The latest Taxation Paper issued by the European Commission presents the results of the European Tax Survey, a survey of the compliance costs of EU companies in which seven hundred EU companies participated.

This survey shows that:

• Cross-border activity currently leads to higher company tax and VAT compliance costs for companies.
• Compliance costs are significantly higher for companies with at least one subsidiary in another EU Member State compared to companies without subsidiaries abroad and the costs increase with the number of such subsidiaries.

Compliance costs are also proportionately greater for SMEs than for large companies.

The Commission has decided to send the following countries formal requests to rectify incorrect applications of VAT rules: Greece, for its refusal to exempt the “insurance” aspect of roadside assistance contracts and for the obligation it imposes on non-established taxable persons to appoint a tax representative, although this obligation was removed by Directive 2000/65/EC; Spain, because Spanish legislation imposes VAT on services carried out free of charge even if they are carried out for the purpose of business; France, because it has introduced limits not provided for by the Directive in respect of products carried in the luggage of travellers from non-member countries; and Poland, for exempting certain internet access services that should be taxed. The requests take the form of reasoned opinions (the second phase in the infringement procedure laid down by Article 226 of the Treaty). If the Member States concerned fail to bring their legislation into line within two months of receipt of the reasoned opinion, the Commission could take the matter to the Court of Justice.

The European Commission has presented a proposal to simplify current Value Added Tax (VAT) compliance obligations to help cross-border traders who supply goods and services to other EU Member States. In particular the proposal would provide for a “one-stop-shop” system whereby a trader could fulfil all his VAT obligations for EU-wide activities in the Member State in which he is established. This system would allow traders to use a single VAT number for all supplies made throughout the EU and to make VAT declarations to a single electronic portal that would then be submitted automatically to the different Member States to which the trader supplies goods or services. The proposal also contains five other simplification measures. Studies including the Commission’s European Tax Survey have demonstrated that VAT obligations are at present extremely burdensome and costly for cross-border activity.

The EU Council on 17 October adopted a regulation laying down implementing measures for the common system of value added tax.

The regulation sets out certain aspects of the basic VAT directive (the “sixth VAT directive”: 77/388/EEC) with the objective of ensuring that application of the VAT system complies more fully with the objective of the internal market, in cases where divergences in application have arisen or may arise which are incompatible with the proper functioning of the internal market.

The new measures, which will come into force in July 2006, aim at ensuring clarification of VAT law, in particular in respect to:
• The place of supply, and therefore taxation, of various types of goods and services;

• Exemption from VAT of certain goods and services;
• The taxable amount for VAT purposes;
• The definition of electronically supplied services;

• Accounting details for simplified arrangements for the application of VAT by non-EU suppliers of electronic services.