After the removal of intra-Community borders, the traditional VAT system of the EC which was based on the Destination principle and fiscal border controls had to be reformed. The ECOFIN-Council decided to preserve the Destination principle for a transition period from January 1, 1993 to December 31, 1996 by shifting fiscal controls from national borders to exporting and importing firms as well as national tax authorities. In 1997, the intermediate system shall be replaced by a definite VAT system for trade among member states of the community. The aim of this paper is to search for a definite system of turnover taxation being both economically efficient as well as politically feasible. After retracing the steps of the Commission towards the intermediate system and a brief description and economic evaluation of the transition scheme it examines the various options for the shaping of turnover taxation in the community after 1996 both from an economic viewpoint and with regard to the political acceptability of the alternatives. It is shown that an introduction of a sales-tax system according to the model of the United States is the first best strategy because this system requires neither a harmonisation of tax rates nor an administratively burdensome clearing mechanism and confines the tax competition among member states to direct consumer purchases. Under this scheme, only sales of goods and services to private consumers are taxed; trade among firms stays free of tax. Since a sales tax, like a valueadded tax, taxes the whole value added of an economy, the tax base stays unchanged after an introduction of the new scheme. Hence, it is possible to retain both the level and the sectoral graduation of tax rates.