Europaudvalget 2018
KOM (2018) 0812
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EUROPEAN
COMMISSION
Brussels, 12.12.2018
SWD(2018) 488 final
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT
Accompanying the document
Proposal for a Council Directive amending Directive 2006/112/EC as regards
introducing certain requirements for payment service providers
and
Proposal for a Council Regulation amending Regulation (EU) No 904/2010 as regards
measures to strengthen administrative cooperation in order to combat VAT fraud
{COM(2018) 812 final} - {COM(2018) 813 final} - {SEC(2018) 495 final} -
{SWD(2018) 487 final}
EN
EN
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Contents
LIST OF FIGURES ........................................................................................................................................ 4
1.
INTRODUCTION: POLITICAL AND LEGAL CONTEXT ............................................................... 5
1.1. The modernisation of the VAT system on B2C cross-border supplies ............. 5
1.2. Administrative cooperation ............................................................................... 7
1.3. Enforcement ...................................................................................................... 8
2.
PROBLEM DEFINITION .................................................................................................................... 9
2.1. E-commerce VAT fraud .................................................................................... 9
2.1.1. VAT fraud on cross-border supplies of services ........................................ 10
2.1.2. VAT fraud on intra-EU distance sales of goods ......................................... 11
2.1.3. VAT fraud on imports of goods ................................................................. 11
2.2. Size of the problem .......................................................................................... 12
2.3. Problem tree..................................................................................................... 15
2.4. What are the problem drivers? ........................................................................ 15
2.4.1. No physical presence of the suppliers ........................................................ 15
2.4.2. Relevant VAT information held by third parties ........................................ 16
2.4.3. Tax administration tools and capacities ..................................................... 17
2.4.4. Other Drivers influencing e-commerce VAT fraud (and addressed by other
initiatives).................................................................................................................. 18
2.5. How will the problem evolve? ........................................................................ 18
3.
4.
WHY SHOULD THE EU ACT? ........................................................................................................ 18
OBJECTIVES: WHAT IS TO BE ACHIEVED? ............................................................................... 19
4.1.
4.2.
4.3.
4.4.
5.
General objectives ........................................................................................... 19
Specific objectives ........................................................................................... 19
Operational objectives ..................................................................................... 20
Consistency with other EU policies and with the Charter for
fundamental rights ........................................................................................... 20
WHAT ARE THE AVAILABLE POLICY OPTIONS? .................................................................... 21
5.1. Measures with a positive impact on reducing the e-commerce VAT
loss introduced with the VAT e-commerce package) ..................................... 21
5.1.1. Abolition of the distance sale thresholds and extension of the MOSS....... 21
5.1.2. Abolition of the small consignments exemption ........................................ 21
5.1.3. Import One Stop Shop (IOSS).................................................................... 21
5.1.4. Deemed supplier ......................................................................................... 22
5.2. Policy options .................................................................................................. 22
5.2.1. Payment services and payment service providers ...................................... 24
5.2.2. Payment data .............................................................................................. 24
5.2.3. Structure of the policy options ................................................................... 25
5.3. What is the baseline from which options are assessed? .................................. 26
5.3.1. Policy option 1
–
Baseline scenario............................................................ 26
5.4. Description of the policy options .................................................................... 27
5.4.1. Policy option 2 (non-regulatory): Investing in administrative capacity and
providing EU guideline + standard forms ................................................................. 27
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5.4.2. Policy option 3 (Regulatory option): Collection and exchange of payment
data
28
5.5. Discarded option .............................................................................................. 31
5.5.1. VAT split payment ..................................................................................... 31
5.5.2. Direct access of Member States' tax authorities to Payment Service
Providers' databases .................................................................................................. 31
6.
WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ........................................................... 31
6.1. Methodology.................................................................................................... 31
6.2. Analysis of the impacts ................................................................................... 31
6.2.1. Impact on VAT fraud ................................................................................. 33
6.2.2. Impact on distortion of competition ........................................................... 39
6.2.3. Impact on administrative burden and compliance costs ............................. 42
6.2.4. Sectoral impacts.......................................................................................... 45
6.2.5. Impact on terms of trade, employment and environment ........................... 46
6.2.6. Impact in terms of the fundamental right to protection of personal data ... 46
7.
HOW DO THE OPTIONS COMPARE? ............................................................................................ 48
7.1. Summary assessment of the impact ................................................................. 48
8.
PREFERRED OPTION ...................................................................................................................... 50
8.1.
8.2.
8.3.
8.4.
9.
Identification of the preferred option .............................................................. 50
Subsidiarity of the preferred option ................................................................. 50
Proportionality of the preferred option ............................................................ 51
Impact on SMEs .............................................................................................. 51
HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?.................................. 52
9.1. Indicators for monitoring and evaluation ........................................................ 52
9.2. Monitoring structure ........................................................................................ 52
10.
ANNEXES .......................................................................................................................................... 53
10.1. Annex 1: Procedural information .................................................................... 54
10.2. Annex 2: Consultation synopsis report............................................................ 56
10.3. Annex 3: Evaluation of Regulation (EU) 904/2010 for cross-border
Business to Consumer online supplies ............................................................ 67
10.4. Annex 4: Who is affected by the initiative and how? ..................................... 92
10.5. Annex 5: Methodology .................................................................................... 95
10.6. Annex 6: Technical feasibility of the options.................................................. 96
10.7. Annex 7: Case Study
–
pricing policy and estimation of potential VAT
loss ................................................................................................................. 103
10.8. Annex 8: Result of the TAXUD 2016 survey on e-commerce
compliance strategies in the EU .................................................................... 112
10.9. Annex 9: Payment Services framework in the EU ........................................ 114
10.10. Annex 10: B2B import VAT fraud ............................................................ 116
10.11. Annex 11: Third countries using payment data as VAT control tool ....... 118
10.12. Annex 12: Visual examples of the regulatory options .............................. 119
10.13. Annex 13: Comparison amongst different initiatives in terms of
fighting e-commerce VAT fraud ................................................................... 121
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GLOSSARY
Term or acronym
B2B
B2C
C2C
EBA
E-commerce
Meaning or definition
Business-to-business.
Business-to-consumers.
Consumers-to-consumers
European Banking Authority
The sale or purchase of goods or services through electronic
transactions conducted via the internet or other computer-mediated
(online communication) networks1
VAT fraud on B2C cross-border supplies of goods and services. It
covers intra-EU distance sales of goods, imports of goods, and
cross-border supplies of services (from suppliers established in one
Member State or in a third country)
General Data Protection Regulation
Import One Stop Shop
Multilateral controls
Mini One Stop Shop
Member State of Consumption
Member State of Establishment
Missing Trader Intra-Community
Payment Service Directive 2
Payment Service Providers
Single euro payment area
Telecommunications, broadcasting and electronic services
Value-Added Tax
Virtual Currencies
E-commerce VAT fraud
GDPR
IOSS
MLCs
MOSS
MSC
MSE
MTIC Fraud
PSD2
PSP
SEPA
TBE
VAT
VC
1
Eurostat glossary:
http://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:E-commerce
3
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L
IST OF FIGURES
Figure 1: Turnover from B2C and B2BG (Businesses and Governments) web sales,
percentage share on total, non-financial enterprises, EU-28, 2017 .................................. 12
Figure 2: Sectoral distribution of e-commerce, 2017 ....................................................... 12
Figure 3: Problem tree ...................................................................................................... 14
Figure 4: Link between drivers, options (non-regulatory and regulatory) and specific
objective ........................................................................................................................... 25
Figure 5: Respondents to the public consultation (number)............................................. 57
Figure 6: Country of residence of the respondents to the public consultation (number) . 57
Figure 7: Perception of the negative impact of VAT fraud in e-commerce ..................... 59
Figure 8: Proportionality of the initiative ......................................................................... 61
Figure 9: Subsidiarity of the initiative .............................................................................. 61
Figure 10: Public consultation: Comparison of policy options ........................................ 61
Figure 11: Public consultation: Preferred technical choices ............................................ 62
Figure 12: Public consultation: Exchange of data must not reveal the identity of the
customer (buyer)............................................................................................................... 62
Figure 13: Tax authorities: evaluation of the administrative cooperation tools ............... 63
Figure 14: Regulation (EU) 904/2010: intervention logic ............................................... 69
Figure 15: Tax authorities: perceived effectiveness of the administrative cooperation
tools .................................................................................................................................. 79
Figure 16: Positive and negative perception on the effectiveness of different
administrative cooperation tools....................................................................................... 80
Figure 17: Tax authorities: perception on the administrative cooperation tools .............. 83
Figure 18 - Public consultation: Public perception of the EU added value...................... 87
Figure 19: Tax authorities: perception of the EU added value ......................................... 87
Figure 20: Public consultation: perception on the e-commerce VAT fraud problem ...... 88
Figure 21: Distributed application exchange of info ...................................................... 118
Figure 22: Central repository of data.............................................................................. 119
L
IST OF TABLES
Table 1: Main modalities of fraud on B2C cross-border transactions................................ 9
Table 2: Tax administrations' estimates of annual VAT losses, by type, EUR million ... 11
Table 3 Fraud levels: net impacts over baseline, by option ............................................. 37
Table 4: Total Member State + EU Commission costs for payments data IT infrastructure
(EUR million; rounded).................................................................................................... 42
Table 5 Audits for which the use of payments data was important ................................. 43
Table 6: Summary analysis of impacts ............................................................................. 47
Table 7: Evaluation matrix ............................................................................................... 74
Table 8: Simplified example of payment data transmitted to a Member State from the
Payment Service Providers established in that Member State ....................................... 118
Table 9: Comparison amongst different initiatives in terms of fighting e-commerce VAT
fraud................................................................................................................................ 120
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1.
I
NTRODUCTION
: P
OLITICAL AND LEGAL CONTEXT
Business-to-consumer (B2C) cross-border supplies of goods and services are facilitated
by the rapid growing of the e-commerce
2
, which offers more opportunities to both
businesses and consumers. However, the same opportunities are also exploited by
dishonest traders
–
located both inside and outside the EU - to gain an unfair market
advantage by not fulfilling the VAT obligations. As private consumers change purchase
habits and suppliers adapt their business models, tax authorities are facing new
challenges in coping with B2C cross-border VAT fraud (hereinafter e-commerce VAT
fraud).
The initiative supported by this impact assessment complements the current VAT
regulatory framework as recently modified by the VAT e-commerce Directive
3
in the
framework of the Commission Digital Single Market Strategy
4
. In December 2017, when
the VAT e-commerce Directive was adopted, the Council stressed the need to strengthen
cooperation between Member States in order to tackle VAT fraud
5
. The options taken
into account in this initiative have been drafted after consultation with several Member
States and business representatives (including payment service providers and other online
platforms) in the framework of the VAT forum
6
.
In particular this impact assessment identifies areas where the administrative cooperation
framework can be improved to better tackle fraud and restore fair competition.
An evaluation of Council Regulation (EU) 904/2010, on administrative cooperation and
fighting fraud in the field of VAT is in annex of this report
7
. The evaluation, based on the
answers of the Member States' tax administrations to a targeted consultation and on an
open consultation, shows that administrative cooperation is crucial to combat e-
commerce VAT fraud, but the evolution of the business models and fraud patterns in the
e-commerce pose new challenges to Member States that must be addressed with new
administrative cooperation tools
8
.
1.1.
The modernisation of the VAT system on B2C cross-border supplies
The general rule applying to cross-border B2C supplies of goods and services as laid
down in the VAT Directive
9
is the so-called
“destination principle”: taxation in the
Member State of consumption. In the EU VAT system, when applying the destination
principle, in general
10
, the suppliers of goods and services should register in the Member
In 2016, the e-commerce turnover increased by 15% in Europe and it was expected to reach over EUR
600 billion in 2017. Source Ecommerce Europe "European B2C E-commerce Report 2017".
3
Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive
2009/132/EC as regards certain value added tax obligations for supplies of services and distance sales of
goods, OJ L 348, 29.12.2017, p. 7
4
COM(2017) 228 final of 10/5/2017, Implementation of the Digital Single Market Strategy, see:
https://ec.europa.eu/digital-single-market/en/news/digital-single-market-mid-term-review
5
Council of the European Union, 14769/1/17 REV 1, 30 November 2017
6
Commission Decision 2012/C 198/05 of 3 July 2012 setting up the EU VAT Forum, OJ C198 of 6 July
2012
7
The evaluation was carried out on the basis of a public consultation, a targeted consultation with the main
stakeholders concerned, and desk research The evaluation was also built up on the findings of a more
comprehensive evaluation of Regulation (EU) 904/20210 that was carried out in 2017. See Annex 3
"Evaluation"
8
See Annex 3 "Evaluation of Regulation (EU) 904/2010 for cross-border Business to Consumer online
supplies"
9
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax
OJ L
347, 11.12.2006, p. 1
10
Note that here are several exceptions due to the nature of the goods or service traded. For details, see :
http://ec.europa.eu/taxation_customs/business/vat/eu-vat-rules-topic/where-tax_en
2
5
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State of destination where the customer is established or where the goods arrive and,
thus, comply with the appropriate set of rules in each different Member State. The
destination principle applies also to B2C supplies from non-EU countries: the suppliers
are generally liable for the VAT of the Member State where the customer resides. This
represents a significant complication for businesses both in the EU
11
and in third
countries; the compliance burden is heavy enough to make it plausible that part of the
VAT loss generated by non-declaration is due to businesses not understanding their tax
obligations or finding them too burdensome.
This problem has been addressed by a recent series of initiatives introducing new rules
that make it easier for online businesses (both from inside or outside the EU) to comply
with VAT obligations and to facilitate the collection of VAT for tax administrations.
In 2015, a simplified electronic and registration system called Mini One Stop Shop
(MOSS)
12
entered into force in the field of telecommunication, broadcasting and
electronically supplied services (TBE). The suppliers that opt for the MOSS can fulfil all
the VAT obligations (identification, declaration, payments) relating to the TBE supplies
in one single Member State of their choice (instead of having to register in all the
Member States of consumption)
13
. The MOSS represents a simplification for the
businesses in the TBE sector and has been a success for the EU Member States in terms
of VAT collection
14
. The recently adopted legislation modernising the VAT system on
B2C cross-border supplies (hereinafter the VAT e-commerce package) will extend the
MOSS to all supplies of services and goods intra-EU and from outside the EU (as from
2021)
15
.
Furthermore, the VAT e-commerce Directive abolished the thresholds on distance sales
16
and the threshold on small consignment exemptions on importation
17
that add
complications for businesses and are exploited by fraudsters to avoid the payment of the
due VAT (See section 2.1.2 and section 2.1.3).
Finally, a new provision in the VAT Directive
18
will make online market places,
platforms and portals "deemed suppliers" for the sales of goods facilitated through their
electronic interfaces. They will be deemed to have received and supplied those goods
themselves for a) distance sales of goods imported from third territories or third countries
not exceeding the value of EUR 150
19
and b) the B2C supplies of goods which are
11
See
:
https://www.ecommerce-europe.eu/app/uploads/2016/07/survey-barriers-to-growth-ecommerce-
europe-2015-1.pdf
12
See:https://ec.europa.eu/taxation_customs/business/vat/telecommunications-broadcasting-electronic-
services_en#current_rules
13
The Member State of identification will then redistribute the collected VAT to all the Member States of
consumption
14
The MOSS led to a collection of EUR 3 billion of VAT in 2015 and EUR 3.2 billion in 2016. 88% was
collected under the Union scheme. Source: Commission services
15
See:https://ec.europa.eu/taxation_customs/business/vat/digital-single-market-modernising-vat-cross-
border-ecommerce_en
16
Member States must apply a threshold of either EUR 35 000 or EUR 100 000, Article 34 of Directive
2006/112/EC: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:347:0001:0118:en:PDF
17
Article 23 of Council Directive 2009/132/EC of 19 October 2009 provides that goods of a total value not
exceeding EUR 10 shall be exempt on import. Member States may grant exemption for imported goods of
a total value of more than EUR 10, but not exceeding EUR 22 and can exclude goods imported on mail
order (including e-commerce channels). The exemption excludes excisable goods
18
New Article 14a of the VAT Directive as amended by Council Directive (EU) 2017/2455 of 5 December
2017 amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax
obligations for supplies of services and distance sales of goods, OJ L 348, 29.12.2017, p. 7
19
Above the value of EUR 150 a full customs declaration is required. The Import One Stop Shop system
can only be applied for goods sold to private consumers in the EU and being imported from third countries
6
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already in the EU (i.e. in fulfilment centers) by non-EU established taxable persons
facilitated through these platforms. This measure also represents a simplification for the
tax authorities of the Member States that will be able to collect the VAT due on certain
B2C supplies of goods and imports directly from a single taxable person (the deemed
supplier) and not from numerous suppliers not established in the EU. However, under
this provision, the tax authorities will not be able to detect or control fraudulent
transactions. Also under the deemed supplier provision Member States will have the
same need they currently have to check that all the transactions are declared, or correctly
declared.
The recently adopted measures are designed to reduce the administrative burdens,
facilitate compliance and making the VAT system more fraud proof by abolishing the
thresholds on distance sales and on the exemption for small consignments. While they
modernised the VAT system in order to make it easier for businesses trading cross-border
to comply with their obligations and for tax authorities to collect VAT, no adequate and
new administrative cooperation instruments had been introduced to address the
specificities of the e-commerce VAT fraud.
The consultation supporting this impact assessment, showed that the magnitude of the
problem is still unknown by some of the Member States because of the lack of data at
disposal of tax administrations
20
. However, recent fraud cases in the field of e-commerce
raised now the need to provide tax authorities with new tools addressing the specific
problem (see section 2).
1.2.
Administrative cooperation
As stressed by the experts of tax authorities and businesses in the framework of the EU
VAT Forum
21
, the traditional cooperation to combat VAT fraud is between tax
authorities and is based on records held by the businesses directly involved in the
transaction chain. In the cross-border B2C supplies, this information may not be directly
available and thus the "traditional" cooperation between tax authorities is not enough
22
.
In fact, the evaluation showed that the current administrative cooperation tools are used
to a very limited extent (only five Member States reported to have received spontaneous
information on e-commerce VAT fraud
23
and half of the respondent Member States
reported difficulties in receiving information on request from the other Member States on
e-commerce VAT fraud). The number of requests for information to other Member States
on e-commerce VAT fraud is still very low (in 2017 only 319 requests) compared to the
total number of requests for information processed by the Member States in the field of
VAT (in 2017 more than 45.000). The reason of these difficulties lies in the lack of third
party data, as pointed out by the experts of the e-commerce sub group of the VAT forum.
The Commission proposal recently agreed by the Council
24
amending Council
Regulation (EU) No 904/2010 as regards measures to strengthen administrative
up to a value of EUR 150. Therefore, the deeming provision is limited to importation of such goods when
their value remains under EUR 150.
20
See Annex 2, "Consultation synopsis report".
21
Commission Decision 2012/C 198/05 of 3 July 2012 setting up the EU VAT Forum, OJ C198 of 6 July
2012
22
Consolidated report on Cooperation between Member States and Businesses in the field of e-
Commerce/modern commerce, p. 5. See:
https://ec.europa.eu/taxation_customs/business/vat/vat-reports-
published_en
23
See Annex 3, "Evaluation of Regulation (EU) 904/2010 for cross-border Business to Consumer online
supplies"
24
http://www.consilium.europa.eu/media/35761/st10203-en18.pdf
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cooperation in the field of VAT
25
will provide for new tools on administrative
cooperation between tax administrations mainly addressed to fight the so-called
“carousel fraud” (carried out on business-to-business
B2B transactions), the fraud
involving the margin scheme applicable to second-hand cars and the fraud exploiting
specific customs regimes applicable to imports carried out by taxable persons (again on
B2B transactions). In addition, Eurofisc officials will be entitled to exchange relevant
information on VAT fraud cases with Europol and the European Anti-Fraud Office
(OLAF). However, the above proposal will not affect VAT fraud on cross-border B2C
transactions. The peculiarity of the B2C e-commerce schemes was mentioned in the
Commission VAT Action plan
26
.
In particular, the Commission pledged to address VAT
fraud in the electronic commerce sector by means of specific anti-fraud tools for tax
administrations, in cooperation with third parties that facilitate the B2C cross border
supplies of goods and services
27
. Therefore, this initiative is to be seen as complementary
to the above mentioned amendments to Regulation (EU) 904/2010 to strengthen
administrative cooperation in the field of VAT, by giving tax authorities the sources of
information they are currently unavailable to them, as pointed out by the experts of the e-
commerce sub group of the VAT forum.
1.3.
Enforcement
The detection of fraudsters established in a state different from the one of consumption is
only a first step for tax administrations. Making the fraudsters comply with VAT
obligations (i.e. VAT registration, VAT declaration and VAT payment) is a subsequent
step to be addressed through enforcement measures, which are not part of this impact
assessment and of the future proposal. Still, as a matter of consistency, it is worth
mentioning enforcement initiatives related to this anti-fraud initiative. When the remote
suppliers are established in the EU, the tax authorities of the EU Member States can use
the European mutual assistance framework
28
to notify documents and apply recovery
measures. However, when the remote suppliers are established outside the EU the
enforcement may be more difficult. Member States can activate international cooperation
under bilateral agreements or the Council of Europe/OECD multilateral Convention on
administrative cooperation on tax matters
29
. Nevertheless, even in this case, some
countries apply the reservation of the Convention excluding VAT (and other
consumption taxes) from its scope
30
.
This problem is internationally recognised and the OECD recommends strengthening the
international administrative cooperation on VAT or sales tax to address the challenges of
collecting VAT from non-resident suppliers, particularly in B2C trade
31
. A step forward
in this respect is the Agreement between the European Union and Norway in the field of
VAT administrative cooperation (concluded in June 2018
32
) that also includes specific
instruments for the recovery of VAT claims.
final
148 final, point 3.4
27
Point 6 of 20 measures to tackle the VAT gap, annex to the VAT Action plan
28
Council Directive 2010/24/EU of 16 March 2010 OJ L 84, 31.3.2010, p. 1.
29
See:http://www.oecd.org/ctp/exchange-of-tax-information/convention-on-mutual-administrative-
assistance-in-tax-matters.htm
30
See:
https://www.coe.int/en/web/conventions/search-on-treaties/-/conventions/treaty/127/declarations
31
2017 OECD’s International VAT/GST Guidelines and the BEPS Report on “Addressing the Tax
Challenges of the Digital Economy”, see:
http://www.oecd.org/tax/international-vat-gst-guidelines-
9789264271401-en.htm
26
COM(2016)
32
See:
25
COM(2017)706
http://dsms.consilium.europa.eu/952/Actions/Newsletter.aspx?messageid=22950&customerid=52749&pas
sword=enc_665135434B47373431325650_enc/
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The present initiative will give Member States the evidence to detect fraudsters in third
countries as a first step to activate international cooperation or to open an international
dialogue to reinforce administrative cooperation tools.
2.
2.1.
P
ROBLEM DEFINITION
E-commerce VAT fraud
VAT non-compliance can be essentially ascribed to two main categories of taxpayers:
suppliers (basically small and medium enterprises) not fulfilling VAT obligations
because of the complexity of the system and suppliers not fulfilling the VAT obligations
to intentionally gain illicit market advantages. Tax simplification policies can reduce the
type of non-compliance deriving from administrative burden avoidance, but cannot
address intentional non-compliance (fraud). While the initiatives described in point 1.1
addressed the first problem, this initiative addresses VAT fraud only.
In particular, the problem at stake refers to VAT fraud on cross-border suppliers to final
consumers (B2C). Also a taxable person can buy goods and services online from another
taxable person (B2B). However, in this case the tax administration of the Member State
of Consumption (MSC), where the VAT is to be paid, can in principle trace back the
transaction chain through the records held by the taxable person acquiring the goods and
services in its own jurisdiction, and subject to record-keeping obligations
33
. This is not
the case for cross-border B2C supplies where the consumer has no record-keeping
obligations. Furthermore, consumers, unlike taxable persons, do not recover the VAT
paid on their purchases. Therefore, in a B2C sale, the buyer has a clear economic
incentive to avoid the tax. Unscrupulous suppliers face the same incentive because
avoiding VAT will allow them to set prices lower and undercut the competition from
law-abiding businesses. Finally, it should be noted that VAT fraud on B2B transactions
(in particular Missing Traders and carousel fraud) is tackled already by the recently
adopted amendments to Regulation (EU) 904/2010 (see section 1.2).
When dealing with B2C cross-border supplies, the following VAT fraud patterns have
been identified (domestic transactions are out of scope):
The supplier might not register at all for VAT (non-registration);
The supplier might register but not declare or pay VAT (in total or partially);
The supplier might under-declare the value of the goods;
Upon importation, the supplier might mis-describe the good on the package (i.e.
as sample, gift…) or, under-declare
its value (for example, to profit from the
VAT exemption of packages under a value of 10/22 euros);
The supplier might submit his VAT declaration and pay VAT in the wrong
Member State (for example, to profit from a lower VAT rate).
The above-mentioned cases can apply to three types of cross-border B2C transactions:
Cross-border supplies of services in the cases where the destination principle is of
application (both intra-EU and from suppliers located outside the EU
34
);
Intra-EU distance sales of goods;
Imports of goods from non-EU countries.
Regulation (EU) No 904/2010 already provides Member States with specific tools to fight B2B
schemes, and new specific measures have been submitted for adoption to the Council. See Annex 10
34
In B2C supplies of services, the destination principle is not applied universally but depends on the nature
of the service. For example, for consultancy services or for transactions related to real estate the principle is
not applied. However, the destination principle is applied for example to the sale of telecommunication,
broadcasting and electronic services, which represent an important share of cross-border B2C flows.
33
Council
9
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Table 1: Main modalities of fraud on B2C cross-border transactions
No VAT
registration
Cross-border supplies
of services
Intra-EU distance
selling of goods
Imports of goods
from non-EU sellers
No VAT
declaration and
payment
Under-
declaration
Mis-
description of
the import
VAT declaration
in the wrong
place
E-commerce business models are multiple and keep evolving. However, they all have
something in common: goods and services can be ordered and paid online from the final
consumers to the suppliers and no physical presence of the seller is necessary in the
Member State of consumption (MSC). VAT e-commerce fraudsters exploit the Internet
and its facilities to get easily in contact with consumers abroad and sell services or goods
without fulfilling VAT obligations. This allows them to offer lower prices, gain illicit
market advantages and remain anonymous
vis-à-vis
the tax authorities. The contacts
between suppliers and potential clients are facilitated by online intermediaries such as
online market places, online auction sites or search engines that can aggregate the best
online suppliers by lower price per category of product, best rank by clients' feedback,
etc.
In the section below, examples of VAT fraud are presented to describe the risks posed to
VAT collection in e-commerce and the need to provide tax authorities with new tools to
detect these types of VAT fraud.
2.1.1. VAT fraud on cross-border supplies of services
TBE services supplied cross-border to final consumers are taxable in the Member State
of consumption. Businesses in or outside the EU can fulfil their VAT obligations on
cross-border sales of TBE services to European consumers either through the MOSS or
by registering, declaring and paying VAT in every MSC
35
.
However, various instances of VAT fraud have been reported: there are businesses
providing TBE services that do not register in the MSC nor identify in the MOSS and,
thus, do not declare and pay VAT on their supplies. There is evidence of this kind of
fraud in the markets for online television
36
and digital games
37
.
In the first case, websites advertise and offer TV programs to customers in the EU at
extremely low prices compared to the normal market price. The client has to order a
media box, connect it to the internet and set it to start watching the TV services under a
periodic subscription. The web shops often have domain addresses located in third
countries, while the real businesses behind them could be placed either inside or outside
the EU. The television content is easily delivered through the Internet Protocol
Television (IPTV) using the Internet, instead of being delivered through traditional
terrestrial, satellite signal and cable television formats. This fraud was documented by
EUROPOL and the European Union Intellectual Property Office
38
and by the Nordic
Content Protection (NCP) in the latest Report about illegal distribution and sales of
See section 1.1
The amount of illegal TV broadcasting in Latvia in 2015, source:
www.parlegalusaturu.lv
37
See Annex 2, Consultation synopsis report, section 3.1
38
EUROPOL and European Union Intellectual Property Office: 2017 Situation Report on Counterfeiting
and Piracy in the European Union available at
www.europol.europa.eu/publications-documents/2017-
situation-report-counterfeiting-and-piracy-in-european-union
36
35
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access to television broadcasts
39
. An annual estimated loss in sales of EUR 436 million
for IPTV distributers in Denmark, Finland and Sweden alone (having together less than
10% of the total IPTV EU market in terms of revenues)
40
, results in approximately EUR
103 million of potential VAT loss calculated using the standard rates.
Digital games associations have also reported VAT fraud. The mechanism is again very
simple: big actors in the European market established both inside and outside the EU,
without VAT identification (and without declaring or paying VAT), sell games in the
European market with lower prices than their legitimate counterparts
41
.
Both cases of fraud also raise copyright issues, which are not under the scope of this
impact assessment report.
2.1.2. VAT fraud on intra-EU distance sales of goods
When a European supplier sells goods to final consumers in other Member States, it
should register, declare and pay VAT in that Member State (MSC) when its annual
supplies in that MSC exceed a given thresholds
42
. If the threshold is not exceeded, the
place of supply remains in the Member State of the supplier. The distance selling
thresholds had been introduced to avoid small businesses supplying abroad to register in
each MSC for every supply and deal with different tax authorities, national legislations
and procedures (which represents a burden for these businesses).
Distance selling fraudsters exploit the internet to get easily in contact with clients in other
Member States and supply abroad avoiding VAT registration (and thus declaration and
payment) in the MSC even when the threshold is exceeded. In such a case, the VAT is
paid in the wrong place
–
the Member State of establishment (MSE), where, usually, the
VAT rate is lower. For example
43
, an Irish trader could make supplies of children clothes
to customers in Denmark charging the 0% rate applicable in Ireland. The corresponding
rate of VAT in Denmark is 25%.
The distance sales' fraudsters can also remain entirely in the black market by registering
(and thus declaring and paying VAT) neither in the MSE nor in the MSC.
There has been increasing evidence of the abuse of distance selling driven by e-
commerce that is of great concern for the Member States. The Finnish tax administration
alone, in 2016, assessed an amount of EUR 20 million of non-declared VAT by distances
sellers.
2.1.3. VAT fraud on imports of goods
VAT on imports must be paid applying the right VAT rate (depending on the category of
goods and on the Member State of importation) to the value of the goods. VAT fraud on
importation can be committed by:
Report 2017, Nordic Content Protection available at:
www.ncprotection.com/wp-
content/uploads/2017/03/Trend-Report-2017.pdf
40
See:
www.ofcom.org.uk/__data/assets/pdf_file/0027/95661/ICMR-2016-4.pdf
41
See
:
http://www.lemonde.fr/pixels/article/2018/03/22/jeu-video-la-contestation-sociale-s-
internationalise_5274955_4408996.html
42
Member States must apply a threshold of either EUR 35 000 or EUR 100 000, Article 34 of Directive
2006/112/EC:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:347:0001:0118:en:PDF
43
SWD(2016)379 final of 1.12.2016 Impact Assessment accompanying the document "Proposal for a
Council Directive, a Council Implementing Regulation and a Council Regulation on Modernising VAT for
cross-border B2C e-Commerce"
39
Trend
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under-declaring the value of the goods (to unduly benefit from either the small
consignment exemption
44
or just a lower amount of VAT);
mis-describing the import as a low-value sample
45
(to benefit from the exemption) or
pretending to make a C2C transaction (instead of B2C), thus avoiding the VAT on
importation.
Similarly to the previous examples, the order and the payment are made online and often
the VAT number of the supplier is displayed neither in the web shop nor on the import
and transport documents (or it does not exist) and the amount of VAT does not appear
under the total price. There is multiple documented evidence of such VAT fraud
46
.
2.2.
Size of the problem
VAT is a major source of tax revenue for the Member States
47
and contributes to the own
resources of the European Union. However, measuring the scale of the VAT loss on B2C
cross-border supplies is very challenging. Most tax authorities lack the tools and the
sources of information to quantify the evidence on the level of e-commerce VAT fraud.
However, they consider the level of non-compliance to be significant
48
. In the targeted
consultation, only three tax authorities
49
provided rough estimates on the VAT loss
splitting in B2C intra-EU supplies of goods, B2C intra-EU supplies of services and
imports of goods in 2015, 2016 and 2017.
Table 2: Tax administrations' estimates of annual VAT losses, by type, EUR million
Austria
Finland
Croatia
Finland
Austria
B2C Intra-EU supplies of goods (2017)
B2C Intra-EU supplies of goods (2017)
B2C intra-EU supply of services
Imports (2017)
Imports (2017)
160
5
1
20
76
The scale of VAT losses undoubtedly differs substantially from one Member State to the
other because the rate of penetration of e-commerce is highly uneven. Supply side
statistics show that the market for e-commerce is up to seven times more developed in
certain Member States over others (see Figure 1); while demand-side statistics, if they
existed, would most probably show a more even picture
50
, it remains likely that the share
of VAT losses are quite highly concentrated.
23 of Council Directive 2009/132/EC of 19 October 2009 provides that goods of a total value not
exceeding EUR 10 shall be exempt on import. Member States may grant exemption for imported goods of
a total value of more than EUR 10, but not exceeding EUR 22 and can exclude goods imported on mail
order (including e-commerce channels). The exemption excludes excisable goods.
45
Council Directive 2009/132/EC of 19 October 2009 determining the scope of Article 143(b) and (c) of
Directive 2006/112/EC as regards exemption from value added tax on the final importation of certain
goods
46
Full evidence on Retailers Against VAT Abuse Schemes (RAVAS) and VATfraud.org.
