# EUR-Lex - 52012PC0428 - EN

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# 52012PC0428

**Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC on the common system of value added tax as regards a quick reaction mechanism against VAT fraud /* COM/2012/0428 final - 2012/0205 (CNS) */**

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EXPLANATORY MEMORANDUM

1.           CONTEXT OF THE PROPOSAL

In the Annual Growth Survey 2012[1] and its Annex IV
(‘Growth-friendly tax policies in Member States and better tax coordination in
the EU’), the Commission has emphasized the need to raise the efficiency of VAT
in the context of fiscal consolidation. It was pointed out that improving tax
collection and tackling tax evasion more efficiently could contribute to an increase
of government revenue.

VAT fraud schemes evolve rapidly and Member
States are sometimes confronted with situations whereby the EU VAT law in force
does not provide a legal base for the counteractions they wish to take.

Until now, such situations have been
tackled either by an amendment of Council Directive 2006/112/EC of
28 November 2006 on the common system of value added tax[2] (hereafter the 'VAT Directive')
or individual derogations have been granted to Member States on the basis of
Article 395 of the VAT Directive. This article currently offers the option to
Member States to obtain a derogation in order to combat fraud (simplification
being the other possible objective under this article). This requires a
(positive) proposal from the Commission, a process which can take up to 8
months according to paragraph 4 of Article 395 of the VAT Directive, and unanimous
adoption by the Council, which can lead to further delays.

In both cases, the process is, by nature,
slow and cumbersome in comparison to quickly emerging fraud phenomena at
international level, e.g. carousel fraud in services which are very quickly
supplied on to the next trader (rather than the more traditional type of fraud
in goods). The process for granting derogations or for amending the VAT Directive
can therefore lead to considerable and irreparable financial losses. A recent
example is the estimated loss of EUR 5 billion between June 2008 and December
2009 in relation to the greenhouse gas emission allowances trade[3].

Member States may therefore be tempted to
take immediate measures without an appropriate legal basis in the EU legislation.
However, this situation remains unsatisfactory as these measures, even where
they are appropriate and proportionate in relation to the fraud situation,
could be challenged before the Courts because of the lack of a legal basis.

Making the EU VAT system more robust is also
one of the key objectives set out in the Communication on the future of VAT[4] presented on 6 December 2011
and the current proposal has been indicated as a priority action for pursuing
that objective.

The purpose of this proposal is therefore
to foresee a procedure in the VAT Directive which, in very specific situations,
would provide a legal base for Member States to take immediate measures. This
would be called the Quick Reaction Mechanism (hereafter 'QRM').

The purpose of the QRM is not to replace the
current derogation system. Its scope is therefore limited to massive and sudden
fraud situations in (a) specific economic sector(s) in a particular Member
State that cannot be stopped via traditional control and enforcement means and
which would lead to irreparable losses.

As this new mechanism would only bring added
value if decisions can be adopted much quicker than under the current procedures,
it is proposed that the Commission would make use of implementing powers as
foreseen in Article 291 of the Treaty on the Functioning of the European Union
as to ensure a correct implementation of the VAT Directive, and to prevent
budget losses and violations of the principles of fair taxation.

For the adoption of the implementing
decisions, authorising a derogating anti-fraud measure to the requesting Member
State concerned, use would be made of the examination procedure, as explicitly
foreseen regarding taxation in Article 2, paragraph 2, point (b)(v) of
Regulation (EU) No 182/2011 of the European Parliament and the Council of
16 February 2011 laying down the rules and general principles concerning
mechanisms for control by Member States of the Commission's exercise of
implementing powers[5]
(hereafter the 'Comitology Regulation'), of which the practical and legal
aspects are set out in Article 5 of the said Regulation.

In conjunction with this article, the
Commission would adopt immediately applicable acts on the basis of duly
justified grounds of urgency, within the meaning of Article 8 of the Comitology
Regulation. This is the fastest option to provide for a legal basis for a
derogating measure to be applied in a Member State in short notice. This
underlines, as already mentioned, the exceptional character of the QRM and
explains its limited scope.

In derogation of the foreseen standard
application period of 6 months in Article 8(2) of the Comitology Regulation, it
is proposed to increase the application period of any authorisation given under
the QRM to maximum one year. This would allow Member States in the meantime to
follow the standard procedure provided for under Article 395 of the VAT
Directive or to implement other anti-fraud measures which do not require a
derogation.

