The wizard of OSS: effective collection of VAT in cross-border e-commerce (oratie)

1. Introduction

You are undoubtedly aware of the story of the Wizard of Oz.1
You may have read Frank Baum’s book, watched the movie, the animated television series or the musical. In case you are not familiar with the story or your knowledge of the storyline has somewhat subsided, as was the case with me when writing this inaugural lecture, I will take you briefly back to the gray Kansas, where Dorothy lives with her uncle, aunt and dog Toto. When a tornado blows Dorothy’s house away, she and her dog Toto end up in the wondrous, colourful World of Oz. She goes looking for the Wizard of Oz because she believes he can help her to get home. She has to follow the yellow brick road to the Emerald City, where he lives.

On the road Dorothy becomes friends with a scarecrow, a tin woodman and a cowardly lion. They all hope that Oz will help them with their problem. The scarecrow wants to have some brains, the tin woodman aches for a heart and the cowardly lion desperately seeks courage. So Dorothy and her companions set off to a perilous journey towards a solution to their problems and in hope to fulfil their dreams, following the yellow brick road. After fulfilling an impossible mission from Oz, Dorothy and her companions discover that he is not a wizard at all, but a normal person from Kansas. So he cannot help them either. They will have to sort it out themselves.

Perhaps I suffer from a slight form of professional deformation when I say that the story of the Wizard of Oz reminds me of developments in the field of VAT and e-commerce. The emergence of the internet has ensured that from a limited range of products from providers in our proximity, we have ended up in the wonderful wide colourful world of online offerings, where boundaries are blurring and we can as easily order a product from an entrepreneur on the other side of the world as from an entrepreneur located just around the corner. Yes, we even have our own OSS within VAT. OSS stands for One Stop Shop.

OSS is presented as the EU VAT success story of the past five years. Already called a success approximately a year after its implementation,2 a report from 2019 shows that the European Commission is delighted with this system.3 In addition, it seems to forget that the OSS, just like the wizard of Oz, cannot perform miracles. The EU member states themselves will have to work together to ensure that the objective of levying VAT on e-commerce transactions is achieved. In this inaugural lecture I will take you into the challenges the EU Member States are faced with and what solutions there are to these challenges. First, I will briefly explain the EU VAT rules for B2C e-commerce transactions in the next section.

2. VAT rules for B2C e-commerce

The VAT rules for e-commerce were implemented in phases, inspired by social developments, the urgency with which problems had to be tackled and the required unanimity of the EU Member States and their individual interests. The first phase began on 1 July 2003.4 From that date onwards, telecommunications, broadcasting and electronic services (tbe-services) from suppliers established outside the EU to EU consumers are subject to VAT in the recipient’s country. For telecommunications and broadcasting services this is the EU Member State of use and enjoyment. For electronic services this is the EU Member State where the customer lives or is established. For electronic services, there was a possibility for non-EU service providers to file their VAT return in one EU Member State, the VAT on Electronic Services or VoES. Under this system, the non-EU entrepreneur registered in one EU Member State and filed a declaration in that Member State including the VAT that he owes in the various EU Member States. Another change concerned tbe-services to consumers living or established outside the EU by EU service providers. These services are also subject to VAT in the recipient’s country, which means that no VAT is due on these transactions in the EU.

However, tbe-services provided by EU service providers to EU consumers are still subject to VAT in the EU Member State of the service provider during that period. This led to both EU and non-EU service providers moving their business to the EU Member State with the lowest VAT rate: Luxembourg. The intention was to amend this on 1 January 2010, but Luxembourg opposed this. As a result, the second phase did not enter into force until 1 January 2015. From that date onwards, all tbe-services to consumers are subject to VAT in the EU Member State where the consumer lives. Entrepreneurs who are not located in the EU Member State of the consumer can make a declaration in one EU Member State via the Mini One Stop Shop or MOSS. That EU Member State subsequently forwards the declaration and payment to the other EU Member States involved.

A third phase takes effect from 1 January 2021.5 From that date onwards, all distance sales of goods to consumers will be subject to VAT in the recipient’s country. This may include goods that are already within the EU and are sent to another EU Member State, as well as goods that are imported. Distance sales within the EU can be declared via the MOSS, which as a result will be renamed One Stop Shop or simply OSS. Secondly, distance sales from third countries or third territories with an intrinsic value of no more than 150 euros can be reported via the special regime (the so called I-OSS). In that case, an exemption applies upon import and a VAT declaration is made in one EU Member State via a One Stop Shop system. If the special regime is not used, VAT must be declared on the import and – if there is import into an EU Member State other than the Member State of destination – a supply that is subject to VAT in the Member State of arrival of the goods, too. For reporting the import VAT, a special arrangement can be used that allows for a deferred declaration and payment of VAT.

Platforms occupy a special position within the new VAT rules for e-commerce.6 By applying a fiction, platforms are deemed to supply goods to consumers in certain situations under article 14a VAT Directive when they facilitate sales. The real supplier is deemed to supply the goods to the platform. Hereby the transport is always allocated to the supply by the platform to the consumer, consequently qualifying as the distance sale, based on article 36a VAT Directive. The real supplier’s supply is subject to an exemption, pursuant to article 136a VAT Directive.7 The situations in which the platform owes VAT on distance sales are:

• For distance sales from third countries or third territories in case of goods with an intrinsic value of no more than 150 euros.
• For distance sales within the EU or domestic supplies to non-taxable persons if the supplier is established outside the EU.

Destination based taxation using proxies like the place where the consumer lives or is located brings challenges for taxpayers and tax authorities alike. Supplies of goods and services will be increasingly subject to VAT in an EU Member State different from the EU Member State where the supplier is established. As a result, the supplier must have the necessary knowledge of the local VAT legislation to determine the VAT treatment of its transaction. EU Member States on the other hand will become increasingly dependent on each other as regards the collection of VAT. A Member State’s VAT revenues will be increasingly coming from suppliers not established in that Member State, too. This raises concerns as regards the correct application and enforcement of VAT legislation. To what extent can, for example, the Spanish tax administration enforce its VAT legislation on suppliers established in, for example Sweden and will it rely on tax audits by the Swedish tax administration? Or can a taxpayer expect visits from different tax administrations or extra obligations that a Member State believes necessary to enforce its VAT legislation? To what extent do the Swedish tax authorities feel inclined to audit a taxpayer that pays Swedish VAT on all its transactions to make sure that it should not have reported Spanish VAT? And even if it does, does Spain trust the Swedish tax administration sufficiently to do so. When the taxpayer is not established in the EU Member State where the tax is due the exchange of information and administrative co-operation between tax authorities should play a significant role.8 It is surprising to see that the EU is prepared to take the step towards destination based taxation with a simplified collection mechanism while there still seem to be issues in both the area of compliance as well as administrative cooperation. This inaugural lecture explores the challenges faced in the area of compliance (section 3) and enforcement (section 4) including the relevance of culture (section 5) and provides some research on alternatives than can be considered (section 6).

3. Enhancing compliance

3.1. Five categories of factors and drivers behind taxpayer compliance

Much research has been done on how to ensure and enhance compliance in general. According to the OECD there are five main categories of factors and drivers behind taxpayer compliance: deterrence, norms (personal and social), opportunity (to be compliant or non-compliant), fairness (outcomes and procedures and trust (in the government or tax authority and in other taxpayers) and economic factors (general economic factors, factors related to the business or industry and amount of tax due).9

Compliance cannot be fully explained by the rewards and punishments imposed through tax rates, fines and other penalties or the probability of audits. People are not solely motivated by self-interest or act as a result of a cost-benefit analysis alone.10 A widely accepted explanation for the inconsistency between enforcement and tax compliance is based on the concept of civic duty or tax morale. Tax morale is defined as the moral obligation or intrinsic motivation to pay taxes.11 According to Lago-Peñas and Lago-Peñas taxes on income and profits are more negative correlated with tax morale than social security payments or consumption taxes.12 There are also cultural differences as regards tax morale. OECD Members and Latin American economies have the highest level of tax morale. African, Asian and Eastern European countries have a lower tax morale.13 Much of the research on tax morale is dealing with individuals (including the self-employed). Alm and McLellan studied the tax morale of businesses. Their conclusion is largely in line with previous research focusing on individuals. This shows a strong connection between decisions individuals make for themselves and decisions they make for their firms.14 Their research also shows that tax morale is higher among foreign owned and state-owned firms compared to domestic firms. For that reason, they advise tax authorities to focus their audit efforts on domestic firms. In their research foreign owned firms are multinationals which represent large firms.15 Yucedogru also recognizes the importance of individual attitudes of owners and partners within tax compliance by SMEs. He however distinguishes another layer consisting of the factors professionalism, risk preferences, tax advisor effect, company structure, compliance costs and tax complexity.16 Another study shows that for MNEs (Multi National Entities) tax certainty plays an important role too.17

Much research has been done on the relation between a deterrence and a normative approach and building trust. The Slippery Slope Framework proposed by Kirchler, Hoelzl and Wahl18 states that there are two routes to tax compliance. The first one is deterrence and involves using audits and fines. Using this method will increase the perceived power of administration19 and leads to enforced compliance. Citizens will comply because the calculated costs for non-compliance are too high. The other route is building trust relationships with taxpayers. This creates trust in the tax administration and results in voluntary compliance. Citizens will comply because they feel obliged to do so as members of the community. Kirchler, Hoezl and Wahl see two dimensions to compliance: the power of tax authorities and the trust in tax authorities. High compliance can result both under the condition of strong power of the authorities as well as under a strong trust in the tax authorities. Not the objective audit probability is important, but the subjectively perceived probability and its interpretation. Where trust in the fairness of tax administration breaks down or taxable persons feel detached from the social norms supporting the payment of tax, they may become disengaged and more prone to underreport or less concerned about errors. It may even lead to them taking active steps to evade tax obligations. Trust in the fairness of the tax administration (and also the wider tax system) is therefore of high importance for the sustainability of the tax system and for maintaining and enhancing compliance. Enforcement must be visible and credible, taxpayers seen to be treated fairly and with respect and adequate service channels for queries and appeals available.20 This may include making results of tax audits visible to the public21 and communicating the reasons for selecting certain taxpayers for treatments such as audits. This will enhance transparency and let taxpayers better understand how tax administrations work.22 Positive actions by the state increase the level of compliance. Unfair treatment of the state may lead to resentment.23

Compliance can be built into a trader’s system and provide for improvements in business tax behaviour and allow them to self-assess their tax compliance without having to expend any additional effort. Examples are online accounting systems or certified cash registers. Tax authorities can advocate the use of those systems and contribute to their deployment.24 It is also possible to use continuous audit techniques monitoring tax entries in real time and immediately notify the trader and the tax authority in case of potential problems.25 Digitalization might also help improving compliance with built-in help in software products used by taxpayers to report their taxes. Within the UK’s Making Tax Digital project, if digital records are up-to-date software will be able to collate and prepare the VAT return for the taxable person.26 This system prevents errors arising from converting the records held by the company to the information necessary for VAT returns. What is more, the design of an environment conclusive to tax compliance will be better and more effective if it is designed together with those operating that environment.27 By engaging and involving taxpayers, states can get a better understanding of what the problems are, what is driving those problems and what the appropriate solution can be. Taxpayers should also be involved in the design, implementation and evaluation of those solutions. Engaging taxpayers can also contribute to improving tax authorities’ services, resulting in a reduction of administrative costs. It may also increase trust in the tax authorities, which can result in an increase of compliance.28 Trust will not only be created for those directly involved, but also more generally.29 Co-operative compliance programs can also be put in place to create a relationship between taxpayer and tax-authorities based on trust, transparency and mutual understanding. The focus of co-operative compliance will be on large businesses considering they have more need for direct and frequent contact with the tax authorities and are less in number.30 Publishing benchmarks reflecting industry norms is also an option.31

The OECD advises its Member States to adopt a compliance strategy which combines a deterrence approach and a normative approach.32 In the long run high levels of compliance are preferably achieved by establishing and reinforcing norms in favour of compliance. The normative approach is the most effective way to influence behaviour, but also the least costly one.33 Deterrence can both have a positive (strengthen the moral obligation to pay the tax because it is the right thing to do) and negative effect (create resistance from the taxpayer by feelings of oppression) on compliance. If personal norms on compliance are weak deterrence becomes more important.34

Kirchler, Hoelzl and Wahl also state that higher knowledge concerning taxes leads to higher compliance and poor knowledge concerning taxes leads to higher non-compliance. Simplification of the tax laws, training and education and increased taxpayer service will increase trust in authorities and will lead to increased voluntary compliance. According to Yiallourou this is particularly the case for SMEs.Kyriaki Yiallourou, p. 196. Complex tax rules can lead to misinterpretation. When rules are perceived to be too complex, taxpayers are also less likely to make a dedicated effort to even search for information or to attempt to do things right.35 Research has shown that lower VAT rates, fewer rates, a smaller population, more learning time and greater spending on administration increases the level of compliance.36

As regards opportunity, there is strong evidence that if people believe they are observed or if information is known, they are more likely to comply.37 In my view, complex tax legislation may create opportunities for non-compliance as well. When it is difficult to understand the law and to apply it to a taxpayers’ situation, I think there is more opportunity to explain the rules differently to the benefit of the taxpayer, which may not necessarily be correct. Taxation at source also limits opportunities to evade taxes. The opportunity to comply is equally important. It should be made clear what is expected of people and it should be very easy to comply with what is expected.38