47
See:
http://ec.europa.eu/eurostat/statistics-explained/index.php/Tax_revenue_statistics
48
Deloitte study on VAT Aspects of cross-border e-commerce - Options for modernisation, Lot 1, p. 62
49
See Annex 2, Consultation synopsis report, section 3.2
50
The share of individuals having used internet for purchases in the last year is somewhat less polarised:
the lowest value, for Romania, is 26%, the highest is for UK at 86%. However, this represents the share of
the population having made purchases online, and not the share of turnover, which is the relevant metric to
assess potential VAT losses.
44
Article
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Figure 1: Turnover from B2C and B2BG (Businesses and Governments) web sales,
percentage share on total, non-financial enterprises, EU-28, 2017
Source: Eurostat
Statistics on the proportion of e-commerce sales in the turnover of EU businesses show,
as of 2017, for the EU28, 7% of overall turnover are constituted of web sales (up from
4% five years earlier), and that this proportion increases along with the size of the
business (from 4% for enterprises between 10 and 49 employees to 9% for large
enterprises). The B2C portion of web sales is 41%, equivalent to 3% of turnover for EU
businesses as a whole. Within this general picture, however, there is a fairly strong
differentiation in the level of development of web sales depending on the Member States.
The penetration rate of web sales is not merely a function of GDP per capita, but depends
on a host of idiosyncratic factors; for example, in Austria the rate is less than one third of
Lithuania's. The diffusion of e-commerce also differs significantly by economic sector.
The highest proportion of e-commerce is found in accommodation and transport, on
account of the popularity of web sales for travel services, whereas e-commerce
understandably accounts for only a negligible share of turnover in construction (see
Figure 2)
51.
Figure 2: Sectoral distribution of e-commerce, 2017
Source: Eurostat
Estimates of VAT loss on imports and B2C intra-EU supplies of goods at EU level have
been made in the framework of the Commission proposal on "modernising VAT for
cross-border B2C e-Commerce": EU Member States are estimated conservatively to be
losing between EUR 2.6 and 3.8 billion annually in missing VAT on B2C cross-border
supplies of goods (intra-EU and imports)
52
. In addition, the incomplete levying of VAT
on postal shipments into the EU is estimated to cause a loss the Member States' income
Note that EDI-type sales relate to B2B e-commerce. Web sales in contrast can refer both to B2B and to
B2C.
52
Deloitte study on VAT Aspects of cross-border e-commerce - Options for modernisation, Lot 1, p. 65
51
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of up to EUR 1.05 billion per year
53
. The sellers that do not fulfil the VAT obligations
gain a market advantage over the legitimate businesses. The impact on businesses has
been estimated for the UK. HMRC’s
estimate of the extent of online VAT fraud for
imported goods of £1 billion to £1.5 billion corresponds to £6 billion to £9 billion in lost
gross sales revenue for VAT‑compliant companies in 2015‑16
54
. Applying the same
methodology, the VAT loss estimation at EU level would result in EUR 13 to 19 billion
of net sales equivalent
55
to the detriment of legitimate businesses.
The loss to the Member States' and the Union's budget and the negative impact on
legitimate businesses' sales are bound to get worse with the steady growth of the e-
commerce.
In particular, the MOSS and its extension to all supplies of services and goods intra-EU
and from outside the EU (from 2021) are optional systems for compliant businesses. If
not accompanied by anti-fraud measures the fraudsters will have no "incentives" in
changing attitude and start complying. In other words the full success of the compliance
measures in the field of e-commerce also depends on the effectiveness of anti-fraud
measures to be developed in parallel.
Finally, it is important to note that VAT revenues are used by the Member States to
finance public services and infrastructures for their own citizens. Therefore, also the
European citizens are suffering from the VAT fraud. Wide concern about e-commerce
VAT fraud resulted also from the public consultation where up to 92% of the respondents
considered that the e-commerce VAT fraud is damaging public revenues, consumers and,
finally, compliant businesses.
SWD(2016)379 final of 1.12.2016 Impact Assessment accompanying the document "Proposal for a
Council Directive, a Council Implementing Regulation and a Council Regulation on Modernising VAT for
cross-border B2C e-Commerce", p. 14
54
Calculated as follows: £5 billion of sales excluding VAT would be needed to generate VAT, at 20%, of
£1 billion; these two figures added together equal £6 billion gross sales revenue. £7.5 billion of sales
excluding VAT would be needed to generate VAT, at 20%, of £1.5 billion; these two figures added
together equal £9 billion gross sales revenue.National Audit Office Investigation into overseas sellers
failing to charge VAT on online sales, p. 20
A similar estimation of £7.5 billion has been done by a UK retailers' association named RAVAS See:
http://www.vatfraud.org/blog/7500000000-in-lost-revenue-to-uk-companies/
55
Assuming that the EUR 2.6
–
3.8 of VAT loss is calculated at a standard rate of 20%, the equivalent net
sale would be EUR 13-19 billion
53
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2.3.
Problem tree
Figure 3: Problem tree
No fraudsters records in
2 level
the MSC
drivers
Anonymity of fraudsters
nd
Fragmented access to
PSPs data
Non adequate use of
administrative coop. tools
Massive volume of
information needed
Tax administration tools
and capacities
1
st
level
drivers
No physical presence
of the supplier
Relevant VAT Info held
by third parties
Problem
e-commerce
VAT Fraud
No VAT registration
No VAT declaration and payment
Under declaration
Misdescription of the import
VAT declared in the wrong place
Impact
Unfair competition
Businesses
VAT loss
Member States and EU
EU citizens
2.4.
What are the problem drivers?
2.4.1. No physical presence of the suppliers
No fraudsters' records in the MSC
E-commerce allows online-performed key functions common to all business models such
as bringing buyers and suppliers together (i.e. own online-shop, search engines, referrals,
third party marketplace); providing a safe environment to conduct transactions for buyers
and suppliers (i.e. own online-shop, trust facilitators, third party marketplace); processing
payments from buyers to suppliers, including payment service providers (PSPs) and
payment gateways (i.e. payment intermediators, on-platform payments, direct payments
through bank transfer, direct debit, cash); delivering products (goods or services) from
suppliers to buyers (i.e. delivery and fulfilment managed by marketplace, by third party
logistic organization, by own means).
The supplier can insource or outsource all these functions, or use a combination of
insourcing and outsourcing, but does not need a physical presence to get in contact with
the clients or to deliver its products to its clients. Therefore, in the MSC the records
needed to assess VAT liabilities might not be available or their quality/reliability may be
very poor (e.g. in case of importation of goods, an invoice is not mandatorily
accompanying the consignment).
Furthermore, in B2B transactions the reporting obligations for businesses claiming VAT
in the MSC allow tax administrations to reconstruct the transaction chain. This is not the
case for B2C sales, because the final consumer does not have similar record-keeping
obligations. Information on B2C supplies are available to MSCs' tax authorities only if
the supplier registers, declares and pays in those MSCs or through the MOSS portal. If
this is not the case, the MSC will lack VAT records or immediate information to collect
data for the control of VAT liabilities. The lack of VAT identification numbers and
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records also affects tax authorities’ possibility to carry out risk analysis, because they
may even be unaware of suppliers selling online in their own Member State.
Due to this poor quality of information available in the MSC, tax administrations have
limited means to (1) identify the sellers; (2) detect taxable supplies in their own
jurisdiction; (3) understand whether the remote sellers are taxable persons that should
pay VAT in the EU; and (4) assess VAT liabilities.
Anonymity of fraudsters
In e-commerce VAT fraud, where B2C cross-border transactions are at stake, the
internet, as demonstrated above, allows the supplier to hide its own identity behind a
domain name
56
. Even when a tax authority is aware of the existence of a given online
shop, the identity of the business behind it, its real location or its turnover in that Member
State remain unknown. It is important to note that the objective of the tax authorities is to
detect the fraudulent businesses hiding behind the online shops.
2.4.2. Relevant VAT information held by third parties
Intermediaries such as online marketplaces and PSPs are involved in the trade chain
without being a party in the sales contract between suppliers and buyers. In 2014, e-
retailers covered 30% of the total global market share. The three biggest firms (Amazon,
eBay and Alibaba) provided 65% of the global e-retailer sales and 94% of payments for
cross-border online purchases use electronic payment systems, credit or debit cards, or
prepaid cards
57.
Fragmented access to third party data
In 2016, the Commission services launched a survey with the tax administrations of the
Member States
58
on e-commerce VAT anti-fraud policies. The survey showed that only
less than half of the respondent Member States collect data from digital platforms (or
their branches) established in their own jurisdiction for VAT control purposes, while
around half of them replied that they collect VAT relevant data from payment
intermediaries
59
. However, the type of PSPs involved in the transmission of data to tax
authorities varies from Member State to Member State (e.g. credit card companies, banks
and financial institutions,
or others…). The format and the way data is collected also
differs (some Member State collect payment data only on specific cases of tax audits,
others all payment transactions on regular basis, etc…).
Moreover, even in the cases where structured forms of cooperation between tax
authorities and third parties have been established, there are emerging criticalities. In
fact, Member States do not always receive the information from payment intermediaries
and sometimes they get it with either significant delays or referring to a limited period.
Often third parties are not providing the information because they only have a branch in
the requesting Member State while the information requested is under another
jurisdiction. Finally, tax administrations' non-targeted requests to identify online sellers
(bulk requests) are problematic to be dealt with and are often not replied by third parties.
Conversely, internet platforms can help tax administrations when they receive targeted
requests on specific cases. For instance, eBay developed electronic systems that law
enforcement and tax authorities can use to make targeted requests referring to the eBay
domain name is a unique name that gives an identity on the internet. The first part of the domain name
is the name itself (e.g. 'thisisme2'). The second part of the domain name is the extension (the bit that comes
after the final dot
–
e.g..be, . .brussels, .com, .eu and many more.
57
International Post Corporation, e-Commerce logistic and delivery, eCom21 2016.
58
See 10.8 - Annex 8: Result of the TAXUD 2016 survey on e-commerce compliance strategies in the EU
59
See 10.2 - Annex 2: Consultation synopsis report, section 3.2
56
A
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platform
60
. However, as stressed in section 2.4.1. e-commerce VAT fraudsters are often
unknown and the tax authorities have difficulties in addressing targeted requests.
2.4.3. Tax administration tools and capacities
Non adequate use of administrative cooperation tools
When a given supplier, or the third party (i.e. online market place or PSPs) holding the
relevant information on that supplier, are established in another Member State, the
authorities of the MSC must ask the tax authority of that Member State to receive some
relevant information through the administrative cooperation instruments under
Regulation (EU) No. 904/2010. Where the fraudsters and their location are unknown,
identifying the Member States where to address a request for administrative cooperation
is a problem
per se.
Usually, the first need of a tax authority is to identify "potential" taxable persons
performing economic activities giving rise to VAT liabilities in its own jurisdiction. This
could result in bulk "identification requests" either to a third party (i.e. online market
place or PSPs) holding this information or to a tax authority of a country where the third
party is established.
However, Council Regulation (EU) No. 904/2010 lays down rules for cooperation
between competent authorities of the Member States, and not between competent
authorities and third parties. Furthermore, under that Regulation, a Member State cannot
be requested to transmit "bulk data" to a requesting Member State. Such a request would
be considered disproportionate under Article 54(1). Finally, under Article 54(2), Member
States cannot be required to provide information if the national legislation does not
authorise them to collect it. This limits the possibilities for Member States to request
third party data from other Member States. In fact, half of the respondent Member States
to the 2016 survey reported difficulties in receiving information from other Member
States on e-commerce B2C fraud. Still, a competent authority aware of any potential
breach to the VAT legislation in another Member State can send spontaneous
information. However, according to the 2016 survey only five Member States reported to
have received such spontaneous information from another tax administration under
Regulation (EU) No. 904/2010.
Massive volume of information
VAT is a consumption tax levied as a percentage of every single transaction. This makes
the tax administrations' task of controlling cross-border B2C supplies particularly
challenging in view of the volume of online purchases. In 2014 cross-border e-commerce
across the EU-28 was estimated at EUR 96.8 billion
61
(which represents 18% of the total
online spending in the EU-28). This corresponds to several billion cross-border
purchases
62
across Europe. Part of these cross-border transactions is declared to tax
authorities (i.e. through direct registration and declaration in the MSC or through the
LERS
–
Law Enforcement which is portal that allow to law enforcement and tax authorities to submit
targeted requests eRequest System, see:
https://lers.corp.ebay.com/AIP/portal/home.do
LEP Law Enforcement Portal which is a tool that allows law enforcement and tax authorities to obtain
targeted eBay user information without the need of submitting a data request, see:
https://lep.corp.ebay.com/leportal/lep/login.do
61
The majority of this spending comes from within the EU, with non-EU spending accounting for 28% of
cross-border e-Commerce.
Over 70% of the EU28’s cross-border
spending originates from sellers in other
EU Member States; about 30% originates from the rest of the world. Source: Deloitte 2015 "VAT Aspects
of cross-border e-commerce - Options for modernisation" Final report
–
Lot 1, page 16
62
The Payments Statistics Report published by European Central Bank shows 7 billion cross-border
payments in the EU in 2016. European Central Bank, Payments Statistics, see:
http://sdw.ecb.europa.eu/reports.do?node=1000004051
60
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MOSS for TBE services
63
). However, there are still instances of non-compliance or even
fraud in ecommerce transactions for which the tax authorities need additional sources of
information for their control activities in order to cross-check the VAT declarations,
verify the correct assessment of VAT liabilities and detect instances of non-declaration or
fraud. The huge volume of data at stake requires adequate administrative capacity in
terms of IT and analytical resources. However, only a very small minority of Member
States (6 positive answers out of 23 in the targeted consultation) indicated to have in
place a kind of risk analysis system of third party data to detect e-commerce VAT
fraud
64
.
2.4.4. Other Drivers influencing e-commerce VAT fraud (and addressed by other
initiatives)
The way goods are controlled at the moment they are introduced into the internal market
has an impact on VAT fraud. In particular, because of the huge amount of parcels
entering the internal market, the importations of parcels of law value (benefiting from the
VAT exemption for small consignments) and of the ones not exceeding the threshold of
EUR 150 (benefiting from the exemption from customs duties) results in significant lack
of control by customs and VAT authorities
65
. This issue has been addressed by another
legislative initiative described under section 5.1 of this report.
2.5.
How will the problem evolve?
In 2016, the e-commerce turnover increased by 15% in Europe and it was expected to
reach over EUR 600 billion in 2017
66
, suggesting that the penetration rate of e-commerce
will continue to climb. This could potentially generate an increasing impact of VAT
fraud in the coming years. On the one hand, consumers are becoming more and more
confident with buying online and businesses can benefit from a growing e-commerce
market. On the other hand, fraudsters benefit from the same opportunities if tax
administrations are not provided with the appropriate instruments to fight e-commerce
VAT fraud.
3.
W
HY SHOULD THE
EU
ACT
?
As demonstrated under section 2, the origin of the problem is wide-ranging: the
economic trend of consumers buying online from various jurisdiction, the VAT rules that
correctly seek taxation in the Member State of consumption, the huge and unstructured
amount of information available in an e-commerce framework, the fact that such
information is not directly available to tax administrations and the limitations of the
administrative cooperation framework.
The public consultation confirmed that the problem of VAT fraud in e-commerce
concerns all the EU Member States. The majority of the respondents (34 out of 52)
The number of transactions declared under the MOSS is not available. However, the number of
businesses registered to the MOSS as provided by Member States in the Union scheme totalled 12.899.
The number of registrants in the Non-Union scheme totalled 1 079. About 34.000 businesses supplying
TBE services are compliant outside the MOSS through direct registration while 36.000 are estimated to be
outside the system. Source Deloitte study on VAT Aspects of cross-border e-commerce - Options for
modernisation, Lot 3, p. 15
64
See 10.2 - Annex 2: Consultation synopsis report, section 3.2.
65
SWD(2016)379 final of 1.12.2016 Impact Assessment accompanying the document "Proposal for a
Council Directive, a Council Implementing Regulation and a Council Regulation on Modernising VAT for
cross-border B2C e-Commerce", p. 16.
Copenhagen economics "e-commerce imports into Europe: VAT and Customs treatment
See:
https://www.copenhageneconomics.com/publications/publication/e-commerce-imports-into-europe-
vat-and-customs-treatment
66
Ecommerce Europe European Ecommerce Report 2017
63
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considered that the problem should be addressed at both EU and Member States level
while many (14) were of the opinion that e-commerce VAT fraud should be addressed at
EU level only. In the targeted consultation, 17 tax authorities out of 23 confirmed that
Member States alone are not able to fight VAT fraud in e-commerce without using the
administrative cooperation.
The European Court of Auditors noted that e-commerce poses challenges to Member
States in terms of VAT collection especially because of a lack of information on B2C
cross-border supplies
67
.
The VAT Forum subgroup on e-commerce
68
recognised that whereas business
understands the data needs of tax authorities it should be made as easy as possible for
business to provide the relevant data (consistent data sets).
The administrative cooperation framework is laid down in Council Regulation (EU) No.
904/2010. The way Member State tax administrations cooperate to fight VAT fraud has
an impact on the internal market. Individual Member States cannot achieve the objective
of ensuring a sound anti-fraud system to protect the internal market from VAT fraud
unless they coordinate at EU level. It should be noted that Regulation (EU) 904/2010
also provide for a clear legal base indicating the sources of the information to be
exchange by Member States' tax authorities through the electronic systems (e.g. VAT
national
databases, MOSS information…)
69
. Therefore, any new form of exchange of
data should be regulated under the same Regulation. The VAT Directive lays down the
record keeping obligations of taxable persons and intermediaries
70
and, thus, any new
record keeping obligation for payment service providers should be foreseen under the
VAT Directive. Furthermore, implementing legislation will have to be adopted in order
to implement any new tool for administrative cooperation and to detail any new VAT
obligation. Also the 75% of European citizens think that the EU should intervene more
than at present in the fight against tax fraud, as indicated in the June 2016
Eurobarometer
71
.
The legal basis is Article 113 of the Treaty on the Functioning of the European Union.
4.
4.1.
4.2.
O
BJECTIVES
: W
HAT IS TO BE ACHIEVED
?
General objectives
to reduce the VAT loss for the Member States, thus contributing to the fiscal
consolidation within the EU;
to level the playing field for the legitimate businesses in the EU that suffer from
unfair competition by fraudsters.
Specific objectives
The general objectives of the initiative are
The specific objective is to reduce e-commerce VAT fraud by providing tax authorities
with efficient and effective instruments for detecting non-compliant businesses.
67
Tackling intra-Community VAT fraud: More action needed (Special Report from European Court of
Auditors, No 24 of 2015), See:
https://www.eca.europa.eu/Lists/ECADocuments/SR15_24/SR_VAT_FRAUD_EN.pdf
68
https://ec.europa.eu/taxation_customs/sites/taxation/files/d-1507602_report_consolidated_en.pdf
69
Article 17 of Council Regulation (EU) 904/2010 indicates
70
Council Directive 2006/112/EC Chapter XI
71
See: http://www.europarl.europa.eu/external/html/eurobarometer-062016/default_en.htm#taxfraud
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At this regard it should be noted that, as described in section 2, the problem at stake
refers to businesses with a real economic activity online, but defrauding VAT by not
registering for VAT purposes, not declaring and paying the due VAT. As such the fight
against these fraudsters is the specific objective of the initiative.
4.3.
4.4.
Operational objectives
To give EU Member States' tax administrations access to relevant third party data to
fight e-commerce VAT fraud
To improve the identification and targeting of potential e-commerce VAT fraud
To offer new or improved channels for EU Member States' tax authorities to access
and share third party VAT-related information
Consistency with other EU policies and with the Charter for fundamental
rights
The operational objectives are:
The objective of fighting tax fraud and evasion to help secure national and EU revenues
and prevent distortion of competition is amongst Commission priorities. The political
guidelines
72
of the present Commission called for stepping up the efforts to combat tax
evasion and tax fraud, including through improved administrative cooperation between
tax authorities.
The proposal under consideration will trigger new exchanges and processing of VAT-
related information and personal data. The General Data Protection Regulation (GDPR)
73
gives a wide definition of personal data including any information relating to an
identified or identifiable natural person that can be identified directly or indirectly. As
such the payment data listed above contains information falling under the scope of the
GDPR and the principles for the protection of personal as laid down in the Charter of
Fundamental Rights
74
. The GDPR fixes the principles and data subjects rights to be
respected while processing personal data. However, the Union may restrict by legislative
measures these principles and the rights of the data subject
–
as long as the restrictions
respect the principles of necessity and proportionality
–
to safeguard important objectives
of general public interest of the Union, such as economic and financial interest including
taxation
75
. The impact of the different options on protection of personal data will be
detailed under section 6 after the detailed description of the different options
76
.
See:
https://ec.europa.eu/commission/sites/beta-political/files/juncker-political-guidelines-
speech_en_0.pdf
73
Article 4(1) of Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April
2016 on the protection of natural persons with regard to the processing of personal data and on the free
movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (Text with
EEA relevance) OJ L 119, 4.5.2016, p. 1
74
Charter of Fundamental Rights of the European Union OJ C 326, 26.10.2012, p. 391
75
Article 23 GDPR
76
The assessment of the principles of necessity and proportionality has been done in line with the European
Data Protection Supervisor (EDPS) toolkit, which also takes into account the relevant jurisprudence of the
Court of Justice of the European Union (hereafter CJEU), the European Court of Human Rights (ECtHR),
and previous Opinions of the EDPS See:
https://edps.europa.eu/sites/edp/files/publication/17-06-
01_necessity_toolkit_final_en_0.pdf.
For
the
jurisprudence
see:
See:
https://www.echr.coe.int/Documents/FS_Data_ENG.pdf
72
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5.
W
HAT ARE THE AVAILABLE POLICY OPTIONS
?
As indicated in section 2.1 the VAT loss on e-commerce is also due to the complexity of
the VAT system. This was addressed by recent Commission's measures, shortly
described here below in section 5.1.
5.1.
5.1.1.
Measures with a positive impact on reducing the e-commerce VAT loss
introduced with the VAT e-commerce package)
Abolition of the distance sale thresholds and extension of the MOSS
The current distance sale thresholds represent a complication for the European businesses
that must be aware of the different rules in the different Member States they are
supplying to, and in the case where the threshold is exceeded they must deal with
different tax authorities and procedures
77
. As from 1 January 2021, the distance sale
threshold will be replaced by a new EUR 10.000 intra-EU cross-border threshold. The
EUR 10.000 threshold will refer to the total value, exclusive of VAT, of the supplies of
goods and TBE services to consumers in any Member State other than the Member State
of the supplier in the course of the preceding calendar year
78
. When the total annual intra-
EU cross-border turnover of a given supplier does not exceed the threshold the place of
supply remains in the Member State of the supplier. When the threshold is exceeded, the
destination principle will apply (and the supplier will have to register in the Member
States of consumption or in in the MOSS)
79
. The abolition of the thresholds together with
the extension of the MOSS to all cross-border supplies of goods and services will make
the VAT system easier to comply with. Still tax authorities need relevant information to
control the new EUR 10.000 thresholds, and detect non-registered distance sellers and
their real turnover in the MSC.
5.1.2.
Abolition of the small consignments exemption
As described in section 2.1.3 the small consignments exemption is abused to avoid the
payment of VAT on importations. As from 1 January 2021 the exemption on small
consignments will be abolished
80
. Still tax authorities will need tools to control the real
value of goods imported in case of under-declarations.
5.1.3.
Import One Stop Shop (IOSS)
Also imports of parcels of a value over the small consignments exemption but under the
EUR 150 customs threshold
81
raise concerns as regard the way VAT is declared and paid.
SWD(2016)379 final of 1.12.2016 Impact Assessment accompanying the document "Proposal for a
Council Directive, a Council Implementing Regulation and a Council Regulation on Modernising VAT for
cross-border B2C e-Commerce", p. 14
78
Article 59c of VAT Directive as amended by Council Directive (EU) 2017/2455 of 5 December 2017
amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax
obligations for supplies of services and distance sales of goods, OJ L 348, 29.12.2017, p. 7
79
Under the EUR 10.000 threshold the micro-businesses will benefit from a VAT exemption on their
domestic transactions (as long as permitted by the national legislation), and they will not have to register in
other Member States or in the MOSS starting from the first intra-EU sale
80
Article 3 Council directive (EU) 2017/2455 of December 2017 amending Directive 2006/112/EC and
Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and distance
sales of goods
81
Customs Duty is not due for goods, provided directly to the buyer when their value does not exceed 150
euros.
See
https://ec.europa.eu/taxation_customs/individuals/buying-goods-services-online-personal-
use/buying-goods/buying-goods-online-coming-from-a-noneu-union-country_en
77
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It was estimated that there were 43 million such imports in 2015. A study
82
found that
VAT is not paid on 65% of consignments from non-EU suppliers through the public
postal channels
83
. This is significant as it is estimated that 70% of transactions are sent
through public postal channels. As from 1 January 2021, an Import One Stop Shop
(IOSS) regime will be set up
84
. The IOSS will streamline the VAT registration,
declaration and payment process. Tax authorities will still have the need to detect the
suppliers remaining outside the VAT system and to crosscheck the correctness of the
information received through the VAT declarations from the taxpayers registered in the
VAT system.
5.1.4.
Deemed supplier
As described in section 1.1, under the deemed supplier provision
85
from 2021 online
market places, platforms and portals will have to fulfil the VAT declaration and payment
obligations for certain goods
86
sold through their intermediation by non-EU taxable
persons.
Also the “deemed supplier” provision has been introduced to streamline the
VAT declaration and payment process. The tax authorities will still need tools to control
the correctness of the VAT declarations and payments.
5.2.
Policy options
The options have been designed after consultation with Member States and businesses
representatives in the framework of the VAT forum subgroup on e-commerce
87
. It should
be noted that, as described in section 1 this initiative has to be seen as complementing the
wider VAT e-commerce compliance framework where the new legislation created new
VAT responsibilities for electronic interfaces such as internet marketplaces and platforms
(under the deemed supplier provision). In addition to the baseline, the proposed options
seek the solution to the problem described in section 2 in a better cooperation between
tax authorities and PSPs. In fact, the payment is the consideration of any purchase of
goods and services. In the last years more than 90% of online purchases by European
customers went through credit transfers
88
, direct debits
89
and card payments
90
, thus
E-Commerce Imports Into Europe: Vat And Customs Treatment (2016) See:
https://www.copenhageneconomics.com/publications/publication/e-commerce-imports-into-europe-vat-
and-customs-treatment
83
In the vast majority of cases, the customer is not charged VAT at the time of sale but rather the package
is assessed for VAT at importation in the territory of the European Union. The customer pays the VAT and
an administrative fee is charged to the customer by the transport operator i.e. the express courier or postal
operator at the point of delivery of the good to cover the administrative costs of clearing customs.
84
Under the new import One-Stop Shop (IOSS)
–
introduced by Council Directive (EU) 2017/2455 of 5
December 2017 unlike today VAT can be collected at the point of sale to EU customers by sellers or
market places. Non-EU sellers will then declare the VAT using the IOSS. These goods will then benefit
from a fast-track customs mechanism.
85
New Article 14a of the VAT Directive as amended by Council Directive (EU) 2017/2455 of 5 December
2017 amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax
obligations for supplies of services and distance sales of goods, OJ L 348, 29.12.2017, p. 7
86
In particular for a) distance sales of goods imported from third territories or third countries not
exceeding the value of EUR 150 and b) the B2C supplies of goods which are already in the EU (i.e. in
fulfilment centers) by non-EU established taxable persons facilitated through these platforms.
87
Commission Decision 2012/C 198/05 of 3 July 2012 setting up the EU VAT Forum, OJ C198 of 6 July
2012; See: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012D0706%2802%29
88
A credit transfer is a payment initiated by the payer. The payer sends a payment instruction to his/her
payment service provider (PSP), e.g. a bank. The payer’s PSP moves the funds to the payee’s PSP. This
can be carried out via several intermediaries.
89
A direct debit is a transfer initiated by the payee via his/her payment service provider. Direct debits are
often used for recurring payments, such as utility bills. They require a pre-authorisation
(or “mandate”)
82
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through an intermediary involved in the transaction
91
and this is a trend that will continue
in the future
92
.
As such third parties holding payment data can give a complete picture to tax authorities
to properly carry out their basic task of controlling the correct fulfilment of VAT
obligations on cross-border B2C supplies of goods and services. The experience of the
Member States that already cooperate with PSPs at national level showed how
cooperation with PSPs gives tangible results in fighting e-commerce VAT fraud
93
.
Furthermore, also some non-EU countries are using payment service data as a tool for
detecting non-compliant traders in combination with simplified collection regimes for
cross-border B2C supplies of goods (similar to the EU system)
94
.
It should be noted that
–
unlike in the VAT area
–
in other fields of taxation there is
already a European legislative framework regulating the cooperation between third
parties and tax authorities. The so-called Savings Directive
95
foresees that "payment
agents" must report to the competent authority of the Member State where they are
established a minimum amount of data as regard the beneficiary of the interest payments.
Furthermore, in the field of direct taxation
96
each Member State shall take the necessary
measures to require its Reporting Financial Institutions to transmit data on personal
income and financial account information. In both cases, after the acquisition of the
information, tax administrations exchange the relevant data between them.
Furthermore, money flow information is also considered important to fight against illicit
activities in other fields. Under the current Anti-Money Laundering Directive
97
obliged
entities must retain a series of documents and information for the purpose of preventing,
detecting and investigating possible money laundering and terrorist financing and are
required to report suspicious transactions and activities to Financial Investigations Units.
Following the Action Plan against terrorist financing (2016), the Commission is
analysing possible new EU systems to track the money flow
98
.
from the payer. Direct debits are also used for one-off payments. In this case, the payer authorises an
individual payment.
90
Debit cards allow the cardholder to charge purchases directly to his/her bank account. Credit cards
provide the cardholder with a certain credit limit, within which he/she can make purchases. The credit card
holder must pay off the balance in full by the end of a specified period. Alternatively, he/she can pay off
part of the balance. The remaining balance is taken as extended credit on which the cardholder must pay
interest.
91
E-shopper barometer 2017(DPDgroup). See:
https://www.dpd.com/be_en/business_customers/dpd_insights/e_shopper_barometer_2017
and
International Post Corporation, e-Commerce logistic and delivery, eCom21 2016
92
See:https://www.atkearney.com/documents/10192/1448080/Winning+the+Growth+Challenge+in+Paymen
ts.pdf/b9da93a5-9687-419e-b166-0b25daf585ff
p. 5
93
In particular the Finnish tax administrations was able to collect EUR16 million in 2016 based on
cooperation with payment service providers
94
See Annex 11 "Third countries using payment data as VAT control tool"
95
Council Directive (EU) 2015/2060 of 10 November 2015 repealing Directive 2003/48/EC on taxation of
savings income in the form of interest payments OJ L 301, 18.11.2015, p. 1
96
Council Directive 2014/107/EU of 9 December 2014 amending Directive 2011/16/EU as regards
mandatory automatic exchange of information in the field of taxation In force OJ L 359, 16.12.2014, p. 1
97
Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the
prevention of the use of the financial system for the purposes of money laundering or terrorist financing,
amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing
Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive
2006/70/EC (Text with EEA relevance) In force OJ L 141, 5.6.2015, p. 73
98
See: https://ec.europa.eu/home-affairs/what-we-do/policies/crisis-and-terrorism/tftp_en
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Payment data is also considered as a possible source of intelligence in Customs controls
for risk management purposes by the World Customs Organisation (WCO) under the
2018 "cross-border e-commerce framework of standards"
99
.
It is clear that these different policy objectives are regulated by different European legal
acts: illicit activities in different fields have different patterns that require different kind
of data or different methodologies for the data collection, analysis and exchange.
However, the legislative framework shortly described above shows a clear trend toward
cooperation between different public authorities and payment and financial institutions
with the aim of enhancing the fight against illicit activities.
5.2.1. Payment services and payment service providers
100
The payment data in the regulatory option will refer to data on credit transfers, direct
debits and cards payments because
–
as mentioned above
–
they represent almost the
totality of the purchases online. Therefore, the providers of that kind of payment services
will be in the scope of the regulatory option.
Virtual currencies (VCs), better known as crypto-currencies, are not within the present
initiative. There are two reasons for that. First, cryptocurrencies are at present very rarely
used for the type of transaction covered by this initiative and this does not seem likely to
change in the near future. Secondly, they are not regulated in the European legal
framework and in particular in the SEPA regulation and the Payment Service Directive 2.
It should be noted that, as also stressed in the 2016 European Banking Authority's (EBA)
opinion on virtual currencies
101
, VCs incur technology specific risks that makes them
distinct from conventional fiat currencies and do not make them
–
so far
–
a safe payment
method.
As such VCs are not part of this initiative. There is a potential, but not short-term, risk
that part of e-commerce VAT fraud could migrate to this kind of payment. The risk
appears limited at present because the volatility of cryptocurrencies exposes traders to a
higher exchange rate risk than the potential gains from VAT non-payment. However, the
regulatory option will foresee a periodic report of the Council which could eventually
bring to a review of the scope.
5.2.2. Payment data
Only the data referring to cross-border payments
102
that will allow tax authorities to
detect the e-commerce VAT fraud patterns listed under point 2.1 of this report will fall
within the scope of this initiative. In particular, payment data will refer to the
:
Identification of the supplier (payee)
103
: name,
address, any kind of tax number …
Total amount of the payment transaction
Date of the payment transaction
Country of origin of the payment
Of The Policy Commission Of The World Customs Organization On The Guiding Principles
For Cross-Border E-Commerce (Luxor, December 2017).
