This is the final report of a project on “The retrospective evaluation of elements of the VAT system.” This project has been led by researchers at the Institute for Fiscal

Studies, in co-operation with other members of a consortium of organisations (led by CPB Netherlands Bureau for Economic Policy Analysis) carrying out a programme of economic analysis of taxation for the European Commission, and with additional contributions to this project from researchers outside the consortium. The full report addresses the following 12 evaluation elements:

(1) To what extent do the current VAT arrangements for cross border supplies of goods and services maximise the potential of a genuine EU single market for businesses and customers? What is the range of GDP loss that could be attributed to the special rules, obligations and risks associated to EU trade? What are the related administrative burdens and collection costs?

(2) To what extent is the current method of collecting VAT efficient, effective and robust, e.g. in terms of minimising the compliance cost for the enterprises and maximising the tax revenue for national administrations whilst preventing fraud?

(3) What are the cost and impacts of the current restrictions applied to the right to deduct VAT including through the

determination of the deductible proportion for tax revenue, businesses and the customers?

(4) What are the cost and impacts of the current exemptions for tax revenue, businesses and final consumers?

(5) What are the cost and impacts of the current diversification of the VAT rates, on compliance for businesses in particular for cross-border transactions and on collection/control costs?

(6) To what extent and how do the different cost factors of the VAT impact the medium/large and pan-European businesses?

(7) To what extent does the current VAT framework for small businesses help to create the right conditions for them to grow and prosper in the single market? To what extent and how do the different cost factors of the VAT impact them?

(8) To what extent does the current VAT acquis applied on services provided internationally guarantee adequate taxation (no double taxation or tax avoidance)?

(9) What are the cost and impacts of the current national VAT arrangements applied in the member states on the bona fide traders in the context of the VAT fraud?

(10) To what extent do the current derogations, exemptions and options continue to be relevant as compared with the needs they aim to satisfy? Do the benefits validate the cost?

(11) To what extent does the current diversification of the VAT rates, including the reduced VAT rates, continue to be relevant as compared with the needs they aimed to satisfy?

(12) To what extent and how does the current VAT system impact the price-setting mechanism in the short and long run?