As regards economic factors these may be situational. Liquidity problems for example can trigger tax evasion. Economic factors also play a role at a macroeconomic level. A correlation exists between tax evasion and economic growth. A general conclusion is that factors that are positive for economic growth tend to have a positive impact on tax compliance.39

External factors should also not be underestimated. Social research has shown that even small changes in the way choices are presented can lead to significant behavioural changes. This phenomenon is also known as ‘choice architecture’ or ‘nudging’.40 A simple example of nudging is changing the order in which food is presented in a cafeteria. Research shows that by presenting healthy food first, customers made more healthy food choices.41 When effectively wanting to use the instrument of nudging it is important to determine what the defining moments in a compliance process are and to subsequently try to change behaviour at those moments.42

3.2. Compliance risks

The European Commission’s Compliance Risk Management guide distinguishes four basic risk genres. First of all, registration risk. This may include taxpayers registered that have no entitlement to registration and taxpayers that should register, but have not done so. Second, filing risk. This includes taxpayers not filing their returns by the due date. Third, declaration risk. This is the risk that tax returns are incorrect by error or deliberate act. Fourth, payment risk. This means the risk of total or partial non-payment of the tax.43 As the CJEU puts forward in the Scialdone case,44 if a taxpayer files its tax returns accurately the consequences of non-payment are limited. A taxpayer filing no or inaccurate VAT returns is regarded as fraud by the CJEU while the non-payment is not. De La Feria and Schoerman point out that the registration risk is most common in B2C transactions, that are the subject of this research.45

In the area of B2C cross-border supplies the following VAT fraud patterns have been identified within the EU: non-registration, the supplier might register but not declare or pay VAT (in total or partially), the supplier might under-declare the value of the goods, upon importation the supplier might mis-describe the goods (i.e. as sample or gift) and the supplier might submit his VAT declaration and pay VAT in the wrong Member State.46

The table below shows the risks for three types of transactions: cross-border supplies of services, intra-EU distance sales of goods and imports of goods from non-EU sellers as reported in the impact assessment accompanying the document for a Proposal for a Council Directive regarding certain requirements for payment service providers.47

	No VAT registration (registration risk)	No VAT declaration and payment (declaration and/or payment risk)	Under-declaration (declaration risk)	Misdescription of the import (declaration risk)	VAT declaration in the wrong place48 (registration and/or declaration risk)
Cross-border supplies of services	X	X
Intra-EU distance sales of goods	X	X			X
Imports of goods from non-EU sellers		X	X	X

In the next sections I will discuss what has been done so far to enhance voluntary compliance within the field of e-commerce and VAT and what can be done, using factors described in section 3.1 such as building trust, building knowledge and limiting opportunities to be non-compliant. I will also look into the four risk areas and will establish where the main risks are.

3.3. Enhancing compliance: what has been done and the results so far

As described in section 3.1, there is a correlation between trust in the tax system and the level of compliance. It is clear that many EU businesses feel that as regards telecommunications, broadcasting and electronic services non-EU businesses are non-compliant to a certain extent. For example, I refer to questions raised by the Dutch parliament in 2015 on non-compliance.49 The mere fact that taxpayers feel that others do not report VAT may affect their will to be (fully) compliant. A 2014 report by the German Supreme Audit Institution shows that there is sufficient ground for this feeling. From the report it becomes clear that there is a large number of unregistered non-EU traders. At that time there were no checks in place for VAT liabilities of those taxpayers.50 At the end of 2011, 453 non-EU suppliers were registered in registered in VoES,51 in 2014 there were 539.52 The numbers for 2015-2018 are respectively 996, 947, 962 and 1,033 businesses.53 According to the European Court of Auditors and Deloitte the cause of non-registration of, especially non-EU, suppliers under MOSS or under a direct registration is the lack of enforcement powers outside Member States’ jurisdiction.54 In my opinion, unfamiliarity with the VAT rules in the EU is also a factor that should be taken into account. In this respect it is important that the EU informs suppliers and strengthens its administrative cooperation with third countries. Informing suppliers will be addressed in this section. Administrative cooperation is addressed in section 4.3.

As regards VAT obligations of taxable persons established in other Member States a similar picture can be painted. A report from the Lithuanian National Audit Office shows that there is no coordinated sharing of experience between the institutions implementing e-commerce control and their current cooperation is limited to conducting control actions and/or studies. VAT payment by registered taxpayers using MOSS under the supervision of other EU countries is virtually uncontrolled and the State Tax Inspectorate has limited opportunities to check whether the service provider registered as a MOSS participant in another EU country has accounted and paid Lithuania the correct VAT amount.55 A recent report from the Dutch Audit Office arrives at similar conclusions.56 Even more, a 2019 report from the European Court of auditors shows that MOSS audit activity is very limited in case of the Union scheme and nearly non-existent in the case of the non-Union scheme.57

In order to ensure taxpayers have sufficient information to understand their VAT obligations and how to meet those obligations it is important that information is not only available in the local language.58 The European Commission has been actively involved in the process of implementing the place of supply changes in 2015. They prepared explanatory notes, MOSS guidelines and audit guidelines, provided IT support to Member States setting up their MOSS portal and set up the MOSS web portal to support businesses. The European Commission has involved both Member States and businesses as well as other stakeholders in this process.59 The European Commission has also participated in a number of seminars within the EU and outside the EU, including seminars in the USA and a keynote presentation at the Global VAT Forum in Japan.60 In total it (co-)hosted or made presentations at thirteen separate events.61 The MOSS guidelines62 as well as the guideline for audits63 are available in all EU languages as well as Japanese, Russian and Chinese. However, the explanatory notes are currently only available in EU languages.64 Member States themselves have also taken various actions to inform taxpayers of the changes in the rules.65 Later on a special guide for SMEs was added. This guide is only available in EU languages.66 The guide is particularly helpful as it explains the rules on a basic high level. However, the information is in my view not always completely accurate and from a legal perspective not binding for Member States and taxpayers.

To ensure compliance by non-established taxable persons the OECD suggests a simplified reporting and payment system for VAT.67 MOSS – including its adaptions in 2021 – are largely in line with the OECD’s recommendations.68 In 2018 the OECD reported 39 jurisdictions that implemented or are in the process of implementing simplified registration and collection regimes: the 28 EU Member States, Australia, Belarus, Iceland, India, Korea, New Zealand, Norway, Russia, Singapore, South Africa and Turkey.69 The EU has introduced the VoES system in 2003 and MOSS in 2015 as a simplified mechanism to report and pay VAT. In general MOSS is considered easy to use and it is convenient that it comprises a single VAT return for multiple Member States.70 The Deloitte study indicates that compliance costs for businesses not using MOSS amounts to € 5,200 per business per Member State each year. When using MOSS it is € 434 per business per Member State.71 Still, high compliance burdens may cause non-compliance.72 This is more likely for small businesses. Because the compliance costs can be relatively high compared to the proportion of revenues, EU Member States should consider further simplifications, such as the adoption of thresholds.73 The EU has implemented such a threshold as of 1 January 2019 for small businesses established in one EU Member State with a turnover of no more than 10,000 euros gained with tbe-services to consumers in other EU Member States, based on article 58 (2) VAT Directive. These businesses can charge the VAT of their Member State of establishment instead of the VAT of the recipient’s Member State. As of 1 January 2021 this rule applies for EU distance sales too. The threshold applies for tbe-services and EU distance sales combined. The EU also provides basic information on exemptions, tax point, the registration process, penalties, payments and reimbursements, use & enjoyment rules, valuation of services on open market value, bad debt relief, vouchers and anti-avoidance measures.74 The information provided is very high level and not legally binding to Member States, but can be helpful to businesses dealing with transactions to consumers located in another EU Member State. The EU also provides e-learnings.75 One of these e-learnings is particularly targeted at digital services and MOSS. In this 65-minute e-learning both the place of supply rules, including article 9a VAT Implementing Regulation for intermediaries, and the MOSS are explained. In my view this course is in particular clear in wording and exhaustive as regards MOSS. However, as regards the place of supply rules the course has its limitations. In particular I wonder whether it is helpful to people without a tax background. The course was also not updated with the 2019 changes. A disclaimer points out that the course is not necessarily comprehensive, complete, accurate or up-to-date.

Revenues collected under MOSS amounts to € 3 billion in 2015, € 3.4 billion in 2016, € 3.8 billion in 2017 and € 4.5 billion in 2018.76 A study carried out by Deloitte published in 2016 estimated that the VAT revenues collected under MOSS on tbe-services would amount to € 3.2 billion for the whole of 2016.77 This VAT was collected through approximately 14,000 businesses registered under MOSS.78 12,899 businesses were registered under the Union scheme for businesses established within the EU. 1,079 businesses were registered under the non-Union scheme for businesses established outside the EU. 34.000 EU business were reporting VAT on telecommunications, broadcasting and electronic services through direct registration, i.e. a VAT registration in the Member States where they have to pay VAT. Looking at the estimated 83,000 EU businesses involved in supplying those services within the EU this amounts to approximately 36,000 EU businesses being non-compliant or supplying their services through intermediaries that have paid the VAT on B2C transactions under the presumption of article 9a VAT Implementing Regulation.79 There is no estimation on non-compliant non-EU businesses or non-EU businesses supplying their services through intermediaries.80 As regards compliance within the MOSS system the experiences are positive. Only 1,608 late declaration and payment reminders have been issued in the first and second quarter of 2015.81 According to the 2016 Deloitte study, the amount of VAT loss due to non-compliance is probably limited because non-compliant businesses will most likely be smaller businesses and most VAT is collected by large businesses that are compliant.82 However, it is unclear how Deloitte arrived at this conclusion. As regards the four risks genres that were distinguished in section 3.2, the main risk seems to be the registration risk. The payment risk and filing risk are limited.83 The study does not provide sufficient information to substantiate a point of view on declaration risk.

3.4. Enhancing compliance: what can be done

The VAT collected through the VoES increased significantly between 2012 and 2014. The reason for this is probably an increased awareness of non-EU businesses due to the extensive communication activities of the European Commission and the Member States prior to 2015. Additionally, a number of OECD countries moved towards a similar system as the one adopted by the EU on 1 January 2015.84 The revenues almost doubled in 2015 most likely due to the intensive communication efforts of the European Commission outside the EU.85 The EU has not invested in another campaign since 2014. There may be new businesses that are unaware of the rules that will have to be informed through such a campaign and/or business that were already active in 2014, but have somehow missed the campaign, might be reached by a new campaign. It is therefore my view that a campaign such as the one carried out in 2014 can be carried out on a regular basis, e.g. every three to five years, to inform taxable persons of their obligations. Because of the changes in 2021 there is again an opportunity to seek attention for the EU VAT rules for e-commerce. From a presentation of the European Commission to the VAT expert group it becomes clear that the Commission has the intention to do so. The strategy is similar to what was done in 2014.86

As regards compliance it is also important to create opportunity for compliant behaviour (see section 3.1). According to the Deloitte study, mentioned before, there is room for improvement by tailoring Member States’ communication for specific groups of businesses.87 What is more, there is room for improvement in the MOSS itself. Some improvements are already implemented as of 2019 and others will be as of 2021. These improvements include: invoicing rules (2019), extension of the declaration period and corrections of MOSS returns (both 2021).88 In 2019 simplifications have been implemented for small businesses too.89 Other improvements suggested by the Deloitte study regard: currency conversions,90 notifications,91 balance statements by the portal,92 storage period,93 direct dialogue between MOSS and business accounting system,94 the position of fixed establishment,95 VAT rates,96 VAT deduction,97 combination of local VAT return and MOSS return98 and one MOSS portal for all EU Member States.99

Improvements in my view can be achieved as well in the areas of information on the MOSS web portal, quarantine period and the payment of MOSS returns. A big downside to the system is that businesses still need to apply 28 sets of national rules.100
This concerns in particular VAT rates as well as exemptions.101 The MOSS web portal, described in section 3.3, tends to this issue. However, as described in section 3.3 the information provided is very high level and not legally binding to Member States. Applying one single VAT regime, such as harmonized VAT rates for supplies of goods or services under (M)OSS,102 simplifies matters. However, this is in my view currently politically unconceivable and I do not think that this will change within a short period of time. Currently, if a taxable person voluntarily ends its MOSS registration a quarantine period of two calendar quarters applies. If a taxable person subsequently has to report tbe-services, he will need to file local VAT returns. The European Commission has proposed to amend this.103 Another situation where there is room for improvement is the situation where the taxable person intentionally (because he is unable to pay) or unintentionally (in case of mistakes) does not pay the full amount of VAT due under MOSS. In that case the amount paid is equally distributed amongst the Member States to whom the taxable person must pay VAT. That means that he does not pay the full amount of VAT to each of those Member States, making him subject to penalties and interest for late payments in all those Member States. An improvement would be for the Member State of Identification to contact the taxable payer upfront to inform him that he has not paid the full amount of VAT, provide for the option to pay VAT through MOSS in which case the system automatically fills in the correct amount of VAT (so mistakes cannot be made) or allow the taxable person that is unable to pay the full amount of VAT to select to which Member States the amount paid will be transferred (an option that he has when he files local VAT returns too). It can also be an option to introduce an EU threshold for minor mistakes in which case there will be no penalties or interest payments imposed.