100
See Annex 9, Payment services framework in the EU
101
EBA-Op-2016-07, 11 August 2016
102
To have an idea of the volume of data, the Payments Statistics Report published by European Central
Bank shows 7 billion
cross-border payments
in the EU in 2016. European Central Bank, Payments
Statistics, see:
http://sdw.ecb.europa.eu/reports.do?node=1000004051
103
Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on
payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU
and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC (Text with EEA relevance) OJ L
337, 23.12.2015, p. 35, Article 4(8).
99
Resolution
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Description of the supply underlining the payment transaction (good or service)
–
if
available to the payment service provider
Unique identifier
104
for a payment transaction.
The data to be exchanged are the same under all options. This is because each of the
elements listed above is indispensable to make the records useable by tax authorities for
VAT anti-fraud purposes.
5.2.3. Structure of the policy options
This impact assessment takes into account
three alternative policy options:
1. In the baseline (status quo) scenario the tax authorities of the EU Member States
follow different approaches to fight against e-commerce VAT fraud and only some of
them collect data from online intermediaries;
2. Under the non-regulatory option the European Commission helps tax authorities to
develop their administrative capacity to fight e-commerce VAT fraud and publishes
guidelines in order to enhance the cooperation between tax authorities and payment
intermediaries;
3. The regulatory option implies the amending of the EU legal framework:
for the PSPs to keep records of VAT relevant payment data that will have to be
transmitted to the tax authorities (transmission of payment data from PSPs to tax
authorities);
for the tax authorities to collect payment data and exchange or share these data
with other Member States’ tax authorities (exchange of data);
for the tax authorities carry out a risk analysis to detect remote suppliers not
complying with VAT obligations (risk analysis);
In particular, the regulatory option will imply amending the VAT Directive as regards the
new record-keeping obligations of the PSPs, and Council Regulation (EU) 904/2010 as
regards the exchange of payment data between tax authorities.
Under the regulatory option, different alternative technical solutions are envisaged to
make tax authorities exchange or share the relevant payment data.
The regulatory option does not foresee a direct access of Member States' tax authorities
to PSPs' databases because it would not be proportionate to the objective of fighting e-
commerce VAT fraud. In fact, a direct access to PSPS' databases would disclose to tax
authorities data which are not strictly necessary for the purpose at stake, i.e. information
on the payers and on domestic payments. In fact it is important to note that the objective
of the initiative is to target fraudulent businesses selling online, and not the consumers
buying online. As such, payers data (i.e. data regarding the consumers paying for the
purchases of products online) are not included in the scope of this initiative that does not
aim at revealing the costumers behind an account.
Finally, payment data are needed to detect the fraudsters. However, currently not all
Member States have access to this kind of data. Few Member States collect payment data
systematically (i.e. every month or every quarter) while other only on specific cases, in
order to support the finding of an open VAT control. The initiative will make cross-
border payment data available to all Member States in the same way, with the same set of
information and with the same periodicity (quarter reporting obligations of PSPs). Only
the PSPs established in the Member States will be subject to the reporting obligations
foreseen in the regulatory options. It should be noted that, in a payment transaction there
usually are at least two payment intermediaries: one acting on behalf of the payer and one
acting on behalf of the payee. Both must have the information on the payer and payee in
order to execute the payment transaction. As described in section 2 the European
consumers are not directly involved in the fraud. Therefore, even when they buy from
104
Directive
(EU) 2015/2366, Article 4(33).
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suppliers established in third countries, they keep using their own preferred and trusted
payment methods and intermediary. Therefore, the payment service providers acting on
behalf of the European payers will provide tax authorities with the necessary information
to detect the recipient of the funds even when established outside the EU, and this
without disclosing the information on the customer.
The regulatory options do not foresee any additional obligation to the taxable persons
supplying goods and services (both online and in the "traditional"market).
Figure 4: Link between drivers, options (non-regulatory and regulatory) and
specific objective
Drivers
No records in Member
State of Consumption
Important data held by
third parties
Capacity of national tax
authorities
Non-reg. options
Guidelines
Operational Objectives
Access to third party
VAT relevant data
Identifying potential
fraud
New forms of Exchange
of Information
Investing on adm.
capacity
Drivers
No records in Member
State of Consumption
Important data held by
third parties
Capacity of national tax
authorities
Reg. options
Transmission of VAT
payment data
Exchange of data
Operational Objectives
Access to third party
VAT relevant data
Identifying potential
fraud
New forms of Exchange
of Information
Risk analysis
5.3.
What is the baseline from which options are assessed?
5.3.1. Policy option 1
–
Baseline scenario
As mentioned in section 2.4.2, the survey launched with tax authorities in 2016
105
showed that only one third of the Member States
106
collect data relevant for VAT
controls from online market places, platforms and portals established in their own
jurisdiction. The targeted consultation showed that twelve of the respondent Member
States
107
collect data from PSPs established in their own jurisdiction. Member States
have no statutory right to request payment data from taxpayers established abroad. Third
party data are also used in combination with other tools i.e. cooperation with the national
Financial Investigation Unit/Anti-Fraud Unit (15 Member States), national custom
authorities (15 Member States), post offices (10 Member States), transport and logistic
companies (8 Member States), online market places (9 Member States), use of internet
monitoring tools (15 Member States).
However, the Member States could not indicate whether this information was useful to
fight e-commerce VAT fraud. It should be noted that, as mentioned in section 5.2. of this
105
See Annex 8 "Result of the TAXUD 2016 survey on e-commerce compliance strategies in the EU"
106
Only seven Member States out of the 21 Member States that replied to the survey communicated to
have a sort of cooperation with online market places, platforms and portals.
107
See Annex 2 "Consultation synopsis report", section 3.2
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report, different policy objectives are regulated by different legal basis, and also the
information transmitted by financial institutions to different national authorities is
different depending on the purpose.
As regard international cooperation under the framework of Regulation (EU) 904/2010,
the Member States set up a new Working Field dealing with e-commerce in Eurofisc
108
.
However, also in Eurofisc the legal constraints mentioned in section 2.4.3 apply. Member
States make very little use of request for information and rarely send spontaneous
information in the field of e-commerce (see section 1.2). Finally, the recently adopted
amendments to Regulation (EU) 904/2010 (see section 1.2) do not address e-commerce.
The envisaged cooperation between Eurofisc and Europol and OLAF will refer to
specific information on VAT fraud cases related with criminal organisations.
Furthermore, three Member States
109
indicated that the tax administration has the legal
authority to
take down the domain name
110
of web-shops because of breaches to the
VAT legislation, independently or in collaboration with another agency (i.e. consumer
protection agency).
Finally, the VAT Directive
111
allows Member States to provide that a person other than
the person liable for the payment of VAT is to be held jointly and severally liable for
payment of VAT. Even though three Member States indicated to have general national
regulation that entails VAT responsibility for internet platforms under certain
circumstances, the 2016 survey showed that this opportunity is used to a limited extent.
Different from the Joint and Several liability is the "deemed supplier" provision
introduced by the new Article 14a of the VAT Directive that will enter into force as from
2021 (as described in Section 1.1 of this Report). Under the Joint and Several Liability a
third party is held responsible for the payment of VAT under certain conditions, i.e. if it
is involved in a fraud and the third party ‘knew or should have known" about the fraud.
On the contrary, under the "deemed supplier" provision the third party is directly
considered as a liable person because it is "deemed" to have received and supplied the
goods himself.
5.4.
Description of the policy options
5.4.1. Policy option 2 (non-regulatory): Investing in administrative capacity and
providing EU guideline + standard forms
This non-regulatory option would consist in strengthening cooperation among EU tax
authorities in the following ways:
Investing in administrative capacity
The Commission can help the Member States to invest in administrative capacity to
address e-commerce VAT fraud through the Fiscalis Programme
112
and Structural
108
Eurofisc is a network for the multilateral exchange of targeted information to combat VAT fraud. The
legal basis is in Chapter X of Council Regulation (EU) No 904/2010.
109
See Annex 8: Result of the 2016 TAXUD survey on é-commerce compliance strategies in the EU
110
A domain name is a unique name that you register for yourself, your company or organisation. Your
domain name gives you an identity on the internet and provides other people with an easy way of locating
you. A domain name is made up of a minimum of two parts, separated by a full-stop or dot. The first part
of the domain name is the name itself (e.g. 'thisisme2'). The second part of the domain name is the
extension (the bit that comes after the final dot). There are all sorts of extensions available: .be,
.vlaanderen, .brussels, .com, .eu and many more.
111
Council Directive 2006/112/EC Art. 205
112
See
:
https://ec.europa.eu/taxation_customs/fiscalis-programme_en
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Reform Support Programme SRSP
113
.
This is already the case in the framework of
Eurofisc where the Fiscalis Programme is used to finance Working Field 5 (WF5) on e-
commerce
114
.
Providing EU-level guidelines and (optional) forms for the Exchange of Information
(EoI)
The Commission, acting together with Member States and PSPs, could draft and publish
guidelines to collect data from PSPs. Tax administrations could use these guidelines to
ask the same set of data with a standard form. Such guidelines would however be
optional and non-binding for both tax authorities and businesses. An example already
exists in the field of the so-called Missing Traders fraud, where guidelines for
cooperation between tax administrations and businesses to fight the Missing Trader fraud
were drafted in 2016 by the VAT forum
115
and published in TAXUD website
116
.
Furthermore, the Commission, together with Member States could draft guidelines on
how to use VAT relevant data from PSPs in order to detect fraudsters.
5.4.2. Policy option 3 (Regulatory option): Collection and exchange of payment data
Unlike the previous option, this option would introduce binding provisions directed at
both PSPs and national tax authorities. This could be realised in different variants (sub-
options).
Both sub-options
work on the base of a “push” approach. The payment service providers
will transmit every quarter the information to the tax authorities under both cases. The
difference between the two sub-options is in the way Member States tax authorities will
have access to the data and the data available to tax authorities.
To make the regulatory option more proportional a threshold is foreseen. In order to
capture only the payments that are potentially linked to an economic activity (thus
excluding cross-border payments executed for private reasons) a threshold linked to the
number of cross-border payments received by a payee is foreseen: only when the total
amount of payments received by a given payee exceeds the threshold of 25 payments in a
3 months period, the payment service providers will have to keep the records available to
tax authorities on that payee. The threshold has been established taking into account an
average value of online shopping orders of EUR 95
117.
An annual hundred payment
transactions of that value will result in almost a total of EUR 10 000 which can already
give raise to VAT obligations in the Member States, and matches with the EUR 10 000
threshold on intra-EU supplies introduced by the VAT e-commerce Directive.
5.4.2.1. Sub-option 3.1: Distributed application
Phase I: Transmission of payment data to tax authorities
118
The PSPs will have to keep records of the data indicated in section 5.2.2. The retention
period of these records for the PSPs will be two years, which is a proportionate balance
between the necessary period for tax authorities to carry out controls and the obligation
113
See
:
https://ec.europa.eu/info/funding-tenders/funding-opportunities/funding-programmes/overview-
funding-programmes/structural-reform-support-programme-srsp_en
114
Eurofisc is a network where the competent officials of the Member States exchange data based on
national risk analysis. Eurofisc Working Field 5 established in 2017 deals with the e-commerce control
115
For more information on the VAT forum, see:
https://ec.europa.eu/taxation_customs/business/vat/eu-
vat-forum_en
116
See:
https://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/tax_cooperation/vat
_gap/2016-03_guide-on-adm-cooperation_en.pdf
117
https://www.statista.com/statistics/239247/global-online-shopping-order-values-by-device
118
See Annex 12 "Visual examples of the regulatory options".
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for PSPs to keep personal data. Then, every quarter
119
the PSPs will transmit that set of
VAT relevant data to the tax authority of the Member State where they are established
using a single EU format (to be defined with implementing measures). The VAT relevant
payment data will refer to all inbound and outbound payments (where either the payee or
the payer are located in the EU) in the previous reporting period (and exceeding the 25
payments per payee in a calendar quarter)
120
.
The VAT relevant payment data will be stored electronically by the tax authorities. The
retention period will be defined by the national legislations but no longer than ten years,
in lines with the general retention period obligation imposed to tax administrations under
Regulation (EU) 904/2010
121
.
Phase II: Administrative cooperation between Member States - Exchange of data
122
As mentioned above, the VAT relevant payment data will be stored electronically at
national level. The national databases will be connected through an electronic interface
and distributed system available to all the tax administrations (similar to the VIES
123
).
Only the Eurofisc officials of the other Member States will have access electronically to
the inbound and outbound payments from and to their own Member State. The Eurofisc
officials of one Member State will have to access relevant data available in another
Member State database logging a "search" in the system of the other Member State
through the electronic interface. This will work in a similar way like the "automated
access" currently regulated under Article 21 of Regulation (EU) 904/2010: the official
starting the search should already have some piece of information in order to launch the
research (i.e. an identification of a given taxpayer)
124
. Then the system will show the
result almost in real time. The result would be the payment transactions referring to a
given payee, in a given period. Eurofisc is a network composed of anti-fraud officials of
the Member States' tax administrations
125
for the multilateral exchange of information
resulting from national risk analysis. Therefore, limiting the access to the system only to
the Eurofisc officials will guarantee that the data can be used only for the detection of
119
Different reporting frequencies (daily, monthly, yearly) had been considered and discarded after
consultation with Member States and payment service providers. The majority of the Member States
indicated monthly, the PSPs quarterly. A monthly frequency implies administrative burdens to PSPs while
quarterly still allow Member States to carry out appropriate controls
120
A threshold of EUR 10.000 had been considered and discarded after the result of the targeted
consultation. Under the threshold, the PSPs would transmit the payment data only when all payments
received by a given payee exceed EUR 10.000. The threshold would be computed based on the payment
received by a given payee during the previous reporting period.
The purpose of the threshold would be to exclude from the exchange of information the payments of small
amounts that unlikely refer to a commercial activity. However, the this threshold as such would not be as
such decisive to define an economic activity and could be easily abused by fraudsters by using multiple
accounts to receive the payments. A threshold linked to the number of transactions has been considered
more effective.
121
Article 55(5)(b) of Regulation (EU) 904/2010 as amended by COM(2017)706 final adopted by the
Council on 22 June 2018
122
See Annex 12 "Visual examples of the regulatory options".
123
The VAT Information Exchange System foresee in Chapter V of Regulation (EU) 904/2010 and that
connect the national electronic systems of the Member States. The VIES makes available the information
collected on intra-EU supplies (B2B only) on the basis of VAT registrations and the recapitulative
statements submitted by taxpayers.
124
Automated access is different than automatic exchange of information. The automated access gives the
tax officials the possibility to search certain information in a database (Article 17 of Council Regulation
904/2010). Automatic exchange of information is the periodic exchange (on regular base e.g. monthly or
quarterly or yearly) of a predefined set of data between tax authorities (Article 13 and 14 of Council
Regulation (EU) 904/2010).
125
The legal base is in Chapter X of Council Regulation (EU) 904/2010 on administrative cooperation and
fighting fraud in the field of VAT.
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VAT fraud. Officials of the European Commission would have access to the system only
for maintenance and development purposes.
Phase III: Risk analysis for control purposes
The inbound payments will allow the detection of domestic sellers while the outbound
payments will allow the detection of remote sellers (established abroad). The system will
not aggregate all payment data of a given payee in all the Member States. Therefore, if in
one Member State there is relevant payment information referring to potential taxable
transactions in another Member States, these Member States will not be alerted
automatically by the system. In few words the risk analysis can only be carried out
nationally by the tax authorities following their own national procedures. Based on the
payment information retrieved from the system, the national Eurofisc officials will have
to activate their own national tax administration to crosscheck this information with other
sources of information, such as VAT, MOSS, customs’ declaration and eventually carry
out VAT controls.
5.4.2.2. Sub-option 3.2: Central storage
126
Phase I: Transmission of payment data to tax authorities
As for the sub-option 3.1. also under this sub-option the PSPs will have to keep records
of the data indicated in section 5.2.2., and the retention period of these records for the
PSPs will be two years. Then the transmission of the data from the PSPs to the tax
authorities will be like in sub-option 3.1. Like in the previous sub-option, the tax
authorities will store the payment data received in their own databases.
Phase II and III: Exchange of data and risk analysis for control purposes
The difference compared to sub-option 3.2 is in the way the tax authorities share amongst
them the payment data and on the risk analysis. Under this sub-option the tax authorities
will be required to upload the data received from PSPs in an EU central electronic
repository, to be developed and maintained by the European Commission. This data
repository will be available only to the EU Member States in the framework of Eurofisc.
Officials of the European Commission will have access to the system only for
maintenance and development purposes. The data will be retained in the central
repository for an interval of two years. Then they will be erased. The storage period in
the central repository is shorter compared to the ten years foreseen at national level for
tax authorities in order to reduce the volume of information to be stored in the central
repository.
The central repository will allow the “search” function (like sub-option
3.1) and will also
automatically aggregate data per payee. It means that the central system will aggregate
all payment data received by all payment service providers established in the EU
referring to single payees, will be able to recognise multiple records (from different
payment service providers) on the same payment transactions. Furthermore, based on
indicators chosen by the Eurofisc officials, can retrieve from the system transactions over
a given amount, or frequent multiple payment transactions per payee, or per country etc...
Finally the system will have a cleansing function: the system will recognise any
inconsistency or mistake in the format of the data and will "clean" it, learning also from
the past.
The software will work based on criteria for the selection of the payees established
jointly by the Eurofisc officials of the Member States. The central repository will be able
126
See Annex 12 "Visual examples of the regulatory options".
.
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to aggregate the data per payee based on the information available from all the Member
States. Under this sub-option the risk analysis will be carried out jointly by the Eurofisc
officials in the framework of the Eurofisc network. In this way they can obtain an EU
wide view of the VAT fraud schemes.
Finally, like in sub-option 3.1, based on the risk analysis the Eurofisc officials will have
to activate their own tax administration to crosscheck data with other national sources of
intelligence.
5.5.
Discarded option
5.5.1. VAT split payment
A split payment mechanism would change the regular VAT collection regime by
introducing on payments for taxable supplies a split between the VAT amount and the
taxable base (e.g. by two separate payments for every taxable transaction). It deviates
from the current EU VAT regime, which mainly relies on vendor-based collection of
VAT and on periodical reporting and payment of VAT by registered traders. The split
payment is regarded as a measure that can combat VAT fraud and non-compliance by
removing the opportunity of suppliers to charge VAT and disappear without declaring or
paying it to the tax authority. A Deloitte study
127
measured the impact of the general
application of the split payment in the EU on the current VAT regime including on B2C
supplies. The study concluded that the benefit in terms of reductions in the VAT Gap are
not unequivocally higher than the costs imposed on businesses and public bodies (both
administrative costs and cash flow impacts), and are even outweighed when applied to
the entire volume of transactions. Furthermore, in order to apply the split payment of the
VAT amount the payment service provider should be aware of very detailed and specific
information in order to determine exactly the VAT liability. The collection of this
information is considered technically highly challenging under the SEPA regulation and
the PSD2.
5.5.2. Direct access of Member States' tax authorities to Payment Service Providers'
databases
Another technical solution to give Member States the access to payment data would be
through a direct access of tax authorities to PSPs' databases. However, this solution is
considered disproportionate in terms of processing of personal data. In fact, not all
payment data are necessary for tax authorities to achieve the objective of fighting e-
commerce VAT fraud. In particular data on domestic payments would not help to detect
cross-border transactions. Finally the data on payers are disproportionate in terms of data
protection, because would disclose information on the consumers that are not necessary
for tax authorities. Therefore, this option has been discarded.
6.
W
HAT ARE THE IMPACTS OF THE POLICY OPTIONS
?
6.1.
Methodology
An evaluation of Council Regulation (EU) 904/2010 was undertaken with specific regard
to e-commerce VAT fraud. A public consultation and a targeted consultation with tax
authorities and business representatives were launched in the first half of 2018. The
outcome of the consultations, and in particular the answers and estimates provided by tax
authorities and business have been taken into account. The evaluation is annexed to this
report.
6.2.
Analysis of the impacts
Nature of the analysis and factors affecting it
127
See:
https://ec.europa.eu/taxation_customs/sites/taxation/files/split_payment_report2017_en.pdf
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It was not possible to carry out a quantification of the impacts of this initiative through a
CGE (computable general equilibrium) model simulation in the time available. The
analysis of the impacts will therefore be laid out essentially in qualitative terms. While
this is not optimal, it must be considered that the effective impact of this initiative, for
reasons that will be explained in detail later, will depend to a large extent on a) the scope
and pace of implementation by individual Member States of new control protocols b) the
quality, degree, and timing of administrative cooperation between Member States and, c)
the degree by which third country jurisdictions cooperate in enforcing EU VAT law.
Given that these three parameters are very hard to forecast, any quantification of the
impacts would at any rate be subject to a large error margin. The analysis mainly
addresses the economic impact of the options, administrative and compliance costs for
stakeholders, and the impact on the fundamental rights to protection of personal data.
Social and environmental impacts are shortly addressed: a more detail analysis of these
impacts was not possible due to the very technical nature of the options.
Key Assumptions
1.
Continued growth in e-commerce:
The trend towards an increasing volume of e-
commerce is expected to continue as more and more consumers familiarise with
purchasing over the internet. While the rate of growth of e-commerce is likely to
continue moderating as the sector matures
128
, there is general consensus that this
trend will continue. The growing concerns about the protection of personal data
are assumed not to change this outlook fundamentally; the indications from stock
markets, which are by their nature forward-looking, corroborate this
assumption
129
.
2.
Increasing adoption of payment control tools by national tax administrations:
At
national level, it is assumed that in the medium term more tax administrations
will seek to introduce payment control tools, on account of the successful
experience of countries like Norway, Australia, and several EU Member States
(see section 5.2). For the assessment of the impacts, it is also assumed that tax
administrations adopt the flanking measures needed to ensure the effectiveness of
the payment control tools; in particular, that they allocate sufficient staff to carry
out the checks on the suspect traders identified thanks to the new tools.
3.
Further reinforcement of cooperation between EU tax authorities:
The
effectiveness and quality of cooperation between EU tax administrations is
assumed to improve further because of multiple ongoing policy initiatives to
address VAT fraud and because of a more propitious political climate.
4.
Increased collaboration with third country tax authorities:
Finally, it is assumed
that third country tax administrations will increasingly collaborate with EU tax
authorities in the enforcement of VAT rules on B2C sales on EU territory. As
pointed out in the problem definition, currently some important players do not
cooperate with the EU in enforcing VAT payments on B2C businesses on account
of exclusions stipulated in the OECD framework. However, the OECD is very
active with the BEPS initiative in order to improve international cooperation also
128
Source Ecommerce Europe Report 2017
129
From 1.1.2014 to 31.10.2017, the return on Amazon stock was +262%, compared to a 44% loss for
traditional retailers. The general SP500 index returned +28%. The gap between Amazon and traditional
retailers continued to grow in 2017 (see http://uk.businessinsider.com/amazon-stock-price-retail-
apocalypse-2017-11?r=US&IR=T). The same general trend is expected in the EU, where the share of
enterprises selling online has grown from 13% to 18% in the five years to 2016, and worldwide.
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in the field of consumption taxes
130
. Furthermore, China has recently introduced a
new VAT system
131
following the OECD guidelines: it is reasonable to expect
further steps also in the field of international cooperation (jurisdictions with
similar consumption tax systems based on the destination principles tend to
cooperate for the assessment of VAT liabilities). Overall, it is assumed here that,
as the policy options outlined in this initiative lead to a greater awareness of the e-
commerce VAT fraud and to identification of the fraudsters located in third-
country, changes will be made to the collaboration framework that lead to
significantly greater pressure on dishonest businesses also in third countries.
Assumptions 1 to 3 are deemed to be fairly straightforward and it seems difficult at
present to imagine any markedly different scenario, so that they will not be further
discussed. For assumption 4, given that it depends on the actions and policy of third
countries, we present
–
alongside our central scenario
–
an alternative 'non-cooperation
scenario' when discussing the impacts on fraud and on trade distortion
132
.
6.2.1. Impact on VAT fraud
General considerations
The judgement that payment data availability represents a quantum leap in the
effectiveness of the fight against e-commerce VAT fraud is not merely a prospective
opinion but is borne out of an understanding of the antifraud controls in current
administrative practice. Already now, as outlined in the problem definition, the EU
administrative cooperation framework allows tax administrations to retrieve information
about businesses operating from other EU jurisdictions, if any wrongdoing is suspected.
Information and transactions data can be sought not only from the tax administrations of
other Member States, but
–
in some case
–
even from payment intermediaries themselves.
However, for legal reasons related to data protection and due process, such information is
normally available only on the basis of a
targeted
and
duly motivated
request, while a
general 'screening' data request would be immediately refused. In other words, once a tax
administration has identified a trader as suspect, existing tools can be quite effective in
enforcing the VAT (at least in the case of an EU-based suppliers).
However, the problem which existing cooperation agreements do not allow is how to
effectively identify suspect businesses in the first place. Existing systems rely mainly on
checking parcels or on follow-up work done on regular VAT audits. This approach could
suffice when the volumes of cross-border B2C sales was limited. However, the
exponential growth in e-commerce implies that a system based on controlling parcels
would require a very high amount of random checks to provide an effective deterrent to
fraudsters. Looking just at small consignments originating from outside the EU, their
number was estimated at 115 million already in 2013
133
, implying that even checking just
one percent of packages would require opening more than a million parcels every year.
This would require a disproportionate use of human resources.
Given that the control of parcels can only identify a tiny fraction of non-compliant
operators, an unscrupulous business can operate at a significant scale with little risk of
being discovered by the tax administration of the country of destination of the parcels.
See:
http://www.oecd.org/tax/consumption/oecd-delivers-implementation-guidance-for-collection-of-
value-added-taxes-on-cross-border-sales.htm
131
See:
https://www.oecd.org/tax/consumption/business-vat-tax-reform-china.pdf
132
We will not discuss the impacts of the non-cooperation scenario on other variables (eg on compliance
costs) as they are either not markedly different from the central scenario or straightforward.
133
See Table 2 on page 35 in
Assessment of the application and impact of the VAT exemption for
importation of small consignments,
study prepared for the European Commission, EY
–
May 2015 ,
available at https://ec.europa.eu/taxation_customs/sites/taxation/files/docs/body/lvcr-study.pdf
130
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Under these circumstances, the main hope for identifying a non-compliant business rests
on VAT audits done for other reasons
–
which can take very long or may never take
place. In contrast, the availability of data on payments allows tax administrations to
identify which businesses engage in B2C e-commerce and double-check if they are VAT
compliant, using IT tools. This streamlines and facilitates enormously the detection of
potential fraudsters.
The crucial role of payment data availability in addressing fraud is confirmed by the fact
that more and more tax administrations are adopting this approach. At present, twelve tax
administrations already cooperate with PSPs to collect payment data or have put in place
payment data monitoring.
The experience of the Finnish tax administration can provide some elements to assess
what can be the quantitative impact of introducing payments data to track down non-
compliant B2C sellers. In the three years from 2015-2017, the use of payments data was
key in the initiation of about 300 audits, with a growing trend. These audits allowed
assessing a total of over EUR 29 million. Data for 2016, the year where the amount
revealed by the audits was highest; indicate that around 90% of the audits referred to
distance sellers. That year, the VAT collected after the audits raised around EUR 16
million Euros. The Finnish tax administration thus gives us an example of why the use of
payment data was important in recovering amounts owned by taxpayers. Consequently,
payments data analysis is reported to be the key tool to tackle e-commerce VAT fraud.
In the targeted consultation, almost three times as many Member States answered that
new tools are needed to effectively address e-commerce fraud than those that considered
existing tools sufficient. Others, however, pointed out that an impact on fraud is expected
from the new measures introduced in the VAT Directive by the VAT e-commerce
package)
134
and that the impact of these should be seen before judging.
Comparison with the measures introduced with the VAT e-commerce package and the
regulatory option
135
Overall, the analysis conducted in the context of this Impact Assessment suggests that the
impact (in terms of fighting e-commerce VAT fraud) of the options envisaged under the
payments initiative on combating fraud would go well beyond the impact of the measures
introduced by the VAT e-commerce package and described in section 5.1, strengthening
it in significant ways. This assessment rests in particular on the following considerations:
The measures envisaged in the regulatory option cover a significantly larger scope
than the measures included in the VAT e-commerce package; in particular, as
described in section 5.1.4, while the deemed supplier provision covers only certain
internet platforms and only for certain supplies of goods, the regulatory options cover
all PSPs established in the EU which deal with more than 90% of online B2C
supplies of goods and services, making it very difficult to escape detection;
The measures introduced by the VAT e-commerce package are targeted to specific
transactions, i.e. the abolition of distance sales thresholds apply only to intra-EU
supplies, the IOSS and the abolition of small consignments exemption apply only to
imports, the deemed supplier provision applies only to supplies of goods). The
envisaged measures under the regulatory option (and partially option 2) will allow a
control to all cross-border supplies to final consumers.
The measures envisaged in the regulatory option (and partially option 2) will be more
effective, because they introduce additional elements: in particular, they lay the
134
See section 1.1 and section 5.1.
135
See Annex 13 " Comparison amongst different initiatives in terms of fighting e-commerce VAT fraud"
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groundwork for addressing the identification problem (of not VAT registered
suppliers) , whereby national tax administrations may remain unaware of fraudulent
activity by an operator because of legal limitations to existing data exchange
procedures. Furthermore, payment data when cross-checked with VAT data will give
an important indication of whether VAT declarations are submitted and correct (in
terms of turnover declared). Moreover, mis-description
of imports (i.e. “gift” or “low-
value samples”) will be easily spotted by cross-checking
payment data. Finally, the
origin of the payments will support tax administrations in their task of checking
whether the VAT is declared in the right place of consumption (i.e. where the buyer
is located).
The measures introduced with the VAT e-commerce package will enter into force in
2021 and it is still premature to make a real assessment. However, as already
mentioned, they are mainly “simplification” rather than anti-fraud
initiatives,
although simplification
measures to some extent should also improve “compliance”.
On the other hand, payment data will help to detect VAT fraud (intentional non-
compliance) and also non-compliance (non-intentional) once crossed-matched with
VAT declarations.
In particular, Options 2 and all sub-options of Options 3 are expected to have a
significant to large impact on reducing
intra-EU fraud.
The impact is largest under
option 3.2, because the central repository, by making possible the pooling of EU-level
data, will allow to aggregate data over all EU Member States. This is essential for
controlling the respect of the EU wide VAT thresholds described in section 5.1.1.
Option 2 is assessed to be less effective than Options 3.1 and 3.2; while adoption of
guidelines may speed up adoption in some cases, as Member States with less
administrative capacity can rely on the guidelines instead of developing their analysis
ex
nihilo,
experience in the taxation domain shows that guideline writing can in itself be a
slow and complicated process. Furthermore, non-binding guidelines and the associated
non-coordinated adoption of payment data analysis do not merely likely slow down
adoption but also aggravate the risk of perverse incentives, exacerbating market
distortions (see next section).
As for e-commerce VAT fraud by
extra-EU suppliers,
under the assumptions laid out at
the beginning of this chapter, the policy options under consideration are assessed to
provide, in the medium term, a positive impact on fraud levels. The effectiveness of the
options will be, however, less on extra EU suppliers than on intra-EU suppliers because
within the EU, the existing administrative cooperation framework offers a series of tools
to recover unpaid VAT in another jurisdiction; whereas, in comparison, administrative
cooperation with non-EU tax authorities is in an embryonic state and does not yet
guarantee an effective and credible recovery of unpaid VAT, as explained in section 1.3.
Note however the discussion of the risks of trade diversion in section 6.2.2.
Risks stemming from lower than expected collaboration from third country jurisdictions
As outlined under assumption 4, it is assumed that availability of data on fraud will
trigger greater collaboration with third countries authorities, because of higher awareness
in EU countries and because third countries tax authorities, too have an interest in
maintaining a good working relationship with foreign tax authorities in general and with
the EU in particular. Given the importance of the EU on the world stage, it seems
unlikely that foreign tax authorities would find a non-collaboration strategy sustainable in
the long term, although it has to be recognised that in the short term, non-collaboration is
a possibility.
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The existing level of administrative cooperation with third countries should not be taken
as a given, because, if the payment data initiative is adopted, this will in itself give a
strong impetus to conclude new, stepped up cooperation agreements. This is because the
higher awareness provided by data and the transparency about transactions at risk of
VAT fraud will inevitably create a significant pressure for upgrading existing
cooperation frameworks. The situation will be markedly different from today’s status quo
in which there is very little certainty about the size and existence of fraudulent
transactions. As such, the level of cooperation with third countries should not be treated
as
exogenous
to the policy options, but is to a large extent endogenous (dependent) on
them.
Overall, we conclude that both policy options would have a positive impact on reducing
e-commerce VAT fraud; this effect would be significantly stronger for the two sub-
options of option 3; in addition, the impact on intra-EU transactions would be stronger
than on extra-EU transactions, but would be positive for both.
Non-cooperation by third-country jurisdiction would have two main negative impacts:
first, it would reduce the positive impact of the policy options on VAT revenue; second,
it could trigger trade diversion as businesses might concentrate their operations in non-
cooperative jurisdictions. The second impact appears to be the more serious of the two,
because about 80% of cross-border e-commerce sales originate from other EU countries,
whereas a shift in the market towards third-countries would create more lasting damage.
