The objective of the study just published by the European Commission is twofold: first to analyse how the implementation of the EU energy tax policies will affect the EU and its Member States and secondly to analyse how energy tax policies can contribute to climate policy objectives in the enlarged EU.

The study evaluates the economic and environmental impacts of alternative energy tax policies in the EU in the context of an applied general equilibrium model (GEM-E3).

It develops scenarios in which EU energy tax policies are combined with various climate policy instruments and analyses the impacts of these scenarios at both macro-economic and sectoral level. The results are given for the EU as a whole and separately for each EU-22 Member State (the economic model used does not cover three small Member States).

The results indicate that the Member States would benefit from common energy/ carbon tax policies in the form of higher employment and welfare in the case they use tax revenues to reduce the employers’ social security contributions. A common EU carbon tax would be the most cost-efficient way of reaching the EU climate policy objectives. However, it would have a somewhat negative impact on the competitiveness of certain energy-intensive sectors. These effects would be alleviated only slightly by exempting energy-intensive sectors form energy taxation.

The European Commission has published a preliminary draft of implementing provisions to Regulation 648/2005 that introduces measures to improve security at external borders. The Commission invites all interested parties to comment on these proposals. The deadline for response to this open consultation is 16 September 2005.

Regulation 648/2005 amending the Community Customs Code provides the framework for replacing paper declarations with electronic ones, rationalising customs controls, and introducing pre-arrival and pre-departure declarations. The Regulation’ s main objective is to maintain a proper balance between effective customs controls and the facilitation of legitimate trade. The measures it includes will not apply until the implementing provisions have come into force.

The draft implementing provisions concern four areas:

• The data elements to be included in the pre-arrival and pre-departure declarations;
• A framework for the exchange of risk information between Member States;
• Criteria for granting Authorised Economic Operator status;

And the rules for the implementation and use of the Export Control System.

The European Commission has presented a proposal to change the Value Added Tax (VAT) rules that apply when certain services are supplied to private consumers. The changes are intended to eliminate distortions of competition between EU businesses, and between EU and non-EU businesses, that supply services at a distance to private consumers. They should also ease the VAT burden for businesses by streamlining the current rules as between services provided to traders and those provided to private consumers. The changes would build on the amendments that the Commission proposed in December 2003 to the rules governing the supply of services where the customer is a trader.

“The economic potential of telecom services, broadcasting, and e-services makes it imperative to ensure that the VAT revenues from such services accrue to the Member State where those services are consumed” commented László Kovács, European Commissioner for Taxation. “This proposal is designed both to ensure that Member States are better able to collect VAT on services consumed by their residents and to make the application of VAT to services simpler and fairer for traders.”

Back ground:

The current main rule is that, when a trader supplies a service to a private consumer, the trader is responsible for applying the VAT at the rate of the country where he has his place of establishment. However, with the increasing supply of services across borders, this rule no longer always ensures that the tax accrues to the Member State of consumption. It can also cause problems of distortions of competition. Companies have an incentive to locate their activities in Member States with low VAT rates in order to be able to charge that rate to their customers. Suppliers of digital products from outside the EU are required to charge VAT on sales to private consumers at the rate applicable in the Member State where the customer is resident but this rule does not currently apply where the non-EU suppliers establish themselves within the EU. Nor does it apply to EU or non-EU suppliers of other services capable of being supplied at a distance (such as distance teaching).

In addition, since, on the basis of a Commission proposal, the Council has almost reached agreement on changes to the rules governing the supply of services where the customer is a trader, there would be practical difficulties for businesses if there were no corresponding changes to the rules governing the place of supply of services to private consumers.

The proposal would for these reasons introduce the following exceptions to the main rule on the place of taxation of services to private consumers:

For certain services capable of being supplied at a distance, including e-services and distance teaching, the place of taxation would become the place where the customer is established.