A huge improvement is in my view to allow MOSS registrations with retrospective force. The absence of the possibility to register for MOSS with retrospective force makes voluntary disclosure burdensome.104 In such a situation a taxpayer will be required to report VAT through direct registration in all EU Member States where it had to report and pay VAT. Only for the future it will be able use the MOSS system. This may restrain in particular non-EU traders from registering and paying the VAT due in the EU, since the less likelihood of ‘getting caught’ in their situation. Taxable persons established in non-EU countries may also face double taxation of VAT or GST if their home country applies different place of supply rules for tbe-services or distance sales of goods. This double taxation might dissuade them from reporting VAT in the EU. Entering into treaties to avoid double taxation or allowing non-EU suppliers to deduct the VAT or GST they’ve paid in their own country from the VAT due in the EU may help to increase compliance by non-EU traders. Informing EU taxpayers of what has been done to ensure compliance by non-EU taxpayers is also important to gain trust and thus greater compliance by both EU and non-EU suppliers.

The positions that online marketplaces have in ensuring compliance should also be considered (see also sections 4.2.3 and 6.3). For many businesses online marketplaces are an entry to a certain market.105 If marketplaces provide information on tax obligations this will ensure compliance. The EU Member States’ tax authorities or even the European Commission should work together with marketplaces to make use of this opportunity. For example, they could provide standard guidance on tax obligations including VAT obligations to be put on a marketplace’s website.

4. Improving enforcement

4.1. Introduction

As the reports from the Lithuanian, German, Dutch and the European Court of Auditors show, enforcement of VAT legislation on taxable persons established outside an EU Member State is lacking. As the slippery slope theory discussed in section 3.1 shows, the enforcement of tax legislation also influences compliance. In this section I will address how enforcement of this VAT legislation can be improved.

As described in section 3.2 the registration risk is an issue within the field e-commerce. We simply do not know whether all parties supplying digital services or goods to consumers within the EU are VAT registered and report the VAT due. There is no information on the declaration risk for digital services available, i.e. we do not have information on whether the VAT that is being reported for digital services actually equals the VAT due. For packages coming to the EU it is commonly known that these packages are currently undervalued in order to make use of the exemption for small consignments, but I would expect that when this exemption is abolished in 2021 undervaluation will still take place, because it minimizes the VAT burden and because there is still an exemption for customs duties for packages with a customs value of no more than 150 euros. If packages have an intrinsic value of no more than 150 euros, taxable persons can also use simplifications for reporting and paying VAT. The above clearly shows that there are and will be information needs that EU tax authorities will have to deal with. In this section I will therefore first address the need and use of information in section 4.2.

From a survey held under tax authorities of the 28 Member States, of which 23 responded, it becomes clear that the cause of the lack of effectiveness in the fight against e-commerce VAT fraud are:

• Lack of resources (people, money and even tools) for tax authorities compared to the volume of transactions to be verified.
• Lack of willingness to cooperate between Member States’ tax authorities.
• Lack of cooperation between customs and tax authorities.
• Absence of tools to enforce the VAT rules on remote suppliers from outside the EU.
• Lack of cooperation from big platforms and marketplaces.106

From this survey it becomes clear that cooperation is an important issue when addressing e-commerce VAT fraud. Cooperation will be addressed in section 4.3 of this inaugural lecture. In my view, when addressing the lack of resources, technology can play an important role. However, it is beyond the scope of this inaugural lecture to address this.

4.2. Information needs and use of information 4.2.1. Introduction

As described in the introduction of section 4, in this section I will address the issue of the need of information and the use of it. First, I will address in section 4.2.2 which information is needed by tax authorities to establish the correct VAT amount to be paid for tbe-services and distance sales. In the same section I will subsequently map which parties are involved in a supply. The next step is to define how the information can be efficiently collected by the tax authorities. I will discuss what has been done (section 4.2.3) and what can be done (section 4.2.4).

4.2.2. Information needed

In this section I will address the most important transactions within the field of e-commerce: distance sales of goods and tbe-services. Other services can also be provided in an e-commerce context (such as entertainment services107). However, it is beyond the scope of this inaugural lecture to address all possible services.

Tbe-services are subject to VAT in the EU Member State where the customer is located regardless of the customer status (i.e. whether he is a taxable person or not). VAT is reverse charged to the customer if he is a taxable person or equivalent thereof under article 43 VAT Directive and the supplier is not established in the EU Member State of the customer. VAT is due by the supplier in case the customer is not a taxable person. If the supplier is not established in the EU Member State of the customer, it can use the MOSS to report the VAT due. Under article 9a VAT Implementing Regulation the VAT on the transaction with the ultimate customer can also be due by an intermediary in case of electronically supplied services.108 In order to determine the correct VAT application of tbe-services tax authorities need the following information:

• Status of the supplier. VAT needs to be paid only when the supplier is a taxable person. The VAT identification number of the supplier or a tax number can provide an indication of its status.
• Place of establishment of the supplier. This information is relevant to both identify the taxable person and to determine whether or not it can reverse charge VAT or use the MOSS.
• Status of the customer. This determines the application of the reverse charge rule.
• Place where the customer lives or is established. This determines the place of supply.
• This determines the VAT amount due.
• Nature of the service. This determines different aspects such as applicable VAT rate and if applicable, an exemption.
• In case an intermediary is involved: The type of the intermediary (i.e. payment service providers are excluded from the application of article 9a VAT Implementing Regulation). This includes the conditions under which the intermediary operates. Under certain conditions it is possible to rebut the presumption that the intermediary provides the service to the customer.

Parties involved with these types of digital transactions are typically:

• Supplier.
• Customer.
• Payment service provider or other party processing payments (unless transactions are paid in cash, which is unlikely in the field of e-commerce).
• Platform, marketplace or other intermediary (only in case transactions are provided through such an intermediary).
• Internet service provider or mobile operator because the access to internet allows the customer to receive the service. Their position is similar to transporters in case of supply of goods.

Distance sales are subject to VAT in the EU Member State where the transport ends. Until 2021 a threshold applies to distance sales. The specific rules for distance sales only apply in case the customer is a consumer and if the transport or dispatch is carried out by or on behalf of the supplier (as of 2021 also when the supplier indirectly intervenes in the transport or dispatch).109 If goods are sold through a marketplace, VAT may be due by that marketplace as of 2021 if certain conditions are met.110 As of 2021 distance sales can be reported through OSS in all EU Member States regardless where the supplier is established. Similar VAT returns can be filed in case of distance sales of goods imported from third countries with an intrinsic value of no more than 150 euros. In order to address this issue in a manner that is fit for the future I will take the new rules, applicable as of 2021, into account. To determine the correct VAT application for distance sales the following information must be obtained:

• Status of the supplier. VAT needs to be paid only when the supplier is a taxable person. The VAT identification number of the supplier or a tax number can provide an indication of its status.111
• Status of the customer. Only when the customer is a non-taxable person the rules for distance selling apply.
• Place of establishment of the supplier. This information is relevant to identify the taxable person. The platform or marketplace is also only required to report the VAT due for supplies of goods within the EU if the supplier is not established within the EU.
• Place of departure of the goods. Together with the place of arrival of the goods the place of departure determines whether the sale qualifies as a domestic sale, an EU distance sale or a distance sale of goods imported from third territories or third countries. This determines the applicable VAT rules.
• Place of arrival of the goods. Together with the place of departure of the goods this determines the type of sale. The place of arrival of the goods is also the place where the supply is subject to VAT. The place where the customer lives can give an indication of the place of arrival of the goods, assuming the customer regularly buys goods to use at the place where he lives.
• Transport arrangements. This determines whether the sale qualifies as a distance sale.
• This determines the VAT amount due.
• Nature of the goods. This determines the applicable VAT rate.
• In case a platform or marketplace is involved: the type of platform or marketplace (article 14a VAT Directive only applies in case it facilitates the supply).

Parties involved with these type of distance sales are typically:

• Supplier.
• Customer.
• Payment service provider or other party processing payments (unless transactions are paid in cash, which is unlikely in the field of e-commerce).
• Platform, marketplace or other intermediary (only in case transactions are provided through such an intermediary).
• Transporter or postal carrier.
• Fulfilment centre or third-party warehouse (only when the supplier uses these parties).

From an evaluation of Regulation (EU) No. 904/2010 it becomes clear that in order to detect e-commerce VAT that is not being paid tax authorities need access to the following information:

• Business identification: e.g. name and address, tax identification number, IP number.
• Information on transactions (flow of goods/services and flow of payment), including the description of the supply, the date, currency, and value of the sales, bank account/payment methods.
• Information on delivery channels (like for example the fulfilment centres and the carrier transporting the goods).112

In order to collect the VAT, they are also in need of information to identify and locate the business that needs to pay the VAT to the tax authorities. For e-commerce transactions this can either be the supplier or an intermediary falling within the scope of article 9a VAT Implementing Regulation or article 14a VAT Directive (applicable as of 2021).

In the next two sections I will discuss methods for collecting information needed. In section 4.2.3 I will address (future) methods adopted by the EU or individual EU Member States. In section 4.2.4 I will focus on other possible methods.

4.2.3. Obtaining information: what has been done

Until now the European Commission focused on obtaining information from payment service providers to deal with information needs in the field of VAT and e-commerce. Some EU Member States have each individually addressed the issue by laying down rules on online marketplaces as well as fulfilment houses. In this section I will discuss these types of legislation and evaluate these rules using the principles of efficiency, certainty and simplicity and effectiveness and fairness. Efficiency relates to the compliance costs for businesses and administrative costs for tax authorities. These should be minimized as far as possible. Certainty and simplicity relate to the clarity and complexity of the rules. Rules should be as simple as possible and provide businesses with a clear view on what is expected of them. Effectiveness and fairness include the extent to which the objective of the rules is achieved (effectiveness) and the proportionality between costs and the effect (fairness).113

Obtaining information from payment service providers

In December 2018 the European Commission tabled a proposal that obliges payment service providers to record certain information on payment transactions.114 On 8 November 2019 EU Member States provisionally adopted this proposal with some amendments.115 Payment Service Providers that are covered by the rules must record (and keep those records for three years) and submit certain payment information to the tax authorities of the EU Member State where they are established. Only cross-border payments are covered, and transactions must only be recorded if a threshold of 25 payments per calendar quarter to a certain payee (the recipient) is crossed. Payment Service Providers established outside the EU are not covered. However, if the payer is located in the EU, the payer’s payment service provider will record the information regarding the transaction. In case the payee’s payment service provider falls within the scope of the rules, the payer’s payment service provider is freed of the obligation to record the payment information. The EU Member States will submit the information received from payment service providers to a central EU system called Central Electronic System of Payments (CESOP), where the information will be kept for five years, aggregated per payee. CESOP is only accessible to Eurofisc officials. Eurofisc officials can retrieve from the systems transactions over a given amount, or frequent multiple payment transactions per payee or per county.

The payment information that must be recorded includes: BIC or any other business identifier code that identifies the payment service provider, name of the payee, VAT identification number of the payee (if available to the payment service provider), IBAN or other payment account number identifier that identifies the payment account of the payee, BIC or other business identifier code that identifies the payment service provider of the payee where the payee receives funds without having any payment account, the address of the payee, any executed payment transaction and any executed payment refunds for payment transactions that were previously recorded. For each payment transaction or refund the payment service provider must record date and time, amount and currency and the Member State of origin of the funds and the Member State or non-EU country of destination.

The rules that will come into force on 1 January 2024 have a wide scope. Research already shows that compliance levels are higher when third-party information is available.116 For B2B transactions, VAT reported by the supplier and VAT deducted by the customer can be compared to detect underreported sales or overreported deductions of VAT. However, when the customer is a final consumer, this is not an option. Payment information can therefore be helpful especially for these type of transactions.117
As regards the effectiveness it should be noted that the proposal was presented and should in my opinion only be regarded as a tool to support further research into a taxable person’s reported turnover on e-commerce sales. It can be used for more targeted requests for information to other EU Member States as well as for detecting non-EU suppliers that have so far stayed under the radar. The information gathered under this proposal cannot be used directly for establishing the assessment base, collecting VAT or conducting administrative VAT controls pursuant to the proposed addition to article 55 of Regulation (EU) No. 904/2010. The payment information must be cross-checked with other information available before it can be used to these ends. Such information could be the VAT returns of the supplier if it has filed VAT returns, but has not reported all its sales or the customs value reported to customs authorities for goods that have been imported. It can also be information obtained from tax authorities from another Member State under Regulation (EU) No. 904/2010 (discussed in section 4.3.2). The obligation for payment services providers must thus be combined with more joint operations by tax authorities of several EU Member States, cooperation between customs and tax authorities and cooperation with tax authorities of non-EU member states, and does not on a stand-alone basis deal with all e-commerce VAT fraud. Payment Service Providers established outside the EU may be preferred, in particular by fraudsters. Fraudsters may also choose to set up a bank account in each EU Member State using an algorithm to make sure that payments will be directed to the bank account in the same EU Member State where the customer has a bank account. These payments are not covered by the new rules, because it is not regarded as a cross-border payment. This raises some concerns as regards the effectiveness of the new rules.