In accordance with Article 8(3) of the
Comitology Regulation, the act would have to be submitted to the relevant
Comitology committee, which would be the Standing Committee on Administrative
Cooperation (SCAC), within 14 days of its adoption by the Commission. Article
3(5) of the Comitology Regulation provides the possibility, in duly justified
cases, to obtain the committee's opinion by written procedure and the
Commission has the intention to make use of that option with a view to speeding
up the procedure as much as possible. As allowed under the second paragraph of
Article 3(5) of the Comitology Regulation, it will not be possible for a Member
State to terminate the written procedure upon request in order to convene a
meeting as this would considerably slow down the whole procedure. It is to be
understood that, should the committee deliver a negative opinion, the
Commission has to immediately repeal the derogation in accordance with Article
8(3) of the Comitology Regulation.

As to the content of the derogations which
could be authorised under the QRM, it is proposed to define and agree a list of
anti-fraud measures as, once a QRM request is submitted, there will be little
or no time for a fundamental debate between Member States on the type of
anti-fraud measures. This will also allow the Commission to work on the basis
of, to a large extent, pre-established texts, thereby reducing timeframes for
case-handling and translations.

The only anti-fraud measure currently
specified in this proposal is the so-called reverse charge mechanism, under
which the taxable recipient becomes liable for the payment of the VAT instead
of, as a general rule, the supplier of the goods or services. Insofar as the
recipient disposes of a full right of deduction, he will account and deduct the
VAT in the same VAT return and the result is that no effective payment or refund
is taking place; thus reducing the possibilities of fraud. This measure, and
notwithstanding its possible medium-term negative side-effects, has proven to
be an effective tool in stopping fraud (and in particular carousel fraud) when
targeted to certain specific sectors.

The other measures would have to be
determined by the Council, acting unanimously upon a proposal from the
Commission, so that these measures are established before being considered as
part of any QRM request.

In procedural terms, Member States should
send an application to the Commission outlining their intention of introducing
a derogation measure on the basis of the QRM system. The exceptional
circumstances of the fraud situation should be explained in detail as to
justify the application of the QRM; the Commission shall ask for additional
information when required. Once all the necessary information is available, the
Commission will either authorise the measure or inform the Member State
concerned of its refusal within one month.

In order to streamline the process as much
as possible, the request of a Member State would be based on a standardised
form, adopted by the Commission, containing a pre-established list of questions
allowing for a quicker and more comprehensive examination and assessment of the
fraud situation for which the derogation demand is lodged. As regards its
internal organisation, the Commission will ensure that an accelerated decision-making
procedure is in place. The derogation would be granted by the Commission itself
without the need to wait for a decision of the Council and even before an
opinion is delivered by the competent committee. Furthermore, since only one
Member State would be concerned, the adoption of the Decision could take place on
the basis of one single language version. The combination of all these factors
should make it possible that the deadline of 1 month, after the Commission
having obtained all the necessary information, is met.

2.           RESULTS OF CONSULTATIONS
WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS

Public consultation as to the possible use
of a QRM was already held in the context of the above-mentioned Communication
on the future of VAT. Prior to that public consultation, discussions took place
with the Member States (via the Anti Tax Fraud Strategy Group) showing that
there was a genuine interest for such a mechanism to be put in place.

The current proposal is mainly of a
procedural nature. Its purpose is to speed up, in cases of urgency, the
possibility already existing for Member States to obtain an authorisation to
derogate from the provisions of the VAT Directive. An impact assessment was
therefore irrelevant in this context. Only the subsequent national measures,
authorised under the QRM (like those authorised today under Article 395), could
have a certain impact which, in any case, should not be significant given the
limited scope and duration.

Furthermore, as it is not known for which
concrete and specific cases a Member State might ask for the proposed QRM procedure,
it is not possible to estimate any quantitative impact the QRM could have
compared to the current derogation procedure, as this would obviously always
depend on the specific case.

3.           LEGAL ELEMENTS OF THE
PROPOSAL

With a view to assist the Member States
better in their fight against aggressive forms of VAT fraud, the proposed
measure complements the procedure for adopting certain derogatory measures to
ensure a quicker and, as a result, a more adequate and effective response to
these phenomena. This proposal therefore amends the VAT Directive.

The EU action is justified on grounds of
subsidiarity following the legal basis for work in the area of indirect taxation
provided for in Article 113 of the Treaty on the Functioning of the
European Union. Use is made of the implementing powers of the Commission on the
basis of Article 291 of the TFEU and in accordance with the Comitology
Regulation, which stipulates that the examination procedure is to be used for
taxation issues. The risk of irreparable financial losses justifies the use of immediately
applicable acts. As a consequence, the procedure for adopting this type of derogation
measure will be speeded up.

