COMMISSION OF THE EUROPEAN COMMUNITIES 
COM(94) 262 final 
Brussels, 23.06.1994 
REPORT FROM THE COMMISSION 
TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 
APPLICATION OF COUNCIL REGULATION (EEC) No 218/92 
OF 27 JANUARY 1992 
ON ADMINISTRATIVE COOPERATION IN THE FIELD 
OF INDIRECT TAXATION (VAT) 
Summary 
The transitional value added tax (VAT) regime applicable from 1 January 1993 has 
led to changes in the arrangements for tax controls relating to intra-Community 
transactions. The checking of these transactions, which was formerly based mainly 
on customs documentation, is necessary to guarantee the revenue of Member States 
and to ensure equity of treatment for all economic operators, since fraud is often a 
factor in creating distortions of competition. 
Council Regulation (EEC) No 218/92 on administrative cooperation in the field of 
indirect taxation (VAT) therefore provides for the establishment of a common 
system to enable the competent authonties in the Member States to exchange 
information on intra-Community transactions. The purpose of the system is to 
enable certain data for VAT control to be stored and transmitted electronically. 
In 1991, the Commission launched a fact-finding study with a view to the 
development of the VAT information exchange system (VIES). The Standing 
Committee on Administrative Cooperation (SCAC) set up under the Regulation, 
assisted by a technical sub-committee, decided, after completion of the feasibility 
study, that the basic architecture of the system should be organized around national 
gateways. 
This solution, which was unanimously approved, meets the Member States' concern 
to keep close control over the network. Data is stored where it is generated, and 
may be accessed by means of uniform methods. This system has major advantages in 
terms of ease of data-base management, low implementation costs, and data 
protection. The technical options followed have enabled the various VIES functions 
laid down in the Regulation to operate satisfactorily to date. 
The authorities and economic operators may thus obtain confirmation of the validity 
of a given person's VAT identification number. It was agreed that the maximum 
response time should be 10 seconds; the network average in 1993 was 4.53 seconds. 
By 31 December 1993, there had been about two million requests for verification, 
with immediate response. The authorities may also obtain the name and address of 
the person to whom a given VAT number was issued. 
The VIES also enables the Member States to exchange or consult information based 
on the recapitulative statements of intra-Community suppliers identified on their 
territory. Net total values of intra-Community supplies to all VAT-registered 
persons is pre-programmed to be communicated quarterly, and no special 
instructions are required. As agreed, the first such communication took place on 
1 July 1993. Arrangements had been based on the assumption that the operation 
would take 24 hours, but in fact the largest national file was transferred in just over 
three hours. The other technical options and possibilities introduced, such as 
transfers on demand, direct access to information or error messages, are fully 
operational. Follow-up requests for further information have been sent via the 
VIES network by six Member States. 
-1 CL 
This technical success owes much to efficient cooperation between the technical 
teams of the Member States, the Commission and the firms responsible for the 
project. It is also attributable to the quality of advance preparation in the 
Member States for setting up data bases of VAT-registered operators, and the 
turnover information supplied. 
The initial assessment of the new arrangements for administrative cooperation is that 
the technical infrastructure chosen is suitable for the achievement of the objectives 
laid down in Regulation (EEC) No 218/92. In terms of its impact on tax controls, 
the operation of the transitional regime itself is too recent, and the number of checks 
carried out too small, for any conclusions to be drawn. Nevertheless, it would seem 
that the Member States, while preserving their own competence in the control of 
taxable operations, are aware of the usefulness of receiving and processing data from 
their partners for tax control purposes. 
Systematic comparisons have been made between the turnover data transmitted by 
VIES and the VAT returns from taxable persons. Moreover, the use of the 
arrangements in the mutual assistance Directive (77/799/EEC) and the mutual 
assistance with recovery Directive (76/308/EEC) should develop, in particular with a 
view to the control of the special regimes. 
CONTENTS S) \j-
INTRODUCTION .* 1 c 
PRELIMINARY CHAPTER: THE TRANSITIONAL VAT REGIME AND ITS 
IMPLICATIONS FOR CONTROL 1 C 
1. THE NEW ADMINISTRATIVE STRUCTURES 3 
1.1 At Community level: the Standing Committee on administrative 
cooperation (SCAC) and its sub-committees 3 
1.2 At national level: Central Liaison Offices 4 
2. THE VIES AND DATA EXCHANGE 4 
2.1 Technical aspects of design and operation 5 
2.2 Verification of VAT identification numbers 6 
2.3 Turnover data capture, storage and transmission 7 
2.4 Other functions of the VIES 8 
3. INITIAL ASSESSMENT OF ADMINISTRATIVE COOPERATION 
IN PRACTICE 9 
3.1 Deadlines and technical control 9 
3.2 A statistical assessment 10 
3.3 Effective cooperation networks 11 
4. THE OUTLOOK FOR ADMINISTRATIVE COOPERATION AND 
MUTUAL ASSISTANCE 12 
4.1 The use of data for purposes of control 12 
4.2 No new fraud, but a need for closer cooperation 13 
4.3 Special measures that would be desirable to combat fraud ,15 
4.4. Assistance with recovery 15 
CONCLUSION 16 
•1 c. 
