Los bienes relacionales y el bonding social capital

The compliance costs of VAT are not trivial. IFS et al. (2011) reports that past estimates for compliance costs have ranged from 0.3 % of turnover to as high as 8 or even 25 % of VAT collected in countries such as Croatia or Slovenia. Compliance costs are known to differ substantially between Member States, even though the general principles of VAT are common. Data from World

Bank / PwC (2011) ‘Paying Taxes’ (47) show that

for a model company, the time required to comply with VAT obligations varies very greatly amongst EU Member States. For a fictional model company, they range from 22 hours in Finland to 288 in Bulgaria (PwC, 2010). This suggests a high level of inconsistency. Furthermore, the estimates of ‘Paying Taxes’ assume that companies carry out solely domestic transactions.

There are good reasons to believe that the compliance costs linked to cross-border trade are even higher. This is because cross-border trade requires applying complex rules and fulfilling additional obligations. Very often it also requires acquiring knowledge of the foreign legislation and

technology facilitates driving to new destinations in neighbouring countries.

(46_{) Anecdotal evidence suggests, for example, that cross-}

border trade in personal services like hairdressing or dentistry has grown, notably in the border regions of Austria or Germany. While the main driver of these trends probably lies in strong differences in the cost of labour, VAT factors may either amplify or artificially restrict this trend. This explains the attention of Member States to issues such as granting reduced rates to labour-intensive services in neighbouring countries.

VAT practice. These costs are proportionately much higher for SMEs, as the profit to be obtained from foreign sales may be uncertain and limited at the beginning, whereas the costs sunk into setting up a system for dealing with foreign VAT are up- front and certain. But there are other, more subtle effects.

It has been known for a long time that the cross- border VAT compliance costs are well above those for domestic transactions. In general, VAT-related obligations have been identified as a major source of the compliance costs for European firms, due to their pervasive role in everyday transactions. A European Commission survey in 2000 showed that 26 % of businesses found difficulties related to the VAT system and VAT procedures to be an obstacle to doing business in the Internal Market.

A further survey (48) in 2001 showed that VAT

payments and refunds were the third most costly regulatory burden for companies. The multiplicity and complexity of VAT requirements in the EU-15 Member States, i.e. the ‘old’ EU Member States, combined with difficulties for businesses in obtaining VAT refunds from other Member States leads to substantial costs and represents a real

barrier to cross-border activities. (49) Out of 25

priority areas identified in the VAT legislation by their contribution to the compliance cost burden of European companies, eight specifically pertain to

cross-border activities. (50)

The impact of this on trade has always been difficult to quantify due to a lack of estimates of the scale of cross-border compliance costs, compared with domestic costs. However, IFS et al. (2011) sheds some new light on the issue. It suggests that the distortionary effect on trade is strong. It found many differences across Member States in VAT-related administrative procedures: on average, a firm trading in two EU-15 Member

States would have to deal with eleven

differences (51). These intra-EU differences are a

(48_{) European Commission (2001).}

(49_{) An overview of these results is given in IFS et al. (2011),}

pp. 157-158.

(50) See the report by the High Level Group of Independent Stakeholders on Administrative Burdens (2009), and

http://ec.europa.eu/enterprise/policies/better- regulation/administrative-burdens/priorityareas/

tax/index_en.htm; Ministry of Finance, et al. (2005);

Diemer (2010); Skatteverket (2006), Verwaal and Cnossen (2002).

(51_{) IFS et al. (2011), p. 15.}

source of trade costs that hamper the development of the internal market and discourage cross-border trade.

The results confirm that there are considerable differences, not only in the structures and levels of VAT but also in the administrative procedures. An

interesting finding is that administrative

procedures in the EU-15 have not tended to converge appreciably, although several decades have gone by since the VAT system was set up.

The VAT dissimilarity indicator (52) for the EU-15

shows that on average, more than 11 out of the 30 aspects of the administrative and procedural VAT regime differ between each EU-15 country pair. By contrast, the ten member states that joined the EU in 2004 have fewer administrative differences in their VAT regimes than the EU-15 countries have among each other. This may be because these countries were able to start a VAT tax system from scratch and have chosen to adapt best-practice

procedures from the EU-15 countries. (53) Rates

also differ less between the new Member States than among the EU-15 Members. This suggests that convergence is not a natural phenomenon over time, but the result of deliberate policy alignment. IFS et al. (2011) uses an innovative indirect approach to simulate, in the absence of data on cross-border compliance costs, the order of magnitude of the possible impact on the

economy. (54) The estimates suggest that a 10 %

reduction in differences in VAT procedures could boost intra-EU trade by up to 3.7 % and GDP by up to 0.4 %. The simulation results also suggest that removing national VAT obligations that go beyond EU requirements would yield a growth in

(52) The VAT-regime dissimilarity indicator compares across countries various aspects and functional domains in national VAT regimes. The aspects include rate structures, the heterogeneity of administrative procedures, and the compliance cost burdens created by national VAT regimes. Dissimilarity indicators are calculated for all 676 (=26x26) bilateral country pairs in the EU in order to allow maximum accuracy in detecting the VAT influences on bilateral trade between Member States.

(53_{) IFS et al. (2011), p. 168.}

(54) The method is an econometric approach based on comparing the trade structure of each country with the above-mentioned estimates for the dissimilarity of VAT regimes. The results capture the direct (partial equilibrium) effects of VAT policy on trade only and do not take into account trade diversion or other indirect effects. For trade in services, the study distinguishes three types of trade flows: total services, travel, and other business services.

intra-EU trade volumes by 2.6 % and GDP by 0.2 %.

Overall, although the authors of the study consider

these estimates, owing to methodological

limitations, to be clearly the upper bounds of the range of possible impacts, the effects of this magnitude clearly highlight that simplifying and harmonising procedures and converging tax rates and bases are an important policy issue. This is confirmed by the robustness check performed by the study. It simulates the impact on trade of abolishing all VAT compliance costs, on the basis of the assumption that it may raise firm turnover by 1 %. The estimated increase in intra-EU trade is 4.3 % and the estimated impact on GDP is 0.4 %.

4.4. ESTIMATING THE IMPACT OF VAT