The above-mentioned sudden and massive
fraud phenomena very often have an international dimension (e.g. so-called
carousel and missing trader fraud). When confronted with new forms of trade
(e.g. internationally tradable services), Member States are not in a position
to individually counter these (intangible) fraud circuits which involve several
countries at the same time. Therefore, the objective of
combating fraud can be better achieved at EU level via a Directive which offers
the possibility to Member States to obtain, in exceptional cases, a legal basis
for a derogating measure in a much quicker way than that which is currently
possible. This does therefore not go beyond what is
necessary to achieve the objective.

The proposed instrument is a Directive as
the legislation being amended is a Directive and so no other legislative act
would be suitable.

4.           BUDGETARY IMPLICATION

The proposal has no negative impact on the
EU budget.

2012/0205 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directive 2006/112/EC on the
common system of value added tax as regards a quick reaction mechanism against
VAT fraud

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 113 thereof,

Having regard to the proposal from the
European Commission,

After transmission of the draft legislative
act to the national Parliaments,

Having regard to the opinion of the
European Parliament[6],

Having regard to the opinion of the
European Economic and Social Committee[7],

Acting in accordance with a special
legislative procedure,

Whereas:

(1)       Tax fraud in the field of value
added tax (VAT) leads to considerable budget losses and affects the conditions
of competition and thus the operation of the internal market. Specific sudden
and massive forms of tax fraud have recently developed especially via the use
of electronic means which facilitate rapid illegitimate trade on a large scale.

(2)       Council Directive
2006/112/EC of 28 November 2006 on the common system of value added tax[8] allows Member States to apply
for a derogation from that Directive in order to prevent certain forms of tax
evasion or avoidance. Authorisation of such derogation requires a proposal from
the Commission and its adoption by the Council. Recent experience has demonstrated
that the process for granting derogations is not always flexible enough to ensure
a prompt and suitable reaction to requests by Member States.

(3)       In order to ensure the
principle of fair taxation and the implementation of Directive 2006/112/EC in
cases where the current derogation procedure is not appropriate, it is necessary
to establish a new procedure for granting derogations, called 'Quick reaction mechanism'.

(4)       In order to allow for a
quicker adoption of the necessary derogations and to ensure uniform conditions
for the implementation of Directive 2006/112/EC, implementing powers should be
conferred on the Commission as regards the authorisation given to the
requesting Member State to introduce derogation measures in the specific
framework of the Quick Reaction Mechanism. Those powers should be exercised in
accordance with Regulation (EU) No 182/2011 of the European Parliament and
the Council of 16 February 2011 laying down the rules and general principles
concerning mechanisms for control by Member States of the Commission's exercise
of implementing powers[9].

(5)       The Commission should
adopt immediately applicable implementing acts where, in duly justified cases
relating to the authorisation given to the requesting Member State to introduce
derogating measures, imperative grounds of urgency so require. Immediately
applicable implementing acts are necessary in cases of sudden and massive forms
of fraud that could lead to considerable and irreparable losses.

(6)       It is necessary to extend
the maximum period of validity of immediately applicable implementing acts in
order to allow the Member State concerned to establish more permanent measures
in the meantime. This would also, if need be, provide sufficient time for the application
of the derogation procedure set out in Article 395 of Directive 2006/112/EC.

(7)       The designation of the recipient
as person liable for the payment of the VAT (reverse charge) is an effective
measure to stop at once the most well-known types of tax evasion in certain
sectors. However, as the situation may evolve over time, it may also be necessary
to allow for other measures. To that end, the Council should, where
appropriate, upon proposal of the Commission, determine any other measure as
falling within the scope of the Quick Reaction Mechanism. The type of measures
that could be authorised should be established in order to minimise the time
necessary for the authorisation of the derogations by the Commission.

(8)       It is also necessary to
establish the standardised form of requests by Member States in order to
facilitate their understanding and subsequent treatment. In order to ensure
uniform conditions for the implementation of Directive 2006/112/EC,
implementing powers should be conferred on the Commission as regards that
standardised form.

(9)       In order to accelerate the
adoption of implementing acts relating to the authorisation given to the
requesting Member State to introduce derogation measures in the specific
framework of the Quick Reaction Mechanism, the chair of the Committee should apply
the written procedure within the meaning of Article 3(5) of Regulation (EU)
No 182/2011. It is also necessary to exclude the possibility for a
committee member to request the termination of the written procedure without
result.