Despite the risk of non-cooperation outlined above, we expect for the medium/long term
a positive impact of the envisaged policy options is nevertheless expected even with
respect to traders located in countries where no cogent enforcement framework is put in
place. This assessment is based on three sets of arguments: Psychological and
reputational considerations; the risk of blocking of non-compliant
traders’ web pages by
tax authorities, and the possibility for tax authorities to introduce additional measures
targeting non-compliant non-EU businesses.
a) Psychological and reputational considerations encourage in particular larger traders
to be compliant
It is known from the literature on behavioural economics that economic agents tend to
comply with tax rules more than they would rationally be expected to do solely looking
at the risk of detection and the prospect of a financial penalty
136
. As such, the mere
introduction of a scheme to collect data on B2C at EU level seems likely to spur greater
compliance than is presently the case. Furthermore, while many smaller traders may not
be overly concerned by the reputational damage they might incur if charged with VAT
fraud, it seems likely that platforms operated by large, well-known multinational
businesses, which play an important role in the e-commerce market, would not want to
see their name associated with systematic VAT fraud, or, even worse, to be accused of
facilitating VAT fraud. Thus, pressure for voluntary compliance would certainly increase
once businesses become aware that authorities have ways to detect VAT fraud and non-
compliance, even in the absence of a cogent and operational enforcement mechanism.
b) Persistently non-compliant traders face a risk of blocking of web pages
A number of administrations have indicated
137
that they are legally empowered to block,
on their territory, the operation of web pages associated with wrongdoing, and that in the
case of persistent violations, this tool could be used to sanction non-compliant foreign
136
See for instance discussion in A. Leicester, P. Levell, I. Rasul, " Tax and benefit policy: insights from
behavioural economics", IFS Commentary C125, Institute for Fiscal Studies, London, 2012, p. 82 ff..
137
See section 5.3.1
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suppliers. While, faced with such a sanction, a foreign supplier might open another
website, it seems that this would inevitably result in the loss of some business as clients
would no longer be able to place their orders on the customary website and would have
to identify the new web page through a new search, or following a link to a new page
sent by the vendor, both of which processes are likely to result in some leakage.
The deterrent effect of such sanctions would probably vary considerably from one
supplier to the next, because of different demand price elasticities; the experience with
sites streaming audio-visual content suggest that blocking sites can have a limited effect
in cases of a very high price sensitivity and where the content is an e-service. However,
in most cases one can believe that businesses would view the potential disabling of web
pages as a significant problem and that this is likely to induce greater compliance. Basing
on payment data statistics, national authorities would also be able to roll out such
sanctions in a more effective manner. Therefore, overall one can conclude that the
combination of greatly enhanced detection thanks to availability of payments data,
coupled with the threat of blocking the supplier’s site by the tax authority is likely to
have an impact on reducing extra-EU e-commerce VAT fraud even in the absence of
strong cooperation mechanisms between the EU and the country of establishment of the
supplier.
c) Member States could introduce additional, specific measures to target non-compliant
third country businesses
In case of persistent non-collaboration by third country jurisdictions, Member States
could introduce specific measures. Member States could for example require, non-EU
businesses to appoint a local VAT representative with joint and several liability or
impose joint and several liability on online marketplaces for unpaid VAT on goods sold
through the website. These measures would be significantly more effective once it is
coupled with payments data information, than it is at present.
Impacts on fraud volumes, by option
Table 3
presents the expected impacts of the options on fraud volumes side by side to
facilitate comparison. Option 1 is not included because it is the status-quo option.
Option 2
This option consists of developing voluntary guidelines for Member states to facilitate
introduction of payment data tools and coordination between EU tax administrations.
This option is assessed to have a modestly positive impact, because it will speed up
adoption of payment data tools by tax administrations and will reduce its costs thanks to
better sharing of know-how; the impact will depend on how many Member States adopt
these tools. However, adoption will likely be gradual; thus, this option implies that the
EU will not be able to collectively exert pressure on third countries to enter into
cooperation agreements. As such, the impact of this option on non-EU traders would be
rather limited.
Option 3.1
Compared to option 2, this option would imply a simultaneous introduction of the tool
throughout the EU; the coordinated adoption of the tool would also allow better
cooperation between EU tax authorities. Both of these aspects would correspondingly
create a stronger deterrent effect for fraudsters. This option is thus expected to result in a
sizeable reduction of fraud levels and a greater reduction of fraud than under Option 2.
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As for non-EU fraudsters, the impact would be less strong owing to the fact that
administrative cooperation agreements with third countries are now at an incipient stage,
compared to the EU. However, availability of data from all EU Member States would
facilitate collective action to improve administrative cooperation agreements with third
countries. As such, this option is expected to result in a perceptible decrease of fraud over
the medium to long-term in our central scenario. In the alternative non-cooperation
scenario, where no effective agreements with third countries are struck, the expected
impact would be a limited reduction in extra-EU fraud levels. In theory, fraud levels
could even increase in case of strong trade diversion (see also next section) but this
would require a rather implausible set of assumptions (high demand and supply price
elasticities, absence of reputational effects, ineffectiveness of countervailing measures by
Member States, on top of the non-cooperation hypothesis which is in itself not a likely
outcome).
Option 3.2
This option has the strongest effect on fraud levels as its centralised nature fosters
cooperation more effectively and makes data analysis more efficient because of easier
data pooling. The impact on extra-EU fraud is similar to that of option 3.1, with a slightly
stronger effectiveness compared to option 3.1 because of easier cooperation (under the
central scenario).
Table 3 Fraud levels: net impacts over baseline, by option
Scenario
Location
traders
of
Option 1
(status quo)
Baseline
VAT
fraud
volumes
increase. From
2021, impact
of the VAT e-
commerce
package
measures may
reduce growth
of VAT loss
volume
+
Limited
reduction
in
VAT fraud in
line with speed
of adoption
Option 2
Voluntary
guidelines
Option 3.1
Distributed
application
++
Coordinated
adoption will
speed
up
update
and
allow
better
cooperation
between
tax
authorities
Option 3.2
Central
storage
+++
Better suited
than 3.1 to
monitor
threshold;
fosters
cooperation
more
effectively than
3.1; better and
wider process
of data and
central
risk
analysis
++
Similar impact
as 3.1, but
greater
transparency
and
cooperation
expected
to
result
in
stronger effects
Central
scenario
EU traders
Non-EU
traders
VAT
fraud
volumes
increase. From
2021, impact
of the VAT e-
commerce
package
measures may
reduce growth
of VAT loss
volume
0/+
Negligible to
limited:
a
patchwork-like
adoption will
limit
coordinated
action vs. third
countries
+/++
While
enforcement
will depend on
third country
cooperation,
increased
detection
expected
to
result
in
positive impact
through
spontaneous
compliance
and
by
stimulating
adoption
of
international
38
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EU traders
Non-
cooperation
scenario
as above
0/-
Under
non-
cooperation,
there might be
a tendency for
fraudsters
to
concentrate in
Member States
with a low
effectiveness
of controls
agreements
+/++
Given
EU
institutional
setup, payment
data
availability
would have a
positive impact
even
under
sub-optimal
cooperation
?
There might be
increases
in
fraud in non-
cooperating
jurisdictions;
nevertheless,
fraud
may
decline
at
larger traders
due
to
reputational
concerns and
flanking
measures. Final
effect uncertain
+/++
Given
EU
institutional
setup, payment
data
availability
would have a
positive impact
even
under
sub-optimal
cooperation
?
There might be
increases
in
fraud in non-
cooperating
jurisdictions;
nevertheless,
fraud
may
decline
at
larger traders
due
to
reputational
concerns and
flanking
measures. Final
effect uncertain
Non-EU
traders
as above
0
Lack
of
collective EU
action
will
limit incentives
for
third
countries
to
cooperate
Legend: 0: negligible impact; + (-): limited positive (negative) impact; ++ (++): sizeable positive (negative) impact;
+++ (---) strong positive (negative) impact
6.2.2. Impact on distortion of competition
The level of distortion of competition is in direct relation to the level of e-commerce
VAT fraud: the greater the VAT fraud, the greater also the distortion of competition. As
such, we can expect the following main trends:
Under the
no-policy change option
(Option 1), distortion would increase following
the expected higher volumes of e-commerce. There is even some likelihood that VAT
fraud levels increase more than proportionately as businesses gain experience with e-
commerce and conclude that existing instruments to fight fraud are inefficient and
through the typical learning activity by fraudsters. The impact of this would be
uneven across sectors; for example, e-commerce fraud is likely to be more prevalent
amongst vendors of price-sensitive, commoditised goods. It is also to be expected
that extra-EU fraud will grow more than proportionately to intra-EU fraud because
the stronger existing cooperation between EU tax authorities has a deterrent effect.
However, the entry into force in 2021 of the deemed supplier provision
138
could
result, in a number of additional impacts. It should be noted that the provision affects
only e-commerce platforms. While the provision in itself could lead to a reduction of
the rate of growth of e-commerce fraud, unscrupulous businesses could decide to
operate outside of e-commerce platforms affected by the deemed supplier provision.
138
For the deemed supplier see section 1.1 and section 5.3.1. There is no certainty yet on the operational
implications and on the impact of art. 14a as this was introduced in the directive during negotiations in the
Council and as a result was not subjected to an impact assessment. Furthermore, the implementing
provisions are only now being developed.
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The fact that the deemed supplier provision applies only to part of the market, i.e. e-
commerce platforms, create a potential for distortion, as unscrupulous vendors might
move out of regulated platforms to continue avoiding VAT. It is difficult to assess, as
things now stand, how strong the distortionary impact of this partial coverage of the
market could be, because implementing provisions are only now being drawn up and no
impact assessment was carried out. It might be limited initially, given the important role
of platforms in e-commerce; platforms are important for generating trust among
consumers, which is a key prerequisite for e-commerce. However, as time goes on, it
cannot be excluded that the impact could grow to be significant, as a roughly 20%
potential for price differences is not negligible, particularly for certain commoditised
types of goods for which the price elasticity of demand is high.
Overall, under our assumptions, the impact on market distortion would be positive and
will mirror the projected reduction in intra-EU and extra-EU fraud determined by option
2 and particularly option 3. An important assumption in this respect is that the
introduction of payment data monitoring is followed by EU initiatives to strengthen
cooperation with tax authorities in non-EU jurisdictions (assumption 4 above); if no
initiatives in this regard are adopted, the risk of trade diversion increases significantly
(see discussion in next section)
Risks
As discussed in the previous section, the main risk would be either that business is
diverted to websites operated directly by suppliers outside the EU, or that entire
platforms are set up out of the EU and operate in such a way as to escape cooperation
with EU tax authorities. The reasons why this risk, although recognised, is not
considered the central (i.e. most likely) scenario are listed in section 6.2.1. The risk of
trade diversion is higher under the non-cooperation scenario.
Within the EU, trade distortion should decrease, under our assumptions, as the more
effective control allowed by payments data monitoring shrinks the areas in which
fraudsters can operate. In this context it should however be mentioned that an
uncoordinated approach to use of payments data within the EU could increase the
potential for distortion by magnifying perverse incentives; this is because the more
numerous are countries effectively fighting e-commerce VAT fraud, the greater
become the benefits for fraudsters installed in non-cooperative jurisdictions. This is
why the effectiveness of the options involving greater coordination, viz. the two sub-
options under option 3, is greater, as it counteracts the risk of administrative inertia.
This however also raises a potential risk that some jurisdictions do not follow the
‘loyal cooperation’ rule stipulated under the EU treaties but remain relatively inert in
hopes of attracting B2C business to their country. In that case, which does not
represent the central assumption in the analysis, obviously, fraud might concentrate in
some jurisdictions, reducing the positive impact from the measures taken. Overall it
seems unlikely however that this phenomenon reaches systemic proportions, given
the reputational costs of such a strategy and the current societal low tolerance for
VAT fraud.
The same diversion risk affects also extra-EU trade, particularly in the non-
cooperation scenario. Traders might concentrate their operations in jurisdictions
where there is no, or limited, cooperation with EU tax authorities in recovering due
VAT. As mentioned in the section on VAT fraud, even in the absence of
administrative cooperation, factors such as reputational concerns or the threat of
website blockage work to counteract wilful fraud, once authorities have detected non-
compliance. Nevertheless, the risk that for certain market segments, trade diversion
out of the EU increases cannot be excluded. The higher level of this risk for extra-EU
jurisdictions explains why the effectiveness of the proposed measures is rated higher
40
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for intra-EU e-commerce. Finally, a strong increase of trade diversion, particularly in
a non-cooperative scenario, could also jeopardise the attainment of the objective of
reducing overall VAT fraud.
Distortion of competition: net impacts over baseline, by option,
Scenario
Location
traders
of
Option 1 (status
quo)
Baseline
Market distortion
to increase in line
with VAT fraud
volumes
From
2021,
deemed
supplier
provisions
may
exacerbate risk of
diversion
Market distortion
to increase in line
with VAT fraud
volumes
From
2021,
deemed
supplier
provisions
may
exacerbate risk of
diversion
Aggressive
enforcement
of
intra-EU
provisions
may
exacerbate risk of
diversion
No big difference
from
central
scenario
given
limited scope of
current cooperation
agreements
with
third countries
Option 2
Voluntary
guidelines
0/-
Different levels of
adoption and the
resulting different
intensity
of
combat
against
VAT fraud could
increase perverse
localisation
incentives
0/+
Limited
Stepped-up
enforcement
in
only some EU
countries
will
result in a limited
(under
the
assumption
of
cooperative
behaviour)
or
negligible
reduction of trade
distortions vs non-
EU countries
-
In
a
non-
cooperation
scenario, stepped-
up enforcement in
only some EU
countries
could
result in some
increase in trade
distortions
Option 3.1
Distributed
application
++
A more effective
detection
and
enforcement will
reduce intra-EU
market distortions
Option 3.2
Central storage
Central
scenario
Intra-EU
traders
+++
Similar to 3.1,
but
effect
enhanced
by
expected better
cooperation
Extra-EU
traders
+/++
Impact will be in
line with reduction
of VAT fraud on
extra-EU
transactions
++
Impact
stronger than in
3.1 as this
option
is
expected
to
foster
more
effective
coordination
vs.
third
countries
Non-
cooperation
scenario
Intra-EU
traders
+
Availability
of
payments data will
increase pressure
for
effective
tracking down of
non-compliant
firms.
+/++
Availability of
payments data
will increase
pressure
for
effective
tracking down
of
non-
compliant
firms.
Centralised
system
will
increase
effectiveness.
--/---
If no action is
taken to ensure
third-country
cooperation,
there is a risk
unscrupulous
traders
concentrate
their operations
in
extra-EU
jurisdictions.
Extra-EU
traders
No big difference
from
central
scenario
given
limited scope of
current cooperation
agreements
with
third countries
--
In
a
non-
cooperation
scenario, stepped-
up enforcement in
only some EU
countries
could
result in some
increase in trade
distortions
--/---
If no action is
taken to ensure
third-country
cooperation, there
is
a
risk
unscrupulous
traders concentrate
their operations in
extra-EU
jurisdictions.
Legend: 0: negligible impact; + (-): limited positive (negative) impact; ++ (++): sizeable positive (negative) impact;
+++ (---) strong positive (negative) impact
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6.2.3. Impact on administrative burden and compliance costs
Introducing new obligations to supply data (for PSPs) or exchange them (for tax
administrations) can, generally speaking, create costs for operators. These costs fall
under two categories: set-up and learning costs, which are incurred once only when the
new system is introduced, and running costs. These costs have been assessed relying
mainly on Commission IT cost assessments but also on input from Member States' tax
administrations and the replies of stakeholders to the targeted and public consultations.
a) One-off costs
The Commission services made a first assessment of the capital costs for setting up an IT
infrastructure for monitoring payments data for Member States and for the European
Commission (see Table 4). This estimate is based on an extrapolation of the costs from
the Customs Information System
139
rather than on a feasibility study and as such should
be considered a prudent, de maximis estimate (indeed, some Member States which have
set up a payments data monitoring system have indicated that they incurred a lower level
of costs).
In both option 3.1 and option 3.2 Member States will have to collect payment data in a
national database. Then, the distributed system consists in an electronic interface that will
connect the different national databases and will allow the officials of one Member State
to “interrogate” the systems of the other Member States. The centralised system will just
collect all payment data that will be transmitted by the Member States. In the distributed
system different functions will be decentralised and, thus, more expensive for Member
States to develop and maintain (i.e. the cleansing of the information received from
payment data), training, hardware, information dissemination costs. These costs will be
bare by the 28 Member States under the distributed application, while only once under
the central system.
Such capital costs ('CAPEX'), which can be seen as an approximation of the set-up costs,
vary between approximately EUR 221million and EUR 290 million for the EU as a
whole
–
i.e. between EUR 7.5 million (option 3.2) and EUR 10.3 million (option 3.1) per
Member State, and EUR 1.8 million (option 3.1) and EUR 11.8 million (option 3.2) for
the Commission. This expense is a one-off cost item that should be amortised over the
entire lifetime of the project, which, on the basis of prior experience, can be estimated at
10-15 years at a minimum. Thus, an amortisation rate in the environment of EUR 0.7
million per annum for each Member State is a balanced maximum estimate.
The Commission estimates also indicate that cost wise, option 3.2 is the best, while
option 3.1 is somewhat more expensive, although the difference is not very significant.
Option 2 is found to be less expensive than the others because it does not include the cost
of any individual system set up by the Member State; in reality however the comparison
should more properly be made with the cost of setting up a system on a national basis,
which seems likely to be more expensive as this approach would limit the gains from
economy of scale.
Table 4: Total Member State + EU Commission costs for payments data IT
infrastructure (EUR million; rounded)
CAPEX
139
CAPEX
CAPEX
OPEX
OPEX annual
OPEX annual
The Customs Information System is a central database managed by the Commission for Customs
controls.
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(Total, EU28 +
Commission)
(per
Member
State)
(Commission)
(5-year total,
EU28 +
Commission)
average (per
Member
State)
(Commission)
Option 2
Option 3.1
0.2
290
-
10.3
0.2
1.8
11.8
0.15
550
429
-
3.9
2.9
0.03
0.96
4.5
221
7.5
Option 3.2
Source: Commission services preliminary estimate
As for private businesses, the main impact would be on PSPs, who under the various
options would have to materially put the data at the disposal of the authorities. The
stakeholder consultation has however revealed that, for these entities, existing IT systems
could be used
–
or adapted at a moderate cost
–
to provide the data, so that the set-up and
learning costs would be limited.
b) Recurrent costs
For tax administrations, on the basis of the Commission extrapolation, the running costs
('OPEX') of the IT infrastructure per Member State could be estimated at approximately
between EUR 2.9 million (option 3.2) and EUR 3.9 million (option 3.1) per year, not
including labour costs to be incurred to exploit these data. The running costs for the
Commission would be EUR 0.96 million (option 3.1) and EUR 4.5 million (option 3.2).
Similarly to the case of the set-up costs, the overall costs for option 3.2 are somewhat
lower than for option 3.1. While the options considered result in a nominal increase in
certain costs for the administration, it must be stressed that this allows a substantially
greater effectiveness of control activities. The total effect is a reduction of net outlays, as
the tax administrations, thanks to data access, carry out audits for larger amounts than the
costs incurred by the system. Some Member States have been able to provide data on
how many audits were linked to payments data availability and on what amount of VAT
was assessed during these audits) (see Table 4)
140
. The assessment from these Member
States was that the benefits offset the costs (see the replies to the public consultation for
more details..
140
The results showed in table 4 belong to the baseline scenario, where some Member States developed an
electronic system to collect, analyse and use for control purposes payment data in a systematic way, while
other Member States do not have such a system and, thus, the results in terms of additional VAT collected
and assessed are limited. The consultation with Member States showed that only 50% of the Member
States collecting payment data at national system have a kind of risk analysis system in place. In particular
in some Member States, only payments resulting from the bank accounts are communicated to tax
authorities. The EU wide dimension of the information (referring to all kind of payment services resulting
in transfer of funds) and the risk analysis within Eurofisc are the main advantages that will bring higher
benefits and a full EU picture to all Member States.
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Table 5 Audits for which the use of payments data was important
Year
Member State
Finland
Slovenia
2015
2016
2017
46
NA
145
NA
Number
audits
of
104
25
VAT assessed Finland
(EUR
Slovenia
thousand)
VAT collected Finland
(EUR
Slovenia
thousand)
Source: Targeted consultation
2.176
NA
NA
NA
23.168
NA
3.671
136
NA
NA
16.569
NA
Pooling the data from all available audits, we arrive at an average value of VAT assessed
per audit (in cases where the use of payment data was important) of slightly above EUR
90°000 per audit. While this average reflects a high value for 2016, a comparison with
annual running costs incurred by the Finnish tax administration of around EUR 100°000
suggests that, if tax administrations utilise the payments data to step up audits,
completing a relatively limited number of additional audits will suffice to cover costs;
although the costs for a comprehensive EU system will be higher, it will also be more
effective. Scale considerations too suggest that the amounts of potentially recoverable
VAT dwarf system costs (see box below). We conclude that the
net
cost of the payment
data system is negative. As such, control costs are assessed to be
reduced
by the options
being considered, despite the fact that they require some budgetary outlay to be started.
What is the order of magnitude of recoverable VAT?
Although it is very hard to estimate fraud levels, there are solid grounds to believe that
there are ample margins for increasing revenue from a more effective control of e-
commerce. Member States' tax administrations agree that fraud levels, even in intra-EU
business, are significant owing to the current unsatisfactory effectiveness of controls.
The order of magnitude of the amounts at play can be assessed by looking at the total
annual value of B2C e-commerce. Even not considering extra-EU suppliers, B2C web
sales accounted for around EUR 600 billion in 2017
141
. Each 1% of fraud on turnover
would therefore generate, at EU 28 level, up to EUR 1.2 billion in non-assessed VAT.
Even accounting for incomplete recovery of assessed VAT, these amounts exceed the
operational costs for the entire EU. Furthermore, fraud levels likely account for several
percentage points of e-commerce sales.
141
E-commerce Europe estimated the 2017 e-commerce turnover at EUR 602 billion for the North, East
and South region of Europe for 2015.
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Looking at compliance costs for payments service providers, they currently receive data
requests in different formats and following different procedures, which then requires
from them substantial work to comply. Compliance further exposes PSPs to legal hazard
because of the different regimes for data protection. While it was not possible to quantify
the costs of the different options based on the result of the targeted consultation
142
, the
strong preference of PSPs for a harmonised solution indicates that the cost saving effect
compared to a non-coordinated approach can be substantial. In addition, the number of
data requests can be expected to grow in the future in line with the expansion of e-
commerce. Overall it seems likely that the savings from the ability to supply standardises
replies to data requests will more than offset any other recurring cost.
6.2.4. Sectoral impacts
The growth of e-commerce has shown that over time, consumers may extend their
purchases to a greater range of goods over time, as they familiarise with it and become
more trustful. Consumers also appreciate the convenience of having a wide range of
goods and services at their disposal without having to move. Nevertheless, price
competitiveness remains important, as does trust in the vendor. VAT fraud allows
vendors to be price competitive
143
but at the same time consumers prefer sourcing their
purchases from reputable businesses operating on well-known platforms that offer them
trust and credible dispute resolution mechanisms. The need to sustain consumer trust will
continue to be a potent force limiting the propensity of consumers to seek savings from
suppliers operating outside established portals. This means that it is inappropriate to
extrapolate any impact directly from the level of e-commerce in particular sectors, as the
fraud rate is likely to vary substantially between sectors and even within the same sector.
Given the above dynamic balance between sensitivity to price and need for trust, the risk
of VAT fraud and market distortion is highest in highly price-sensitive, commoditised
markets. Many of these markets are already now dominated by extra-EU vendors.
Another area where price sensitivity is relatively high, and where as a result there is a
high risk of evasion and distortion, is streaming of audio-visual content over the internet.
Greater control of VAT fraud is therefore likely to have varying effects on trade patterns;
while the sourcing of commodities, low-cost goods is unlikely to shift much trade,
higher-value goods for which trust and consumer service are important should see a
reduction of competition from unscrupulous businesses and from extra-EU competition.
This should result in improvements in EU competitiveness in certain markets. The size of
these effects will be highly dependent on the nature of the individual goods and services
traded.
Impact on prices
The impact on prices will depend on the price sensitivity of the individual goods or
service and on whether it can be sourced from non-cooperative jurisdictions. In the
extreme case of a good with high price sensitivity, produced by a perfectly competitive
sector located in a non-cooperative jurisdiction, the impact on prices would be negligible
and trade would be diverted towards the non-cooperative jurisdiction. In the more normal
case of a good produced by a business enjoying a degree of market power and facing
some positive incentives towards tax compliance, theoretical considerations on tax
incidence suggest that part of the higher effective tax burden would be absorbed in the
businesses' profit margin and some would be reflected on prices. The degree of price
142
One contribution was received from a stakeholder with an indication of a recurrent cost impact of
100.000 euros annually. However, this is not felt to be a good basis for analysis because it lacks sufficient
detail and seems not to take into account offsetting savings on data requests.
143
See annex 7, Case study
–
pricing policy and estimation of potential VAT loss
45
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increase would depend highly on the price elasticity of the specific good. Overall,
however, the inflationary impact on the general price level is negligible..
6.2.5. Impact on terms of trade, employment and environment
A reduction in the prevalence of fraud on extra-EU B2C supplies would be equivalent to
an increase in taxation of imports. This would result in a positive but limited terms of
trade effect, unlikely to have any impact at macroeconomic level. Similarly, while there
may be sectoral effects on employment, in particular among EU retailers subject to unfair
competition, these are likely to be modest or negligible at a macro level. There might be
positive but limited environmental impacts linked to transport if there is a reduction in
those imports from extra-EU countries that are driven essentially by savings on VAT.
6.2.6. Impact in terms of the fundamental right to protection of personal data
Under the baseline scenario, the tax authorities already collect personal data for the
purpose of detecting and fighting e-commerce VAT. Tax authorities' collection, storage
and analysis of personal data for taxation purposes imply a restriction to the protection of
personal data rights to be regulated by the national law in line with the GDPR. Under the
non-regulatory option (option 2), EU guidelines may highlight to the tax administrations
the main GDPR rules and relevant jurisprudence.
Under the regulatory option Council Regulation (EU) No 904/2010 on administrative
cooperation and fight against fraud in the field of VAT that already lays down data
protection safeguards
–
in line with the GDPR - as regard the storage, the exchange and
the use of data under the purpose of the Regulation. The safeguards laid down under
Regulation 904/2010 and the GDPR rules will apply to the exchange of payment data
under the regulatory option. For the assessment of the necessity and proportionality
principles, it should be first noted that the objective of the collection, exchange and
analysis of VAT relevant data is the fight against e-commerce VAT fraud. This is well
documented by the stakeholders' consultation, where the tax authorities stressed the need
of payment data for fighting e-commerce VAT fraud effectively
144
. In addition, only the
data with a nexus to potential e-commerce VAT fraud will be transmitted to the tax
authorities and exchanged between them: in particular only the data necessary to detect
potential fraudsters established outside the Member State of consumption (no domestic
payments), the amount of transactions that should be subject to VAT, the date of the
transactions and the information on where
–
in principle
–
the place of taxation should
be. The data will only refer to the payees receiving payments from abroad. The data on
the payers is not necessary for the objective (apart from the origin of the payment which
is necessary to establish the place of taxation) and
–
thus
–
not in the scope of the
regulatory option. Therefore, the payment data will not be usable
–
for instance
–
to
monitor the purchase habits of the consumers.
In terms of data storage, an EU central repository (sub-option 3.2) must guarantee the
appropriate level of security in line with the rules governing the processing of personal
data by the European Institutions
145
. While a central repository could be seen as a
potential risk in terms of target for unauthorised access, this is not
per se
a limitation of
data protection rules, as long as the confidentiality and security of the data processing is
ensured. Indeed, also a distributed application (sub-option 3.1) could be the target of
cyber-attacks. Furthermore, there are already EU centralised information systems
144
See
Annex 2, Consultation synopsis report, section 3.2 and section 4
145
Regulation (EU) 2018/1725 of the European Parliament and of the Council of 23 October 2018 on the
protection of natural persons with regard to the processing of personal data by the Union institutions,
bodies, offices and agencies and on the free movement of such data, and repealing Regulation (EC) No
45/2001 and Decision No 1247/2002/EC (OJ L 295, 21.11.2018, p. 39).
46
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containing and processing personal data
146
. Indeed, both tax authorities and PSPs showed
a preference toward a centralised solution.
As for the exchange of data between tax authorities, this will be only within the Eurofisc
antifraud officials. Under sub-option 3.1., the exchange of the data will pass through a
secured electronic system that encrypts and decrypts the data, and the officials will
access the data using personal passwords. Also under sub-option 3.2 the central
repository will be accessible only to the Eurofisc officials. Again, this access will be
regulated through use of a secure system and personal password and the system will keep
track of any access. Furthermore, the data will be retained only for 2 years, in order to
allow Member States a reasonable period to carry out VAT audits, and then erased.
Finally, in addition to the exchange of data, the regulatory option also foresees a risk
analysis process to focus and narrow down the search to the highest-risk traders. Under
sub-option 3.1., this is done nationally while under sub-option 3.2 this is done
automatically at European level. However, the two sub-options restrict the access to the
risk analysis result of the payment data only to the anti-fraud officials of the Member
States' tax authorities in the framework of Eurofisc. The outcome of the risk analysis will
have to be further double-checked with other information at disposal of tax authorities
(such as VAT, MOSS and Customs information). Only after this process, the result will
be used to detect e-commerce VAT fraudsters and carry out VAT controls. Then, as it
happens for domestic VAT controls, the taxpayers will be called to confront the
information held by the tax authority on which the VAT assessment is ground on, based
on the national legislation of the jurisdiction where the taxpayer is established. On the
basis of the considerations laid down in the preceding paragraphs, we conclude that the
data-sharing measures considered for adoption do not infringe the principles of necessity
and proportionality and do not put citizen's and legal persons' data at greater risk of a
breach. As such, there is no adverse impact on data protection.
Under both option 3.1 and 3.2 payment data will be processed for operation reasons
(VAT controls) by the tax authorities. The GDPR will regulate this process of data, and
already foresees safeguards for data protection and restrictions to the scope of the
obligations and rights of the data subject. Regulation (EU) No 2018/1725 provides for
the same safeguards and restrictions when data are processed by the European
Institutions, in this case by the duly accredited officials of the Commission that processes
the data for development care and maintenance. In particular, Member States will have to
apply the GDPR for the process of data, in their national systems, and for the process of
data by Eurofisc officials using the European components of the electronic system. In
terms of data storage, an EU central electronic system will guarantee the appropriate
level of security in line with the rules governing the processing of personal data by the
European Institutions. The system will not have an interface on internet, as the payment
operators will submit their information to national authorities. The exchanges of
information among national taxation authorities will occur using the secure Common
Communication Network, which supports all exchanges of information between taxation
and customs authorities and provides to all of them all necessary features for security
(including encryption of data). Therefore, in line with Regulation (EU) No 2018/1725 the
central system will guarantee by design the highest possible level of data security.
146
E.g.: the Schengen Information System SIS including the Central SIS II and the Information Customs
System.
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7.
H
OW DO THE OPTIONS COMPARE
?
7.1.
Summary assessment of the impact
Table 6: Summary analysis of impacts
Option 1 (status quo)
Direction of development if no
policy change
Effectiveness of the options
--
VAT fraud volumes increase. From
2021, impact of the VAT e-
commerce package measures may
reduce growth of VAT loss volume
--
VAT fraud volumes increase. From
2021, impact of the VAT e-
commerce package measures may
reduce growth of VAT loss volume
+
Limited reduction in VAT fraud
in line with speed of adoption
++
Coordinated adoption will speed up
update
and
allows
better
cooperation
+++
Better suited than 3.1 to monitor
threshold; fosters cooperation more
effectively than 3.1; better and
wider process of data and central
risk analysis
++
Similar impact as 3.1, but greater
transparency
and
cooperation
expected to result in stronger effects
Option 2
Voluntary guidelines
Option 3.1
Distributed application
Option 3.2
Central storage
Impact on VAT fraud
(intra-EU)
Impact on VAT fraud
(extra EU)
0/+
Negligible
to
limited:
a
patchwork-like adoption will
limit coordinated action vs. third
countries
Impact on market
distortion (intra EU)
Impact
on
market
distortion (extra-EU)
--
Market distortion to increase in line
with VAT fraud volumes
From 2021, deemed supplier
provisions may exacerbate risk of
diversion
--
Market distortion to increase in line
with VAT fraud volumes
From 2021, deemed supplier
provisions may exacerbate risk of
diversion
Aggressive enforcement of intra-EU
provisions may exacerbate risk of
diversion
-/--
Different levels of adoption and
the resulting different intensity of
combat against VAT fraud can
increase perverse localisation
incentives
0/+
Limited
Stepped-up enforcement in only
some EU countries will result in
a limited (under the assumption
of cooperative behaviour) or
negligible reduction of trade
distortions vs non-EU countries
+/++
While enforcement will depend on
third country cooperation, increased
detection expected to result in
positive
impact
through
spontaneous compliance and by
stimulating adoption of international
agreements
++
A more effective detection and
enforcement will reduce intra-EU
market distortions
+++
Similar to 3.1, but effect enhanced
by expected better cooperation
+/++
Impact will be in line with reduction
of VAT fraud on extra-EU
transactions
++
Impact stronger than in 3.1 as this
option is expected to foster more
effective coordination vs. third
countries
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Impact on level playing
field for businesses
--
In line with the impact on VAT
fraud and distortion of competition
SMEs:
The increase of market distortion
will have a negative impact on EU
SMEs which will suffer also from
VAT fraud
0/+
In line with the impact on VAT
fraud
and
distortion
of
competition
SMEs:
Limited effect
In line with the limited impact of
fighting VAT fraud
+/++
In line with the impact on VAT
fraud and distortion of competition
SMEs:
In line with reduction of VAT fraud
and reduction of market distortion
++
In line with the impact on VAT
fraud and distortion of competition
SMEs:
The stronger the impact on VAT
fraud and reduction of market
distortion, the more level playing
field for SMEs
Efficiency of the options
Impact on tax
compliance costs for
business *
*
a positive sign indicates
a reduction of costs
Impact on control costs
for administrations
-
Costs will increase in line with
assumed greater volume of data
requests from tax administrations
--
Control costs are assumed to
increase to respond more forcefully
to increase in VAT fraud volumes
and market distortion
--
In line with the impact on VAT
fraud
0/+
There may be modest positive
effects if tax administration
adopt guidelines in a coordinated
fashion
+
Administrations can save time
and development costs by
referring to guidelines
0/+
In line with the impact on VAT
fraud
++
Standardisation
of
reporting
requirements will sizeably reduce
costs in replying to data request
from tax administrations
++
Centralised solution would keep
down development costs
++/+++
Similar to 3.1, but stronger
standardisation of operations and
software
++/+++
IT costs estimated to be lower than
in 3.1
Impact on additional
VAT collection for tax
authorities
+/++
In line with the impact on VAT
fraud
++
In line with the impact on VAT
fraud
Coherence with other EU policies
Coherence with the VAT
e-commerce package
--
The
simplifications
for
the
compliant businesses are not
followed by control tools for tax
administration to detect non-
compliant businesses
0/+
0/+
Limited anti-fraud measures
accompanying
simplification
measures
+/+
New anti-fraud tools will facilitate
the control of non-compliance
+++
New and more effective anti-fraud
tools will facilitate the control of
non-compliance
Coherence
with
the
General Data Protection
regulation
++
The EU could disseminate
relevant jurisprudence on data
protection rules
++
The storage of data will be at
national level (GDPR rules will be
reflected in national legislation)
Exchange of data will be regulated
at EU level (GDPR rules will be
reflected in the EU legislation)
++
Storage and exchange of data at EU
level (GDOR rules reflected in the
EU legislation)
Legend: 0: negligible impact; + (-): limited positive (negative) impact; ++ (++): sizeable positive (negative) impact; +++ (---) strong positive (negative) impact
49
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8.
