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EU Study Released On Low Value Consignment Relief

by Ulrika Lomas, Tax-News.com, Brussels

29 May 2015


The European Commission has released a new study to support its ongoing review of VAT exemptions for the importation of consignments of low value.

The current VAT Directive obliges member states to exempt all business-to-consumer (B2C) commercial importations of consignments with a value not exceeding EUR10 from import VAT, known as low value consignment relief (LVCR). Member States are free to increase this threshold up to EUR22 (USD24).

The LVCR has been subject to a lot of discussion over time, as the concession for foreign exporters is seen to adversely impact domestic suppliers in respect of their supplies to the domestic market, which are generally subject to VAT. The Commission has notably received several complaints and submissions from industry stakeholders in this area.

In addition to the above-mentioned exemption, non-commercial consignments sent from a third country by a private person to another private person in the EU with a value not exceeding EUR45 are also exempt from import VAT.

The study attempts to estimate how much revenue is lost due to LVCR, by multiplying the total volume of international receipts of small consignments originating from outside the EU by the value of the small consignment (including transportation costs), and then applying the applicable VAT rate per member state. According to the estimates, VAT foregone in the EU in the base scenario was EUR118m in 1999, peaking at just under EUR640m in 2011. Despite the economic crisis and interventions by certain member states (such as the United Kingdom and Denmark) to change the law relating to the LVCR, the estimates still show that revenues worth about EUR535m were allowed to slip through the net in 2013. At its maximum, the VAT foregone within the EU could have reached just under EUR900m in 2011, the report says. This is equivalent to a business turnover of EUR4.5bn.

The United Kingdom, which removed LVCR for the Channel Islands, said that the concession had cost the UK VAT revenues worth EUR170m in 2009. Meanwhile, in Denmark, it was estimated by the Danish Government that the concession had cost Denmark revenues worth EUR8m in lost VAT from the magazine industry alone in 2004.

The report says some product categories appear to be more affected than others. Authorities in a number of other member states have therefore also looked into this particular exemption, which has led to variety in interpretations and exclusions from the VAT exemption, such as mail order. Member states are allowed to exclude mail order shipments from this arrangement, which would legally remove the exemption for most of the consignments.

The European Commission has committed to pursue reform in this area. In its 2011 Communication on the future of VAT, the Commission said that "a number of provisions in the VAT Directive are outdated and do not take the singled market aspect sufficiently into account." Within this context, the Communication says "the treatment of small consignments and other internet sales is to be tackled" to ensure a "level playing field for non-EU and EU suppliers." On that basis, the Commission Expert Group made the specific recommendation in 2014 to "abolish the small consignments exemption" and that this should be pursued as "a priority in tandem with the development of the broader One Stop Shop also applying to other small consignments for which no customs duties are due" – that is goods valued at less than EUR150.

The Study carried out for the Commission presents an overview of the legal framework and procedures in place in the 28 EU member states, as well as an economic analysis of the low value consignments market from 1999 until 2013, including an estimation of the potential VAT foregone by tax authorities due to the exemption.

TAGS: compliance | VAT special schemes | tax | business | European Commission | value added tax (VAT) | VAT legislation | VAT cross-border transactions | law | United Kingdom | legislation | VAT compliance matters | Europe | Study

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