A concern as regards efficiency is that the obligation of payment service providers will create a considerable volume of data which will need to be processed in order for it to be useful. The mere collection of data is of limited value. The EU and EU Member States should adopt a strategy to deal with this massive volume of data before the obligations will apply as of 2024. The use of artificial intelligence is important here. It can be used to compare the payments with turnover reported in OSS and I-OSS. A fundamental part of artificial intelligence is to implement measures to limit the search space.118 For that matter I do not understand why the information recorded in CESOP does not differ between B2B and B2C transactions. For B2B transactions within international trade VAT is most likely due by the customer either because he needs to report an intra-Community acquisition or because he receives a service and the VAT is reverse charged to him. Maybe the EU Member States intend to use the information provided on Intra-Community Supplies and reverse charged services under the main rule for B2B services collected under article 17 (1) (a) Regulation 904/2010 to distinguish between B2B and B2C transactions. However, other options in my view should be considered too. The easiest way to distinguish between B2B and B2C transactions would be to require Payment Service Providers to record the VAT identification number of the payer. However, this will make payers traceable under the proposal if they have a VAT identification number. This is something the proposal tries to avoid due to privacy concerns. Payment Service Providers will however differentiate between private and business accounts. By recording this information, it may be easier to differentiate between B2B supplies and B2C transactions, while not making information traceable to the payer. Of course, the amounts involved can also indicate whether there is a B2B or B2C transaction, considering that normally with B2B transactions the amounts involved will be higher compared to B2C transactions.

In my view, the massive collection of data also raises questions as regards the proportionality of the legislation. Will the measure be effective and proportional to the costs involved for payment service providers in collecting the information? Some measures that are meant to relieve the payment service providers, for example recording the information only in case of more than 25 payments to a certain payee within a calendar quarter and being freed of the reporting obligation in case the PSP of the payee is located in an EU Member State, may even prove to cause more difficulties, because now PSPs will have to make a selection of the data that has to be recorded and the data that will not have to be recorded. This may prove to cause more compliance costs and complexity. The principle of effectiveness and fairness may also be evaluated differently in case of EU transactions. Main concerns regarding compliance on e-services is the compliance of non-EU suppliers. For distance sales the main concern is undervaluation.119 This concerns mainly transactions with non-EU suppliers.

Obtaining information from marketplaces

Some EU Member States have chosen to cooperate with online marketplaces to obtain necessary information, either mandatory or voluntarily. According to the OECD the following information could be obtained using online marketplaces: the nature of the supply, the date of the supply, the value of the supply, the identification of the supplier, the VAT/GST amount and rate, shipping agent, shipping address, fulfilment warehouse, customer location, information used to determine customer location, Payment Service Provider and an invoice or other document issued to the customer.120

The UK was the first EU Member State to introduce a joint and several liability for marketplaces. Under this legislation marketplaces are jointly and severally liable for unpaid VAT when sellers have failed to meet their VAT obligation while the marketplace has been notified by HMRC and has not taken necessary measures.121 Marketplaces are also jointly and severally liable for any sales from a non-UK business arising from sales of goods in the UK via the marketplace where the marketplace knew or should have known that the non-UK business should be registered for VAT in the UK. They are also obliged to display a valid VAT number for all their sellers, when they are provided with one.122 123 HMRC also concludes agreements with marketplaces under which marketplaces: (1) Commit to providing HMRC with data about the businesses operating on their marketplace (at a minimum they should identify individual business sellers, calculate the value and volume of UK sales of individual businesses over a prescribed period and contact the individual business directly), (2) Agree to ensure that sellers have access to information about sellers’ VAT obligations in the UK, and (3) Agree to respond expeditiously when notified by HMRC that sellers are using their marketplace in breach of UK VAT legislation obligations.124

Germany also applies a joint and several liability for marketplaces. Under article 25e of the German VAT Act marketplaces are jointly and severally liable for VAT unpaid on transactions concluded on their marketplace, unless they provide a valid VAT certificate of the supplier. The liability can however not be waived if the operator of the marketplace knew or should have known that the supplier would not (fully) fulfil its VAT obligations. Under article 22f of the German VAT Act operators of marketplaces are required to record certain information too when the transport or dispatch of the goods begins or ends in Germany. The information to be recorded includes name and address of the supplier, tax number and if available VAT identification number of the seller, begin and end date of the VAT registration certificate, place where the transport or dispatch begins and ends, time of transaction and turnover involved. The VAT registration certificate must be no older than three years and can be obtained by the supplier. A supplier not established in Germany, any other EU Member State or the European Economic Area, must appoint a representative to obtain the certificate. The operator of the marketplace must be able to provide the information recorded under article 22f of the German VAT Act electronically upon request of the German tax authorities. The rules include marketplaces irrespective of their location and also covers non-EU marketplaces. It includes all websites that can be used to perform transactions, including C2C-transactions. Austria,125 France,126 and Italy127 have implemented similar legislation for marketplaces.

To keep compliance and administrative costs at the lowest possible level and to ensure the effectiveness and fairness of information obligations of marketplaces, it is in my view important to keep obligations for platforms properly balanced128 considering both the needs of tax authorities for information and the administrative burden for platforms. Requiring only information129 that is already collected by platforms and flexible rules considering different types of platforms is in my opinion key to keeping the balance. A unilateral approach as being adopted now by the UK, Germany, Austria, France and Italy is not to be preferred.130 Cross-border transactions are at play here and unilateral rules make matters complicated for platforms operating in several jurisdictions. The information obligations should be targeted. This is an issue as regards the German obligations. According to Bal, almost any website that provides information can be used to perform transactions and will be caught by the German provision.131 The provision also applies to transactions not subject to German VAT. This makes these rules in my view disproportional.132 What is more, if other Member States implement similar legislation, the information must be provided to two EU Member States in case of EU distance sales: the EU Member State of departure and of arrival of the goods. Enforceability133 and the use of this massive data is an issue here too, from the perspective of efficiency and effectiveness. As regards certainty and simplicity, it should be clear what information needs to be provided at what time. Considering the need for differentiating between types of platforms it should be clear which rules apply in which situation and which information needs to be provided.

Even though at an EU-level platforms may be responsible for collecting and paying VAT on B2C transactions under the provisions of article 9a VAT Implementing Regulation or article 14a VAT Directive, there may still be situations where platforms are not caught by those provisions (for example a domestic or intra EU distance sale by an EU supplier) or can rebut a presumption. Platform information obligations may thus play a complementary role in ensuring the collection of VAT within the area of e-commerce in the future.

Obtaining information from fulfilment houses

Fulfilment houses are warehouses operated by third parties (this can also be the platform), that handle the goods on behalf of foreign suppliers. They are commonly used for the distribution of products. Where consumers expect a fast and timely delivery, foreign suppliers benefit from warehouses located near the customer. Where platforms are frequently not aware of where the goods come from and what their destination is,134 fulfilment warehouses are likely to have (more accurate) information on departure and arrival of the goods as well as the nature of those goods. The UK cooperates with fulfilment houses in the Fulfilment House Due Diligence Scheme. Fulfilment houses must apply for the scheme if they store goods in the UK that were imported from a country outside the EU, are owned by or stored on behalf of sellers established outside the EU and the goods are offered for sale and have not been sold in the UK before. If a company fails to register, it will not be allowed to trade as a fulfilment business and risks a 10,000 GBP penalty. Fulfilment companies approved under the scheme are included in a register and are obliged to keep certain records, carry out checks on their customers and give notices about tax and duty obligations to their customers.135 The records include names and contact details of customers, VAT registration or VAT exemption number of customers, type and quantities of goods stored in the warehouse, import entry numbers of the goods, country where the goods are delivered from storage, notices the fulfilment business gives to customers explaining their tax and duty obligations in the UK. Records must be kept for six years. The customer checks include checking customers’ details by using their VAT registration number or VAT exemption number. If the fulfilment business thinks that a customer does not meet its VAT obligations it must inform HMRC within 30 days and stop trading with him within 60 days, unless the customer meets its VAT obligations within that time frame. Fulfilment business can be fined up to 3,000 GBP if they fail to inform HMRC or fail to stop trading with these businesses.136

To ensure the principles of efficiency, effectiveness and fairness as well as certainty and simplicity it is in my view again important to properly balance the information obligations, in particular taking into account the fulfilment house’s business model, the services provided to its customers and the corresponding availability of information. A fulfilment warehouse that only provides storage services has different information compared to a fulfilment warehouse also taking care of the transport on the suppliers’ behalf. A unilateral approach is not to be preferred here too.

Final note

There is a clear need for information on the side of tax authorities. Payment Service Providers, marketplaces and fulfilment warehouses hold valuable information as regards e-commerce transactions. Main concerns are the proportionality of the rules, enforceability and effectiveness, mainly because of the massive amount of data. Last but not least, the reliability of the information should be taken into account too. Some information is provided to these businesses by their suppliers and customers and this information may be erroneous.

4.2.4. Obtaining information: what can be done

Consumers and transporters or postal carriers also hold valuable information as regards e-commerce transaction. The level of compliance and associated cost when collecting information from consumers are an issue as regards efficiency and effectiveness of a measure collecting information on the consumer level. Some countries137 have tried to use consumers to detect non-compliance by for example turning invoices into lottery tickets.138 A similar model can be used to detect non-compliance in the area of e-commerce. In return for providing information on the nature of the goods or service purchased, the purchase price and the location where the goods or service were received, consumers can be rewarded. Such a system should take into account losses to the government due to the rewards provided to consumers. The system should be easy to use for consumers. One should also consider that consumers have a benefit from not providing this information. Suppliers may for example charge lower prices including VAT if the consumer does not report or underreport the value of the goods or service. By making the reward dependent on the transaction amount there will be an incentive to consumers reporting the actual amount paid.139 The opinion of consumers can also be used. If a supplier is known as not fulfilling its VAT obligations, consumers may reconsider buying from this supplier. The obligation for platforms in the UK to display a valid VAT number for all their sellers when they are provided with one, is a measure that can be placed in that category.140 141 By displaying VAT numbers on the online marketplace, consumers can make more informed choices when purchasing online.142 Considering the potential level of non-compliance as well as costs involved in rewarding consumers, the use of information provided to consumers is in my view currently not a viable option.

Transporters and postal carriers may currently already be involved in reporting e-commerce transactions when they are involved in importing goods. However, tax authorities can seek more cooperation with these parties in the future because they have valuable information as regards these transactions in particular the place of departure and destination of the goods, including information on their client and the consumer’s address. Re-deliverers should also be taken into account. A re-deliverer is used by consumers when a supplier or marketplace does not offer shipment to their country. The goods are then shipped to a hub or mailbox of the re-deliverer that subsequently ships the goods to the customer.143 When a re-deliverer is used, the supplier, marketplace or fulfilment company will not have the information on the final destination of the goods while the re-deliverer has.

4.3. Cooperation 4.3.1. Introduction

One of the main issues as regards enforcement of the VAT legislation on e-commerce that is being detected, is the issue of cooperation and trust between tax authorities of EU-Member States. The main problem the Lithuanian SAI for example identified is that the VAT owed to the Member State of Consumption is not checked in the Member State of Identification whereas the Member State of Consumption has limited opportunities to carry out such checks. The Dutch General Audit Office in November 2018 noted that the Dutch tax authorities do not check the completeness and correctness of the MOSS VAT returns in case the Netherlands is the Member State of Identification. According to the Dutch General Audit Office the responsibility of such checks lies with the Member States of Consumption.144 The Dutch tax authorities do not perform any risk analysis on the completeness of the information and the correctness of MOSS VAT returns, and a risk analysis model is missing. Administrative information in support of enforcement and supervision is largely missing and the exchange of signals with foreign tax authorities is limited.145 The Dutch government also misses contra-information to check VAT returns from digital service providers.146 In section 4.3 I therefore address the issue of cooperation and trust. I will first address in section 4.3.2 which instruments are available and how they should be put to use effectively and efficiently. I will also discuss other options that can be considered, such as a compliance risk management strategy on an EU level. Compliance risk management is a systematic process in which the tax administration makes deliberate choices on which treatment instruments could be used to effectively stimulate compliance and prevent non-compliance based on the knowledge of all taxpayers (behaviour) and related to the available capacity.147 Non-EU taxpayers are even harder to catch when they fail to meet their VAT obligations. Therefore, I will look into cooperation with non-EU-countries in section 4.3.3. Again, I will discuss what has been done so far and what can be done in the future. Last but not least, I will discuss cooperation with customs authorities in section 4.3.4. This is in particular relevant as regards distance sales of goods imported from third countries or third territories, but may be helpful for tbe-services too.