P
REFERRED OPTION
8.1.
Identification of the preferred option
The analysis above shows that the regulatory option is the one best addressing the
specific and operational objectives listed in section 4.2 and section 4.3. Compared to the
baseline scenario and option 2 (guidelines) option 3 is the only one ensuring a full
harmonisation of Member States’ tax authorities’ access to VAT relevant payment data.
Consequently, option 3 also guarantees the subsequent harmonisation of procedures for
risk analysis and
–
thus
–
for the identification of fraudsters and to exchange this
information at EU level.
In particular, sub-option 3.2 (the central storage) is the one that implies less cost for tax
authorities and businesses and ensure the best impact on VAT fraud. While the two
regulatory sub-options have a similar impact on VAT fraud, sub-option 3.2 gives more
guarantees in terms of uniformity of data and data analysis and
–
especially compared to
sub-option 3.2 (distributed application)
–
a more clear European view of the turnover of
the detected fraudster.
Sub-option 3.2 also has a better impact on reducing market distortion. Where the
cooperation brings better results to tax authorities, honest businesses can enjoy of a more
level playing field. Compliance costs for businesses (in particular PSPs) are considered
lower with the harmonisation of the reporting obligations. This is not the case under the
baseline scenario and the non-regulatory option. One single format for the transmission
of data and one single interface (sub-options 3.2) reduce the compliance costs of PSPs.
Tax administrations as well bear lower development and running costs under the
centralised solution compared to the distributed application (sub-option 3.1) or the non-
regulatory option (where they must bear the full investment and running cost of any new
IT solution).
In terms of data protection sub-options 3.1 (distributed application) and 3.2 (central
storage) are the ones who give more guarantee compared to the baseline and the non-
regulatory option because they place the process of payment data under the EU legal
framework of VAT administrative cooperation, which already includes specific legal
safeguards and secure IT systems to protect the process of personal data.
8.2.
Subsidiarity of the preferred option
The preferred option (sub-option 3.2) is considered consistent with the principle of
subsidiarity, as the main problem at stake is the e-commerce VAT fraud also triggered by
the current tools at disposal of tax authorities to cooperate between them. It has been
demonstrated that Member States alone are not able to tackle e-commerce VAT fraud
and any initiative to introduce new tools for cooperation, targeted to the specific problem,
requires a proposal by the Commission to amend Council Regulation (EU) No 904/2010.
New record keeping obligations for PSPs require a proposal to amend the VAT
Directive. Therefore, the preferred option clearly offers value over and above what can
be achieved at Member State level.
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8.3.
Proportionality of the preferred option
The preferred option (sub-option 3.2) does not go beyond what is necessary to meet the
objective. In particular, the costs are over compensated by the expected return in terms of
detection of VAT fraud and additional VAT collection. The administrative burdens for
businesses and tax administrations are overall reduced compared to the baseline and
other options and the honest businesses will benefit from a more level playing field.
Finally, also the process of personal data respects the principles of necessity (only the
data necessary to achieve the objective of combating e-commerce VAT fraud are
processed) and proportionality (the type of data and the way they are processed by the
anti-fraud experts of tax authorities do not exceed the limits of what is appropriate to
achieve the objective of fighting e-commerce VAT fraud).
In particular, the initiative is proportionate because
–
as the report wants to demonstrate
–
the tax authorities cannot obtain information in other ways. The payment information
will not be a duplication of what tax authorities collect through MOSS declaration, or
through the platforms under the deemed supplier provision. At the contrary the payment
data will be used to cross-check that information. Furthermore, payment data will give
the tools to the tax authorities to detect the traders that will be outside the MOSS or not
covered by the deemed supplier provision.
The proportionality is also in the kind of data requested to payment service providers: the
information they will have to transmit to tax authorities is the information they already
have at disposal (PSPs will not have to invest further to collect the requested
information).
8.4.
Impact on SMEs
For the assessment of the different options' impact, business associations, PSPs and
SMEs' associations have been specifically questioned on any specific impact on SMEs.
Furthermore, the public consultation has also been circulated within the Enterprise
Europe Network
147
in order to receive the highest number possible of SMEs' opinions.
Unfortunately, only one SMEs' association replied to the targeted consultation but was
not able to indicate whether there are actually SMEs providing payment services that
could be impacted by the application of the different options. However, as indicated by
the same association, SMEs' in general suffer from the unfair competition of traders
exploiting the e-commerce to avoid the payment of the due VAT. Seven respondents to
the public consultation were SMEs, some of them e-commerce retailers. They mentioned
VAT fraud is damaging SMEs and expressed high expectations in new tools to tackle e-
commerce VAT fraud. However, the respondent SMEs did not express any preference
for one or another of the policy options and generally could not estimate the impact of
those options on SMEs. PSPs and a PSPs association were also asked to indicate figures
of the numbers of SMEs in the sector, but they were not able to answer. This is probably
because the market of payment services is dominated by large businesses. Anyway,
lacking any quantification evidence from the consultation, it is reasonable to assume that
any EU harmonisation of reporting requirements will have a beneficial impact on any
SMEs providing payment services which, otherwise, will have to deal with different
reporting rules and procedure to tax authorities in the Member States. Finally, SMEs in
the e-commerce and in the traditional economy will benefit from the more level playing
field whereby Member States' tax authorities will be able to detect e-commerce VAT
fraudsters.
147
See:
https://myintracomm.ec.europa.eu/dg/grow/dirunits/H/H1/Pages/thesmetest.aspx
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9.
H
OW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED
?
9.1.
Indicators for monitoring and evaluation
The table below give an overview of the objectives, the indicators to measure whether
they will be achieved, the tool for monitoring them and the operational objective.
In the medium term, the initiative is expected to generate a strong positive impact with
respect to the general objectives indicated under section 4.1.
Specific
objective
To reduce e-
commerce VAT
fraud by
providing tax
authorities with
efficient and
effective
instruments for
detecting non-
compliant
businesses
Operational objectives
To give tax authorities
access to relevant data to
fight e-commerce VAT
fraud
To offer new or improved
channels for EU Member
States’ tax authorities to
share third party data
Indicators
Number of audit carried out
based on payment data
Additional VAT collected by
Member States
Central repository for payment
data available for 99.9% of the
time.
Annual number of requests for
information and spontaneous
exchanges of information
concerning the e-commerce
sector between EU countries
Number of fraudsters detected
using payment data
Number of requests for
administrative assistance sent
after detection of fraudsters
through payment data
Measurement
tool
Eurofisc
annual report
Eurofisc
annual report
Commission
report
Annual
statistics of the
Member States
Eurofisc
annual report
Annual
statistics of the
Member States
To
improve
the
identification and targeting
of potential e-commerce
VAT fraud
9.2.
Monitoring structure
The Eurofisc reports and the annual statistics of the Member States are presented and
discussed in the Standing Committee on Administrative Cooperation in accordance with
Article 49 (EU) No 904/2010, which is chaired by the European Commission. The
Commission will report the European Parliament and the Council on the application of
the new system.
The evaluation of this initiative will take place after few years from the entry into force
of the new system (taking into account at least few years to implement the new electronic
databases). As such, the evaluation of the current initiative will be probably after the
evaluation of the VAT e-commerce Directive. However, the evaluation of the current
initiative will take into account the outcome of the VAT
–e-commerce
evaluation.
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10. ANNEXES
10.1. Annex1: Procedural information
10.2. Annex2: Consultation synopsis report
10.3. Annex 3: Evaluation
10.4. Annex 4: Who is affected by the initiative and how
10.5. Annex 5: Methodology
10.6. Annex 6: Technical feasibility of the options
10.7. Annex 7: Case study
–
pricing policy and estimation of potential VAT loss
10.8. Annex 8: Result of the TAXUD 2016 survey on e-commerce compliance
strategies in the EU
10.9. Annex 9: Payment Services' framework in the EU
10.10. Annex 10: B2B import VAT fraud
10.11. Annex 11: Third countries using payment data as VAT control tool
10.12. Annex 12: Visual examples of the regulatory options
10.13. Annex 13: Comparison amongst different initiatives in terms of fighting
e-commerce VAT fraud
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10.1. Annex 1: Procedural information
1. Lead DG, Decide Planning references
The initiative of adopting measures to fight e-commerce VAT fraud was in the VAT
Action Plan
148
TAXUD is the lead DG for this initiative. The agenda planning reference is
PLAN/2017/2023.
2. Organisation and timing
The first meeting of the Inter-Service Steering Group was on 26 January 2018 where the
context, the draft combined evaluation/impact assessment roadmap, the consultation
strategy, the draft timeline and the problem tree were presented. The following
directorates and services were present: CNNECT, FISMA, GROW, JUST, SG, SJ. The
comments of the different services have been taken into account.
The second meeting was on 15 February 2018 and the updated problem tree, the draft
questionnaire for the public consultation and the options were presented. The following
directorates and services were present: CNNECT, FISMA, GROW, JUST, SG, SJ. The
comments of the different services have been taken into account.
The third meeting was on 23 March 2018 mainly to inform the different services and
directorates on the state of play of the consultations and the tentative timeline. The
following directorates and services were present: CNNECT, FISMA, JUST, SG.
The fourth meeting was on 5 April 2018 to present the draft of the first part of the Impact
Assessment report. The following directorates and services were present: DIGIT, SG, SJ.
The comments have been taken into account.
The Fifth meeting was on 24 May 2018 to present the second draft of the full Impact
Assessment report. The following directorates and services were present: FISMA, SG,
SJ, HOME, and DIGIT.
3. Consultation of the RSB
The Regulatory Scrutiny Board was consulted on 27 June 2018. The opinion of the
Board was positive. The Board made a number of key recommendations to improve the
report with respect to the following aspects:
The description of the context is not sufficiently clear on the political support
behind the initiative and the urgency to act;
The baseline does not adequately project the potential impact of other recently
adopted or proposed initiatives designed to combat VAT fraud. The differences
between the options are not clearly described. As a result, the reasons for their
distinct costs and impacts are not evident.
The report was adjusted to take into account the Board recommendations.
4. Evidence, sources and quality
148
COM(2016) 148 final of 7.4.2016 Communication From The Commission To The European
Parliament, The Council And The European Economic And Social Committee
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The evidence for the impact assessment report was taken by different consultation
activities:
A 2016 survey with the Member States' tax authorities on e-commerce anti-fraud
strategies
The consultation with the VAT forum Commission Expert group on e-commerce
The evaluation of Evaluation of Regulation (EU) 904/2010
A targeted consultation addressed to tax authorities on payment data
A targeted consultation addressed to payment service providers and businesses on
payment data
A public consultation
Desk research
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10.2.
Annex 2: Consultation synopsis report
1. Consultation activities carried out
For the preparation of this initiative, the Commission launched a public consultation and
a targeted consultation. The objectives of the consultations were to:
collect data and evidence needed to evaluate the application of Regulation (EU)
904/2010 on administrative cooperation and combating fraud in the field of VAT
in respect of VAT fraud on B2C cross-border supplies (hereinafter e-commerce
VAT fraud);
gather necessary knowledge in order to assess various options for the collection
and exchange of VAT-relevant payment data as a tool for combating e-commerce
VAT fraud;
offer the public and stakeholders the opportunity to contribute meaningfully to
the exercise and gather their views on the initiative at stake.
Further detailed regarding the public and targeted consultations are given below.
The Inter-Service Steering Group was consulted on the content of the Consultation
Strategy and on the draft questionnaire for the public consultation.
1.1. Public consultation
The public consultation period was between 27 February 2018 and 25 April 2017 and
was available in the 23 official EU languages. Based on TAXUD’s request, the
Secretariat General agreed with three derogations in order to limit the duration of the
public consultation, the translation date into all EU languages and the shorter feedback
period for the inception impact assessment. The derogations were due to be in line with
the time line for the adoption of the initiative.
In order to increase the visibility of the public consultation, the Commission promoted
this consultation on social networks: Twitter and LinkedIn.
1.2. Targeted consultation
1.2.1. Tax authorities
All 28 EU tax authorities have been consulted by means of a dedicated questionnaire.
The consultation period with tax authorities was between 9 March 2018 and 13 April
2018 but several answers were received after the deadline: also the late answers have
been taken into account.
1.2.2. Payment providers and other businesses
Payment providers and other businesses, including internet platforms, have been
consulted by means of a targeted questionnaire. The deadline for answering was the 13
th
of April 2018. However, most of the answers were received after this date: also the late
answers have been taken into account. The dissemination of the questionnaire was
largely done through the network of the members of the Sub-group on e-commerce of the
56
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VAT Forum but several targeted mails were also sent to representatives of banks, card
schemes and postal services.
1.2.3. Small and medium-sized enterprises (SMEs)
TAXUD invited SMEs to provide their feedback on this initiative by disseminating the
public consultation questionnaire
via
the Europe Enterprise Network. TAXUD also
invited the European Association of Craft, Small and Medium-sized Enterprises
(UEAPME )
149
and Business Europe to answer the targeted consultation questionnaire.
1.2.4. Other private sector stakeholders
The public consultation has been flagged out to the Belgian Bitcoin Association as well
as to consumers’ representatives, through the European Consumers Association (BEUC
-
Bureau Européen des Unions de Consommateurs),
a network covering 31 European
countries, including all EU Members States. However, they have not answered to the
consultation.
1.2.6. Other international organizations
The European Payment Council, an international no profit association representing 76
payment service providers, is responsible for managing four payment schemes across the
Single Euro Payments Area (SEPA). The EPC was interviewed, on March 2
nd
, 2018, in
particular as regard the feasibility of the proposed policy options.
Aiming to learn from previous similar experiences, TAXUD also consulted the
Secretariat of the Committee of Experts on the Evaluation of Anti-Money Laundering
Measures and the Financing of Terrorism (MONEYVAL), a body of the Council of
Europe. However, no contribution was received.
2. Stakeholder participation
2.1. Categories of stakeholders
The identified stakeholders categories are composed of: (i) citizens, (ii) MSs tax
authorities, (iii) businesses (payment providers, internet platforms, SMEs, other
businesses), (iii) cryptocurrencies
providers, (iv) consumers’ representatives, (v)
institutions and organizations with competences in the field of payment and anti-money
laundering. The majority of stakeholders provided for feedback but at variable extent.
149
UEAPME incorporates 67 member organizations consisting of national cross-sectorial SME
federations, European branch federations and other associate members.
57
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Figure 5: Respondents to the public consultation
2.2. Participation in the
1 2
1
public consultation
3
14
4
14
13
Citizens
Private enterprises
Trade, business or professional associations
Professional consultancies, law firms, self-employed consultants
International or national public authorities
Research and academia
Non-governmental organisation, platform or network
Others
A total number of 52 answers
were received by the end of
the public consultation. Out of
that, 14 respondents replied as
citizens, in their personal
capacity. The others (38
answers), responded in their
professional capacity, as
representatives of private
enterprises (13), trade,
business or professional
associations (14),
consultancies (4),
international or national
public authorities (3), research
and academia (1) or other
organisations (2).
Figure 6: Country of residence of the respondents to the public consultation
(number)
10
8
6
4
2
0
AT
BE
CZ
DE
FR
ES
IR
IT
NL
PT
PL
RO
UK
Non
EU -
USA
N/A
1
1
4
5
2
9
7
6
2
2
2
8
1
1
1
The survey resulted in a relatively un-balanced representation in terms of number of
respondents compared to the population of the respective Member States.
On the businesses side, only one respondent replying to the public consultation was a
self-employed while five were large companies. The seven answers received from
SMEs
can be split as follows:
4 answers from businesses with fewer than 10 employees
–
Micro enterprises,
1 answer from businesses with 10 to 49 employees and
2 answer from businesses with 50 to 249 employees.
25 of the respondents replied in their professional capacity. Some of the respondents
were representing associations active in the field of taxes or enterprises involved in e-
commerce (sales of goods and services, including electronic gambling) which chosed to
attach position papers or to make refference to other sites or content.
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Furthermore, 20 replies to the public consultation originated from organizations
registered in the Transparency Register.
Analising the public consultation replies, TAXUD did not detect a co-ordinated
campaign for the submission of answers.
The majority of the respondents (up to 60%) seemed to represent businesses acting as
traders (distance sellers) in e-commerce or associations and consultants representing their
interests.
Even though more than half of the respondents demonstrated by their answers in the open
questions a certain
expertise
regarding the e-commerce challenges and the tax
administration’s practice, the information collected
during the public consultation did not
allowed for a clear conclusion on the
reputation, track record and longevity of the
respondents.
TAXUD processed the data and information collected through the public consultation, on
the basis of an Excel spreadsheet, purely for the scope of assessing the possible impact of
the current proposal, ensuring the appropriate protection of personal data without
publishing the information of the respondents that did not give their consent.
2.3. Participation to the targeted consultation
From the
tax authorities’
side, TAXUD received 23 answers out of 28 possible despite
the extended period for replies. Most of MSs' tax authorities faced difficulties in
providing factual data on the size of the problem and the possible impact of the policy
options. The reason of this lack of evidence is that the necessary data is held by third
parties or authorities in other countries and Member States have no methodologies to
make estimates in the field of e-commerce. In particular, the tax authorities rarely
manage to monitor specific information on e-commerce because it refers to B2C
transactions.
From the
businesses’
side, TAXUD received only 5 answers. One of the payment
providers’ association asked for an interview. The answers
received from one of the
banks demonstrate the good understanding of the challenges ahead and of the policy
options and highlighted some of the issues related to the implementation of the initiative.
However, this answer, despite acknowledging the problem and clearly indicating a
preferred policy option, did not provide for sufficient data to assess the impact of the
policy options on businesses. Finally, one of the large associations representing SMEs
acknowledged the negative impact of the e-commerce VAT fraud on SMEs. However,
that large SMEs association did not give any substantial contribution in respect of the
policy options and possible impact on SMEs.
2.4. Consultation channels used
The Commission offered a set of diversified consultation channels:
the public consultation questionnaire available via the EU Survey tool;
two targeted consultation questionnaires, one for Member States tax authorities
and one for businesses;
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an expert meeting of the Sub-group on e-commerce of the VAT Forum;
an interview with the European Payment Council and a conference call with a
payment services association;
written contributions received directly by e-mail.
Despite the diversity of channels used, the number of contributions received remained
small. The limited response rate to the public consultation can be explained by the rather
technical aspects of the initiative at stake. However, the very limited number of answers
of SMEs and payment providers in the targeted consultation was not expected.
3. Consultation results
3.1. Results of the public consultation
Problem definition and size of the problem
The majority of those who answered the questionnaire perceived VAT fraud as an
important problem. Most of the respondents (up to 48 out of 52) considered that the e-
commerce VAT fraud is damaging revenues, consumers and, finally, compliant
businesses.
Figure 7: Perception of the negative impact of VAT fraud in e-commerce
60
50
40
16
30
20
10
0
a. VAT fraud on online sales is
diminishing VAT revenues by a
significant share
b. VAT fraud on online sales is
c. VAT fraud on online sales is
harming consumers interests on the damaging the compliant businesses
long term, by reducing market
selling on-line
competition
Disagree
Strongly disagree
Do not know / NA
26
26
35
4
0
3
5
3
1
5
1
16
1
0
3
13
Strongly agree
Agree
Do not agree nor disagree
The answers received confirmed that e-commerce VAT fraud might take various forms:
(i) under-declaration of supplies and no VAT payment (40 opinions), (ii) non-registration
of the remote supplier (39 opinions) and (iii) declaration and payment of VAT in a wrong
Member State, to take advantage of a lower VAT rate (33 opinions).
Finally, from a quantitative perspective, most of the individuals and organisations
answering the public consultation (35) were of the opinion that the e-commerce VAT
fraud is a common problem in all the EU Member States. Several answers pointed to
unfair competition from Asian suppliers of goods and at the breach of intellectual
property rights associated with VAT fraud on the online computer games market.
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Evaluation of the administrative cooperation
The majority of the respondents to the public consultation (28 answers) was unsatisfied
with the
efficiency
of the fight against e-commerce VAT fraud (when comparing the
results obtained and the resources invested). Only 10 respondents out of 52 considered
the current fight against e-commerce VAT fraud efficient.
On the
effectiveness
of the current EU regulation, only 12 respondents replied that the
EU Member States have the right tools to fight e-commerce VAT fraud while 32
respondents replied the opposite.
On the
EU added value,
the majority of respondents (27) seemed to agree that the
existing administrative cooperation tools allow Member States to fight against
ecommerce VAT fraud at a higher level than what could be achieved by the EU Member
States acting independently.
From a
qualitative perspective,
most of the respondents considered that the causes of
the lack of effectiveness in the fight against e-commerce VAT fraud are:
lack of resources (people, money and even tools) for tax authorities compared to
the volume of transactions to be verified;
lack of willingness to cooperate between Member States’ tax authorities;
lack of cooperation between customs and tax authorities;
absence of tools to enforce the VAT rules on remote suppliers from outside the
EU and
lack of cooperation from big platforms and marketplaces.
Subsidiarity and proportionality of the intervention
The majority of the respondents (34 out of 52) considered that
the e-commerce VAT
fraud is a problem that should be addressed at both EU and Member States level
while an important number (14) of the respondents preferred the solution at
EU level
only.
As regard
proportionality,
the vast majority of the respondents (41 answers out of 52)
considered that the collection and exchange of payment data is justified.
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Figure 8: Proportionality of the initiative Figure 9: Subsidiarity of the initiative
50
40
30
20
10
0
41
40
35
30
25
20
15
10
5
0
34
7
4
14
3
The problem of VAT fraud on online sales
across all the EU Member States
Justifies the collection and exchange VAT-
relevant payment data
Does not justify collection and exchange
VAT-relevant payment data
I do not know / NA
1
At which level do you think VAT fraud on
online sales can be effectively addressed?
MS level
Both levels
EU level
I don't know / NA
Policy options and their possible impact on all the stakeholders
In the questionnaire, the respondents were invited to express their view on the three main
policy options and on different technical solutions.
The regulatory option, involving the collection and exchange of payment data, was the
one preferred by the majority of respondents (fig. 6) because it was considered as the
most effective for the fight against e-commerce VAT fraud.
Figure 10: Public consultation: Comparison of policy options
40
35
30
25
20
15
10
5
0
34
27
15
12
13
12
4
3
11
6
6
13
Easiest to implement
The most effective
The most coherent with other
initiatives
Don’t know / NA
Baseline
Guidelines
Regulatory option
However, the analysis of the answers revealed that the preference for the regulatory
policy option does not exclude the other options. Increasing the administrative capacity
of Member States’ tax authorities and issuing guidelines were perceived by the
respondents as complementary or, at least, not excluding one another.
Most notably, in terms of efficiency, the option of investing only in the administrative
capacity of the Member States’ tax authorities was considered as easy to implement. This
conclusion is consistent with some of the contributions received in relation to the open
questions.
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Within the regulatory option, the respondents expressed a preference for the central
database (38 respondents) as means of collecting and exchanging payment data among
tax authorities. However, respondents did not consider the choices as excluding one
another. Therefore, some of the respondents also indicated a preference for the automatic
exchange of information.
Figure 11: Public consultation: Preferred Figure 12: Public consultation:
technical choices
Exchange of data must not reveal the
identity of the customer (buyer)
60
50
40
30
20
10
0
Automatic
exchange
Don't know / NA
Do not agree nor disagree
Access to each
other database
Central EU
database
33
4
7
8
3
11
15
8
38
23
12
30
2
8
4
2
I (strongly)
agree
I (strongly)
disagree
I do not agree
nor disagree
I don't know /
NA
(Strongly) disagree
(Strongly) agree
Protection of personal data
Concerning the protection of personal data, most of the respondents (30 out of 52)
considered that the identity of the buyer should be protected and thus should not be
exchanged between tax authorities. Only one respondent mentioned that the disclosure of
this information may be necessary to assess VAT liabilities.
Overall, the majority of respondents mentioned that the collection of payment data is
necessary (37 respondents) but, they pointed out the risks that data could be used for
other purposes than detecting VAT fraud (35 respondents) and to identify the customer
(35 respondents).
3.2. Results of the targeted consultation
Despite the good response rate from tax authorities, there were few answers received
from businesses. The Commission did not received any feedback from consumers’
associations, cryptocurrencies and anti-money laundering institutions.
Feedback from the tax authorities (answers received from 23 respondents)
Only three tax authorities were able to provide some partial
estimation of the VAT loss.
Furthermore, Member States were not able to estimate the loss of competitiveness of EU
businesses due to e-commerce VAT fraud. However, more than half of the respondent
tax authorities developed strategies to fight e-commerce VAT fraud. 14 tax authorities
use internet-monitoring tools for detection purposes. Less than half of the tax authorities
(12) already receive data from payment service providers at national level and 6 of the
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respondent Member States process third party data to detect e-commerce VAT fraud
based on national risk analysis. Up to half of the responding tax authorities were able to
indicate the number of tax audits on e-commerce during the last three years.
As regard the
evaluation of the current administrative cooperation tools
most of the
responding tax authorities considered that they are still relevant but effective only to a
limited extent. Member States mentioned difficulties in using administrative cooperation
tools to fight e-commerce VAT fraud relating to: the identification of businesses over the
internet; getting information from servers located outside the EU; insufficient level of
resources allocated to fight e-commerce VAT; needs of more training for the staff;
insufficient cooperation from some Member States, etc. Finally, nine tax authorities
mentioned that other tools are needed in order to reinforce administrative cooperation. In
particular, they indicated that tax authorities need access to third party data on e-
commerce transactions, including data from payment service providers.
Figure 13: Tax authorities: evaluation of the administrative cooperation tools
25
20
15
10
5
0
12
1
11
2
6
1
4
2
3
1
6
2
1
0
1
2
0
13
14
4
4
1
0
1
b) the application of
c) the administrative
d) Member States alone are
a) the administrative
cooperation tools laid down in Regulation (EU) 904/2010 cooperation tools laid down in able to fight e-commerce VAT
fraud, without using the
Regulation (EU) 904/2010 contributes to the reduction of Regulation (EU) 904/2010
the e-commerce VAT fraud
allow Member States to
administrative cooperation
meet the scope of fighting
cooperate in order to fight tools laid down in Regulation
against “e-commerce
VAT
against e-commerce VAT
(EU) 904/2010
fraud”
fraud
Absolutely true
Mostly True
Neither tue or false
I don't know
Somehow not true
Not true
Member States seemed to prefer the regulatory option.
18 respondents declared their
tax authorities are in favour of an EU standard form to collect data from payment service
providers while the only one opposing stressed that the central repository (payment
providers uploading payment data directly to a central repository) is the only possible
option to implement in a reasonable timeframe.
Regarding the
technical sub-options,
the majority of tax authorities (19 answers)
supported the central repository, while only 10 of them found acceptable that payment
service providers could transmit payment data only to one Member State of
identification. Most of the respondents (18 answers) were in favour of a monthly
reporting frequency for the transmission of payment data but against setting a threshold
(14 answers).
With respect to
personal data protection,
almost half of the respondents (11 answers)
mentioned difficulties when gathering and processing information collected from third
parties. However, the difficulties seem mostly related to the reluctance of third parties to
transfer data to tax authorities rather than to the lack of protection of the data once it has
been handed over to tax authorities.
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Feedback from businesses (answers received from 5 respondents)
E-commerce VAT fraud has a different impact on businesses depending on their field of
activity. Payment service providers seem not to be affected by the problem or just
indirectly affected to very little extent. The representatives of SMEs and other businesses
indicated that e-commerce VAT fraud is widespread and that it is generating distortions
and negative financial implications for honest businesses.
One association of payment service providers and two large
payment service providers
answered in the targeted consultation. The payment service providers confirmed they
currently provide payment data to tax authorities, mostly on request. There is no clear
indication of the costs incurred by these reporting obligations but one large payment
provider mentioned that monthly transmission of information to national tax authorities
generates work for one or two full time employees and yearly costs of around EUR
100.000.
The responding payment service providers confirmed that payment data is useful to fight
e-commerce VAT fraud but also mentioned that some other sources of information may
be needed (from internet platforms or marketplaces).
Payment service providers indicated there is a benefit in creating a single EU wide
reporting standard for payment data instead of having various reporting obligations in
different EU Member States. Some payment service providers expressed a preference for
the regulatory option because it provides more legal certainty and effectiveness. One
payment service provider indicated that the most cost-efficient solution is to transmit
payment data to a central EU repository; another mentioned that data should be
transmitted to the Member State of identification. The payment service providers
expressed concerns of data protection if the payment data is transmitted directly from the
payment service provider to a Member State different from the one of establishment.
The payment service providers considered the frequency of the reporting obligation as
decisive for the costs of any reporting obligation (rather than reporting thresholds). A
quarterly, semi-annually or annually submission of payment data seem to be reasonable
by one of the associations representing payment service providers. Thresholds in
reporting payment data may also be difficult to manage. In general, payment service
providers were not able to quantify the administrative burden entailed in a new
requirement on reporting payment data but only one of them considered that the
collection of the data puts unacceptable additional burden on payment service providers.
From
other businesses,
different from payment service providers, TAXUD received
only two answers in the targeted consultation: one from a very large SMEs association
and another from an international association of VAT professionals and consultants. It is
not clear if the policy options presented under this initiative have a direct impact on their
members.
4. Conclusions
The results of the public and targeted consultations allowed the Commission to collect a
significant number of views and opinions on the initiative. This
may not be
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representative at statistical level,
due to the relatively small number of answers
(notably in respect to SMEs), but it is significant in terms of quality.
The quantity of data collected for evaluating the current administrative cooperation tools
and assessing the possible policy options impact was very small.
All the data and views collected were used for the evaluation of the administrative
cooperation tools in respect of e-commerce and for the impact assessment of the new
initiative. The findings of the two consultations helped to assess the effectiveness,
efficiency, relevance, coherence and EU added value of both the existing administrative
cooperation tools as well as of the new policy options. The public consultation and the
targeted consultation showed that the current administrative cooperation tools are still
considered effective, efficient and relevant to a certain extent but also showed the
vulnerabilities thereof. Moreover, the arguments collected through the consultations
demonstrated the need to amend the current regulation on administrative cooperation, to
allow for the exchange of payment data for fighting VAT fraud in e-commerce and to
increase, in general, administrative capacity of tax authorities. All those arguments have
been included and sometimes presented in more detail than in the current synopsis report,
within the impact assessment report, i.e. chapters no.2 -
problem definition,
no.3
–
why
should EU act,
no.6
–
impacts of the policy options,
and no.7
–
how do the options
compare,
as well as in the annexes no.3
–Evaluation
of Regulation (EU) 904/2010
and
no.4
–
who is affected and how.
Finally, the feedback received through the public and the
targeted consultations has been used to select the preferred policy option and assess the
impact (mainly economic impact and on administrative and compliance costs).
Hereunder are some of the key findings which have been used in the impact assessment
report.
Both the public and targeted consultations
confirmed the problem definition
and the
important size of the e-commerce VAT fraud. E-commerce VAT fraud has a strong
impact on honest businesses by distorting competition. Some respondents gave examples
to show the negative effects on several economic sectors heavily affected by cross-border
non-compliant sellers. Tax authorities generally need to collect and exchange payment
data in order to detect e-commerce VAT fraud and identify the VAT non-compliant
suppliers. However, tax authorities may need access to other categories of data to
crosscheck payment data for detection purposes.
Privacy
was not mentioned as an important impediment to the collection and exchange
of payment data as far as the personal data of the buyers (clients) receives a reasonable
level of protection.
