Effects of removing the VAT de minimis on e-commerce imports

Postal & Delivery

6 Nov

Effects of removing the VAT de minimis on e-commerce imports

In December 2016, the European Commission proposed to modernise VAT for cross-border B2C e-commerce. The proposal is a bundle of policies, each with distinct effects.

The present study identifies the specific effect of one of these bundled policies, i.e. the removal of the de minimis VAT exemption – a long-established provision for low value (less than €22) imports – a relief introduced because of the relatively high transaction costs of tax collections on low value items.

The studies relied upon by the Commission evaluate multiple policies bundled together, thus failing to highlight the direct impact caused by the specific proposal to remove the de minimis.

Our study disentangles the impact of the removal of the de minimis, based on the same evidence that was before the Commission.

If the de minimis is removed, millions of low value items will be associated with major processing cost for collecting VAT, while only generating a small additional VAT revenue.

The main conclusions of our study

We find that the proposed removal of the VAT de minimis will cause major and disproportionate costs on the delivery industry, on national customs administrations and on e-sellers – costs that all flow towards EU consumers.
Within the delivery sector, traditionally the lion’s share of low-value items is handled by postal operators, facing a major cost impact.
Based on the impact assessment evidence put forward to the Commission, removing de minimis will cause additional processing costs of €2.7 bn per year (pre-OSS simplification measures) and of €0.7 bn per year (post-OSS).
The additional VAT revenue raised by removing this exemption is significantly smaller than the induced additional costs.

Furthermore, our study tests the most crucial assumptions relied upon in the Commission impact assessment. With assumptions that are more conservative, we find that the negative impact from removing the VAT de minimis would be even more severe, leading to an additional processing cost of €1.9bn per year (post-OSS simplification).

Further research is needed before the Commission can demonstrably and safely conclude that removing the VAT de minimis is justified on a cost-benefit basis. Logically, introducing the OSS first – without changing the current de minimis rules – would allow to confirm empirically whether the key assumptions on adoption of OSS and related cost savings hold. This is strictly necessary to establish the clear impact of the specific de minimis proposal. Absent this information, the Commission has no evidence to support that hypothesis and be confident that the impact of its de minimis proposal is as expected.

The study was commissioned by PostEurop.

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