4.3.2. Administrative cooperation within the EU: available instruments

In my opinion there is no doubt that exchange of information and cooperation is necessary to make sure that VAT is collected effectively.148 As regards exchange of information and cooperation between tax authorities of different countries, the OECD in direct tax matters uses a model wherein it distinguishes different types of mutual administrative assistance, joint audits being the most intensive cooperation model and exchange of information being the least intensive cooperation.149

The regulatory framework for administrative cooperation in the field of VAT in the EU can be found in Regulation (EU) No. 904/2010. The regulation provides for all different types of cooperation as defined by the OECD. The articles of the regulation referring to a specific type of cooperation are included in the figure in brackets. Exchange of information may be either on request (article 7), automatically (article 13 and 14) or spontaneous (article 15). Pursuant to article 13 of the regulation information that is exchanged automatically includes the following cases: (a) where taxation is deemed to take place in the Member State of destination and the information provided by the Member State of origin is necessary for the effectiveness of the control system of the Member State of destination, (b) where a Member State has grounds to believe that a breach of VAT legislation has been committed or is likely to have been committed, and (c) where there is a risk of tax loss in the other Member State. It includes information on non-established traders.150 As of the end of 2018 if the competent authorities of at least two Member States consider an administrative enquiry necessary, the requested Member State cannot refuse. Officials from the requesting Member States shall take part in the administrative enquiry on request of the requested Member State. If the requested Member State does not require their participation they may be present during the administrative enquiry.151 A Member State may abstain from taking part in the automatic exchange of information where the collection of information for that exchange would require the imposition of new obligations on persons liable for VAT or would impose a disproportionate administrative burden on the Member State. The information to be exchanged includes in particular information to enable Member States of Consumption to ascertain whether taxpayers not established in their territory declare and correctly pay VAT on tbe-services. It must also inform Member States of Consumption of any discrepancies of which it has become aware.152 Member States are obliged to provide the requested information provided that the number and the nature of the requests made within a specific period do not impose a disproportionate administrative burden on the requested authority and the requesting authority has exhausted the usual sources of information to obtain the information requested. Information requests can be refused in case the national laws or administrative practices do not authorize the Member State to carry out those enquires or collect or use that information, if the requesting Member State is unable, for legal reasons, to provide similar information or if providing the information would lead to the disclosure of a commercial, industrial or professional secret of a commercial process, or in case of information which disclosure would be contrary to public policy under article 54 (2), (3) and (4) of the regulation, respectively.

Based on article 17 of Regulation (EU) No. 904/2010 information that is collected under the MOSS under articles 360, 361, 364, 365, 369c, 369f and 369g VAT Directive is stored by Member States in an electronic system for at least five years (article 18). This includes information on the registration for MOSS and MOSS returns. As of 2021 similar information reported under the special scheme for goods that are imported (I-OSS) is to be included in this electronic system. Special VAT numbers issued under the special arrangement and that are used to obtain an exemption when this VAT number is presented to customs authorities upon importation are also included in this system as of 2021. The information must be entered without delay (article 20) and each Member State has automated access to information stored (article 21). Specifically for obtaining records or administrative enquiries under MOSS or the special scheme for imported goods article 47i and 47j of the regulation stipulate that the requests are made to the Member State of identification first. This, however, does not forbid the Member State of Consumption to undertake any action towards the taxpayer in accordance with their national legislation. The legislative framework on mutual cooperation includes recovery assistance as well.153 This topic is beyond the scope of this inaugural lecture, that focusses on the enforcement of VAT legislation on e-commerce as such, not on recovery of tax debts.154

Even though Regulation (EU) No. 904/2010 in my view provides sufficient legal ground for Member States to be engaged in different types of administrative cooperation and financial support for joint action is provided by the Fiscalis-programme,155 reports constantly show that Member States do not sufficiently make use of the opportunities provided156 and responses are slow.157 The instrument of exchange of information is most frequently used.158 A recent report from the European Court of Auditors shows that the use of exchanges of information on request or spontaneous on e-commerce is still limited.159 According to the European Commission, reasons for this will most likely be found on a national level, such as language issues, lack of (human) resources, internal procedures,160 the perception that making use of the instruments provided will not result in additional tax yield,161
the perception that taxpayers are compliant or the perception that the information will not be provided in a timely manner to contribute to the auditing process.162 163 In particular in the field of e-commerce the lack of resources and lack of cooperation between tax authorities is an issue.164 I agree with Terra and Kajus that the biggest worry in this respect is that recommendations have to be repeated over and over again.165 In my view, we are in need of a common compliance risk management strategy in the EU166 and need to invest in common databases. Comparing current compliance risk management strategies of tax authorities within the EU167 in the area of VAT is an interesting exercise for further research to establish to what extent these strategies are currently aligned and what efforts are needed to implement a common compliance management strategy for VAT.168 Transparency on instruments used and exchanging best practices is also important to pave the way for such a joint compliance risk management strategy and to share experience on what works and what does not.169 VAT could in particular be an area where intensifying joint actions makes more sense compared to other areas of taxation, because under MOSS Member States collect each other’s VAT and VAT is part of the EU’s own resources. Experiences with such joint actions can be used in other areas of taxation. Investing in databases makes information requests abundant and makes Member States less dependent on each other for information.170 It also provides an opportunity to use technology to perform controls and link data from various resources, multiple times and in various situations.171 Such databases could be upheld on an EU-level, although blockchain technology may be used for a decentralized system where EU Member States contribute to the system not only by putting information on the blockchain, but also by providing the necessary computer power to uphold the blockchain.172 The benefits of a blockchain-based system are: transparency, joint responsibility, less suspectable to hackers and the like because of its decentralized nature and its open source allows for it to collect information from various sources. A common approach for obtaining information has already been provided by the OECD and is known as Standard Audit File for Tax or SAF-T.173 However, due to the various implementations there is in fact no common approach at this moment.174 A system of taxpayer certification in my view is an important part of the joint compliance risk management strategy due to the fact that the amount of information collected is expected to outweigh the available calculation power by far.175 However, such a certification should only be related to the type of supervision from the tax authorities and should not consist of actual tax benefits granted to taxpayers, as is proposed by the European Commission in the proposals for a definitive VAT system.176 The certification should be based on a relationship between taxpayer and tax authorities that is based on mutual understanding, transparency and trust.177 For distance sales of goods imported from third countries the existing AEO (Authorized Economic Operator) status178 can be used.

For taxpayers a joint approach has benefits as well, for example one coordinated audit instead of 28 separate audits.179 However, under MOSS records can be obtained by request to the Member State of Identification at any time under the future article 47i Regulation (EU) No. 904/2010 and audits can be carried out upon request by the Member State of Identification or individually by the Member State of Consumption at any time under article 47l Regulation (EU) No. 904/2010. The fact that there is an option for joint audits under article 28 (2a) Regulation (EU) No. 904/2010 also does not prevent multiple VAT within a short period of time. In my view it would be helpful if a similar provision to article 7 (4) (c) Regulation (EU) No. 904/2010 would be in place. Pursuant to that provision a request to provide information can be refused in case the requested authority has already provided the requesting authority with information on the same taxable person as a result of an administrative enquiry held less than two years previously. If, for example, the Member State of Identification (whether or not at the request of one or more other EU Member States) has carried out a MOSS audit in which a certain EU Member State did not participate (while it had the opportunity to do so under article 47l Regulation (EU) No. 904/2010), the provision could stipulate that for the next two years it cannot carry out a MOSS audit without the consent of the Member State of Identification. Such a provision will promote participation in such a MOSS audit. EU Member States should have a joint point of view as regards whether the taxable person has sufficient pieces of evidence to support its customer’s location under article 24b (d) and 24f VAT Implementing Regulation.

The EU might even need to take a further step. The European Court of Auditors, for example, suggests monitoring visits by the Commission to selected Member States on a risk basis. These monitoring visits amongst others should focus on improving the timeliness of Member States’ replies to information requests and the speed of multilateral controls.180 As the mid-term evaluation of the Fiscalis 2020 programme shows, a platform on compliance risk management has enjoyed only limited success due to a lack of buy-in and engagement from many Member States (especially those with advanced risk management systems).181 Participation in such a platform may need to be obligatory to ensure participation. Cicin-Sain, Ehrke-Rabel and Englisch plead for a joint approach for administrative cooperation on an EU level when it comes to joint audits.182 The EU could implement the US model where joint audits are performed by a commission that operates autonomously. For EU VAT purposes this model may in their view be even more beneficial than is currently the case in the US, because EU VAT rules are harmonized to a far extent and auditors coming from one EU Member State will typically have knowledge of the VAT rules in the other EU Member State too.183

4.3.3. Cooperation with non-EU-countries

Considering that a significant part of EU consumers purchases goods in non-EU countries,184 cooperation with non-EU-countries is of importance too. Norway is the first – and currently only – non-EU country that has concluded an agreement with the EU on administrative cooperation.185 The agreement is to a great extent similar to Regulation (EU) No. 904/2010 and includes all instruments for administrative cooperation with the exception of joint audits.186 Norway also participates in Eurofisc. The agreement includes requests for recovery and precautionary measures. The Common Communication Network/Common System Interface (CCN/CSI) network (a network exchanging information for customs and tax within the EU) is used too. In particular as regards tbe-services and imports of low value goods EU Member States and Norway must upon request at least provide information on dates and values of any relevant supplies made in the state of the requesting authority over the previous two years (article 7(4) and Annex I of the agreement).187 In a globalizing world the conclusion of the agreement is obviously an important development. However, due to its recent coming into effect nothing can be said about the effectiveness of the agreement yet. Being similar to Regulation (EU) No. 904/2010, I would also expect similar attention points such as timeliness of responses. Under article 50 of Regulation (EU) No. 904/2010 information received from third countries can be shared with other EU Member States and information obtained under Regulation (EU) No. 904/2010 can be shared by a Member State with third countries with permission of the EU Member State from which the information was obtained.

Some other non-EU countries participate in the Fiscalis 2020 programme: Albania, Bosnia and Herzegovina, Former Yugoslavic Republic of Macedonia, Montenegro, Serbia, and Turkey. These are all (potential) candidate countries for joining the EU. Like the European Court of Auditors suggested in its 2015 report, it is important to establish where suppliers that provide tbe-services as well as suppliers of distance sales of goods are established and negotiate mutual assistance arrangements with those countries.188 These countries have a similar interest in concluding those agreements when they have similar VAT legislation in place, such as Norway has. In that respect concluding an agreement with for example the US may prove difficult, because in that country consumption tax is a matter of individual states. However, due to the Wayfair judgement189 these states also include remote suppliers in their sales taxes including suppliers established outside the US. Negotiation of such an agreement with each of the individual states may therefore be fruitful. The US has signed the convention on mutual administrative assistance in tax matters,190 which I will discuss later in this section. However, it has excluded any taxes imposed by or on behalf of possessions, political subdivisions, or local authorities from its scope.191 However, this does not mean that EU Member States cannot seek administrative cooperation with the US when it concerns EU VAT.

Article 26 of the OECD Model Convention also contains a provision on the exchange of information and covers both the taxes on capital and income to which the model convention applies as well as taxes of every kind and description levied on behalf of the contracting states, their political subdivisions or local authorities.192 EU Member States may individually engage in tax information exchange agreements, for example based on the Model Agreement of Exchange of Information on Tax Matters (so called TIEAs).193 TIEAs are based on article 26 of the OECD Model Convention. The Model Agreement of Exchange of Information on Tax Matters contains provisions on the exchange of information upon request as well as STEs (simultaneous tax examinations) with active or passive presence. The model protocol also contains provisions on automatic and spontaneous exchange of information.194 At the outset this model agreement focusses on direct taxes, but it can be applied to indirect taxes as well, according to the provision of article 3 (2) of the multilateral version of the agreement. The EU Member States that have concluded treaties on the exchange of information are: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, the Netherlands, Portugal, Spain, Sweden, and the UK.195 Many of the agreements concluded using the OECD’s model include VAT.196

The Convention on mutual administrative assistance in tax matters also provides a regulatory framework for administrative cooperation such as exchange of information, simultaneous audits and presence of foreign tax officials during audits with non-EU-countries. General sales taxes, such as VAT, are covered by the convention. However, countries signing the convention may exclude general sales taxes from the scope of the convention under article 30 of the convention. In October 2019 130 countries had signed the convention, including all EU Member States.197 The EU Member States have not excluded sales taxes under article 30 of the convention.198

In my view, the legal framework for exchange of information and administrative cooperation with non-EU countries is in place. The legal framework for joint audits is not present. Because joint audits may be beneficial in certain cases it is interesting to see if progress can be made there. An area of concern, however, is that it seems that the arrangements in place are not used or are used insufficiently. A 2019 report from the European Court of Auditors shows that of the 20 Member States that replied to a survey none have used the Convention on Mutual Administrative Assistance for e-commerce.199
In any case the information on experiences with exchange of information or simultaneous audits in respect of non-EU countries is limited. I agree with the recommendation from the European Court of Auditors that the EU should monitor to what extent non-EU countries meet the requests sent by Member States pursuant to administrative assistance arrangements that are in place.200
The EU should also seek to conclude agreements in this area with jurisdictions that do not have such an agreement.

