Boston University School of Law

The One-Stop-Shop in VAT and RST:

Common Approaches to EU-US Consumption Tax Problems

Richard Thompson Ainsworth

Boston University School of Law Working Paper 06-27


In March 2004 the European Commission solicited comments on a proposal to simplify value added tax (VAT) obligations through a one-stop scheme.  The proposal was modest in scope.  It was designed to build upon the success of a similar scheme that dealt with non-EU established persons supplying digital products to non-taxable EU persons.  That scheme is found in Article 26c of the Sixth VAT Directive

In its March Consultation Paper the Commission proposed that businesses established within the EU be allowed to participate in a one-stop scheme that would be similar to the Article 26c scheme.  Limited to B2C transactions, like Article 26c, this new scheme would encompass more than digital sales.  After a five-month public comment period, ending in October 2004, the Commission proposed two Council Directives and a Council Regulation.  The October proposals far exceeded the vision of March Consultation Paper.  

            States in the US confront similar problems with respect to the retail sale tax (RST), as do Member States of the EU with the VAT.  E-commerce, distance sales from non-resident sellers, and complex multi-jurisdictional reporting, audit and refund issues are problematical issues within and among the States.  Not surprisingly, many of the EU and US solutions are the same. 

The most innovative one-stop-shop ideas in the US are found in the Streamlined Sales Tax.  Three related concepts, the certified service provider (CSP), the certified automated system (CAS), and automated proprietary systems have the most comparative relevance from an EU perspective.  The key to these concepts is an agreement between the tax authority and the taxpayer.  If a taxpayer is willing to use certified software, or certified service providers to collect and remit RST obligations, then the states agree not to audit.  Fraud, of course, is an exception. 

The CSP takes this certification one step further, because this third party not only uses certified software to determine RST obligations, but it uses these calculations to generate certified returns, and make certified tax payments on behalf of the taxpayer.  Thus, the CSP becomes a private sector one-stop-shop. 

This is the US RST development that has caught the attention of the European Commission.  The private sector one-stop-shop solves two of the EU’s most difficult problems (1) the question of selective surrendering of tax sovereignty, and (2) the technical burden of handling large fund transfers. 

A private sector one-stop-shop in the CSP model is workable in the VAT context, and one that can be implemented with less than full 25-country agreement.  Certifying a software package would amount to privatizing a portion of a country’s revenue authority.  It would be a loss of sovereign control, particularly in the area of audit enforcement.  However, the sovereign would still determine VAT rates, the tax base, rules for refunds and other matters. 

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Richard Thompson Ainsworth Contact Information
LL.M. Tax Program
Boston University School of Law
765 Commonwealth Ave
Boston, MA 02215

Phone: (781) 773-1052

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