Report on the Operation of Regulation 218/92 
INTRODUCTION 
Council Regulation (EEC) No 218/92 deals with administrative cooperation in 
the field of indirect taxation (VAT). It supplements the arrangements of 
Directive 77/799/EEC, which also deals with mutual assistance between the 
authorities in the Member States in the field of direct and indirect taxation. 
Alongside the transitional VAT regime introduced on 1 January 1993, the 
Regulation provides for a common system for the exchange of information on 
intra-Community transactions between the competent authorities of the 
Member States. Article 14 requires the Commission to report every two years 
on "the conditions of the application of this Regulation on the basis, in 
particular, of the continuous monitoring procedures provided for in Article 11." 
This report accordingly examines and assesses the arrangements that have been 
made to set up a common system for the exchange of information on intra-
Community transactions between the competent authorities of the 
Member States. It also reviews for the first time the use for control purposes of 
the data transmitted. Before considering the procedures introduced and the 
measures taken for the application of the Regulation, which has proved highly 
satisfactory, it would be helpful to recall briefly the basic principles of operation 
of the transitional VAT regime for taxable persons and their consequences in 
terms of control for the administrative authorities. 
PRELIMINARY CHAPTER: THE TRANSITIONAL VAT REGIME AND 
ITS IMPLICATIONS FOR CONTROL 
In December 1991 and January 1992 two important legal instruments were 
adopted by the Council (Ministers of Economy and Finance), to enable the 
transitional VAT regime to come into operation from 1 January 1993. They are 
Council Directive 91/680/EEC, amending, with a view to the abolition of the 
Community's internal borders, the sixth Directive of 1977 setting out the 
principles of Community law relating to VAT, and Council Regulation 
No 218/92 on administrative cooperation in the field of indirect taxation 
(VAT). Furthermore, Directive 92/111/EEC supplemented the transitional 
VAT regime by providing specific provisions for certain triangular operations 
involving three taxable persons identified in three different Member States. 
Very briefly, transactions involving taxable persons are carried out as follows. 
The new concepts of intra-Community supply and intra-Community acquisition 
have replaced the concepts of export and import for trade within the 
Community. Intra-Community supplies are exempt providing the seller can 
prove: 
- that the goods have left the Member State of departure, 
- that the customer has a VAT identification number in another Member State. 
Intra-Community acquisitions are taxable in the Member State of destination, 
and the tax is declared by the purchaser in the periodic VAT return; such 
acquisitions generally give entitlement to deduction, and consequently do not 
usually result in actual payment of the tax. 
These arrangements have consequences for control and are accompanied by 
certain obligations and procedures for economic operators and the authorities. 
The checking of VAT on intra-Community trade,.previously based mainly on 
customs documents, is necessary to ensure fair treatment for operators. With 
the discontinuing of compulsory procedures for declaring the dispatching and 
receipt of imports and exports, operators are only subject to general procedures 
relating to VAT. Operators engaging in intra-Community trade must: 
- be identified in the Member State or States where they carry out taxable 
intra-Community transactions; 
- draw up invoices for intra-Community supplies of goods, indicating their 
own VAT number and that of the customer; 
- fill in the two boxes in the periodic VAT return relating to the value of intra-
Community supplies and acquisitions; 
- return a recapitulative statement giving the their intra-Community customers' 
VAT identification numbers, and the net value of supplies of goods to each 
one, over the period covered by the statement (usually one quarter). 
It is planned to simplify these obligations for certain traders, in particular small 
businesses. 
For the authorities, the control of VAT on intra-Community trade is facilitated 
by the exchange and comparison of information obtained from the recapitulative 
statements and returns mentioned above. Although the Member States retain 
full tax sovereignty over the verification of conditions for taxation or exemption 
for intra-Community transactions, it nevertheless proved necessary to provide 
for an appropriate electronic system for the exchange of information concerning 
value added tax. 