(10)     Since the objective of the
action to be taken, to address sudden and massive fraud
phenomena in the field of VAT which very often have an international dimension,
cannot be sufficiently achieved by the Member States, as they are not in a position to individually counter the fraud circuits related
to new forms of trade which involve several countries at the same time, and can therefore, by reason of ensuring a quicker and, as a result,
a more adequate and effective response to these phenomena, be better achieved
at Union level, the Union may adopt measures, in accordance with the principle
of subsidiarity, as set out in Article 5 of the Treaty on European Union. In
accordance with the principle of proportionality, as set out in that Article,
this Directive does not go beyond what is necessary in order to achieve those objectives.

(11)     Directive 2006/112/EC
should therefore be amended accordingly,

HAS ADOPTED THIS DIRECTIVE:

Article 1

In Chapter 2 of Title XIII of Directive
2006/112/EC, the following Section 1a is inserted:

"Section
1a
Quick reaction mechanism against VAT fraud

Article 395a

1.      The Commission may adopt implementing
acts authorising any Member State to introduce the following special measures by
derogation from this Directive, in order to combat sudden and massive forms of
tax fraud in the field of VAT which could lead to considerable and irreparable financial
losses:

(a)     the designation of the recipient as
person liable to pay VAT on specific supplies of goods and services by
derogation from Article 193, following a request referred to in paragraph 2 of
this Article for such measure;

(b)     any other measure determined by the
Council acting unanimously on a proposal from the Commission.

For the purposes of point (a), the special
measure shall be subject to appropriate control measures by the Member States
with respect to taxable persons who supply the goods or services to which that
measure applies.

The implementing acts referred to in the first
subparagraph of this paragraph shall be adopted in accordance with the
examination procedure referred to in Article 395b(2).

On duly justified imperative grounds of urgency
relating to the authorisation given to the requesting Member State to introduce
derogating measures referred to in the first subparagraph of this paragraph, the
Commission shall adopt immediately implementing acts in accordance with the
procedure referred to in Article 395b(3). Those acts shall remain in force for
a period not exceeding one year.

2.      A Member State wishing to introduce a
measure as provided for in paragraph 1 shall send an application to the
Commission. The Member State shall provide it with the information indicating the
sector concerned, the type and the features of the fraud, its sudden and
massive character and its consequences in terms of considerable and irreparable
financial losses. If the Commission considers it does not have all the
necessary information, it shall contact the Member State concerned within one
month of receipt of the application and specify what additional information is
required.

Once the Commission has all the information it
considers necessary for appraisal of the request it shall, within one month, either
authorise the special measure or, in case the Commission objects to the
requested measure, inform the Member State concerned thereof.

3.      The Commission shall adopt an
implementing act establishing a standardised form for submission of information
referred to in the first subparagraph of paragraph 2. That implementing act
shall be adopted in accordance with the examination procedure referred to in Article
395b(2).

Article 395b

1.      The Commission shall be assisted by
the committee established by Article 58 of Council Regulation (EU) No 904/2010(*).
That committee shall be a committee within the meaning of Regulation (EU) No
182/2011 of the European Parliament and of the Council(**).

2.      Where reference is made to this
paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply.

3.      Where reference is made to this
paragraph, Article 8 of Regulation (EU) No 182/2011, in conjunction with
Article 5 thereof, shall apply.

Where the opinion of the committee is to be
obtained by written procedure, that procedure shall be terminated without
result only when, within the time-limit for delivery of the opinion, the chair
of the committee so decides.

__________________________

(*) OJ L 268,
12.10.2010, p. 1.

(**) OJ L 55, 28.2.2011, p. 13."

Article 2

1.           Member States shall bring
into force the laws, regulations and administrative provisions necessary to
comply with this Directive by 1 January 2013 at the latest. They shall
forthwith communicate to the Commission the text of those provisions.

When Member States adopt those provisions, they
shall contain a reference to this Directive or be accompanied by such a
reference on the occasion of their official publication. Member States shall
determine how such reference is to be made.

2.           Member States shall
communicate to the Commission the text of the main provisions of national law
which they adopt in the field covered by this Directive.

Article 3

This Directive shall enter into force on
the twentieth day following that of its publication in the Official Journal
of the European Union.

Article 4

This
Directive is addressed to the Member States.

Done at Brussels,

For
the Council

The
President

[1]               COM(2011) 815, 23.11.2011.

[2]               OJ L 347, 11.12.2006, p. 1.

[3]               Europol press release of 9 December 2009, 'Carbon
Credit fraud causes more than EUR 5 billion damage for European Taxpayer'

[4]               COM(2011) 851 final

[5]               OJ L 55, 28.2.2011, p. 13.

[6]               OJ C , , p. .

[7]               OJ C , , p. .

[8]               OJ L 347, 11.12.2006, p. 1.

[9]               OJ L 55, 28.2.2011, p. 13.