4.3.4. Cooperation with customs authorities

Cooperation with other authorities is also important in combatting e-commerce VAT fraud. These authorities in their respective areas of competence are also confronted with globalization, fading boundaries and the challenge of exercising competencies beyond their jurisdiction. In this inaugural lecture I will discuss the cooperation between tax authorities and customs authorities. This cooperation is an obvious one in case of distance sales where goods are shipped from a non-EU country to the EU. For intra-EU distance sales and tbe-services this cooperation must not be underestimated either, because taxable persons supplying goods and services within the EU may also be involved in distance sales where goods are shipped from a non-EU country to the EU and the experiences customs authorities have with handling goods and taxpayers may also help when dealing with distance sales of goods within the EU. Cooperation with customs authorities can, for example, consist of sharing information, good practices and intelligence which can be facilitated through enhanced interconnectivity between the IT-systems and cooperation on target compliance and enforcement initiatives.201

At a minimum as regards the new distance selling rules for goods that are being imported from third countries or territories applying as of 1 January 2021, customs authorities must get access to a database containing I-OSS numbers.202 A presentation from the European Commission shows that a joint Tax Customs group will develop a compliance strategy, guidelines for businesses and an audit guide.203 In my view, the greatest risk within the new e-commerce VAT rules for goods originating from outside the EU is that when using I-OSS taxable persons use the exemption, but do not report the VAT on supplies. Customs authorities will verify the I-OSS number at import and they will most likely validate the value (whether or not it exceeds 150 euros). Their verification will be limited to this. In particular the I-OSS number used does not have to be linked to the person acting as importer of records. For example, in case goods are traded through a marketplace, the marketplace will be liable to report the VAT on the B2C supply under article 14a VAT Directive, goods will most likely be imported in the name of the supplier or the customer and not the marketplace. However, it is the marketplace that must report the VAT using I-OSS and that will have the I-OSS number. As described by Lamensch there is a risk of hijacking of these I-OSS-numbers, leaving the person whose number has been hijacked to prove that he has not made the supplies.204

With effect from 1 January 2021, two provisions are added to article 17 of Regulation (EU) No. 904/2010. Member States are obliged to store in an electronic system the information that they have collected on the basis of article 369o, 369p, 369s and 369t VAT Directive (amended article 17 paragraph 1 sub d of this Regulation).205 This information contains for I-OSS: start and end of the application of the I-OSS arrangement, name, postal address, electronic address and VAT identification number of the entrepreneur (and in the case of an intermediary also that of the intermediary) and the data from the VAT declaration under the I-OSS arrangement and corrections thereof. For each Member State where VAT is due the total amount of the considerations received (excl. VAT), the total VAT amount (broken down according to different rates), the applicable rates and the total VAT due. Next to this information, information on the VAT identification numbers that have been assigned in the context of the I-OSS must also be added to the database. The value of the goods for which the exemption on importation has been used is also recorded per number (the new article 17, paragraph 1, sub e of this Regulation). The information thus exchanged should enable Member States to compare the value of the goods for which the exemption on importation is used with the declared VAT on distance sales. However, there are in my view at least three complications here:

1. First of all, there is a timing difference as regards the moment of the VAT liability on the supply and the VAT liability on the import. The VAT liability on the supply under I-OSS exists at the moment the payment is accepted. This VAT is being reported in a monthly VAT return that needs to be filed within a month after the end of that period. The VAT liability on the import exists at the moment goods are released for free circulation. This may be in a different month than the month in which the VAT on the supply is being reported. This makes it difficult to match the VAT that needs to be reported on the supplies with the value of goods for which the exemption related to the I-OSS has been invoked.
2. On a regular basis goods are being returned in case of e-commerce. Returns are being treated as corrections under the I-OSS. This in my view means that the exemption is not being repealed when goods are returned. If the return of the goods takes place in the same month as the acceptance of the payment, the supply will not be visible in the I-OSS return. If the return takes place in a later month the supply will be visible, but the total VAT amount under the I-OSS will not equal the value of the goods reported under the exemption related to I-OSS. What is more, the goods are in the EU free of VAT. When they are of course subsequently supplied within the EU, VAT will be due. However, I see a risk of those goods entering the black market.
3. Not only supplies where goods are transported by or on behalf of the supplier are covered by the new distance selling rules. The supplies where the supplier directly or indirectly intervenes in arranging the transport are covered too. This means that in a situation where the customer concludes a contract with a transport company there can still be a distance sale, for example when the supplier has pointed out to the customer that he can use the services of a certain transport company. These transport costs must be included in the taxable amount for import VAT, article 86 (1) (b) VAT Directive. However, they will not be included in the taxable amount for the supply that will be reported by the supplier under I-OSS. This causes a difference between the value of the goods that are being imported and the taxable amount for the supplies reported in the I-OSS return. Using the I-OSS in this respect also causes an advantage. From the Federal Express Europe Inc. case it becomes clear that the transport service will be subject to the exemption under article 144 VAT Directive, while it is untaxed as part of the taxable amount at import because of the exemption related to the I-OSS.206

In my view there are also limitations to cooperation under the current legislation. While under Regulation (EU) No. 904/2010 each Member State can appoint officials that have access to information collected under this regulation and this could include customs officials, a similar instrument for mutual cooperation in place for customs purposes cannot be used beyond the scope of customs duties and agricultural levies without a market player’s permission.207

5. The relevance of culture

As regards enhancing compliance and improving enforcement, the element of culture should not be forgotten. Culture can be described as a shared set of values held by a society with resulting behaviour and artefacts.208 People from the same country will be shaped similarly and will have the same values and norms.209 Culture is learned.210 It has a role both as a factor influencing behaviour as well as a factor for interpreting behaviour.211 The element of culture is relevant both when dealing with taxpayers as well as tax authorities from other countries. As the most recent report on the VAT gap212 shows, the level of non-compliance and the effectiveness of enforcement of VAT legislation differ between EU Member States. Culture no doubt plays a role in this. A different culture may require a different approach to ensure more compliant behaviour. The amount of time and energy needed for communication and the likelihood of miscommunication increase with cultural differences.213 Some cultures, for example, use high context messages, where only some of the information is in the message, while others use low context messages, where most of the information must be in the transmitted message.214 Successful cooperation and trust between tax authorities is also dependent on taking notion of each other’s culture, even within Europe. People are attracted to working with and cooperating with people they consider similar in terms of attitude, values and beliefs.215
For example, Germany has a formal culture. This culture defines behavioural expectations in great detail, giving the participants knowledge of what to do and when to do it.216 Other cultures in the EU (maybe except Austria) are less formal. Behaviour of tax officials from these countries may be considered unexpected by German tax officials. In some cultures thought patterns are inductive, meaning that theoretical concepts are derived from individual cases, while others are deductive meaning that previously derived theoretical concepts are used to interpret individual cases.217
These different thought patterns may affect the way audits are set up and outcomes are interpreted. Time orientation within a culture will be a factor that defines the successfulness of cooperation too. While some cultures have a monochronic time orientation where one thing is done at a time, others have a polychronic time orientation where multiple tasks are performed at the same time and time is subordinate to interpersonal relations.218 As pointed out by Van der Hel-van Dijk even between neighbouring countries such as Germany and the Netherlands differences in culture play a role when performing joint audits.219 Differences in training and competence is also an issue within the framework of administrative cooperation.220 The EU can formulate minimum levels of competence, skills and knowledge to align these capacities within the EU.

What is more, I expect that within cultures that are based on individualism, such as Western European cultures,221 where the focus is on personal goals and what the person does rather than who the person is,222 it may be more challenging for tax inspectors to feel rewarded when they find out during an audit that a taxpayer should have paid more VAT in another EU country and less VAT in theirs. Or to put it in other words: will a tax authority fight tax fraud with the result of it collecting less VAT for itself and more for other EU Member States?223 An OECD report that focuses on joint audits in direct taxes already provides proof for this view, as it describes that several participants of the project reported that there were indications that tax administrations sometimes rejected the invitation to participate in joint audits out of concern that the audit may result in the lowering of their tax assessment.224 This is fed by the fact that most tax administrations measure the success of a tax audit using factors such as the number of audits conducted, additional yield and completion time.225 I have no reason to believe that this is different for indirect taxes. Experience with joint audits also shows that taxpayers do not see two countries operating with a common or complementary interest, but two different tax authorities looking for a favourable outcome under their own tax legislation.226 These challenges are not new. In the eighties, the European Commission envisioned a clearing system for international trade of goods within the EU. In this system all supplies of goods were subject to VAT in the Member State of departure. The customer of the goods could deduct the VAT in its own Member State regardless of the origin of the goods. The result of this system is that, for example, a Dutch supplier purchasing goods in Belgium deducted Belgian VAT in its Dutch VAT return, the result of this being that the Dutch tax authorities allowing for a refund of Belgian VAT. This refunded Belgian VAT needed to be recovered from the Belgian tax authorities by using the clearing mechanism. Under such a system the tax authorities may not be bothered with a high claim of input VAT if the goods are acquired in another EU Member State. This VAT will be refunded by the other Member State anyway. The same is true for a supplier underreporting its sales to entrepreneurs in other EU Member States. Because this VAT needs to be refunded to the Member State of the customer, the tax authorities may not be bothered with correcting the VAT to the amount due.227 The same picture emerges as regards the current MOSS-system for tbe-services. I refer in particular to the report of the Dutch Chamber of General Audit. Freely translated the chamber reports:

‘At present, the Netherlands as a Member State of registration does not check the completeness and accuracy of the MOSS declarations received that relate to VAT due in other EU Member States. The other EU Member States, as Member States of Consumption, must ensure this control.’228

A lack of trust between tax authorities may also result in tax authorities putting additional burdens on taxpayers,229 such as audits by the Member State of Consumption.

We are in need of a paradigm shift where Member States show a joint interest for finding incorrectly paid VAT regardless to which EU Member State (or third country) the VAT revenue belongs.230 A financial incentive under which Member States are rewarded for the collection of VAT on behalf of other EU Member States may be of help here. Such a financial incentive was originally included in the proposal for the new VAT legislation for e-commerce that will apply as of 1 January 2021. Under this proposal Member States were to receive 5% of the VAT revenue collected on behalf of other EU Member States, including both the VAT initially collected through taxpayer’s VAT returns and the VAT collected after, for example, information requests or audits. According to the explanatory notes these fees were to compensate for the investment needed to update the MOSS IT system following the extension of its scope, ongoing maintenance costs and the resources spent controlling business established in that Member State with a view to bolstering cooperation and improving compliance. The explanatory notes also refer to the practice within EU customs legislation.231 The common customs tariffs constitute part of the EU’s own resources. Member States are entitled to withhold 20% of these tariffs to finance services and customs organization.232 However, it is unclear if the intended effect to boost cooperation is achieved by this financial incentive and how the percentage of 5% has been established. What is more, compared to the common customs tariff, VAT rates in the EU are different per Member State. The 5% compensation for cost may thus result in tax authorities favouring to audit whether VAT has been paid in EU Member States that have a higher VAT rate compared to others. Customs authorities act in the interest of the EU and are supervised by the EU.233 In the adopted proposals this financial incentive has been deleted, so we will never know the reason behind that proposal. Another option is to have more involvement with the collection of VAT on an EU level. This could include checks and audits by EU officials or a collection of VAT revenue at an EU-level234 to be distributed to EU Member States at a later stage. Lamensch and Ceci in this respect propose an OSS at EU level.235 I also refer to proposed amendment 28 of the European parliament on the proposal of a digital services tax where it states:

‘In case a taxable person is liable to DST in more than one Member State, the Commission should audit, every three years, the DST return filed with the Member State of identification.’236

I conclude with the observation that more research is necessary on how to achieve the required paradigm shift.

6. Alternative collection models

6.1. Introduction

For the collection of VAT, a government can rely on (1) suppliers, (2) customers and (3) intermediaries. The choice on which (combination) to rely on is a practical decision.237 Up till now for the collection of VAT governments have relied mostly on suppliers to collect the VAT. According to the OECD at the present time the most effective and efficient approach to ensuring the appropriate collection of VAT on cross-border B2C supplies is still supplier collection.238 As of 2015 intermediaries may also be responsible for the collection of VAT on electronic services under article 9a of the VAT Implementing Regulation. In the same vein intermediaries will be responsible for the collection of VAT on certain distance sales of goods as of 2021 under the new provision of article 14a VAT Directive.

In this paragraph I discuss four alternatives for collection of VAT by a party different from the supplier. This includes collection of VAT by the customer; by the marketplace; by the payment service provider; and by the transporter or postal carrier. A fifth alternative would be the fulfilment house. The scope of a fulfilment house collection model is limited due to the fact that not all businesses use fulfilment houses. Moreover, the effectiveness of such a model also depends on the service level of the fulfilment house, which varies widely. The fulfilment house collection model will therefore not be reviewed. Like marketplaces, fulfilment houses may be interested in providing services to their customers as regards VAT obligations as part of their business model. They may want to take on VAT liability willingly. Using internet service providers or mobile operators in the collection process is in my view not a viable option, unless they carry out the payment (in which case they can be put on a par with payment service providers). While an internet service provider or mobile operator’s network acts as a means to receive a digital service their involvement in the supply of services is strictly limited to this. The models will be tested against the backdrop of the Ottawa Taxation Framework.239 These principles are:

• Neutrality: taxation should seek to be neutral and equitable between forms of electronic commerce and between conventional and electronic forms of commerce. Business decisions should be motivated by economic rather than tax considerations. Taxpayers in similar situations carrying out similar transactions should be subject to similar levels of taxation.
• Efficiency: compliance costs for businesses and administrative costs for the tax authorities should be minimized as far as possible.
• Certainty and simplicity: the tax rules should be clear and simple to understand so that taxpayers can anticipate the tax consequences in advance of a transaction, including knowing when, where and how the tax is to be accounted.
• Effectiveness and fairness: taxation should produce the right amount of tax at the right time. The potential for tax evasion and avoidance should be minimized while keeping counteracting measures proportionate to risks involved.
• Flexibility: the system for taxation should be flexible and dynamic to ensure that they keep pace with technological and commercial developments.240

It will also take into account the four types of risks set out in section 3.2. The alternative collection model should contribute to decreasing the declaration and registration risk while at the same time not increasing the other two risks.

6.2. Consumer collection

EU VAT uses customer collection extensively when it comes to B2B transactions. Customer collection takes place through the reverse charge mechanism. However, customer collection within the framework of B2C transactions is not so common. In this section I will test the opportunity for consumer collection against the backdrop of the Ottawa Taxation Framework.241

As regards neutrality it can be noted that a consumer collection system is a neutral system. When the consumer needs to pay the VAT directly to the tax authorities, he will need to pay the same amount of VAT regardless of whether he purchases goods or services from local or foreign entrepreneurs. The customer collection model also increases the likelihood that tax is ultimately collected from the party that is meant to bear the tax242 instead of the supplier.

