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. In particular, the main conclusions of our study are:
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, only introducing first the OSS – 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 clearly the impact of the specific de minimis proposal. Absent this information, the Commission has no supportive evidence available to be confident that the impact of its de minimis proposal is as expected.
The study is commissioned by PostEurop.
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