The majority of respondents expressed a preference for the regulatory option.
In
particular, the respondents indicated that the centralised repository is the most cost-
efficient.
Tax authorities and payment providers
confirmed the added value of a EU wide
standardised approach
for the collection and exchange of payment data but very few
were able to estimate the positive impact in terms of supplementary VAT collection for
any of the policy options.
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10.3. Annex 3: Evaluation of Regulation (EU) 904/2010 for cross-border
Business to Consumer online supplies
TABLE OF CONTENT
EXECUTIVE SUMMARY .......................................................................................................................... 66
1. INTRODUCTION .................................................................................................................................... 68
2. BACKGROUND TO THE INITIATIVE ................................................................................................. 68
3. EVALUATION QUESTIONS AND METHOD ...................................................................................... 71
3.1. EVALUATION QUESTIONS ..................................................................................................... 71
3.2. EVALUATION MATERIALS .................................................................................................... 71
3.3. EVALUATION PROCESS AND MATRIX ............................................................................... 72
3.4. LIMITATIONS AND ROBUSTNESS OF FINDINGS .............................................................. 77
4. ANALYSIS OF THE ANSWERS TO THE EVALUATION QUESTIONS ........................................... 77
4.1. EFFECTIVENESS ....................................................................................................................... 77
4.2. EFFICIENCY............................................................................................................................... 81
4.3. RELEVANCE .............................................................................................................................. 82
4.4. COHERENCE .............................................................................................................................. 85
4.5. EU ADDED VALUE ................................................................................................................... 86
5. CONCLUSIONS ...................................................................................................................................... 89
1. EXECUTIVE SUMMARY
The current evaluation is performed in conjunction with the impact assessment
supporting the subsequent legislative proposal to amend Council Regulation (EU) No
904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the
field of value-added
tax (hereinafter ‘Regulation (EU) 904/2010.
The objective of the evaluation is to examine to which extent Regulation (EU) 904/2010
met the overall objectives of contributing to a closer cooperation between Member
States, of avoiding budget losses, of fighting VAT fraud and of preserving the principles
of fair taxation, when considering e-commerce.
Although the stakeholders failed to provide the Commission with the expected level of
factual data and the evaluation process has been marked by short deadlines, its findings
are strongly supported by the comprehensive evaluation of the Regulation (EU)
904/2010
150
, finalised in 2017, and by the generally convergent views of numerous
stakeholders. The Member States participation to the targeted consultation was
significant (23 replies) and, thus, had a decisive contribution to building the conclusions
of the current evaluation.
SWD(2017) 428 final, IMPACT ASSESSMENT accompanying the document
Amended proposal for a
Council Regulation
Amending Regulation (EU) No 904/2010 as regards measures to strengthen
administrative cooperation in the field of value added tax, Annex 3, p. 83.
150
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The general opinion concerning the administrative cooperation tools provided by
Regulation (EU) 904/2010 and their application in relation to the e-commerce sector is
favourable overall, even though it is more positive amongst the tax authorities than
amongst the respondents to the public consultation. This situation is probably because tax
authorities have a much better knowledge of the administrative cooperation process,
which is mostly a back-office process, hardly visible for the public.
The administrative cooperation tools in the field of VAT seem to remain relevant,
efficient and effective, even though the needs of the Member States to fight e-commerce
VAT fraud are evolving. The effectiveness is partially hindered by the very specific
information needs in the field of e-commerce VAT fraud: this information is often held
in other countries and there are limited enforcement tools in respect of e-commerce VAT
fraudsters located outside EU. In addition, some respondents pointed out the need to
invest more in the administrative cooperation, by increasing the commitment of Member
States and reducing the proportion of late replies on answering requests for information,
but also by training the tax officials in the field of e-commerce. Finally, although factual
data on the costs and benefits associated to the current administrative cooperation tools is
scarce, tax authorities estimate that the benefits of employing the Regulation (EU)
904/2010 instruments are higher than or proportional to the costs. Several stakeholders
raised the need to develop an automated system to exchange payment data as a valuable
instrument permitting the detection of e-commerce VAT fraud. This last conclusion also
resulted from the consultation carried out in the framework of the 2017 comprehensive
evaluation.
The coherence of the current administrative cooperation tools with other EU policies and
new initiatives has been confirmed. Most notably, as the Council adopted the e-
commerce VAT Directive in December 2017, fully entering into force in 2021, Member
States will heavily rely on administrative cooperation for checking on the correctness of
VAT registration requests and of VAT returns. However, it was also noted that Member
States should address new challenges such as the capacity of processing large volumes of
data allowing for the detection of e-commerce VAT fraud. For the time being, except for
some limited cases in which it was reported that banks or internet platforms denied
access to data on grounds related to data protection rules, tax authorities did not faced
significant issues in complying with privacy regulations. For the future, the coherence of
current administrative cooperation tools and data protection legislation may be
challenged, as the e-commerce specificities require massive access to data and intense
cooperation among tax authorities, both inside EU and with third countries.
Furthermore, the different stakeholders agreed on the EU added value of the
administrative cooperation framework laid down in Regulation (EU) 904/2010. The
administrative cooperation rules contribute to the protection of the Internal Market and of
the VAT revenues. The e-commerce VAT fraud is affecting all EU Member States and,
due to the nature of e-commerce, Member States need to work together to detect fraud
and enforce VAT rules. Stakeholders perceive that implementing individual Member
States' remedies is rather ineffective and generally ask for more cooperation.
Overall, this evaluation shows that, despite a rather positive assessment of the current
rules, new administrative cooperation instruments are needed to the Member States. Both
the 2017 evaluation and the recent 2018-targeted consultation showed that Member
States are generally in favour of exchanging payment data in order to cope with the
shortcomings related to the effectiveness, relevance and coherence of the current rules of
administrative cooperation. Therefore, exchanging payment data is one area in which
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Regulation (EU) 904/2010 may be further amended to give the tax authorities the right
tools to cooperate in the fight against e-commerce VAT fraud.
2. INTRODUCTION
This proposal is a follow-up
of the Commission’s commitment to "address VAT fraud in
the electronic commerce sector" by "working on proposals for third parties involved to
supply targeted information to tax administrations in order to allow the latter to cope with
the new e-commerce business models". It complements the recently adopted VAT e-
commerce package that modernizes and simplifies the VAT system on B2C cross-border
supplies of goods and services and the recent proposal amending the rules on
administrative cooperation and combating VAT fraud adopted by the Commission in
November 2017 (and mainly addressing B2B transactions).This initiative wants to
provide tax administrations with appropriate tools to detect fraudsters and control VAT
liabilities on cross-border Business-to-Consumer (B2C) supplies (hereinafter e-
commerce) by collecting and sharing VAT relevant payment data. It should also ensure a
level playing field for businesses and adequate data protection for any VAT-relevant
payment data concerned.
A comprehensive evaluation of Regulation (EU) 904/2010 was carried out in 2017,
covering the period from the entry into force of the Regulation until mid-2017. That
assessment covered all the EU Member States, including Croatia.
Therefore, the current evaluation is not a fully-fledged evaluation of the administrative
cooperation instruments laid down in Regulation 904/2010 but it is rather focussing on
how the Regulation is applied in relation to the specific case of e-commerce VAT fraud,
building on the general findings of a previous extensive evaluation.
In particular, this evaluation examines to which extent Regulation (EU) 904/2010 met the
overall objectives of contributing to a closer cooperation between Member States, of
avoiding budget losses, of fighting VAT fraud and of preserving the principles of fair
taxation, when considering e-commerce.
The result of the evaluation is feeding into the proposal to amend the Regulation (EU)
904/2010 in order to give a substantial contribution to the fight against e-commerce VAT
fraud. The aim is to learn about the administrative cooperation tools in use based on the
application of the Regulation (EU) 904/2010 and to check whether changes or even new
cooperation tools are needed.
3. BACKGROUND TO THE INITIATIVE
Administrative cooperation in the field of VAT has been developing over time in order to
better manage and control VAT in relation to the intra-EU B2B transactions and to
ensure a level playing field for businesses.
Two main objectives were pursued with the introduction of Regulation (EU) 904/2010:
to contribute to a closer cooperation between Member States; and
to avoid budget losses, to fight VAT fraud and to preserve the principle of fair
taxation.
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Figure 14: Regulation (EU) 904/2010: intervention logic
Administrative cooperation in VAT: intervention logic
ACTIVITIES
OUTPUTS
OUTCOMES
IMPACT
Exchange of
information on
request
Automatic
exchange of
information
Spontaneous
exchange of
information
Messages
exchanged
EU
Data
transmitted
& stored
Member States
VIES
Tax audits
Investigations
Closer cooperation
Multilateral
controls (MLCs)
Presence in
administrative
offices
MLCs &
missions
performed
Lists of alerts &
risky taxpayers
$
$
Fair taxation / Level playing field
Joint audits
Eurofisc
Tax decisions issued
VAT collected
€
€
€
€
€
€
MINI ONE
STOP SHOP
operations
(MOSS)
Tax returns
& payments
processed
MOSS services
VAT GAP
closing
Commission
Trans-European
IT systems set-
up
VIES & other IT systems
Regulation (EU) 904/2010 currently in force lays down rule for the exchange of
information between Member States tax authorities. The exchange of information can be
on request, spontaneous (when a Member State informs another Member State of a
possible breach of the VAT legislation in that Member State). A particular kind of
spontaneous exchange of information is the automatic exchange (Member States
periodically exchange a predefined set of data in specific fields). Furthermore, Member
States' tax authorities can have automated access to each other databases on intra-EU
B2B supplies (through an electronic system called VIES), carry out simultaneous
controls and permit the presence of tax auditors from another Member State in
administrative offices and during administrative enquiries. Finally, Regulation (EU)
904/2010 also set up a network for a multilateral exchange of early warning information
to prevent VAT fraud, called Eurofisc.
All the above-mentioned tools, allow tax authorities to cooperate by collecting and
exchanging sets of records and information originating from the businesses directly
involved in the transaction chain. These sets of records and information are at the
disposal of tax authorities or are easily accessible to them. However, in the cross-border
B2C online supplies, the relevant information may not be directly available to tax
authorities
151
. Data about the transactions may, for example, be stored in another
jurisdiction. Tax administrations often need access to data held by online platforms,
payment service providers and other intermediaries, in order to identify any non-
compliance. This presents legal and practical challenges depending on how and where
data is held. Therefore, the "traditional" way tax administrations cooperate may need to
be modernised.
151
Because, under the VAT rules, the final consumer cannot offset the input VAT and, thus, does not have
to keep any records of the purchase.
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The comprehensive evaluation carried out in 2017
152
showed that Regulation (EU)
904/2010 suits the needs of the Member States and is coherent with other EU policies,
existing or under implementation. The high level of cooperation demonstrates a good
knowledge and application of this Regulation and shows its level of effectiveness and
efficiency.
Overall, the Member States expressed a positive view regarding the legal and operational
framework referring to Regulation (EU) No 904/2010. The vast majority considered that
it helped improving administrative cooperation. Exchanges of information on request,
automated access to information, Eurofisc and multilateral controls were considered as
the Regulation’s most effective instruments.
However, Member States should still work at national and EU levels to improve its
functioning. For instance, that evaluation showed that new administrative cooperation
instruments are needed by the Member States. The 2017 evaluation concluded that there
is certainly room to further develop automatic and automated exchange of information.
The categories of information that Member States considered as the most relevant were
car registration information, data relevant for controlling e-commerce transactions and
payment data held by financial institutions
153
.
E-commerce was not considered as a separate area in the previous evaluation. Therefore,
the current evaluation needs to assess whether the conclusions from the 2017 evaluation
apply also to the VAT fraud in the field of e-commerce and indicate any provisions that
may need to be revised or supplemented.
3.1.Application of the regulation
Regulation (EU) No 904/2010 only lays down the legal framework for tax authorities to
cooperate for the fight of VAT fraud. The practical application of these tools is a
responsibility of the Member States, and the success of the administrative cooperation
depends on the way Member States' tax authorities commit and make use of the
administrative cooperation tools.
Overall, the Member States expressed a positive view on the application of the tools
provided by Regulation (EU) No 904/2010, in particular regarding the exchanges of
information on request, automated access to information, Eurofisc and multilateral
controls.
However, over the last years, e-commerce volumes as well as cross-border sales
increased at high rates. Despite the individual efforts of some of the Member States,
VAT fraud in cross-border B2C e-commerce has become a true challenge.
In particular, according to a TAXUD survey launched in 2016 with tax authorities, only
five Member States reported to have received spontaneous information on e-commerce
VAT fraud from another tax authority under Regulation (EU) No. 904/2010.
Furthermore, half of the respondent Member States to the survey reported difficulties in
receiving information on request from other Member States on e-commerce VAT fraud.
152
SWD(2017)
428 final and COM(2017) 706 final - Amended proposal for a COUNCIL REGULATION
amending Regulation (EU) No904/2010 as regards measures to strengthen administrative cooperation in
the field of value added tax, annex 3.
153
SWD(2017) 428 final, p. 142.
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The Commission launched in June 2017 an expert group called
e-commerce sub-group of
the EU VAT forum
154
, composed of Member States` tax authorities and businesses
representatives in order to provide for input in this area. The consultation showed that the
main problem is in the lack of third party data (and in particular payment data) available
to tax authorities and - thus - in the reduced chances of using administrative cooperation.
4. EVALUATION QUESTIONS AND METHOD
The evidence needed for the current evaluation made use of what collected through the
comprehensive evaluation completed in 2017. In addition, TAXUD gathered evidence
via a targeted consultation, a public consultation and desk research.
As the object of the evaluation remains Regulation (EU) 904/2010, the evaluation
questions were mostly similar to those used in the comprehensive evaluation completed
in 2017. However, the judgement criteria and the indicators are more specific, in order to
focus on e-commerce.
4.1.Evaluation questions
The evaluation is based on the following questions (all of them focussing on e-
commerce):
1.
2.
3.
To what extent has Regulation (EU) 904/2010 contributed to a closer
cooperation between Member States? (effectiveness)
To what extent has Regulation (EU) 904/2010 contributed to detect e-
commerce VAT fraud ? (effectiveness)
To what extent has Regulation (EU) 904/2010 facilitated cooperation between
Member States by making it smoother, faster and less burdensome?
(efficiency)
To what extent the resources spent on the administrative cooperation
generated results in the fight against e-commerce VAT fraud? (efficiency)
To what extent the provisions of Regulation (EU) 904/2010 continue to
correspond to the needs of the Member States and other stakeholders in
respect to e-commerce? (relevance)
To what extent are the provisions of Regulation (EU) 904/2010 in line with
other policies and priorities of the EU in respect to e-commerce? (coherence)
Could Member States have achieved similar results without acting at EU
level? (EU added value)
4.
5.
6.
7.
4.2.Evaluation materials
Views and evidence were collected by means of a questionnaire for a targeted
consultation (addressed to tax authorities and businesses representatives participating in
the Commission expert group "e-commerce
sub-group of the EU VAT forum")
and a
questionnaire for a public consultation. The Commission services also had meetings with
relevant experts and authorities and performed desk research.
154
Commission Decision 2012/C 198/05 of 3 July 2012 setting up the EU VAT Forum, OJ C198 of 6 July
2012; See:
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012D0706%2802%29
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4.2.1.
Questionnaire to tax authorities
155
The questionnaire addressed to Member States' tax authorities aims at collecting views
and evidence on all the evaluation criteria with a focus on e-commerce. On top of that,
tax authorities were asked about the difficulties encountered in the application of
Regulation (EU) 904/2010 and about the effectiveness of each of the administrative
cooperation tools provided by the Regulation.
The tax authorities’ consultation period was from 09/03/2018 to 13/04/2018 but was
extended of additional two weeks.
4.2.2.
Questionnaire to businesses
156
The questionnaire for businesses was made available through EU Survey and was
addressed to payment providers and internet platforms. The aim of the questionnaire was,
among others, to collect evidence and views from businesses on the compliance costs
related to the fight against e-commerce VAT fraud. Some of the questions addressed the
specific administrative burden in relation to the reporting requirements that businesses
are must provide to tax administrations (notably payment data).
The businesses consultation period was between 12/03/2018 and 13/04/2018. However,
most of the answers were received after the deadline.
4.2.3.
Open-public consultation
The public consultation was designed with the purpose of collecting a maximum of
evidence and views on the application of the evaluation criteria (relevance, effectiveness,
efficiency, and EU added value). However, the public may have little knowledge of the
administrative cooperation rules and mechanisms between competent authorities of the
Member States. The public consultation was also made available through the SMEs
portal.
The public consultation period was from 27/02/2018 to 25/04/2018.
4.2.4.
Desk research
In order to collect evidence about the evaluation criteria, a number of papers, reports or
other documents were consulted. Among those documents, the most relevant are:
1. SWD(2017) 428 final
–
the annex 3
–
Evaluation of Regulation (EU) 904/2010
and
2. the answers form 21 Member States on the 2016 questionnaire concerning the
administrative cooperation on VAT (AntiVATFraudEUMSE-commerce102016
–
see 10.8).
4.3.Evaluation process and matrix
The evaluation process is based on analysing the compliance of the current
administrative cooperation rules with the five criteria, according to the Better Regulation
Guidelines, taking into account the specificities of the subject and the limitation
described hereunder.
155
Ref.
Ares(2018)1325223 - 09/03/2018 and follow up Ref. Ares(2018)1962904 - 12/04/2018
156
Ref. Ares(2018)1354337 - 12/03/2018
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The planning of the evaluation has been integrated into the planning of the initiative on
the collection and exchange of VAT-relevant payment data for e-commerce activities.
The activities related to the component on evaluation, respectively to the component on
impact assessment, are performed in conjunction, as a back-to-back exercise. The
findings of
the evaluation feed into the impact assessment, respecting the “evaluate first”
principle.
The evaluation matrix presents the judgement criteria for each of the evaluation questions
as well as the indicators used to assess the current situation and the data sources used.
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Table 7: Evaluation matrix
Evaluation question
1. To what extent has Regulation (EU)
904/2010 contributed to a closer
cooperation between Member States?
(effectiveness)
Judgement criteria
Indicators
Data source
1.a. Development of the various forms of 1.a.1. Number of requests for information Questionnaire MSs 27 and 28
administrative
cooperation
between on e-commerce VAT fraud cases sent /
Member States on e-commerce VAT received by EU MSs.
Evaluation 2017
matters
1.b. Difficulties in applying the tools of 1.b.1. Proportion
administrative cooperation in the e- difficulties
commerce sector
of
MSs
reporting Questionnaire MSs 29
2. To what extent has Regulation (EU) 2.a. Positive stakeholder assessment of the 2.a.1. Perceived effectiveness of the tools Questionnaire MSs 25a)
904/2010 contributed to detect e- administrative cooperation tools in relation for administrative cooperation on e-
Questionnaire MSs 25b)
commerce VAT fraud? (effectiveness)
to the detection and/or reduction of VAT commerce VAT fraud
fraud in e-commerce
Questionnaire MSs 26
2.a.2. VAT gap related to e-commerce
Questionnaire public consultation 33a),
33b)
2.b. The tools provided by Regulation 2.b.1. Perception of stakeholders on the Questionnaire public consultation 33a)
(EU) 904/2010 are considered adequate to adequacy of the means to fight e-
fight VAT fraud
commerce VAT fraud
2.c. The tools provided by Regulation (EU) 2.c.1.
Proportion
of
stakeholders Questionnaire public consultation 33b)
904/2010 are considered sufficient to fight considering the tools as sufficient
Questionnaire MSs 31
VAT fraud
3. To what extent the Regulation (EU) 3.a.
Stakeholder’s
assessment of
904/2010
made
the
administrative administrative cooperation speed
cooperation between Member States burden in respect of e-commerce.
smoother, faster and less burdensome?
(efficiency)
the 3.a.1. Perceived administrative burden Evaluation 2017
and associated
with
participation
in
administrative cooperation by Member Questionnaire MSs 31
States in respect to e-commerce
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Evaluation question
Judgement criteria
Indicators
Data source
4.
To what extent the resources 4.a. Benefits of administrative cooperation
spent on the administrative cooperation in the fight against e-commerce VAT fraud
generated results in the fight against e- overweight costs
commerce VAT fraud? (efficiency)
5.
To what extent the provisions of
Regulation (EU) 904/2010 continue to
correspond to the needs of the Member
States and other stakeholders in respect to
e-commerce? (relevance)
4.a.1. Reported ratio between costs and Questionnaire MSs 30
benefits resulting from the tools for
administrative cooperation is respect of e-
commerce
Questionnaire public consultation 34
5.a. The e-commerce VAT fraud problem 5.a.1. Number of requests for information Questionnaire MSs 27
determines the tax authorities to ask for on e-commerce VAT fraud cases generated
administrative cooperation with other by EU MSs.
Member States
5.a.2. Assessment of the sources of Questionnaire public consultation 36
information used for detection
5.b. The size of the VAT fraud in e- 5.b.1. Number of Member States which Questionnaire MSs 10
commerce is significant
have dedicated strategies / compliance
programs
5.b.2 Cases of cross-border e-commerce
VAT fraud
5.b.2. Number of Member States which Questionnaire MSs 4
reported supplementary tax liabilities
following tax audits on e-commerce
activities
6.
To what extent are the provisions 6.a. Synergies with other EU initiatives
of Regulation (EU) 904/2010 in line with
other policies and priorities of the EU in
respect to e-commerce? (coherence)
6.a.1. Qualitative assessment of the level of Questionnaire MSs 31
convergence of the objectives of
Regulation
904/2010
with
other
Commission's strategies and policies
Desk research
identified
new Questionnaire MSs 31, 32
6.b. Identified areas that require to amend 6.b.1. Number of
administrative cooperation rules in relation tools/changes needed
to e-commerce
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Evaluation question
7.
Could Member States have
achieved similar results at similar costs
without acting at EU level? (EU added
value)
Judgement criteria
Indicators
Data source
7.a. Joint EU approach in administrative 7.a.1. Proportion of stakeholders having a Questionnaire MSs 25d)
cooperation in VAT has advantages over positive perception of the advantages of a
other forms of national and international joint EU approach
Questionnaire public consultation 33c)
forms of tax cooperation
7.b. Stakeholders perceive the e-commerce 7.b.1.
Proportion
of
stakeholders Questionnaire public consultation 28g)
VAT fraud as a common cross-border considering the problem is not only
problem rather than as a national one.
national
7.c. The provisions of Regulation (EU) 7.c.1. Qualitative assessment of the tools Questionnaire MSs 26
904/2010 on cross-border administrative that are appreciated by the MSs.
Questionnaire public consultation 36
cooperation can be considered as providing
Evaluation 2017
EU solution to EU problems in terms of
fighting e-commerce VAT fraud
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4.4.Limitations and robustness of findings
The evaluation of the existing administrative cooperation tools in relation to the e-
commerce VAT fraud needs to rely at a large extent on the findings of the comprehensive
2017 evaluation of Regulation (EU) 904/2010. The current initiative mainly
complemented and reconfirmed the 2017 findings by collecting data and views form a
wide range of stakeholders. While the Member States participation to the targeted
consultation was very positive (23 respondents) this was not the case for the other
stakeholders, whom participation was very low. This could be explained by the
technicality of the subject at stake.
There were essentially two types of limitations affecting this evaluation:
1.
Duration and resources.
The evaluation has been performed in the framework of
a back-to-back exercise accompanying the new Commission initiative on
collecting and exchanging payment data for fighting e-commerce VAT fraud.
Because of the nature of the back-to-back exercise, the volume of work available
had to be distributed between the evaluation and the impact assessment of the
different policy options. Furthermore, the short timeline to perform the evaluation
did not allow a study with an external consultant.
2.
Availability of data.
Data collected through the open public and the targeted
consultation was limited. In particular the respondents did not provide precise
data on:
a. e-commerce VAT gap estimations;
b. the number of cases of administrative cooperation in the field of e-
commerce;
c. the costs of the administrative cooperation for Member States;
d. the supplementary VAT assessed as a result of the administrative
cooperation activities.
For the purpose of this initiative, “e-commerce” refers to cross-border
supplies of goods
or services to final consumers. However, some of the tax authorities indicated that they
do not have specific statistics because they miss a clear definition of "e-commerce". This
is a possible explanation for part of the missing data, most notably in the targeted
consultation.
However, even though quantification data are general missing, it was possible to collect
many relevant qualitative opinions, including on the evaluation of the Regulation (EU)
904/2010 with respect to e-commerce VAT fraud. Unfortunately, the SMEs participation
was quite low.
5. ANALYSIS OF THE ANSWERS TO THE EVALUATION QUESTIONS
5.1.Effectiveness
Q1. To what extent has Regulation (EU) 904/2010 contributed to a closer
cooperation between Member States?
The Regulation (EU) 904/2010 entered into force in 2012. The exchange of information
is significant, both in terms of volume and in terms of impact on cross-border VAT
fraud. The exchange of information allows the tax authorities to detect un-reported or
under-reported transactions in the e-commerce sector.
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1.a. Development of the various forms of exchange of information between Member
States on e-commerce VAT matters
According to the 2017 evaluation, the use of the various tools for exchange of
information slightly increased: in particular, the total number of exchanges of
information on request increased from 46.000 in 2012 to 49.000 in 2016. However, the
decrease of the number of late replies seems to be more significant. Overall, the
proportion of requests not answered within three months, decreased from 43 % in 2012 to
33 % in 2016. These trends are likely to apply also in the specific case of the
administrative cooperation concerning the cross-border VAT fraud on e-commerce.
In the framework of the current back-to-back exercise, 23 out of 28 Member States
answered the targeted consultation between March and April 2018. Based on the answers
received, only 9 tax authorities confirmed that they have sent at least one request for
information concerning e-commerce VAT fraud in 2017. Other 9 tax authorities were not
able to provide any figure while 5 of them did not send any request on e-commerce in
2017. An overall number of 319 requests for information concerning e-commerce VAT
fraud was sent in 2017. Almost half of this number originated from France only. It
appears that, most of the Member States have no systems in place to monitor the number
of exchange in the field of e-commerce. However, the number of exchanges in this field
(319) is still very small when compared to the total number of requests for information
processed annually by the Member States in the field of VAT (more than 45.000).
Member States received a total number of 124 requests for information referring to e-
commerce VAT fraud in 2017.The highest number of requests (30) was received by
Luxembourg.
Based on the 2016 survey concerning the administrative cooperation on VAT
157
, 5
Member States indicated that under Regulation (EU) 904/2010 they received
spontaneous information from another tax administration on e-commerce cases and 8
Member State received information on request. Unfortunately, the response rate for this
question was quite low, with only 10 answers received.
Consultation with the Member States in the e-commerce sub-group of the VAT forum
showed that VIES cannot be used systematically in the field of e-commerce because it
only contains information on intra-EU B2B supplies. In 2017 the Member States set up a
new Eurofisc working field dealing with e-commerce (WF5) but the exchange of
information is still very limited (an indication of the number of exchange will be
indicated in the next Eurofisc report which is - anyway - a confidential document only for
the use of Member States tax authorities).
Finally, based on the data collected through the public consultation and the targeted
consultation, it is not possible to conclude whether the use of the administrative
cooperation tools to fight e-commerce VAT fraud increased since the entry into force of
Regulation (EU) 904/2010. The limited information that the Commission was able to
collect suggests a low level of cooperation on this specific matter.
1.b. Difficulties in applying the tools of administrative cooperation in the e-commerce
sector
According to the 2017 evaluation, Member States have an overall positive opinion of the
administrative cooperation framework laid down by Regulation (EU) 904/2010. In
particular, the stable trend since 2013 in the number of requests for information,
157
AntiVATFraudEUMSE-commerce102016
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spontaneous and automatic exchanges shows a good appropriation of these tools by the
Member States. Member States indicated that the most efficient tools are the automated
access to information (VIES), Eurofisc and multilateral controls. However, Member
States mentioned drawbacks, most notably in respect of the large number of late replies,
the missing accuracy of data in VIES and the lack of commitment from some of the tax
authorities.
The targeted consultation launched under the current initiative also revealed other
shortcomings:
(i)
the identification of online businesses is difficult (do not have a physical address,
do not always show a tax number);
(ii)
in the e-commerce, the domain of the online business is often located in another
country and the relevant information about transactions is stored in non-EU
countries;
(iii) there are extremely limited enforcement tools in respect of non-compliant
businesses selling online and which are located outside EU;
(iv)
tax officials need more training to be able to effectively use the administrative
cooperation tools.
There is no indication of how frequently these difficulties occur. However, less than half
of the respondent tax authorities (11) mentioned some difficulty in answering the
requests for information on e-commerce cases while 12 respondents did not answered or
did not indicated any difficulty.
Furthermore, several respondents in the public consultation were of the opinion that
Member States do not have the resources and the tools for fighting e-commerce VAT
fraud and do not cooperate enough. The public was also of the opinion that tax
authorities face a heavy workload generated by the high number e-commerce transactions
that require a huge effort in terms of investigations. This could result in a lack of interest
in cooperating to fight e-commerce VAT fraud.
The consultation showed important difficulties in applying effectively the administrative
cooperation tools in the field of e-commerce. This is partly due to the lack of access to
relevant information and to the need of increasing the commitment of Member States to
use administrative cooperation tools.
Q2. To what extent has Regulation (EU) 904/2010 contributed to detect e-commerce
VAT fraud?
2.a. Perception of stakeholders on the effectiveness of the administrative cooperation
tools in relation to the detection and/or reduction of e-commerce VAT fraud
The majority of the respondent
tax authorities to the recent
Figure 15: Tax authorities: perceived effectiveness
targeted consultation (13 out of
of the administrative cooperation tools
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23 answers) considered that the
administrative cooperation tools
laid down in Regulation (EU)
904/2010 meet the scope of
fighting e-commerce VAT fraud
and contribute to the reduction
of the e-commerce VAT fraud.
However, 7 respondents did not
share this opinion, probably
because
they
lack
any
quantitative evidence of e-
commerce VAT fraud and of the
impact of the administrative
cooperation on it.
25
20
15
10
5
0
1
4
2
3
12
1
6
2
1
11
2
1
a) the administrative
b) the application of
cooperation tools laid down in Regulation (EU) 904/2010
Regulation (EU) 904/2010 contributes to the reduction of
meet the scope of fighting
the e-commerce VAT fraud
against e-commerce
VAT
fraud
Absolutely true
Neither tue or false
Somehow not true
Mostly True
I don't know
Not true
Member States showed similar opinions when questioned about the most effective tools
for fighting e-commerce VAT fraud. The tools considered as most effective are: (1) the
exchange of information on request - 18 positive opinions); (2) the spontaneous exchange
of information - 18 positive opinions; (3) the multilateral controls - 17 positive opinions
and (4) the Eurofisc network (19 positive opinions).
Figure 16: Positive and negative perception on the effectiveness of different
administrative cooperation tools
Joint audits
Eurofisc network
Presence in administrative offices
Multilateral controls
VIES
Automatic exchange of information
Spontaneous exchange of information
Exchange of information on request
-5
Mostly true
-1
0
Absolutely true
5
Somehow not true
-3
-4
-2
-1
-1
-1
-1
9
9
12
14
10
Not true
15
2
6
4
20
10
12
5
5
3
12
5
5
7
Based on an external study, the Commission estimated that EU tax administrations are
missing around EUR 5 billion of VAT revenue when consumers buy goods online from
another country
158
. There are no estimates of the VAT gap caused by cross-border online
services. Presumably, in the absence of the administrative cooperation tools provided by
Regulation (EU) 904/2010, the level of the VAT gap could have been larger but there is
no evidence to demonstrate this.
158
Commission SWD(2016)379 final, point 3 p. 13.
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2.b. Perception of stakeholders on the adequacy of the means to fight e-commerce VAT
fraud
In the 2018 public consultation, only 12 respondents indicated that the EU Member
States have the adequate tools to fight e-commerce VAT fraud while 32 respondents
indicated the opposite because the shortage of resources and "legal powers" and not
enough cooperation between tax authorities for the fight against e-commerce VAT fraud.
2.c. Proportion of stakeholders considering the tools as sufficient
In the 2018-targeted consultation, the majority of tax authorities indicated that the current
Regulation allows for a fair level of administrative cooperation, even though some of
them recognised that there is a need of supplementary tools, including the exchange of
payment data.
However, in the public consultation only 7 respondents replied to believe that the
instruments at the disposal of the EU Member States are sufficient to fight e-commerce
VAT fraud. This number even decreases to only 4 if we count only those respondents
which declare having a good or partial familiarity with the subject. On the opposite side,
36 respondents believe that the tax authorities do not have sufficient instruments to fight
VAT fraud on online sales.
As a preliminary conclusion, it appears that the effectiveness of Regulation (EU)
904/2010 in respect to e-commerce VAT fraud is limited compared to other types of
fraud. Member States indicated that the effectiveness of the administrative cooperation
tools are affected by different shortcomings such as problems to identify the online
businesses, the volume of resources needed for an effective cooperation (staff and IT)
and the lack of incentives to protect the tax base of other Members States (more
spontaneous exchange of information is needed).
5.2.
Efficiency
Q3. To what extent Regulation (EU) 904/2010 made the administrative cooperation
between Member States smoother, faster and less burdensome?
3.a.
Stakeholder’s
assessment of the administrative cooperation speed and burden in
respect of e-commerce
The 2017 evaluation determined that most significant burdens are linked to human
resources to deal with requests for administrative enquiries, reply to requests for
feedback and participate in multilateral controls. However, those administrative
cooperation tools seem to be very effective.
