarter Lag	Four Quarter Lead	One Quarter Lag and Current	One Quarter Lead and Current
Reporting Obligations	0.019***					0.022**	0.006
	(5.47)					(2.25)	(0.60)
L.Reporting Obligations		0.018***				-0.003
		(5.22)				(-0.30)
L4.Reporting Obligations				0.018***
				(5.18)
F.Reporting Obligations			0.019***				0.013
			(5.52)				(1.34)
F4.Reporting Obligations					0.015***
					(4.32)
GDP growth	0.122**	0.112**	0.125**	0.118**	0.189***	0.113**	0.125**
	(2.15)	(1.98)	(2.19)	(2.11)	(2.94)	(1.98)	(2.19)
Government surplus(deficit)	0.136***	0.132***	0.134***	0.135***	0.123***	0.133***	0.134***
	(6.26)	(6.08)	(6.13)	(6.27)	(5.60)	(6.11)	(6.13)
Unemployment rate	-0.465***	-0.442***	-0.469***	-0.380***	-0.503***	-0.436***	-0.468***
	(-9.22)	(-8.60)	(-9.24)	(-7.18)	(-10.02)	(-8.48)	(-9.21)
Constant	0.558***	0.533***	0.558***	0.530***	0.559***	0.532***	0.558***
	(81.60)	(72.37)	(81.36)	(73.45)	(82.95)	(72.28)	(81.31)
Observations	1334	1311	1311	1242	1242	1311	1311
R-sq overall	0.1850	0.1792	0.1838	0.1689	0.1847	0.1787	0.1837
Number of countries	23	23	23	23	23	23	23

The analysis with lagged and lead values is also carried out for the distinguished types of reporting obligations; periodic and CTCs. Results are not different from the general analysis: for PTCs, coefficients of lagged and led variables are of the same order of magnitude and their significance disappears when controlling for current variables. For CTCs, results are more spurious, likely because of the data limitations discussed above. When controlling for both lagged and current variables, both coefficients are statistically significant (at least at 5 percent level), and the analysis would point out that only the lagged variable has a positive effect on VAT revenue. However, caution is needed in that respect, since, in the EU, the implementation of CTCs took place in countries where already obligations were already in place. Therefore, it is not possible to argue whether the lagged effect is due to the introduction of CTCs or to the pre-existing PTC system.

Table 30 – Baseline approach model estimates with lags and leads of distinguished types of reporting obligations: C-efficiency quarterly data

	(1)	(2)	(3)	(4)	(5)	(6)	(7)
	Current	One Quarter Lag	One Quarter Lead	Four Quarter Lag	Four Quarter Lead	One Quarter Lag and Current	One Quarter Lead and Current
Periodic	0.019***					0.012	0.010
	(5.04)					(0.97)	(0.84)
L.Periodic		0.019***				0.009
		(5.06)				(0.74)
L4.Periodic				0.018***
				(4.78)
F.Periodic			0.019***				0.010
			(4.99)				(0.80)
F4.Periodic					0.015***
					(3.90)
CTCs	0.018***					0.048***	-0.004
	(2.93)					(2.68)	(-0.19)
L.CTCs		0.014**				-0.032*
		(2.28)				(-1.74)
L4.CTCs				0.019***
				(2.73)
F.CTCs			0.019***				0.023
			(3.14)				(1.25)
F4.CTCs					0.015**
					(2.43)
GDP growth	0.122**	0.112**	0.125**	0.118**	0.189***	0.113**	0.125**
	(2.15)	(1.98)	(2.18)	(2.11)	(2.93)	(1.99)	(2.18)
Government surplus(deficit)	0.136***	0.132***	0.134***	0.135***	0.123***	0.133***	0.134***
	(6.25)	(6.06)	(6.13)	(6.26)	(5.60)	(6.12)	(6.12)
Unemployment rate	-0.465***	-0.439***	-0.469***	-0.380***	-0.503***	-0.435***	-0.468***
	(-9.17)	(-8.53)	(-9.21)	(-7.17)	(-9.95)	(-8.46)	(-9.17)
Constant	0.558***	0.533***	0.558***	0.530***	0.559***	0.533***	0.558***
	(81.52)	(72.36)	(81.28)	(73.37)	(82.86)	(72.34)	(81.22)
Observations	1334	1311	1311	1242	1242	1311	1311
R-sq overall	0.1857	0.1818	0.1837	0.1688	0.1849	0.1796	0.1834
Number of countries	23	23	23	23	23	23	23

Conclusions for the econometric analysis (VAT liability simulation model):

·the impact of introducing reporting obligations on VAT compliance and overall efficiency, and thus on VAT revenue, is positive with a central estimate of +1.9 basis points for C-efficiency (range: 1.5-2.6 basis points) and -2.6 basis points for VAT Gap (range: 2.4-2.6 basis points), meaning a reduction of the VAT Gap

·Such results are highly significant and robust across two approaches and various model specifications. The magnitude of the impact is similar, albeit slightly larger for VAT Gap.

