Assessment of the application and impact of the VAT exemption for importation of small consignments Specific Contract No7 TAXUD/2013/DE/334 Based on Framework Contract No Taxud/2012/CC/117 Final Report EY – May 2015 European Commission – Assessment of the application and impact of the VAT exemption for importation of small consignments Disclaimer The information and views set out in this report are those of the author(s) and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this study. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein. doi:10.2778/516132 ISBN: 978-92-79-47898-7 © European Union, 2015 Reproduction is authorised provided the source is acknowledged. May 2015 I European Commission – Assessment of the application and impact of the VAT exemption for importation of small consignments Abstract The European Commission has requested EY to perform an “Assessment of the application and impact of the VAT exemption for importation of small consignments”. The European Commission seeks to evaluate to which extent the VAT exemption for importation of small commercial and private consignments is having an impact on EU businesses, including on small and medium enterprises (SMEs). The study has four main objectives: . To report on and assess the situation in each Member State as regards the implementation of the VAT exemption for small consignments. To assess the existing procedures used by each Member State and by stakeholders in dealing with the importation of small consignment. To present statistics on the importation of small consignments in each Member State and at EU level for a specific period. To provide an analysis on the distortion of competition created by the small commercial consignment exemption. Résumé La Commission Européenne requis EY d’effectuer “Une évaluation de l’application et de l’impact de l’exonération de la taxe sur la valeur ajoutée de certaines importations d’une valeur négligeable”. La Commission Européenne souhaite évaluer dans quelle mesure l’exonération de la taxe sur la valeur ajoutée des importations commerciales et particulières d’une valeur négligeable a un impact sur les entreprises de l’UE, y compris sur les petites et moyennes entreprises ( PME). L’étude a quatre objectifs principaux: . De présenter et d’évaluer la situation dans chaque État membre en ce qui concerne l’implémentation d’une exonération TVA pour les petits envois. D’évaluer les procédures existantes employées par les Etats membres et les parties prenantes concernant l’importation de petits envois. De présenter des statistiques sur les importations de petits envois dans chaque Etat membre et au niveau de l’UE pour une période spécifique. De fournir une analyse sur la distorsion de la concurrence créée par l’exemption des petits envois commerciaux. May 2015 I European Commission – Assessment of the application and impact of the VAT exemption for importation of small consignments Table of Contents Part I - Review of the provisions and procedures in the EU regarding the customs duty relief and VAT relief for consignments of negligible value ................................. 1 1. Introduction, Mandate and Methodology ...................................................... 2 1.1 Introduction and Mandate ....................................................................... 2 1.2 Methodology ......................................................................................... 4 2. Legislation review ..................................................................................... 6 2.1 Customs duty relief for commercial imports of small consignments .............. 6 2.1.1 Threshold and excluded products in the 28 Member States ..................... 6 2.1.2 Customs relief regime in non-EU countries ............................................ 7 2.2 VAT relief for commercial imports of small consignments ............................ 7 2.2.1 Threshold established in the 28 Member States ..................................... 7 2.2.2 Exclusions from the VAT relief in the 28 Member States .......................... 9 2.2.3 Indirect importation – place of supply rules .......................................... 13 2.2.4 VAT relief regime in non-EU countries ................................................. 14 2.3 Customs and VAT relief for non-commercial imports of goods ..................... 14 2.3.1 Threshold and exempted products ...................................................... 14 2.3.2 Customs and VAT relief in non-EU Countries......................................... 15 2.3.3 Import procedures for non-commercial imports of goods and practical application ....................................................................................... 15 3. Review of procedures for imports of small consignments .............................. 17 3.1 Imports procedures for commercial small consignments ............................ 17 3.1.1 Customs clearance procedure ............................................................. 17 3.1.2 Practical application of the import procedures for various business operators (including description of IT solutions) .................................... 18 3.1.3 Identification of best practices and/or possible options to simplify the process for declaration and payment of import VAT on small consignments ................................................................................... 20 3.2 Administrative burden of the procedural aspects on imports of small consignments ....................................................................................... 22 3.2.1 Clearance fees and charges ................................................................ 22 3.2.2 Verification ratios and cost of collection for customs authorities .............. 23 3.2.3 Cost structure for private operators for customs clearance procedures .... 23 3.2.4 Conclusions and estimation on total burden for business ........................ 25 Part II - Quantitative overview of the goods covered by the VAT exemption for small commercial consignments and qualitative assessment of the impact on the distortion of competition on the internal market ................................................... 27 1. Introduction and Scope ............................................................................ 28 2. Data and methodology ............................................................................. 30 2.1 Introduction ......................................................................................... 30 2.2 Goods covered by LVCR ......................................................................... 30 2.3 Data limitations .................................................................................... 31 2.4 Data sources ........................................................................................ 33 2.4.1 Universal Postal Services Union .......................................................... 33 2.4.2 EY data collection from public and private postal operators .................... 34 2.5 The volume of international parcel receipts .............................................. 35 3. Economic analysis of the development of the LVCR market and its consequences .................................................................................................. 37 May 2015 I European Commission – Assessment of the application and impact of the VAT exemption for importation of small consignments 3.1 Presentation of statistics on importation of small consignments .................. 37 3.2 Sensitivity analysis – volumes ................................................................ 38 3.3 Estimating the VAT foregone as a consequence of the LVCR ....................... 41 3.3.1 Average value of the consignment for the VAT foregone calculation ........ 41 3.3.2 Adjusting VAT foregone for non-compliance and mis-declarations ........... 44 3.3.3 Calculating the share of estimated actual VAT foregone ......................... 44 3.3.4 VAT foregone in Denmark and the United Kingdom (Channel Islands) ..... 45 3.3.5 Total VAT foregone ........................................................................... 46 3.4 Sensitivity analysis – VAT foregone ......................................................... 46 4. Changes in trade patterns/trade flows and importation behaviour .................. 50 4.1 Approach ............................................................................................. 50 4.2 Slovenia - books ................................................................................... 51 4.3 Germany - greetings cards ..................................................................... 51 4.4 Sweden and Denmark - magazines ......................................................... 52 4.4.1 Sweden ........................................................................................... 52 4.4.2 Denmark ......................................................................................... 53 4.5 United Kingdom - CDs, DVDs and video games ......................................... 54 5. Qualitative assessment of the impact on the distortion of competition as a consequence of the LVCR .................................................................................. 56 5.1 Approach ............................................................................................. 56