The 2017 evaluation indicates that, under Regulation (EU) 904/2010, the proportion of
requests for information not answered within three months, decreased from 43 % in 2012
to 33 % in 2016. Despite this progress, there is still a considerable space for improving
the speed of answering the requests for information from other Member States. In the
case of e-commerce, the speed may be particularly affected by the low capacity of tax
authorities to retrieve information on on-line sales, by the high volume of transactions
and by the very labour intensive approach of the exchange of information based on case-
by-case requests from other Member States.
As such, the logical solution would be to improve as much as possible the work
productivity by investing in more resources in order to make a better use of these tools.
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In 2018, 10 tax authorities reiterated problems due to late replies and limited cooperative
approach from other Member States. This may lead, indirectly, to the conclusion that the
framework laid down by Regulation (EU) 904/2010 does not imply difficulties for the
use of administrative cooperation tools. The difficulties encountered by the tax
authorities mostly result from objective external causes, as described above.
Finally, the targeted consultation did not lead to the collection of relevant statistical data
concerning the ease of exchanging information. The number of cases in which Member
States use administrative cooperation in respect of e-commerce VAT fraud remains low
and mostly unreported. Therefore, it is not possible to draw a clear conclusion on the
burden of the administrative cooperation activities.
Q.4. To what extent the resources spent on the administrative cooperation
generated results in the fight against e-commerce VAT fraud?
4.a. Benefits of administrative cooperation in the fight against e-commerce VAT fraud
overweight costs
The majority of the respondents to the public consultation (28 answers) was not satisfied
with the efficiency of the fight against e-commerce VAT fraud (when comparing the
results obtained and the resources invested). Only 10 respondents considered the fight
against e-commerce VAT fraud as efficient.
The costs and benefits of the administrative cooperation tools in fighting e-commerce
VAT fraud cannot be assessed based on factual evidence. Member States lack monitoring
tools to measure the extent to which administrative cooperation has contributed to assess
additional VAT. Little information referring to all type of VAT fraud (not specifically to
e-commerce) may be drawn from the 2017 evaluation. That evaluation showed that
Multilateral controls (MLC) led to an average result of EUR 18,5 million additional
liabilities (VAT and direct taxes).
However, as per the comprehensive 2017 evaluation, 25 out of 27 Member States
strongly agreed or agreed that costs associated with participating in administrative
cooperation are proportionate to the benefits. The same perception results from the 2018
targeted consultation. Most of the tax authorities were not able to provide data or to
estimate the level of resources involved. However, none of them was of the opinion that
the resources involved in the administrative cooperation overcomes the benefits while 5
tax authorities considered that the administrative costs due to the use of administrative
cooperation under Regulation (EU) 904/2010 to fight the
“e-commerce
VAT
fraud”,
are
low or fair compared to the higher VAT revenues. The 2017 evaluation also concluded
that the highest costs for tax authorities are associated with requests for information and
administrative enquiries, multilateral controls and Eurofisc.
Therefore, despite the lack of factual data, tax authorities estimate that the benefits of
administrative cooperation are higher than or proportional to the costs.
5.3.Relevance
Q5. To what extent the provisions of Regulation (EU) 904/2010 continue to
correspond to the needs of the Member States and other stakeholders in respect to
e-commerce?
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Figure 17: Tax authorities: perception on The relevance of the current
the administrative cooperation tools
Regulation (EU) 904/2010 in fighting
e-commerce VAT fraud is assessed by
c) the administrative cooperation tools laid
checking the needs of the member
down in Regulation (EU) 904/2010 allow
Member States to cooperate in order to fight
States’ tax authorities and on the
against e-commerce VAT fraud
effectiveness of the administrative
cooperation tools.
0
0
1
2
6
14
Absolutly true
Neither true or false
Not true
Mostly true
Somehow not true
I don't know
The targeted consultation showed that
Member States have adequate tools in
the Regulation 904/2010/EU but there is
room to use these tools more intensively
and to develop new ones.
In addition, the 2017 evaluation showed
that the Member States generally
recognise that the administrative
cooperation instruments are relevant.
Requests for information, Eurofisc,
MLCs and administrative enquiries score
particularly high.
5.a. The cross-border VAT fraud problem in e-commerce determines the tax authorities
to ask for administrative cooperation with other Member States
The 2018 consultation showed that tax authorities have sent only a small number of
requests for information (319 cases). However, due to lack of statistical system of the
Member States, this figure results from the information received from only 14 Member
States.
Furthermore, Member States expressed support for administrative cooperation tools such
as Eurofisc and MLCs. The majority of Member States recognised that more intense
administrative cooperation is needed to fight e-commerce VAT fraud. The same
conclusion is supported by the findings of the 2017 evaluation of the administrative
cooperation as well as by the results of the 2016 Survey concerning the administrative
cooperation on VAT.
Those Member States which developed VAT investigation and compliance strategies in
the field of e-commerce are all facing an increasing need for data. In order to assess VAT
liabilities, tax authorities must crosscheck the information referring to online businesses
established abroad with VAT, MOSS and Customs information. When potential VAT
fraud is detected, a request for administrative enquiry is sent to the State of establishment
of the online business. In general, in order to detect e-commerce VAT fraudsters, tax
authorities need access to information such as:
business identification: name and address, tax identification number (and VAT
number, if existing), IP numbers or other information needed to identify
activities over the internet;
information on transactions (flow of goods/services and flow of payment),
including the description of the supply, the date, currency and value of the sales,
bank account / payment methods, etc.;
information on delivery channels (like, for example, the fulfilment centres and
the carrier transporting the goods).
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The consumers have no record keeping obligations. Therefore, all the relevant
information is held either by the supplier in its country of establishment (different from
the one of consumption) or by an intermediary such as payment service providers,
internet platforms, or transport and logistic intermediaries, in cases of goods, which may
be also established in another country. This explains why the tax authorities need to
activate administrative cooperation in order to collect the necessary information to detect
e-commerce VAT fraud and assess VAT liabilities.
Both from the side of the Member States requesting for assistance and the ones giving
assistance under Regulation (EU) 904/2010, the two main difficulties refer to (i) the
identification of the online businesses and (ii) the access to the relevant information that
could be not accessible to tax auditors as it may be held in another jurisdiction or by third
parties.
Finally, given the low number of requests for information concerning e-commerce, it is
legitimate to wonder whether the administrative cooperation tools currently in force suit
tax administrations needs in the field of e-commerce VAT fraud. Some of the Member
States and part of the public suggested that, in order to detect e-commerce VAT fraud,
exchange of massive volume of data, risk analysis and crosscheck processes must be put
in place. Administrative cooperation granted on a case-by-case basis may not be relevant
anymore when compared to the size and dynamics of the e-commerce, and its
effectiveness in terms of VAT gap reduction is marginal. Even though Regulation (EU)
904/2010 allows automated access to data by electronic means, the specific tools,
adapted to the exchange of massive VAT e-commerce relevant data, are still to be
developed.
5.b. The size of the e-commerce VAT fraud is significant
As demonstrated by both the targeted and the public consultation, the size of the VAT
fraud in the cross-border B2C e-commerce seems to be significant.
On the tax authorities’ side, only three respondents provided
for some partial estimation
of the VAT loss but more than half of them developed strategies or plans to fight e-
commerce VAT fraud. At least 14 tax authorities use internet-monitoring tools for
detection purposes. Up to half of the responding tax authorities were able to indicate the
number of tax audits on e-commerce in the last three years and the additional VAT
assessed, per Member State, were ranging from modest amounts up to EUR 53 million.
The majority of the respondents to the public consultation perceived e-commerce VAT
fraud as an important problem. Most of the respondents (48 out of 52) considered that the
e-commerce VAT fraud is damaging revenues, consumers and, finally, compliant
businesses.
The rapid global expansion of e-commerce is also a factor that may contribute to the size
of the e-commerce VAT fraud, thus supporting the relevance of the administrative
cooperation.
The 2018-targeted consultation showed that the majority of tax authorities consider that,
generally, the current regulation allows for a fair level of administrative cooperation. On
the other hand, 9 respondents among tax authorities indicated that other tools are needed
to reinforce administrative cooperation, including access to third party data on e-
commerce transactions. Considering the positive assessment of tax administrations
regarding the effectiveness of the existing administrative cooperation tools, it is likely
that Regulation (EU) 904/2010 is still relevant, at least for certain patterns of VAT the
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fraud. The opinion of these tax authorities requiring additional tools, like the automated
access to payment data, and the opinion of those answering the public consultation
demonstrates that the rules of administrative cooperation need to be updated, to keep
pace with the development of e-commerce and new business models in general.
5.4.Coherence
Q6. To what extent are the provisions of Regulation (EU) 904/2010 in line with
other policies and priorities of the EU in respect to e-commerce?
The administrative cooperation in the field of VAT contributes to the proper functioning
of the Internal Market. From this perspective, the administrative cooperation is crucial
for supporting the free circulation of goods and services and for preventing any
distortions arising from VAT fraud. Moreover, administrative cooperation supports
contributes to the competitiveness of European businesses by ensuring a more level
playing field. All these arguments prove that administrative cooperation is coherent with
the objectives and general policies of the internal market.
6.a. Synergies with other EU initiatives
In December 2017, the Council adopted the e-commerce VAT Directive that will fully
enter into force in 2021. The e-commerce VAT Directive abolishes distance sales
thresholds, the VAT exemption on small consignments and introduces the One Stop
Shop (OSS) to imports. The simplifications introduced with the e-commerce VAT
Directive aim at improving VAT compliance by making the VAT system easier to
comply with.
However, tax authorities still need the tools to detect and control the online businesses
that will not comply with VAT rules even under the simplified regimes, or the ones that
will declare less VAT than what actually due.
As seen the current Regulation (EU) 904/2010 allows tax authorities to exchange data on
specific fraud cases, or to check VAT registration of businesses that have intra-EU
supplies with other businesses (B2B). However, the current Regulation does not provide
for specific tools to check the identity of cross-border B2C suppliers outside the MOSS
or to automatically carry out any check on the real turnover of cross-border online
businesses.
The extension of the MOSS and the introduction of the OSS on imports will represent an
important opportunity for businesses, bringing substantive simplification for the
fulfilment of VAT obligation on intra-EU supplies and imports. At the same time, it
requires proper tools (such as collection and exchange of payment data) for tax
authorities to check the reality and correctness of registration and tax declaration and,
most of all, control the businesses outside the system to ensure a level playing field.
In fact, as mentioned before, the 2018-targeted consultation showed that 9 tax authorities
asked for more administrative cooperation tools to fight e-commerce VAT fraud. The
other tax authorities either do not have an opinion, or prefer to wait for the entry into
force of the e-commerce VAT Directive in order to assess its relation with the
functioning of the administrative cooperation under Regulation (EU) 904/2010.
These may lead to the conclusion that the current rules on administrative cooperation are
largely in line with the other policies concerning the internal market and the recent e-
commerce VAT Directive. Nonetheless, Member States should get prepared for new
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challenges such as the capacity of processing data allowing for identification of e-
commerce VAT fraud cases, which is difficult under the current regulatory framework.
6.b. Identified areas that require to amend administrative cooperation rules in relation to
e-commerce
In the context of the targeted consultation the tax authorities did not precisely identified
legal provisions in the Regulation (EU) 904/2010 which need to be improved. However -
as already mentioned - they identified a few issues (in respect of the administrative
practice) that require improvements:
the high rate of late replies;
the level of resources involved in administrative cooperation which is still too
low, especially when compared to the volume of work imposed by the number of
requests for information;
the staff involved in the administrative cooperation needs more training;
the Member States have to commit in granting a better assistance to other
Member States.
In particular, some of the tax authorities mentioned
159
difficulties on accessing relevant
data from internet platforms and payment providers (mainly because of data protection
reasons).
Both the 2017 evaluation and the recent targeted consultation in 2018 showed that
Member States are generally in favour of exchanging payment data and consider it as one
area in which Regulation (EU) 904/2010 may be further amended to give the tax
authorities the right tools to fight e-commerce VAT fraud.
5.5.EU added value
Q7. Could Member States have achieved similar results at similar costs without
acting at EU level?
7.a. Joint EU approach on VAT administrative cooperation has advantages over other
forms of national and international forms of VAT administrative cooperation
The EU can already rely and gain from a 40 years’ experience of administrative
cooperation between the Member States.
In order to control cross-border transactions, the Member States need to cooperate
between each other because most of the time the VAT fraud is not restricted to their own
territory. The tools foreseen by Regulation (EU) 904/2010 evolved during the time in
order to respond to the need of Member States. These tools currently include exchange of
information on request, spontaneous exchange of information, automatic exchange of
information, automated access to data through VIES, multilateral controls, presence in
administrative offices, presence during administrative enquiries, Eurofisc.
The respondents to both the open public and the targeted consultation stressed the
advantages of common EU rules in order to allow Member States to work more closely
together and fight e-commerce VAT fraud. In particular, the businesses claimed that a
uniform approach as regard collection of VAT relevant data is more efficient and
guarantees more legal certainty while tax authorities considered administrative
cooperation as effective to combat e-commerce VAT fraud.
159
As a result of the 2016 survey (AntiVATFraudEUMSE-commerce102016), at least in 7 cases, tax
authorities mentioned difficulties of cooperation with internet platforms and even banks.
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Figure 18 - Public consultation: Public Figure 19: Tax authorities: perception
perception of the EU added value
of the EU added value
The existing administrative cooperation tools
allow Member States to fight against VAT
fraud involving online sales at a higher level
than what could be achieved by the EU
Member States acting indepentl
7
9
4
10
Member States alone are able to fight e-
commerce VAT fraud, without using the
administrative cooperation tools laid down
in Regulation (EU) 904/2010
0
1 1
4
3
5
18
13
Stongly agree
Do not agree nor disagree
Disagree
Agree
Don't know / NA
Strongly disagree
Absolutely true
Neither true or false
Not true
Mostly true
Somehow not true
I don’t know
The perception of the majority of respondents to the public consultation (27 answers) was
that the existing administrative cooperation tools allow Member States to fight against e-
commerce VAT fraud more effectively than what could be achieved by the EU Member
States acting independently. Furthermore, the majority of tax authorities answering to the
2018 targeted consultation (17 answers) agreed or strongly agreed that Member States
alone would not be able to fight e-commerce VAT fraud need the tools of the
administrative cooperation.
From another perspective, replacing the common EU framework of administrative
cooperation in the field of VAT with other forms of national and international tax
cooperation seems to be less effective and, possibly, more expensive. Currently, there is
no other organization offering the same level of administrative cooperation in the field of
VAT as the EU. OECD, for example, dedicates most of its recent efforts to the field of
direct taxation while the level of mutual assistance for VAT which has been developed
under the Regulation (EU) 904/2010 is unmatched by any other multi-lateral legal
instrument in the field of taxation. Finally, the Fiscalis evaluations show, generally, that
the trans-European IT systems in the field of taxation, like VIES, offer good value for
money, as it would be more expensive for the Member States to develop independently
national IT systems with an equivalent effect.
Finally, in 2017, 33% of the customers buying on-line across Europe shopped from
sellers in other EU countries while 23% shopped from sellers outside EU
160
. Therefore,
one of the highest benefits of the administrative cooperation tools implemented based on
Regulation (EU) 904/2010 seems to be the protection of the Internal Market.
160
http://ec.europa.eu/eurostat/statistics-explained/index.php/E-commerce_statistics_for_individuals#e-
shopping_from_other_EU_countries.
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7.b. Stakeholders perceive the e-commerce VAT fraud as a common cross-border
problem rather than as a national one.
There is no doubt that, by its nature and
Figure 20: Public consultation: perception
as explained above, e-commerce
on the e-commerce VAT fraud problem
requires cooperation between tax
authorities in order to assess VAT
All EU Member States are concerned by the
VAT fraud on online sales
correctly. The destination principle
makes this necessary, as the VAT is due
4 1
3
in the country of consumption, even
though the supply originates from
25
another Member State or from a third
9
country or territory. In order to protect
the free circulation of goods and
services within the Internal Market, tax
10
authorities have to find ways of working
together for protecting VAT revenues
Stongly agree
Agree
Do not agree nor disagree
Don't know / NA
and for ensuring a level playing field for
Disagree
Strongly disagree
businesses.
The Customs Union require also to set common rules related to imports, thus when it
comes to e-commerce VAT fraud, Member States have to find common EU solutions by
using the administrative cooperation tools provided by Regulation (EU) 904/2010.
As highlighted by the public consultation, most stakeholders are aware of this “EU
dimension” of the e-commerce
VAT fraud. In fact, 35 respondents declared they consider
that the e-commerce VAT fraud is affecting all EU member States.
7.c. The provisions of Regulation (EU) 904/2010 on cross-border administrative
cooperation can be considered as providing EU solution to EU problems in terms of
fighting e-commerce VAT fraud
The effectiveness of the tools for administrative cooperation gives an indication of their
EU added value.
The results of the 2017 evaluation indicated that the most efficient tools provided by
Regulation (EU) 904/2010 are the automated access to information (VIES), Eurofisc and
multilateral controls.
In 2018 with respect to e-commerce, the tax authorities indicated that the most efficient
tools are Eurofisc, followed by the exchange of information on request, the spontaneous
exchange of information and the multilateral controls.
However, as highlighted by some of the tax authorities in the targeted consultation, the
potential of the current administrative cooperation tools is not exploited at its best. The
EU added value could be higher by increasing the use of the tools provided by
Regulation (EU) 904/2010.
In essence, while the EU provides for the legal framework for administrative cooperation
to combat e-commerce VAT fraud, its impact on VAT fraud depends on the resources
invested and the commitments of each Member State to cooperate to reduce VAT loss at
EU level and contributing to a level playing field for businesses in the Internal Market.
This statement is also supported by the findings of the public consultation. In fact the
majority of the respondents (34 out of 52) considered that the e-commerce VAT fraud
should be addressed both at EU and Member States level while an important number (14)
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of the respondents considered that the problem can be only solved at EU level. Only one
respondent argued that e-commerce VAT fraud should be addressed only at Member
States level.
In conclusion, the EU added value of administrative cooperation is the protection of the
Internal Market and of the VAT revenues. E-commerce VAT fraud is a common
problem, affecting all the Member States. Member States alone are not able to tackle the
problem of e-commerce VAT fraud. Therefore, Member States should invest in
administrative cooperation. Some of the administrative cooperation tools, like Eurofisc,
seem to be rather well fitted for this purpose. However, the EU added value of the
administrative cooperation is still somehow limited, as the level of resources invested in
the administrative cooperation is not sufficient compared to the needs. New and more
effective tools may still be needed.
6. CONCLUSIONS
The current evaluation assesses to what extent Regulation (EU) 904/2010 met the overall
objectives of contributing to a closer cooperation between Member States, of avoiding
budget losses, of fighting VAT fraud and of preserving the principles of fair taxation,
when considering e-commerce. It mostly confirmed that the findings of the 2017
comprehensive evaluation of Regulation (EU) 904/2010 also apply to the specific case of
e-commerce. The exception is that, in the field of e-commerce, the tax authorities
consider the Eurofisc network and the exchange of information on request and
spontaneous as the most effective tools, while the 2017 evaluation showed that VIES is
the most appreciated tool. Indeed, VIES is conceived as a tool for sharing information on
B2B intra-EU supplies and not on B2C transactions. For this reason, VIES does not fit
with the need of fighting e-commerce VAT fraud.
With respect to the
effectiveness
of the current tools for administrative cooperation in
relation to e-commerce VAT fraud, tax authorities have a better opinion than the public,
probably because they have a direct knowledge of their application. In general, tax
authorities consider the current Regulation (EU) 904/2010 on administrative cooperation
as effective. However, there are a number of shortcomings:
(i)
(ii)
the identification of online businesses is difficult;
the domain and records of the online business is often located in another country
(also outside the EU);
(iii) there are limited enforcement tools in respect to VAT fraudsters located outside
EU;
(iv)
tax officials need more training to use more effectively the administrative
cooperation tools.
The needs to increase the commitment of Member States and dedicating more resources
to administrative cooperation appear as crucial because they currently limit the
effectiveness of the Regulation in respect of fighting e-commerce VAT fraud.
Furthermore, some Member States also mentioned that the effectiveness of the
Regulation could be increased with new tools, such as access and exchange of relevant
payment data.
There is not sufficient quantitative evidence to support the
efficiency
of the
administrative cooperation in respect of e-commerce. However, the opinions of the tax
authorities are converging and positive, considering that the benefits of the administrative
cooperation are proportional or even higher than the costs. This positive opinion is
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consistent with the findings of the 2017 comprehensive evaluation. The evaluation also
showed a need to increase the use of automated access to information.
The targeted consultation showed that the tools laid down in Regulation (EU) 904/2010
are
relevant
to fight VAT fraud but there is room for improvement. The evolution and
the volume of e-commerce transactions may require new and more effective and efficient
administrative cooperation tools. Therefore, the existing tools may become less relevant
in the future due to the evolution of the business models and of the patterns of VAT
fraud.
The analysis of the
coherence
of Regulation (EU) 904/2010 with other policies and
priorities of the EU in the e-commerce sector showed a good level of alignment. In this
respect, it is important to stress that administrative cooperation in the field of VAT
contributes to the proper functioning of the Internal Market and, in particular, of the e-
commerce VAT Directive rules. Nonetheless, Member States should deal with new
challenges such as the capacity of processing data for the detection and fight against e-
commerce VAT fraud.
Finally, the
EU added value
of the current tools of administrative cooperation, as
provided by Regulation (EU) 904/2010, appears evident. Both tax authorities and other
stakeholders recognised the benefits of acting together at EU level, as the e-commerce
VAT fraud is affecting all EU Member States. Individual national measures are not
considered effective enough.
Overall, both the 2017 comprehensive evaluation and the targeted consultation under the
current initiative showed that Member States are generally in favour of collecting and
exchanging payment data and amending Regulation (EU) 904/2010 accordingly.
The findings of this evaluation must feed the legislative proposal to collect and exchange
VAT relevant payment data to combat e-commerce VAT fraud.
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10.4. Annex 4: Who is affected by the initiative and how?
The preferred option (sub-option 3.2) will imply
payment service providers
to keep
records to be transmitted every quarter to the tax administration of establishment. The
record keeping and the format of the transmission of data to tax authorities will be
harmonised EU wide. Compared to the baseline scenario, payment service providers will
benefit from common EU harmonised rules instead of dealing with different procedures
in the Member States, thus leading to increased legal certainty.
Tax authorities
will have to upload the data received in a centralised database, and
manage the analysis of the data at Eurofisc level. The result of the risk analysis will have
to be used by the Eurofisc officials to activate VAT controls. Compared to the baseline
scenario, tax authorities will exchange payment data and will have to activate controls on
the information received. There will be a level of direct costs for tax authorities which
have been extrapolated from the costs of the Customs Information System (ICS2), which
is another centralised database with a number of functionalities that could be similar to
the ones foreseen in the preferred option. Besides the initial cost of developing the IT
capabilities to collect massive volume of payment data, tax authorities will have to
maintain their own systems. However, it is reasonable to expect that most tax authorities
already have large scale capabilities of processing large volumes of data as most of them
invested in the automatic exchange of information on direct taxes. With very few
exceptions, tax authorities were not able to estimate the costs of implementing different
policy options. Nonetheless, most respondents in the targeted consultation (16 answers
out of 23) declared they are probably or certainly capable of storing the data received
from the payment service providers established in their Member State in an electronic
database.
Concerning the indirect costs, one could expect that tax authorities would have to
dedicate limited resources to cross check the correctness of the payment data format or to
log the information in the central repository. In fact, the payment data will be transmitted
in an EU harmonised electronic format.
The
European Commission
will have to develop and maintain the central repository,
but will not have access to transaction level information. However, the Commission
should be allowed to extract statistical data for ensuring the security of the central
repository and to follow up the performance of the initiative.
European citizens
will not be affected when buying products. Their personal
identification data will not be transmitted to the tax authorities. Data collected will refer
to payees receiving payments from another state only. Moreover, only when risk filters
will indicate that these payments could refer to an economic activity, the tax authorities
will first carry out a preliminary crosscheck with other sources of tax information and
eventually decide on a tax audit. Finally, the European citizens will be positively
impacted by the higher VAT revenues resulting from the fight against VAT fraud and,
probably, by a less distorted market.
European businesses and SMEs
will benefit from the more level playing field resulting
from the fight against VAT fraudsters. European businesses selling on-line will not be
affected by any new reporting obligation.
In respect to costs for businesses, these are likely to have a limited one-off impact on
payment providers. The limited impact is foreseen due to the automation of the business
processes and to the fact that most payment providers seem to own already a strong IT
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support, allowing them to exchange large volumes of data with tax authorities or other
entities (i.e. with members of the same economic group, other payment providers and
clearance institutions, analytics companies, other providers of services on their behalf,
etc.). At present, for example, one large payment providers mentioned costs of around
100.000 Euros / year for answering the case-by-case information requests from tax
authorities (mostly generated by the time consumed by employees).
On the longer term, the costs for payment providers may result from the requirement of
storing the information on a 10 years term and, more importantly, from the periodical
effort to gather and transmit data. However, as reported by some payment providers
during the targeted consultation, this requirement seems to exist already for some EU
countries, even though for shorter periods. Equally, the prices for large storage capacities
have been continuously decreasing over the recent decades, so this may not seem an
unbearable cost. Finally, it remains only to mention that the reporting period seems to
play a more significant role in respect to recurrent costs for payment providers. As
suggested during the targeted consultation by one of the associations representing
payment providers, quarterly, semi-annually or annually submission of payment data
seem to be reasonable in terms of costs, thus leading back to the conclusion that the
overall costs for payment providers will be limited.
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Summary of costs and benefits
Description
VAT collection increase
Amount
I. Overview of Benefits (total for all provisions)
–
Preferred Option
Comments
Direct benefits
The investment costs of the
tax authorities
will be radically outweighed by the VAT revenue increase due to the fight against VAT
fraud. An initial investment of EUR 180.000 in Finland (where such a system already exists at national level) led to a collection of
more than EUR 16 million of VAT collected after targeted controls. As a result of the VAT collection increase, it is expected that the
VAT gap will be reduced in the e-commerce sector.
Payment service providers will deal with the Member
States’ tax authorities through harmonised procedures and common reporting
standards. This may first lead to a better predictability and less errors. Secondly, this may subsequently lead to some limited costs
savings as payment providers will implement standardised IT systems and procedures for reporting in different EU countries.
Indirect benefits
Level playing field
European businesses,
including
SMEs,
both in the e-commerce and traditional economy, will benefit from the fight against VAT
fraud. The number of fraudsters that benefit from unfair competition (thanks to the VAT fraud) is supposed to decrease, thus leading
to a more level playing field.
on
Businesses involved in e-commerce VAT fraud usually pay little attention to ensuring a good level of customer support, ensuring the
legal guarantee for the products they sell and respecting intellectual property rights. This assumption has been confirmed by some
answers in the public consultation. Even though the eviction of fraudsters from the market does not necessarily trigger a positive
effect on those issues, there is a reasonable expectation that a number of customers will not be any more victims of poor customer
services or the non-respect of intellectual property.
II. Overview of costs
–
Preferred option
Payment service providers
One-off
Transmission payment data
Storage and exchange of payment data
Direct costs
Indirect costs
Direct costs
Indirect costs
limited
Recurrent
limited
limited
limited
EUR 7.5 million
EUR 2.9 million (1 year)
limited enforcement costs
EUR 11.8
million
EUR 4.5Million (1 year)
One-off
Tax administrations
Recurrent
European Commission
One-off
Recurrent
Increased legal certainty
for payment providers
Spill over
consumers
effect
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10.5. Annex 5: Methodology
It was not possible to carry out a quantification of the impacts of this initiative through a
CGE (computable general equilibrium) model simulation in the time available. The
analysis of the impacts will therefore be laid out essentially in qualitative terms.
The evidence for the impact assessment report was taken by different consultation
activities:
A survey with the Member States' tax authorities on e-commerce anti-fraud strategies
Consultation with the VAT forum Commission Expert group on e-commerce
A targeted consultation addressed to tax authorities on payment data
A targeted consultation addressed to payment service providers and businesses on
payment data
A public consultation
Desk research
Furthermore, a feasibility study has been carried out internally in TAXUD calculating the
costs of the different options. For the quantification, the study (Annex 6) considered the
costs of the Import Control System, which presents some of technical specificities similar
to the ones of the preferred option of this initiative.
Finally, the case study on pricing policy and estimation of potential VAT loss (in Annex
6) was drafted using a mock purchase approach.
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10.6. Annex 6: Technical feasibility of the options
OPTION 1
–
Status quo
Transmission of payment data to the tax administration
National competence through national processes.
Cleansing
The data have to be usable. For this, they must be linked to a usable tax identifier, which
is assumed to exist nationally. Other processing is also necessary, such as aggregation of
payments in a certain period of time.
Risk analysis
The data thus collected may be used to compare with other national sources, such as
MOSS or VAT returns, turnover information, or other.
Store and exchange of data
Storage at national level. Specific cases that affect other MS may be sent spontaneously
through administrative cooperation forms
Processing
MS can use payment data to carry out nationally VAT controls
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OPTION 2
–
non-regulatory
Transmission of payment data to the tax administration
As per option 1, But guidelines as regards the format of the data may be published.
Cleansing
As per option 1.
Risk analysis
As per option 1.
Store and exchange of data
The form for the spontaneous exchange of information may be standardised
Processing
As per option 1
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OPTION 3.1
–
Distributed application (similar to the VIES)
Transmission of payment data to the tax administration
Transmission is to be foreseen in all MSs, by the PSP established in the Member States.
The standardisation of the information received is necessary. The technical means for
collection may differ per MS.
Cleansing
The data received by MSs need to be usable.
It is assumed that they contain an identifier
for payees.
The data need to be cleansed (corrected) and organised per MS, where MS is
the MS of the consumer (MS-C) or the seller (MS-B) in the payment record. The data
then are stored and reorganised for dissemination.
Risk analysis
The aggregated data received per MS are used for risk analysis in comparison with other
national sources, such a MOSS, VAT returns, turnover data etc.
Store and exchange of information
In each MS, The data have to be stored per MS and reporting period a) as raw
information concerning payees in that MS receiving the payment data or payees in other
MS-B b) as aggregated information per reporting period per payee in the MS-B or having
received payments from MS-C. The system has to a) send spontaneously aggregated
information per MS and b) send the raw information based on queries specific to a payee.
This system is equivalent to the VIES recapitulative statements handling. It needs to use
some form of validated identity for follow up queries to the detail of the information.
Processing and VAT audit
The result of the above analysis may give rise to specific administrative investigations
and VAT audits. Such investigations may trigger receipt of further detailed payment raw
data through the facility made available by the "store and disseminate" subsystem.
OPTION 3.2
–
Central storage
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Transmission of payment data to the tax administration
As 3.1. However, the data received are sent as such to a central location for the next
processing step, the cleansing.
Cleansing
Processing taking place centrally.
The central system receives all raw data from all MS.
It is assumed that they contain an
identifier for payees.
Specific processing needs could be established to associate the
identifier of the payees with a taxable person.
In such scenario, an
identity matching
system
needs to be foreseen, which learns from experience (machine learning), from
input of officials assigned to this identity matching and from results of the risk analysis
process in MS, which may feed the identity matching system. In this system, the
transmitted information is associated to one or many pieces of validated information,
such as a VAT number. Following such processing, the data need to be organised per
MS, where MS is the MS of the consumer (MS-C) or the seller (MS-B) in the payment
record.
Risk analysis
At each MS, the aggregated data received per MS are used for risk analysis in
comparison with other national sources.
Aggregation of data per risk indicators can be established (e.g. per amount of payments,
number of payments, country of origin, country of destination….)
Store and sharing the information
At the centre, the data have to be stored per MS and reporting period a) as raw
information concerning payees per MS and b) as aggregated information per reporting
period per payee in per MS.
The system thus created has to send spontaneously aggregated information per MS.
Sending the raw information is not necessary, as this information is available centrally
and may be accessed there only by Eurofisc officials of the Member States.
The system is using the identities produced by the identity matching system to
calculate the aggregates. These records do contain also the basic information
transmitted.
Processing and VAT audits
The result of the above analysis made at MS level may give rise to specific
administrative investigations and VAT audits. Such investigations may use the central
system to access the raw information. Thus, the central system must also be equipped to
support the work of such investigations through appropriate definition and design. The
data held centrally may undergo some processing specific to a limited set of traders, as
they are identified from the national risk analysis operations. In addition, if national risk
analysis has uncovered an identity of a trader, the identity matching system is updated.
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DESCRIPTION OF THE DIFFERENT STEPS
Transmission of payment data to the tax administration.
National collection from locally established payment service providers is considered not
to represent a specific security challenge. These organisations are recognised formally in
the MS of establishment and thus they have or may have standard working relations with
the tax authority.
Cleansing
A fundamental aspect of cleansing is to make sure that the records received are usable.
In
the particular case, each record must be able to be associated correctly to a taxable
person.
In order to palliate this issue, we have introduced an
identity matching system.
This system is supposed to learn from experience: input of specific PSPs and of MSs’
systems (e.g. the association of a reference received by one specific PSP with records
received from other PSPs that may concern the same payee or validated identifications
supplied from MSs).
From storage and processing perspective, the cleansing and the identity matching system
will generate additional storage requirements and processing requirements where it takes
place. The cleansing algorithms will most probably necessitate globally 3 times the
storage of the basic information.
Store and exchange or sharing of information.
From a storage perspective, the centralised option has to be able to receive and store the
+- 8 billion payment records annually. This represents a significant storage, in the range
of +- 5 terabytes (5 thousands of billion characters) annually globally. The size of the
transmission files is itself an issue and necessitates appropriate internet connectivity that
we will consider available in all locations.