Restaurant and catering services would become taxable at the place where the service is physically carried out, except for those services supplied on board of a means of transport, which would be taxable at the place of departure of the transport service.

The short term hiring of means of transport would become taxable at the place where the means of transport is actually put at the disposal of the customer.

Long term leasing would become taxable at the place where the customer is established.

All services rendered by intermediaries would become taxable at the place where the main transaction in which they intervene takes place.

The proposed changes would mean that traders supplying these services to private customers in other Member States would have VAT compliance obligations in those other Member States. However, these obligations would be greatly simplified if the Council adopts the Commission’s proposal of 29 October 2004 for a One-Stop-Shop and other measures to simplify VAT obligations.

The electronic declarations in the new European computerised transit system (NCTS) are now obligatory from 1 July 2005. Before 1 July, it was still possible in some Member States to submit paper based transit declarations besides the new electronic declarations.

The passage to a paperless regime has been and still is a rather painful step on the long process towards the reform and modernisation of the customs regimes. NCTS is a precursor of the further transformation of customs in the EU towards a paperless environment.

The concept of NCTS has seen the light in the mid 90’s as the Commission’s response to the European Parliament’s report about the substantial transit fraud cases. The report revealed that in particular the paper based transit system was vulnerable to customs fraud. The European Parliament suggested to turn the paper based transit system into an automated electronic system. From that moment on, the Commission deployed an ambitious plan to reform the transit system and to implement a ‘New Computerised Transit System’.

Although the ambitions of the Commission with NCTS were praiseworthy, from the outset, the Commission faced some major obstacles. First of all, from an IT technical point of view it was impossible to impose a fully-fledged and centralised system for all Member States and the economic operators. The reason is that he development of an IT system for customs clearance belonged to the national competence of the Member States. Customs legislation provided the Member States the ‘space’ to create their own customs clearance systems. At the time when the development of NCTS started, almost all of the Member States had already own developed customs clearance systems to submit customs declarations, resulting in a patchwork of as many customs systems in the EC as there are customs administrations. The solution was to set up a uniform communication between the Member States’ customs administration and the Commission and to provide the Member States with the software that could be implemented in their own customs clearance systems. The consequence was that companies had to develop and install as many NCTS software as the number of Member States where they were operating. Also the software for the Member States proved to be of suspicious quality.
Another obstacle was the lack of experience both with the Commission as with the Member States to develop and implement such a radical change in the customs compliance process. The Commission did make efforts to communicate with the economic operators through a contact group of interested economic operators (transit contact group). Some Member States however apparently considered the NCTS project as top secret and did not communicate at all, nor with economic operators, nor with customs officers in the field. Also, in many Member States NCTS was considered as a pure IT technical project without any serious attention to effects from an operation point of view. As a result, software developers were only informed at last instance about technical specifications before the actual implementation, there was hardly no possibility for testing the reliability of the systems, there was in some Member States a complete underestimation of the massive numbers of electronic messages the NCTS was creating leading to crashing systems. Also the IT infrastructure of certain Member States was not up to date.

Gradually the growing pains are solved and NCTS should now result in faster discharge of the transit procedure and less possibilities to fraud. To my opinion, however, the most important achievement is that from the mistakes and successes lessons could be learnt for the even more ambitious project of the Commission to change all customs procedures in a full paperless environment.
All in all, after a long implementation period, the results are impressive: the 10 millionth international transit operation since December 2001 took place in June 2005. On average, NCTS handles 600.000 operations per month, totalling more than 7.000.000 operations per year.

Customs transit is one of the cornerstones of European integration. It temporarily suspends duties and taxes that are applicable to goods imported into the European Union or between the European Union and the European Free Trade Association (EFTA). As such, in the current customs environment it facilitates the movement of goods and simplifies customs clearance formalities by allowing traders the possibility to move the goods in a secure way to a more convenient location. It was estimated, previous to the last enlargement, that more than 18 million transit documents were issued in Europe every year, representing billions of euros in duties and charges.