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