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

Feasibility and economic evaluation study Final Report - 30 June 2015

The European Commission published a study prepared by EY that is titled “Implementing the destination principle to intra-EU B2B supplies of goods”.

The feasibility study examines issues of the current VAT model in force and the level of EU VAT fraud. It as well takes into consideration the compliance costs by taxable persons, especially those who conduct cross-border transactions versus domestic.

In this report, administrative costs for a Member State Tax Authority will include costs relating to the following activities: processing VAT registrations, undertaking VAT audits, reviewing VAT returns, reviewing EC Sales Lists (recapitulative statements), helpline and written query handling, and the implementation of new legislation.

The European Commission has identified two fundamental issues with the current model of taxation: namely the additional compliance costs borne by businesses that conduct cross-border trade when compared to those businesses that only trade domestically and the occurrence of VAT fraud.

The European Commission has commissioned EY to conduct a study of five policy options designed to enable the implementation of a destination based VAT system across the EU that to some extent addresses these issues.

As part of the study, EY has gathered information from businesses, tax experts, Member States’ Tax Authorities and additional sources in order to make a comparison against the current “As Is” taxation model and also determine the impact of the implementation of each of the five proposed policy options.

This information aims to assess the impact of the five policy options from both a qualitative and quantitative perspective.

To this end, information has been obtained on business compliance costs, tax administration costs, cash flow costs, VAT fraud implications, legislative implications and aspects of practical implementation for each of the five proposed policies.

In addition to the collection and analysis of this information, EY has provided a conclusion as to whether the policy options have a potential to address the two fundamental issues and what (if any) impact there will be on the European economy as a whole.