As regards efficiency a positive note is that tax authorities will have jurisdiction over the customers that are located in their country243 and this makes them able to enforce their VAT legislation on these customers. The consumer must also apply the VAT legislation of his own jurisdiction and he has more information than other parties about his VAT status (taxable or non-taxable person) and his location. He also knows the type of goods or services he has purchased. This information allows him to determine what amount of VAT needs to be paid. However, the huge number of persons remitting the VAT to the tax authorities makes the system difficult to manage. In particular the risk of ‘getting caught’ when VAT is not paid, is an issue that needs to be addressed. If the tax authorities cannot manage to audit the transactions on which VAT needs to be reported by customers there is a risk of non-compliant behaviour (see section 3.1).244 The OECD considers consumer collection generally as an inappropriate approach to indirect tax collection in the B2C context given its low level of compliance and its associated costs of enforcement. For similar reasons it also generally recognizes that withholding taxes are not an effective mechanism for collection in the B2C context.245 According to the OECD, private consumers have little incentive to declare and pay the VAT due, at least in the absence of meaningful sanctions for failing to comply and the costs of enforcing collection of small amounts of VAT from a large number of private consumers are likely to outweigh the revenue collected.246

A customer collection model is in in my view only conceivable by using modern technology. Lamensch and Saraswat247 describe two models for consumer collection of VAT, the pay-as-you-shop (Pays) model and the intelligent VAT (iVAT) model. The Pays model can be used to collect VAT on tangible goods under a certain value (to be determined by each state) that go through customs. In this model a high-definition camera with an integrated label printer is used when parcels or packages are coming through mail centres or customs and courier facilities. The name, address and any customs declaration information on the parcel is captured and inspected automatically. Every photo or image is associated or digitally linked with for example a QR-code which is printed and adhered to the parcel in real time. The QR code also includes information on steps how to declare VAT once the parcel has been delivered. Once the parcel has been delivered to the customer’s doorstep, the delivery agent will scan the QR-code and this will trigger a notification on the central server that the parcel has been dropped off but is not yet declared. By scanning the QR-code the customer can self-declare the VAT. If the customer does not declare the VAT after a certain number of warnings the tax authorities can impose a penalty on him. The address of the consumer can also be blacklisted thereby blocking any future deliveries to the address until the VAT due is paid. The iVAT model is a solution to collect VAT from all offshore online transactions (goods and services) via a secure VAT gateway or portal that funnels transaction data from any point originating at any layer of the transaction-value chain, for example banks or financial intermediaries, to a secure government portal.248 It uses the split payment method where the customer pays the VAT directly to the tax authorities. Within iVAT the customer must register once to get an iVAT number. The iVAT number is linked to the VAT rate of the country where the customer is located. The iVAT number must be paired with a bank account or any financial intermediary. Every time a customer using the iVAT system orders goods or a service online from an offshore vendor the VAT is calculated automatically. The customer can login to their government portal and pay the VAT due. In a report from 2000 the OECD describes the option to use a smart card to collect the VAT from the customer.249 In the Netherlands, an e-payment pilot will be started to allow consumers to pay the customs duties and VAT on imports upfront. This is considered a temporary solution due to the upcoming I-OSS.250 However, it will be interesting to evaluate the pilot and establish the benefits and downsides of such a model.

As regards certainty and simplicity, it is questionable whether complex VAT law is applied correctly by consumers. The system should be kept as simple as possible. Models as Pays and iVAT also contribute to this need. When a consumer is automatically confronted with the amount of tax that he needs to pay, preferably even before making the purchase, he is, in my view, more likely and willing to pay the correct VAT amount. Different VAT rates applied by EU Member States, however, provide a challenge, because this makes the VAT amount due dependent on the product purchased.

Effectiveness and fairness of the consumer collection model is also dependent on the model that is being used for consumer collection. The model must be able to enforce the VAT legislation upon consumers to make the model effective. One of the upsides of the model is that the VAT does not pass through the supplier or another intermediary. Therefore, the risk that the supplier or intermediary does not pay the VAT collect to the tax authorities is absent. A consumer collection model is in my view also flexible, because it will apply regardless of where the consumer purchases goods and services.

As described in section 3.2, the registration risk is currently an issue when it comes to cross-border supplies. There is no clarity yet on the declaration risk. Under a consumer collection model, the registration risk is in the author’s opinion higher compared to the current supplier collection model. The filing and declaration risk is also present, because consumers have a direct benefit in not reporting or underreporting purchases. In my view, once the consumer has registered and filed the correct VAT amount the payment risk is limited. However, I can imagine that it may prove more difficult to collect the VAT from private persons unwilling or unable to pay compared to businesses. It may be difficult and relatively costly for tax authorities to collect the VAT that is not paid due to small amounts and the large number of consumers.

Without taking into account technological solutions, the consumer model can in my view be rated as shown below. By using technology, the downsides can be mitigated and the consumer collection model is in my view a feasible option for the future.

	Neutrality	Efficiency	Certainty and simplicity	Effectiveness and fairness	Flexibility
Consumer collection model	+	–	–	–	+

	Registration risk	Filing risk	Declaration risk	Payment risk
Consumer collection model	–	–	–	–

6.3. Marketplace collection

Due to the existence of marketplaces that have allowed businesses to get into contact with consumers abroad, cross-border e-commerce has increased significantly over the years. It therefore comes as no surprise that governments look in the direction of those marketplaces when it comes to the collection of VAT. One of the major developments as regards VAT (or GST) and e-commerce is that marketplaces are held responsible for taxation on supplies of goods and services within the framework of e-commerce either by joint and several liability251 or by deeming the platform to be the taxable person supplying the goods or services.252 253

Both an obligatory and a voluntary marketplace collection model can be considered.254 In a voluntary model only platforms that consider themselves up to the task of collecting VAT will opt for the collection of VAT. In this respect it should be noted that platforms operate in a highly competitive market, where it is important to distinguish themselves from other players in the market.255 Allowing them to take care of taxpayers’ VAT obligations, for example by acting as a fiscal representative,256 might be of interest to them to distinguish themselves from other marketplaces. Suppliers that want to be compliant and do not want to face the administrative obligations may find a marketplace that has opted for the platform collection model more attractive than a platform that has not. A joint and several liability257 for platforms is also an option that some EU Member States have chosen, e.g. the UK and Germany. In my view a joint and several liability must not be preferred compared to an obligatory or mandatory collection model. With a joint and several liability, the tax authorities will only assess the platform once established that the supplier has not paid the VAT to the tax authorities. At that stage it may be impossible for the platform to collect the VAT from the supplier. In a system where the platform is the person responsible for paying the VAT on B2C transactions at the moment the transaction takes place it is easier to collect the VAT due, e.g. by subtracting it from the amount that the platform pays to the supplier.

In this research I will look at an obligatory collection model, because this is the model that is being implemented by the EU for distance sales in 2021. What is more, the other collection models researched are also obligatory collection models. The use of joint and several liability to get information from marketplaces has already been discussed in section 4.2.3.

A marketplace collection model as implemented by the EU has in particular benefits as regards efficiency. In particular shifting taxation to marketplaces in general means shifting collection of VAT on B2C transactions from smaller market players to bigger market players. Bigger market players will in general be more able to comply and may be more willing to comply, considering they are well known market players and want to uphold a good reputation.258 Higher transparency standards also apply to larger companies, particularly for multinationals participating in the global market. This reduces the opportunity and incentive to evade.259 In general SMEs also want to be compliant. However, historically poor systems and a poor understanding of the tax system have been major causes of non-compliance.260 Some reports even qualify SMEs as high risk taxpayers, because of this.261 According to Yiallourou, SMEs have more opportunities to evade taxes, because of the low detection risk.262 When a firm grows and has more sales, it will also attract more attention from the tax authorities.263 Yiallourou also points out that owners of SMEs are more sensitive to any changes in the financial situation and to unfair treatment by administration.264 Large taxpayers, on the other hand, are more subject to the public opinion and are therefore more sensitive as regards avoiding reputational risks.265 Compliance management of large businesses, however, has its own difficulties. Large taxpayers are responsible for a large tax revenue. There is also complexity of the business and tax dealings for a variety of reasons, such as multiple operating entities, diverse business interest, high volume of transactions in day-to-day business activities, large number of employees, international business dealings, cross-border transactions with related parties, unique industry characteristics, widely spread in geographical terms, complicated issues (involving complex tax law and accounting principles), policies and strategies to minimize tax liabilities and complex financing and business structures. Large businesses also use professional tax advisors and possess an in-house tax organization. Generally large businesses are publicly listed corporate companies.266 The Deloitte study mentioned before shows that a provision that makes marketplaces liable for the collection of VAT on B2C transactions (in this case article 9a VAT Implementing Regulation) is seen as considerably simplifying the administrative burden for smaller companies. The intermediaries (platforms), however, have mixed reactions to the presumption, depending on their business model.267
It can be expected that in a marketplace collection model the administrative and compliance costs for the businesses operating via the marketplace will decrease while at the same time the administrative and compliance costs for marketplaces will increase. Although I see benefits in this development of an obligatory marketplace collection model,268 it is important to consider the position of platforms, in particular whether they have all information available to effectively collect the VAT due on the sales and they are not confronted with excessive and disproportional liabilities or obligations.269 Rules must be put in place to protect the platform from being responsible in case of false information provided by the supplier or customer. Platforms must also have the means to collect the VAT/GST.270 The latter is in particular a problem if the platform does not process the payment.

As regards neutrality, together with Lock, Janssen and Arendsen I already established a tension between neutrality and efficiency. From the perspective of efficiency, the application of the obligatory marketplace collection model should be widespread. However, from the perspective of neutrality the marketplace should possess the VAT amount paid by the consumer at least at a point in time. This should be assessed on a transaction-by-transaction basis.271 Under the current model applied by the EU as of 2021, the marketplace will be liable to pay the VAT too when it does not possess the VAT amount. Marketplaces operating like this will need to find a way to collect the VAT from either the business operating via the platform or the consumer. This may cause them to change their business model, which makes the model less neutral. A marketplace collection model will also differ between direct sales and transactions via marketplaces. This may create an unlevel playing field as regards costs involved in determining the correct VAT application. This may either push suppliers in the direction of marketplaces (because they do not want to deal with compliance costs themselves and the extra fee charged by the marketplace outweighs those costs) or to direct sales (in case the costs of complying with the VAT legislation themselves outweigh the extra fee charged by the marketplace for complying with VAT obligations). A difference is also created between small businesses operating through direct sales and small businesses operating through marketplaces. While the small business using direct sales may apply the exemption for small businesses (if it meets all conditions), the small business operating through the marketplace sale will be effectively taxed with VAT, because it will be unlikely that the marketplace can use the exemption for small businesses.

Whether a marketplace collection model provides certainty and simplicity depends on the set-up of the model. At least it should be clear what type of marketplace (or rather which type of transactions via marketplaces) is covered by the collection model and marketplaces should be able without any considerable additional effort to establish the VAT treatment of a transaction (this means that they should have the information available to determine the correct VAT application for the product sold) and collect the VAT. As regards the latter criterion, applying a marketplace collection model on marketplaces not at any point in time having access to the payment causes complexity.

In respect of effectiveness and fairness a marketplace collection model, assuming this is operated by big market players able and willing to be compliant, contributes to an effective tax system. Fraudsters will most likely avoid marketplaces, but this will make it more difficult for them to reach consumers in other countries and when marketplaces are compliant, the tax authorities could focus their precious time and means on other taxpayers. A marketplace may also be within the EU jurisdiction, while some of the individual suppliers are not located there, or at least the marketplace is more easily traceable. Whether the marketplace collection model contributes to a fair tax system is a different matter. As already pointed out the model causes differences as regards small enterprises making direct sales or sales via a marketplace. What is more, the marketplace should be able to correctly determine the VAT amount due and have access to the payment at any point in time to comply with the VAT legislation in such a model. This means that the marketplace must have access to all necessary information when determining the correct VAT amount, but also be released from paying any additional VAT when they have been provided with erroneous information and they did not know and could not have known that the information provided was erroneous. A marketplace collection model should therefore always be accompanied by a supplier collection model in cases where the supplier has provided erroneous information.

The marketplace collection model is an important model to consider from the perspective of the current state of the market in e-commerce. However, the question is whether it is flexible when business models will change. If direct sales increase at the cost of sales via marketplaces, the model is less efficient in collecting VAT on e-commerce. Blockchain technology can also make marketplaces abundant in the future, because the technology can make the trusted middlemen abundant.272 What is more, a marketplace collection model must always be accompanied by a supplier collection model for direct sales.

Within the marketplace collection model, the registration risk is mitigated. The same must be true for the filing and payment risk, because bigger players will want to be compliant in these areas as well. However, the declaration risk may in my view increase, simply because marketplaces may not have all the information necessary to determine the correct VAT amount. Marketplaces can also be used to educate taxpayers that operate through their platform.273 Part of non-compliance may be due to taxpayers not being (fully) aware of their obligations. Tax authorities can provide the platforms with the necessary information to place on their website. To keep the information up-to-date tax authorities must regularly contact platforms to provide them with new information.