In the case of scenario 3.1, the data will need to be stored in each MS both in aggregated
way per payee and raw no aggregated data. Data records will have to allow the
identification of the payees (e.g. different registrations of the same payee in different
payment systems). While aggregated data will be available to the other Member States
electronically, raw data may be sent spontaneously. In the case of a centralised storage,
the raw data will be available centrally for MS access. This information centrally is
estimated in the range of 10 terabytes annually.
Risk analysis
The cross-match of payment data with other databases (as VAT, MOSS or other turnover
databases) will be carried out by tax officials of the national administrations. In option
3.1 this will be done at national level, under options 3.2 this will be done at Eurofisc
level
Processing and VAT audits
The centralised solution could develop other automated processes to allow further
crosscheck of data, for instance with the VIES
161
. Such processing will generate
additional storage needs.
161
VAT Information Exchange System foreseen by Chapter V of Council Regulation (EU) No 904/2010
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The output of the risk analysis' output will be a number of targets to be further controlled
by the tax authorities.
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10.7.
Annex 7: Case Study
–
pricing policy and estimation of potential VAT
loss
The free nature of the Internet and the high degree of anonymity provided may make it
easier to avoid VAT payment on B2C electronic transactions. The VAT loss is very hard
to be determined and needs specialised audit tools, time, qualified skills, other important
resources and comprehensive data, thousands of invoices and, above all, a competent
authority.
However, is possible to try to estimate the potential VAT loss using different proxies and
an analysis based on out of ordinary pricing policy of different sellers. This exercise does
not represent a valid proof of the VAT loss or VAT fraud to be used in courts, but still
raising lots of legitimate questions.
The estimation shows a
potential VAT loss of up to EUR 29 million for a 5-year
period (EUR 5.7 million/year) from the one seller
we analysed in detail.
Methodological considerations
We used a mock purchase approach to reconstruct consumer experience from the initial
moment of searching the internet for a product to the last click before the final purchase.
We have tried to follow the process of buying a mobile phone
162
from the internet.
Observation! This was as an exemplification only. We did not make any actual
payment/purchase and no rules were broken during this exercise.
We tried to detect any anomalies in the selling price of the product and to analyse these
discrepancies in order to capture any reasonable justification or to determine any
indications (proxies) of potential VAT fraud. The illustration of our mock purchase
exercise is here:
Seller
selection
(initial price
observation)
Payment
(verifying
the price)
VAT
policy
(invoicing,
registering,
declaring
)
Operation
s
(business
model and
EU
dimension)
Price
analysis
(pricing
policy and
VAT rates)
VAT loss
(estimation
of potential
VAT fraud)
The findings were documented using free data sources (websites, forums, discussions,
complains etc.). We tried to keep the estimation methods very easy to understand and to
be as conservative as possible in our exercise.
We anonymised the real name of the seller, information that can lead to identification of
the buyers and the data referring to other sellers. We kept all the evidence for our
findings (lists, print screens, references etc.) to be able to defend our position, if needed,
and we validated our conclusions with EUROFISC
163
, the EU's network of Member State
VAT fraud experts.
team selected the product based on what was “hot” when we initiated the search (19.03.2018). The
product we used (Samsung Galaxy S9 phone) was just launched on 16.03.2018
163
EUROFISC is the European Network of National Officials specialised in combating VAT fraud. The
EUROFISC network was established by Regulation on administrative cooperation and combating VAT
162
Our
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1. Seller selection (finding the product and observing different prices)
Our team went online using the most popular search engine in the world
164
to find the
product. The majority of new customers start the same way their search for a product.
Different factors drive purchase decisions. For our case, important aspects such as
product features and brands are not determinant because we searched for the same
product in different places. Price remains the main factor for the buying decision
165
.
It is easy to
spot the lower price from the above
and we decided to
follow that specific
seller.
We will further refer to this business
as “The seller” in our case study.
2. Payment (verifying the price)
We tried to see if the price is final or other taxes are added at a later stage of the process.
Impersonating the average buyer, we (1) added the item to the basket; (2) proceeded to
payment; and (3) verified the final price.
fraud (Council Regulation 904/2010 (OJ L268 of 12/10/2010)) and officially launched on 10 November
2010
164
Google has approx. 90% of the search engine market (http://gs.statcounter.com/search-engine-market-
share)
165
2017
Global
Online
consumer
report
by
KPMG
(https://home.kpmg.com/xx/en/home/insights/2017/01/the-truth-about-online-consumers.html)
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The final price corresponds to the listed price. There are no other taxes such as VAT or
custom duties added to the listed price on the web shop.
3. VAT policy (invoicing, registering, declaring)
As this was an exercise, we did not make the real payment; therefore, we do not have the
real invoice for this payment. However, we collected evidence (invoices) from different
other sources: discussion forums, complaints, internet boards etc. We wanted to see if
The Seller usually indicate any VAT on the invoices issued.
Our findings: different Member States, different invoices
and one point in common - no
VAT
on invoices and no mention of any VAT and duties on the invoices. The example
below shows anonymised invoices from customers in four different Member States:
France (purchase made on .fr website operated by the seller), Germany (purchase made
on .de website operated by the seller), Slovenia (.purchase made on .eu website operated
by the seller) and Spain (purchase made on .es website operated by the seller).
France
Germany
Slovenia
Spain
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The “Terms & conditions” section on the websites of the seller mentions that the prices
shown are final, without any other charges, supposedly including all taxes. The seller
claims to have VAT included in the price. However, the seller does not appear to be
registered in EU for VAT purposes and does not display a valid VAT number on any
invoice. However, in the communication with its EU clients the seller admits he knows
about its tax obligations. The seller claims to pay the VAT and customs duties. The e-
mail below from the seller’s customer support (France and Belgium) perfectly illustrate
this policy:
4. Operations (business model and EU dimension)
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The seller uses multiple websites in different languages and different Member States:
The above websites try to create the appearance of a local website. However, the
aforementioned web shops are just an interface for “drop shipping”
166
. The seller receives
and process the orders on these websites. A Hong Kong-based Ltd. company specialised
in “drop shipping” sends the products to the customer.
Being able to evade the VAT and to offer very low prices is a game changer for any web
shop: it boosts the sales and the merchant can make the same or even little more profit
than compliant businesses in the same game with virtually no costs and little associated
risks. In order to succeed and to worth the risk from the consumer part, the seller has to
offer a very competitive (low) price. We will analyse this pricing policy in the next
section.
5. Price analysis (pricing
policy and VAT rates)
The seller offers very competitive prices on all its websites. The average discount
indicated by the company on its websites is between 19% and 24% while the VAT rates
are between 19% and 23%. Even if cannot be determined directly, the possible link
between the very competitive (“too
good to be true”)
price displayed and the VAT rate
can be easily noticed from the price analysis.
On top of the very low price, possible uncompliant sellers may benefit from other unfair
advantages resulting from aspects such as no copyright issues, no return policy, no
guaranty, no customer care department, and no legal costs. All these aspects offer a
comfortable manoeuvre margin for the seller in terms of pricing policy.
Table 1: Price comparison in different Member States:
Seller’s
Price
(EUR)
167
Market
Averag
e Price
(EUR)
Seller’s
Discount
(EUR)
Seller’s
Discount
(%)
Theoretica
l price in
EUR (real
price +
Potential
price
differenc
e (EUR)
% Theoretical
price
difference (if
theoretical
Member
State
VAT
rate (%)
166
"Drop shipping" is a legal retail fulfilment method where a store does not keep any stocks but
purchases the item from a third party and sends it directly to the customer. The merchant never sees or
handles the product. This business model usually operates with very low margins in a highly competitive
niche market. Being easy to start the business with little or no overhead expenses, many merchants are
involved in this type of business; selling prices are very close to the ones from the competitors. The little
investment in getting started, usually low-quality websites and poor (if any) customer service, makes it
possible to operate on tiny margins.
167
As displayed on Seller’s websites
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168
VAT)
VAT is
included)
21
53
57
50
66
45
27
4
76
2,5%
6,2%
6,7%
5,9%
7,7%
5,7%
3,2%
0,5%
9,0%
AT
BE
DE
ES
FR
IT
NL
PL
UK
690
658
660
660
655
625
679
687
639
849
849
842
849
852
795
849
849
843
159
191
182
189
197
170
170
162
204
20%
21%
19%
21%
20%
20%
21%
23%
20%
19%
22%
22%
22%
23%
21%
20%
19%
24%
828
796
785
799
786
750
822
845
767
EU
659
842
183
21%
22%
797
45
5,3%
On top of this, the company may benefit from other unfair advantages resulting from
aspects such as no return policy, no guaranty, no customer care department, and no legal
costs.
5.1.User experience (posts from customers on dedicated discussions forums)
User 1:
User 2:
User 3:
5.2.Additional questions (extension of the mock purchase exercise)
After this exercise, the main issue was to check if our findings are isolated (the product
we search was on some kind of promotion or discounted), if the exercise is consistent
168
Calculated as the average of best prices displayed by top selling companies in 5 Member States (UK,
FR, DE, IT and ES)
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(the findings can be extended to other seller) and widespread (if this practice concern
other areas or is something specific to our chosen domain).
We tried to answer to the following questions:
a. Is the seller applying the same pricing policy for other products on his websites?
and
b. Are other sellers applying this policy on certain products?
c. Is this practice affecting only electronics or other areas are also concerned?
a. Different products, one pricing policy
To answer the first question, we revisited the website(s) of the seller and compared the
prices of other very popular products (based on customer’s preferences) with the
average market price in EU
169
. We found a 22% lower median price on the products
compared. The full results are:
Selected Product
Apple iPhone X 256GB silver
Canon EF 100mm f2.8L Macro IS USM
Apple MacBook Air 13.3 i5 1.8GHz 128GB
Apple iPad 9.7" (2017) 32GB Wi-Fi
Canon EOS 80D Body
JBL Flip4
Samsung Galaxy Tab S3 9.7 32 GB Wi-Fi
Google Pixel 2 XL 128GB
GoPro HERO6 4K
Fitbit Charge 2
Canon EOS 5D Mark IV Body
Seller’s price
(EUR)
969
649
732
261
699
77
429
789
331
101
2359
EU average
price (EUR)
1240
869
956
332
974
103
540
990
418
126
3186
Price
difference (%)
22%
25%
23%
21%
28%
25%
21%
20%
21%
20%
26%
b. 10 different sellers, same approach
To find an answer to our second question, we have selected the products with the
biggest price difference and tried to verify the price with ten sellers mentioned on
different forums to have similar practices
170
. For the average user, these websites
appear to be located in different EU Member States (Luxembourg, UK, France,
Belgium, and Germany) but they mainly sell from outside of the EU (mostly China,
but from United States also). Our results indicate a 23% lower median price for the
first product and 21% lower price for the second product. The prices were between
19% and 28% lower than the average market price used for comparison. The table
below shows the detailed price comparison (in EUR and %):
Seller
EU Average Price
The Seller
Alternative seller 2
Product 1 (EUR)
974
699
708
Product 1 (%)
100%
28%
27%
Product 2 (EUR)
3025
2359
2347
Product 2 (%)
100%
22%
22%
169
We determined the EU price as an average of market prices in 5 EU Member States (BE/NL, FR, DE,
IT, ES) taking into account the lowest selling prices displayed by biggest sellers on these markets (Fnac,
MediaMarkt, Saturn, Amazon, eBay etc
.)
170
We anonymised the real names of the 10 sellers used for comparison
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Alternative seller 3
Alternative seller 4
Alternative seller 5
Alternative seller 6
Alternative seller 7
Alternative seller 8
Alternative seller 9
Alternative seller 10
Price difference (median)
789
793
781
763
687
669
769
740
752
19%
19%
20%
22%
29%
31%
21%
24%
23%
2326
2545
2427
2400
2223
2195
2459
2431
2380
23%
16%
20%
21%
27%
27%
19%
20%
21%
c. Multiple areas may be affected by e-commerce VAT fraud competition
For the third question, we have seen evidence of the same price policy indicating possible
VAT fraud in cross-border sales e-commerce in some other areas than the one we
documented. Some of the main areas concerned are
171
:
Textiles and shoes
Electronics (computers, cameras, mobile phones, smartwatches, tablets, speakers etc.)
Watches
Videogames
Television and broadcasting
Beauty products (cosmetics, perfumes, etc.)
In relation with above areas, we found 40 other web shops and marketplaces with
unusual price policies during our analysis. However, due limited time and resources
available, we were unable to analyse these sites.
6. VAT loss (estimation of potential VAT fraud)
Our selected seller claims more than 500.000 customers: “Seller
has been providing
online shopping services for more than 5 years and now we have a total of 9 online
stores operated in Australia, the United Kingdom, USA, Germany, France, Spain, and
Italy, which we have already served more than 500,000 satisfied customers”
172
. We used
a proxy related to the customer’s reviews to estimate the percentage of EU customers.
Therefore, we analysed the dispersion of 26.806 reviews posted on
Seller’s
partner online
review community. The results show that the large majority of reviews (more than 91%
were written by people claiming they made their purchase from one of the EU Member
States
173
.
Country of
the web
IT
ES
PL
FR
DE
UK
BE AT NL
EU
US AU Total
shop
No of
4272 3120 14 5064 1925 4653 688 426 1250 3139 854 1401 26806
reviews
(%) of
15,9% 11,6% 0,1% 18,9% 7,2% 17,4% 2,6% 1,6% 4,7% 11,7% 3,2% 5,2% 100%
reviews
171
These areas can be found in the list of most popular online purchases published by EUROSTAT
http://ec.europa.eu/eurostat/statistics-explained/index.php/E-commerce_statistics_for_individuals
172
www.eglobalcentral.eu/about-us-eu.html
173
Own calculations based on Trustpilot reviews (www.trustpilot.com) posted at 19.04.2018
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Based on the listing prices of the top 150 most popular products (best sellers) we
estimate the Average Order Value (AOV) at EUR 316 for the analysed seller. We
took a very conservative approach, even excluding the top 5% expensive products
from our estimation and assuming that the average customer bought only one
product per purchase
174
.
Our
VAT loss estimate on this single seller is up to EUR 28.775.438 for a 5 year
period (up to EUR 5.755.088 per year)
at EU level
The seller extended its operation EU-wide over time; this business model clearly
disturbs all EU Member States, even if the size of the potential damage for
individual Member States vary significantly.
The size of this potential fraud and the missing VAT remain unknown from the
Member States.
174
To estimate the AOV, we just rearranged the products based on their popularity and we analysed a
potential basket with top selling 150 most popular products (over EUR 50.000, approx. 10% of all products
available on the web shop). Due to the large sample and because at least top five best-selling products in
each of the main 7 categories (cameras, mobiles, tablets, audio, gadgets, gaming, speakers) could be found
in our estimation basket we have the reasons to believe that our the value of AOV used for calculation is
reasonable. If we also considered the exclusion of most expensive products (possible outliners) from our
calculation, we can conclude that we displayed a conservative estimation.
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10.8.
Annex 8: Result of the TAXUD 2016 survey on e-commerce compliance
strategies in the EU
On 30 September 2016, the Commission DG TAXUD sent a survey to the fiscal attachés
of the Member States to have an overview of VAT anti-fraud policies with a particular
view on third party information. The survey was a follow-up of the Commission's VAT
Action Plan where the Commission committed to address VAT fraud in the e-commerce
sector.
The survey showed that in December 2016 only 50% of the respondent Member States
175
had a specific
e-commerce compliance strategy.
The e-commerce compliance strategy
consists in participating in international and European events on e-commerce, monitor
and examine new e-commerce trends, develop national cooperation or task forces
between tax administration and mainly customs, but also with police and Consumer
Rights Protection Agency, information campaign aimed at informing online traders of
their tax obligations and consumers to recognise "risky" websites, supporting tax
auditors, setting up e-commerce investigation and control projects.
The tax authorities with an e-commerce compliance strategy also have a
specific
capability
(unit or team/task force) composed of tax auditors, IT experts and analysts in
charge of VAT fraud in the e-commerce sector. Some of the Member States set up such
specialised unit as a follow-up of the recommendations of the FPG038
176
.
It should be noted that in the meanwhile Member States set up a new Eurofisc working
field (N. 5) dealing with e-commerce. Also in this framework, different Member States
delegations raised concerns regarding a clear legal basis to exchange VAT relevant data
for e-commerce.
Another important issue is access to
third party information.
The survey showed that
only 33% of the respondent Member States collect data from digital platforms
established in their own jurisdiction (or with a branch) for VAT control purposes, while
the percentage is 67% regarding collection of VAT relevant data from payment
intermediaries. Only 5 tax authorities collect payment data from other national authorities
monitoring money flows, such as financial investigation units in charge of anti-money
laundering.
The information collected from
internet platforms
and the format vary from Member
State to Member State and mainly refer to the identification of a given supplier, the
taxable amount and the VAT number of a given supplier. Only in one Member State, the
information is requested using a standard form.
However, even the Member States cooperating with internet platforms mentioned some
criticality: the information is not always received or it is sent with a very long delay
(even 6 months) or for a very limited period of time (shorted than the one subject to
control). Often the information is not provided by the platforms because in the Member
State requesting the information there is only a brunch of the platform while the
information requested is owned by the main headquarters in another jurisdiction. Finally,
the most recurrent problem is that when a tax administration asks for identification data
of the suppliers the platform does not provide this information because considered as
"fishing" and against data protection regulation. Finally, only in 4 Member States traders
selling goods and services through an account open online are obliged by law to make
175
Twenty one Member States filled out and returned the questionnaire
176
Fiscalis Project Group 38 on "control of electronic commerce"
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available online or to the tax authorities a tax identification number. This makes
impossible to identify the taxable person behind a given web-shop.
When the platform is established abroad, the only way to receive information is through
administrative cooperation. However, the information is not provided behind request of
information (because the request is considered disproportionate
–
bulk request). Only 5
Member States reported to have received some spontaneous information from another tax
administration under Regulation (EU) 904/2010 on B2C supplies from suppliers
established in another Member State and taxable in requesting Member State.
The VAT Directive
177
allows Member States to hold third parties jointly and severally
liable for payment of VAT. The questionnaire shows that this opportunity is used to a
limited extent. Some countries, however, have general national regulations that entail
VAT responsibility for internet platforms under certain circumstances. It should be noted
that the new Article 14 of the VAT Directive introduced the deemed supplier provisions
for the platforms at EU level as from 2021.
In 3 Member States, the tax administration has the legal authority to
shut down a web-
shop
because of breaches to the VAT legislation, independently or in collaboration with
another agency (i.e. consumer protection agency), but only one Member State reported to
have used this possibility. However, the 57% of the respondent Member States indicated
that in principle already the power of shutting down a web-shop/ IP address / web
account (as such) could have a deterrent effect against VAT fraud. In fact, only this
possibility may put some pressure on the traders to respect VAT obligations.
Furthermore, as coercive measure this will result in a loss of reputation for a trader, will
temporary stop the traffic of the seller (and the VAT loss for the treasury), and in general
can be considered as a hurdle to fraudsters. On the other hand, other Member States do
not consider this measure as an efficient anti-fraud tool, because traders can easily open
another web account even with another identity or outside the EU.
Also for the
payment intermediaries
(such as credit cards, banks, financial institutions,
currency agencies, digital and mobile wallet providers) the information collected vary
from Member State to Member State and mainly refers to payments received by a given
supplier from consumers in a Member State in a given period and to the identification of
the recipients of the payments. Four Member States use a standard form to ask payment
intermediaries for information.
Information exchange is a crucial tool for the Tax Administrations but problems occur
when data is located outside the jurisdiction. Half of the Member States reported
difficulties in receiving information from other jurisdictions.
177
Council Directive 2006/112/EC Art. 205
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10.9. Annex 9: Payment Services framework in the EU
Both payments services and payment service providers are defined and regulated in the
European Union by the payment services Directive (PSD2)
178
. The Directive is not
restricted to euro transactions but applies to all payment services in all EU currencies
within the EU, at both cross-border and national level. Furthermore, it covers third-party
providers of payment services, such as payment initiation services offered in the context
of e-commerce also when only one of the PSPs (involved in the payment transaction) is
located within the EU.
Furthermore, the data and format standardisation of payment transactions is harmonised
in the single euro payment area (SEPA). The SEPA territory also includes countries that
are not part of the euro area and the EU
179
. In particular, the SEPA Regulation
180
establishes the rules of an integrated market for electronic payments in euro, with no
distinction between national and cross-border payments. The Regulation establishes wide
requirements for credit transfers and direct debits in euro. In particular, it requires the use
of certain common standards and technical requirements, such as the use of international
Bank Account Numbers (IBAN), Business Identifier Codes (BIC) and the financial
services messaging standards ISO20022 XML for all credit transfers and direct debits in
euro in the EU.
Agreed standards, technical requirements and a common legal basis are the foundation
for payments within the SEPA area, irrespective of the countries involved in the
transaction. All Member States have migrated credit transfers and direct debits to SEPA.
It should be noted that the SEPA does not cover payments in other currencies. However,
also other international systems such as SWIFT the global provider
of secure financial messaging services
181
use international standards like the ISO20222.
Credit cards schemes are not included in the SEPA regulation. However, the European
Cards Stakeholders Group (ECSG)
182
develops and maintains requirements and
guidelines for cards. The "volume" (SEPA cards standardisation volume) defines general
rules, functional requirements, data elements, security, conformance verification
procedures, implementation guidelines for the cards schemes
183
.
178
Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on
payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU
and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC (Text with EEA relevance) OJ L
337, 23.12.2015, p. 35
179
https://www.ecb.europa.eu/paym/retpaym/paymint/sepa/html/index.en.html
It also applies to payments
in euros in other European countries: Iceland, Norway, Switzerland, Liechtenstein, Monaco and San
Marino
180
Regulation (EU) No 260/2012 of the European Parliament and of the Council of 14 March 2012
establishing technical and business requirements for credit transfers and direct debits in euro and amending
Regulation (EC) No 924/2009 OJ L 94, 30.3.2012, p. 22
181
See:
https://www.swift.com/standards/about-iso-20022
182
The ECSG is the industry association in charge of cards standardisation in SEPA. The ECSG is formed
by representatives of five sectors of the card payments value chain: retailers/wholesale; vendors (card,
payment devices, related IT systems); processors of cards transactions; card schemes and PSPs
(represented by the European Payment Council)
183
See:
https://www.e-csg.eu/scs-volume
the "Volume" has been published in March 2017 and the full
implementation is foreseen by 2020
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Finally, virtual currencies (VCs), better known as crypto-currencies, are not regulated in
the European legal framework and in particular in the SEPA regulation and the PSD2. As
such VCs are not in the scope of the regulatory option.
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10.10. Annex 10: B2B import VAT fraud
It should be noted that import VAT fraud is sometimes combined with B2B schemes,
where EU taxable persons import goods from third countries avoiding the payment of the
VAT on importation and then re-sell the same goods (at a lower price) in the internal
market. The case was documented in the “Bilton’s Bargains –
The Billion Pound VAT
Scam” programme, where BBC journalists documented
the VAT fraud by impersonating
a Chinese seller on eBay and Amazon and importing goods smuggled into the EU
without paying VAT
184
.
In particular, goods can be introduced in the internal market avoiding the payment of
VAT by using Missing Traders fraud. Fraudulent businesses (missing traders) import
goods from outside the EU pretending to transport and sell them to other businesses in a
Member State different from the one of importation. In this way, these companies can
benefit from a VAT exemption upon importation
185
(using particular procedures such as
customs procedures No 42 and 63), and are supposed to declare and pay the VAT in the
Member State of final arrival of the goods. However, in reality, the goods are placed in a
fulfilment centre in the EU and sold on the black market. Then the fraudulent company
just disappears without remitting the VAT to the tax authorities
186
. This simplification
regime was introduced in the VAT Directive in order to allow for transit of goods in the
internal market without imposing unnecessary VAT burden to the traders
187
. This
procedure is widely used by legitimate businesses
188
but there is also evidence of abuse
in order to introduce goods into the internal market with no VAT payment
189
.
The customs procedures No 42 and 63 are two VAT regimes provided for by Article
143(1) of the VAT Directive that allow for a VAT-free importation of goods by a taxable
person in a Member State if it is followed by a VAT-exempted supply or transfer to a
taxable person in another Member State.
184
See:
http://www.bbc.com/news/business-42143849
185
In 2015, there were 8.5 million import transactions with a VAT exemption, with a total value of EUR
74 billion
186
In the European Court of Auditor Special report no 13/2011, it was mentioned that for 2009 by
extrapolation the level of VAT losses in relation to cpc42 only would approximately reach EUR 2.2 billion.
Report SWD(2017)428 final of 30.1.2017 impact assessment accompanying the document Amended
proposal for a Council regulation Amending regulation (EU) No 904/2010 as regard measures to
strengthen administrative cooperation in the field of VAT, p. 23-24
187
In principle, an import of goods should be subject to VAT and this input VAT reported and offset in the
VAT return of the importer. In normal scenario, the importer will sell the goods in the same country
enabling a compensation of import VAT (input VAT) with the VAT on the sales (output VAT). However,
in case the importer does not have VAT taxable transactions in the country of importation compensation of
input VAT with output VAT is not possible. The importer will need to request a reimbursement of the
VAT to the tax authorities and is then supporting the burden of financing VAT while in the end no VAT is
due in the Member State of importation. To compensate for this situation, a VAT exemption on
importation of goods that are transiting to other Member States has been introduced. It improves the cash
flow situation of businesses and reduces their administrative burdens.
188
SWD(2017)428 final of 30.1.2017 impact assessment accompanying the document Amended proposal
for a Council regulation Amending regulation (EU) No 904/2010 as regard measures to strengthen
administrative cooperation in the field of VAT, p. 25
189
See
:
http://www.bbc.co.uk/news/business-34650014;
and:http://www.theguardian.com/business/2015/nov/01/uk-losing-millions-vat-non-eu-sellers-amazon-
ebay
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One weakness is that the entire process can take a long time to check, despite the risk of
fraud occurring quickly. In particular, the correct control of these procedures depends on
the effective cooperation between tax and customs authorities.
A specific new provision is included in the 2017 Commission proposal to amend Council
Regulation (EU) No 904/2010 as regard measures to strengthen administrative
cooperation in the field of VAT
190
in order to give tax authorities of the Member States
of destination of the goods access to the relevant customs information submitted in the
Member States of importation. Furthermore, the customs authorities will have access to
VIES information in order to check the conditions for the VAT exemption in line with
Article 143(1) of the VAT Directive.
190
COM(2017)706
final
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10.11. Annex 11: Third countries using payment data as VAT control tool
Some non-EU countries are using payment service data as a tool for detecting non-
compliant traders in combination with simplified collection regimes for cross-border
B2C supplies of goods (similar to the EU system).
In
Australia,
191
the Tax Office (ATO) can access some credit card transactional data
where payments are going overseas and can also source some aggregated transactional
data on credit card payments to identified non-resident suppliers. It is also actively
identifying other third party transactional data sources as payment methodologies
evolve
192
. The provided information refers to the identification of the supplier and on the
amount of the transaction. This transmission is electronic and the information stored in
electronic databases of the TAO that allows authentication of the information and of the
sender, confidentiality (the communication can only be read by the intended recipient),
integrity (the transmission cannot be altered) and non-repudiation (there is a record of the
transmission and content).
Norway
introduced a simplified registration system for VAT on electronic service
(VOES) in 2011 (similar to the EU MOSS). Service providers without a place of
business or establishment in Norway providing electronic services to clients other than
businesses and public authorities in Norway may opt for a simplified registration and
declaration of VAT (instead of registering through an intermediary). Furthermore, third
parties such as payment intermediaries' are obliged upon request to give the tax
authorities information that can be relevant in determining a taxpayer's tax obligations
193
.
Third party data, information, must be available on demand and in a format satisfying
legal requirements.
Finally, also in the
United States
all US payment processors are required by the Internal
Revenue Service (IRS) to provide information about certain customers who receive
payments for the sales of goods or services
194
.
191
As from 1 July 2018 the overseas suppliers to Australian consumers will have to register, collect and
remit the GST for low value imported goods (goods of a value of $ 1.000 or less purchased by consumers
in Australia from overseas suppliers with Australian sales of $75.000 or more). The registration, collection
and remittance of GST is a responsibility of the online marketplaces if they facilitate the taxable sales.
192
The Taxation Administration Act 1953 (TAA 1953) Section 396-55. See:
https://www.ato.gov.au/law/view/document?docid=PAC/19530001/Sch1-396-55
193
Lov 27. May 2016 nr. 14 om skatteforvaltning (Skatteforvaltningsloven) The Taxation Administration
Act
§ 10-2
https://lovdata.no/dokument/NL/lov/2016-05-27-14/KAPITTEL_10#KAPITTEL_10
194
https://www.irs.gov/pub/irs-pdf/i1099k.pdf
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10.12. Annex 12: Visual examples of the regulatory options
The table below shows a simplified example of the payment data that will be transmitted
under the regulatory options (sub-option 3.1 and sub-option 3.2) by the PSPs to the tax
authorities where they are established
Table 8: Simplified example of payment data transmitted to a Member State from
the Payment Service Providers established in that Member State
Payee (the beneficiary of Reporting Origin of Payments
Payment
Description of the
the payment) identifier: period
the
transactions in the transaction supply underlining the
and location
payment reporting period
identifier payment transaction (if
available)
Id: Mickey Mouse
Q1 20XX Member EUR 25 in date Xxxxxx
Mobile phone
Tax
number
(if
State A
xx/xx/xx
available)
Location: Wonderland
Id: Mickey Mouse
Q1 20XX Member EUR 30 in date Yyyyyyy Music
Tax number
State A
xx/xx/xx
Location: Wonderland
Id: Mickey Mouse
Q1 20XX Member EUR 15 in date Zzzzzzzz Book
Tax number
State B
xx/xx/xx
Location: Wonderland
…..
……
……
…..
……
……..
After the transmission of data from the PSPs, the tax authorities must exchange the data.
The figure below shows how payment data can be exchanged under the distributed
system (sub-option3.1)
Figure 21: Distributed application exchange of info
PSPs
MS A
database
Eurofisc
official
Eurofis
cofficial
PSPs
MS B
database
database
database
MS D
PSPs
Eurofisc
official
Eurofisc
official
MS C
PSPs
The payment service providers (PSPs) transmit payment data to the tax administration of the Member State
(MS) of establishment. The MS of establishment stores the data in a national database that is connected to
the other national databases of tax authorities through a distributed application. Only the Eurofisc officials
(Eur. Off.) will have access to payment data referring to their own MS.
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The figure below shows how payment data can be shared through the centralised
database (sub-option 3.2)
Figure 22: Central repository of data
PSPs
MS A
database
Eur
off
.
Eur
off
.
PSPs
MS B
database
Central repository
database
database
MS D
PSPs
Eur
off
.
Eur
off
.
MS C
PSPs
The payment service providers (PSPs) transmit payment data to the tax administration of the Member State
(MS) of establishment. The MS of establishment stores the data in a national database and then upload the
data in a central repository. Only the Eurofisc officials (Eur. Off.) will have access to payment data
referring to their own MS
In the targeted consultation PSPs and tax authorities were also asked whether alternative
technical solutions could reduce costs or make the transmission and exchange of payment
data easier.
One solution was to give the payment service providers established in the EU the option
to choose one single Member State (even different than the Member State of
establishment) to transmit all the VAT relevant data on inbound and outbound payments.
This solution was basically conceived to permit payment service providers with different
branches in different Member State to transmit the payment data to one single tax
authority. Another solution was to give the possibility to payment service providers to
upload payment data directly in the central repository and skip the first step (transmission
of data to the tax authority in the Member State of establishment). The stakeholders were
unanimous in discarding these solutions. The main problems refer to data protection
issues and legal uncertainty. Therefore, these variants have not been taken into account
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10.13. Annex 13: Comparison amongst different initiatives in terms of fighting
e-commerce VAT fraud
The table below summarises the impact on VAT fraud of different initiatives as described
more in detail in section 6.2.1 of the report.
Table 9: Comparison amongst different initiatives in terms of fighting e-commerce
VAT fraud
e-commerce
VAT fraud
patterns
VAT
declaration in
Under-
Mis-
No
VAT
the
wrong
No
VAT
declaration
description
declaration
place
for
registration
Of imports of of the import
and payment
distance sales
goods
of goods
(intra-EU) of
goods
Fully addressed Fully
Fully addressed
Exchange
of Fully addressed Fully
addressed
addressed
payment data
Partially
Partially
Not applicable Not
addressed:
addressed
applicable
Abolition
the
distance see previous
distance sales seller can still box
threshold
remain in the
And extension black
market
of the MOSS and supplying
(intra-EU)
abroad without
any registration
Not applicable
Abolition small
consignments
Initiatives
addressing e- exemption
commerce (imports from
VAT fraud outside the EU)
Not
applicable
Partially
addressed:
the supplier can
still potentially
declare in the
wrong
place
exploiting the
new
EUR
10.000
threshold
Not applicable
Registration
under the
IOSS (import IOSS will
of goods from optional
outside the EU) (voluntary
compliance
measure)
Partially
Partially
Partially
Partially
Partially
addressed: only addressed: addressed: only addressed: addressed: see
certain platforms see previous goods under the see previous previous boxes
Deemed
are covered and box
customs
box
supplier
only goods sold
thresholds sold
through
the
through
the
platforms
platforms
Partially
Partially
addressed:
addressed:
it
is
still imports can
possible
to be
still
declare less in declared as
order to pay gifts or c2c
less VAT
or samples
Again IOSS Partially
Partially
Not applicable
will be an addressed:
addressed:
be optional
the
under- still imports
system
declaration is can
be
still possible to declared as
pay less VAT gifts or c2c
121