·The results on any differential impact of PTCs and CTCs are conflicting and non-conclusive, and this likely depends on the very short period and limited number of Member States which implemented the latter. In a nutshell, as far as the impact of CTCs in the EU Member States, it is yet too early to tell.

·When considering lagged or forward-looking effects, the impacts of DRRs do not vary significantly across times and, consequently, the non-dynamic variables well capture the impacts on VAT revenue.

Although both methods used in this analysis have pros and cons, the analysis looking at C-efficiency and using quarterly data appears to be better-suited for the purpose. The quarterly data provide larger number of observations and degrees of freedom that increase the statistical power of the estimations. Moreover, quarterly data allows to inspect the dynamic effects of the reporting requirements.

14.2.Net impacts on businesses’ administrative burdens by category and type of firm ( Table 12 )

On company size, data are taken from a recent Commission study on the VAT schemes (Deloitte (2017), Special scheme for small enterprises under the VAT Directive 2006/112/EC - Options for review, Final Report, Annex D). Based on data from national tax authorities, the number of VAT taxable persons in the EU is estimated at about 37.5 million, 36.5 million of which are micro entities with a turnover lower than EUR 2 million. Of the about 900,000 companies with a turnover higher than EUR 2 million, the distribution in small, medium and large companies is extrapolated based on Eurostat’s data. Data on VAT taxable persons are not directly compatible with Eurostat’s data on enterprises for at least two reasons. First, not all taxable persons are enterprises (they could include, for instance, self-employed individuals or VAT registrations of non-established companies). Secondly, data on taxable persons are segmented on a turnover basis, while data on companies are segmented based on the number of employees. For instance, it is possible that an entity with a turnover of less than 2 million is not a micro company if it has more than 10 employees; or that an entity with 9 employees is not a micro company if it has a turnover higher than EUR 2 million. Therefore, the following procedure is applied: first, the relative weight of small, medium and large enterprises are calculated based on Eurostat’s data; then, these weights are applied to the number of VAT taxable persons with a turnover higher than EUR 2 million.

14.3.VAT liability simulation model

A VAT liability simulation model for each Member State was used to estimate VAT revenue from the platform economy for the sectoral analysis. The model was calibrated to reflect changes in tax rules under projected policy scenarios and adapted to forecasted increase in the tax base.

The model consists of equations parametrised for each Member State and each sector, calibrating the shares of transactions provided by exempt and non-taxable providers separately for providers’ and platforms’ services.

The VAT liability simulation model used for in the sectoral analysis and for the impact assessment composes of two blocks: (1) the set of equations modelling effective liability on platforms’ facilitation services, and (2) the set of equations calculating liability for the underlying services. The equations in each of the block were calibrated and adapted to tax base in every Member State and sector.

The model for facilitation services (for country i and sector s) is a sum of products of net tax bases subject to different rules and applicable rates. The factors of this equation are.

Term or acronym	Meaning or definition
B2B	Business-to-Business
B2C	Business-to-Consumer
B2G	Business-to-Government
B&B	Bed and Breakfast
CBA	Cost-benefit analysis
CTC	Continuous Transaction Control
DAC7	Council Directive 2011/16/EU
DRR	Digital Reporting Requirement
EU	European Union
EU27	European Union without the United Kingdom
ESS	Electronically Supplied Service
GDP	Gross domestic product
IOSS	Import-One-Stop Shop
IT	Information technology
MNCs	Multinational Companies
MS	Member States
MTIC fraud	Missing Trader Intra-Community fraud
OSS	One Stop Shop
PTC	Periodic Transaction Control
SAF-T	Standard Audit File for Tax
SME	Small and Medium-sized Enterprise(s)
STR	Short-term accommodation rental services
TA	Tax Authorities
TBE	Telecommunications, Broadcasting and Electronic
VAT	Value-Added Tax
VIES	VAT Information Exchange System

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