The marketplace collection model in my view can be rated as shown below. Modelled correctly, taking account of the information available to marketplaces and their ability to collect the VAT from either suppliers or customers, the marketplace model is in my view currently a good addition to the existing supplier collection model. However, whether it is able to stand the test of time remains to be seen.

	Neutrality	Efficiency	Certainty and simplicity	Effectiveness and fairness	Flexibility
Marketplace collection model	–	+	–	+ on effectiveness - on fairness	–

	Registration risk	Filing risk	Declaration risk	Payment risk
Marketplace collection model	+	+	–	+

6.4. Payment Service Provider collection

Due to the fact that the majority of transactions take place through bank payments, payment service providers (PSP) may be used to collect VAT on transactions. Like marketplace collection of taxes PSP collection of VAT has the benefit that less parties are involved in collecting the VAT and the VAT no longer passes through the hands of suppliers that may intentionally (fraud) or unintentionally (unable to pay) not pay the VAT to the tax authorities. The OECD has stated that when taxes are not paid at the source, opportunities to evade are higher.274 Collection of VAT through credit card companies, banks and other PSPs is a method used by South American countries. In Argentina, since 27 June 2018 VAT has been collected through the intermediaries that facilitate the payment abroad, i.e. credit card companies, banks and other companies providing payment services. These intermediaries act as withholding agents. They charge VAT at the standard rate if the user of the service is not a taxable person for VAT purposes.275

A PSP collection model can be shaped in two different models: a blocked VAT account model and a real time VAT model.276 Under the blocked VAT account model each supplier will get a blocked VAT account. When a customer pays the supplier, the bank will split the amount. The purchase price is transferred to the supplier’s regular bank account, while the VAT is being transferred to the VAT account. The VAT account can only be used by the supplier to pay VAT. So, in case the supplier purchases goods with VAT from another supplier it can pay this VAT using its VAT account. If there is an excess in the VAT account after a tax period, it will be transferred to the tax authorities. Under a real time VAT model, the VAT is not put in a blocked VAT account of the supplier, but directly transferred to the tax authorities. VAT deduction of input tax can also take place on a real time basis.277 In both models the payment service provider determines the VAT amount based on the location of the customer, the amount received and the type of product or service. For the latter information the bank will depend on information provided by the supplier. In both models the supplier is still responsible for the correct VAT amount to be collected. One can also consider a model where the responsibility is transferred completely to the bank or PSP. Considering the fact that the bank or PSP is not able to, for example, assess whether the information received from the supplier as regards the type of goods or services provided, I feel that this is currently not a feasible option. In this section I will therefore focus on PSP collection model that is accompanied by a supplier collection model.

When all PSPs and all taxpayers are covered by the PSP collection model, neutrality will in my view not be affected. If the PSP collection model is for example restricted to payments to taxable persons abroad, this may affect neutrality. Taxpayers within the scope of the PSP collection model can no longer use the VAT collected as a working capital, which means that they have a cash flow disadvantage,278 while taxpayers not within the scope of the collection model can. Another concern is the use of cryptocurrencies. Built on blockchain technology, these cryptocurrencies do not have a central party that is responsible for the payment. A PSP collection model can therefore not be used when this payment method is used.279

The PSP collection model’s main benefit is in my view its efficiency. First of all, less parties will be involved in the collection of VAT. The PSP collecting the VAT is most likely established in the country where the consumer lives. This means that a party that knows the local VAT legislation collects the VAT. There is less risk of errors.280 Tax authorities no longer have to make efforts or costs to collect VAT and losses of tax income in case of bankruptcy are prevented.

As regards simplicity and certainty, assuming that most consumers will have a bank account in their own country, PSPs will have to determine the application of VAT legislation of their own country. This makes the legislation simple to apply. However, PSPs will be confronted with VAT legislation that they have not applied before, i.e. the VAT legislation for e-commerce (not VAT legislation for financial transactions). This will most likely mean that they incur one-off implementation costs when a PSP collection model is put in place. In respect of certainty, the fact that the PSP is dependent on information provided by parties involved in the transaction makes the model uncertain for PSPs. Mechanisms have to be put in place to make the PSP not liable for understated VAT in case the PSP has received false information.

At first sight the PSP collection model may be considered effective in addressing fraud, because VAT is no longer paid by the customer to the supplier. Consequently, the supplier can no longer disappear with that VAT (the risk of VAT fraud is mitigated).281 Some types of fraud are nevertheless possible, for example a supplier and customer can collude to inform the PSP that a supply is subject to the reduced rate, while the general VAT rate applies.282 It is also possible that fraud may shift to cash transactions283 or transactions using cryptocurrencies. As regards fairness, the burden of collection of VAT is put on PSPs. Whether they will be compensated for their efforts and costs will remain to be seen.284 If they are not compensated, the fees they charge to their customers will most likely increase.285 As discussed rules must be put in place to protect the bank from being responsible in case of false information provided by the supplier or customer.

In respect of flexibility the PSP collection model is effective as long as people do not revert to other types of payments. As such cryptocurrencies need to be considered. As already described a PSP collection model cannot be used in case of cryptocurrencies and we need to revert to another collection model.

With PSP collection the registration risk (i.e. the risk of suppliers not registering for VAT while they should) will in my view be mitigated. Most PSPs used by customers within the EU are regulated and in view of the tax authorities. The same must be true, for the same reason, for the filing and payment risk. As regards the declaration risk (i.e. the risk that sales are not reported correctly), I feel that this increases in a PSP collection model, because the PSP relies on information from the supplier.

In my view, the PSP collection model can be rated as shown below. As described above, the PSP collection model is only conceivable in addition to either the existing supplier collection model or the consumer collection model.

	Neutrality	Efficiency	Certainty and simplicity	Effectiveness and fairness	Flexibility
Marketplace collection model	0	+	–	–	0

	Registration risk	Filing risk	Declaration risk	Payment risk
Marketplace collection model	+	+	–	+

6.5. Postal operator and carrier collection

As regards the supplies of goods VAT collection could take place through postal operators and couriers. Such a model will distinguish between transports of the goods where a postal operator or third-party carrier is used and transports by the supplier itself. The collection model may thus affect the decision of businesses on how to transport the goods. However, the amount of VAT due is not affected.

As regards efficiency again, by shifting the responsibility to pay the tax to these types of businesses, the number of taxpayers to be audited by the tax authorities may be decreased. This, however, depends on the number of transport companies and postal operators compared to the number of suppliers. However, as regards efficiency and fairness and certainty and simplicity I have concerns. In November 2015 until April 2016 Copenhagen Economics carried out a study into the declaration of VAT on imports. The study showed that VAT was collected only on 35% of goods that had been imported in the EU using postal operators. Express carriers (e.g. Fedex, UPS) scored much better. VAT had been collected on 98% of the shipments.286 Copenhagen Economics’ research only checked whether VAT has been reported at all. The main types of non-compliance as regards imports are undervaluation of parcels and miss-labelling of parcels showing commercial B2C import as a gift.287 This is a challenge for postal operators and express carriers too, because they are not involved in the sale of the goods. They will rely on the information provided by the parties involved in the transaction. What is more, the postal operators and carriers do not receive any payments as regards the transactions. It will be difficult for them to collect the VAT from the persons involved in the transaction, in particular if the information is later proved to be false. The potential lack of information also makes the VAT legislation difficult to apply for those parties. New types of transport, including, for example, drones, also need to be taken into account when considering the flexibility of this collection model.

Even though the registration risk may be mitigated, the declaration risk is not and may even increase when suppliers are relieved from their obligation to pay the VAT in the EU. Postal operators and carriers may be larger companies willing and able to comply, but these may also be small companies compared to the suppliers involved. However, these companies are physically present in the EU because of the transportation of the goods. This may make them more aware of their VAT obligations in the EU. In my view the risks of a postal operator and carrier collection model are similar to the risks under the current supplier collection model. More research is necessary to establish whether this is a viable option for the future, but in my view research should better focus on one of the previous models discussed.

The postal operator and carrier collection model can in my view be evaluated as shown below. My conclusion is that shifting the responsibility to pay the VAT to the postal operators or carriers is not a viable option.

	Neutrality	Efficiency	Certainty and simplicity	Effectiveness and fairness	Flexibility
Postal operator and carrier collection model	0	?	–	–	0

	Registration risk	Filing risk	Declaration risk	Payment risk
Postal operator and carrier collection model	0	0	–	0

6.6. Concluding remarks on alternative collection models

The evaluation of the alternative collection models can be summarized as shown below:

	Neutrality	Efficiency	Certainty and simplicity	Effectiveness and fairness	Flexibility
Consumer collection model288	+	–	–	–	+
Marketplace collection model	–	+	–	+ on effectiveness – on fairness	–
PSP collection model	0	+	–	–	0
Postal operator and carrier collection model	0	?	–	–	0

	Registration risk	Filing risk	Declaration risk	Payment risk
Consumer collection model289	–	–	–	–
Marketplace collection model	+	+	–	+
PSP collection model	+	+	–	+
Postal operator and carrier collection model	0	0	–	0

In my view, at the current state of play supplier or marketplace collection should still be the starting point. However, consumer collection using technological solutions is interesting to consider in the future. These technological solutions can include using payment service providers to collect the VAT on the customer’ s behalf. A PSP collection on a stand-alone basis is in my view not an option.

7. Conclusion

My inaugural lecture has shown that there are many challenges when it comes to compliance and enforcement in the area of B2C e-commerce transactions. The road ahead is not a yellow brick road to a wonderful wizard that will solve all these problems. Though we can surely learn from the blind trust that Dorothy puts in her companions. More research can and needs to be done as regards:

• stimulating compliance;
• collecting and processing information on e-commerce transactions;
• administrative cooperation with other EU Member States and non-EU countries;
• cooperation with other authorities, in particular customs authorities;
• the effect of culture on compliance, cooperation and enforcement;
• alternative collection models.

I am glad to be part of two PhD projects in this area already and I look forward to the outcome of these projects as well as continuing my own research on this topic.

Dankwoord

Dan rest mij enkel nog een woord van dank uit te spreken. Allereerst aan iedereen die vandaag de moeite heeft genomen aanwezig te zijn. Dank voor jullie komst. Aan de rector magnificus, het faculteitsbestuur, mevrouw de decaan en de bestuursleden van EFS, dank voor het in mij gestelde vertrouwen. Collega’s van de capgroep belastingrecht van Erasmus School of Law en collega’s van FEI, het is af en toe een uitdaging om mijn beschikbare tijd over beide faculteiten te verdelen, maar het is leuk om zowel mee te werken aan de opleiding fiscaal recht als fiscale economie. Ook heb ik op deze manier goed zicht op zowel de studenten fiscaal recht als de studenten fiscale economie die aan onze gezamenlijke master indirecte belastingen deelnemen. Ik heb veel nieuwe collega’s leren kennen en voel me helemaal thuis en welkom, zowel in het Sanders- als het Bayle-gebouw. Beste studenten en in het bijzonder de studenten en oud-studenten van de master indirecte belastingen, wat leuk dat jullie er zijn. In een kleine opleiding als de master indirecte belastingen is de binding tussen studenten en docenten hecht en dat laten jullie ook vandaag zien. Blijf me vragen stellen en neem niet alles klakkeloos aan. Ik leer ook van jullie! Beste Van Kesteren, beste Herman, je beschrijft de relatie tussen promotor en promovenda altijd als die tussen vader en dochter. Ik weet dus zeker dat jij hier in de zaal ook apetrots op me bent. Er is geen stap in mijn carrière waar jij niet in meer of mindere mate bij betrokken bent geweest. Dank voor je vriendschap al die jaren. Ik hoop dat we nog lang op deze voet samen verder kunnen gaan, zowel op persoonlijk als professioneel vlak.

Beste Anton en Lia Merkx, lieve papa en mama, van jullie heb ik geleerd om dankbaar te zijn voor alle kansen die ik krijg, maar ook om nieuwsgierig te blijven en te blijven leren. Dank jullie wel voor jullie onvoorwaardelijke steun en liefde. Lieve Anna, deze week mocht ook jij een spreekbeurt houden. Van een rustig, timide meisje verander je ineens in een sterke dame en vertel je helemaal uit je hoofd je verhaal. Zenuwachtig ben je niet. Je doet het gewoon. Ik hoop dat je vandaag net zo trots bent op mij als ik afgelopen woensdag op jou. Stoere Alexander, jij bent onze kleine wetenschapper. Dan weer ken je allerlei dino’s waar ik nog nooit van heb gehoord en dan weet je weer van alles over de teek. Je gaat recht op je doel af en vraagt iedereen het hemd van het lijf. Wie weet treed je nog eens in mijn wetenschappelijke voetsporen. Lieve Norah, zo klein als je bent, ligt er nog een toekomst voor je open. Ik ben benieuwd welke weg jij gaat volgen. Lieve Daniel, ze zeggen dat achter een sterke man een sterke vrouw staat. Ook het omgekeerde is waar. Toen we elkaar leerden kennen had je al snel door dat ik niet uit het ‘huisvrouwen-hout’ gesneden was. Ik ben zo trots op jou als ik zie hoe jij die taak met verve op je hebt genomen en samen met mij voor de kinderen zorgt. Jouw steun en liefde is onvoorwaardelijk. We zijn een goed team! Samen met de kinderen ben je mijn alles.