Regulation (EEC) No 218/92 thus defines procedures for such exchange, and 
for requests for further information. It also stipulates that the authorities and 
operators should be able to obtain confirmation of the validity of a given 
person's VAT identification number. 
1. THE NEW ADMINISTRATIVE STRUCTURES 
LI At Community level: the Standing Committee on administrative 
cooperation (SCAQ and its subcommittees 
Article 10(1) of Regulation (EEC) No 218/92 reads: "The Commission 
shall be assisted by a Standing Committee on Administrative Cooperation 
in the field of Indirect Taxation, hereinafter referred to as "the 
Committee'. It shall consist of representatives of the Member States and 
havearer^esentativeoftheC^mmisaonaschainnan." 
The introduction of the VIES was a priority, and its practical and 
technical aspects were initially more important than the Committee's 
duties relating to administrative cooperation and mutual assistance in the 
field of indirect taxation, which were more fully defined at a later stage. 
In accordance with the Regulation, the initial task of the Standing 
Committee on Administrative Cooperation (abbreviated to SCAQ was to 
take all the necessary decisions on the legal, organisational, financial and 
commercial aspects of the VIES project It was responsible for drawing 
up the specifications of the VIES and considering all the changes, 
especially the operational changes, that might be required. 
When the SCAC was instituted, it was agreed that it would be assisted by 
a technical subcommittee to be set up under its authority to deal with the 
technical details of the introduction of the VIES. The terms of reference 
of this subcommittee were that it should report to the SCAC on all 
matters where the solution to technical problems involved time-lags or 
special difficulties that could compromise the outlook for general 
introduction of the VIES. Another very important aspect of the 
subcommittee's functions is to identify and solve potential problems. 
The SCAC was also designated the appropriate forum for dealing with 
matters of administrative cooperation, including assessment and 
monitoring of the operation of the arrangements provided for in 
Article 11 of the Regulation. Its competence in matters of mutual 
assistance (Directive 77/799/EEC) has also been recognized and 
confirmed by a decision of the Deputy Directors-General for indirect 
taxation at their first meeting on 30 June and 1 July 1992. It can 
therefore meet as the Committee referred to in Article 9 of that Directive 
when questions of mutual assistance and anti-fraud policy involving more 
than one Member State must be considered, both tor VAT and for excise-
duties. The extension of the terms of reference of the SCAC avoids 
duplication in the work of the bodies provided for in Regulation (EEC) 
No. 218/92 and Directive 77/799/EEC. It also contributes to mamtaining 
coherence and complementarity between the different procedures for 
exchange of information and administrative cooperation provided for by 
the Directive and the Regulation. 
The close link between VAT control and VAT anti-fraud activity 
concerning more than one Member State has led the Member States and 
the Commission to recognise the need for closer cooperation at 
(2) 
Community level on the anti-fraud front in particular. To this end, the 
Committee has drawn up a working programme for mutual assistance and 
administrative cooperation so as to determine the specific needs of 
control and investigation departments. In particular, this should make it 
possible to define the most appropriate remote telematic communications 
network. The SCAC is assisted in this work by an anti-fraud 
subœmmîttee. 
L2 At national level: Central Liaison Offices 
Regulation (EEC) No 21S/92 also provides that each Member State is to 
designate a central office to take primary responsibility for contacts with 
the other Member States in the field of administrative cooperation. 
Central Liaison Offices (or CLOs) were set up by 1993 in most of the 
Member States. Their role and precise duties were defined during 
discussions whhin the SCAC. Their mam responsibility and activity is to 
manage intra-Community administrative cooperation, and they should 
constitute the normal channel of communication between the 
Member States. In practical terms, they oversee the flow of exchanged 
information, compliance with response times and all matters the SCAC 
would find helpful in carrying out its duties. They often also exercise 
quality control over the requests they send to the other Member States, 
and of the responses they give to the requests they receive. 
To ensure optimal data exchange, common opening hours or means of 
communication such as telecopiers or telephone messages have been 
adopted wherever possible. These arrangements have all been applied, as 
has the procedure for solving problems provided for in Article 7(2) of the 
Regulation. 
2. THE VIES AND DATA EXCHANGE 
One of the basic aims of the Regulation on administrative cooperation was the 
introduction by the Member States and the Commission of an efficient system 
for electronic storage and transmission of data concerning intra-Community 
transactions for the purposes of VAT control. The Regulation also lays down 
specific arrangements for the exchange of information on value added tax 
relating to intra-Community transactions. The competent authority in each 
Member State also has access to an electronic data base containing a register of 
the names of those who have been issued with a VAT identification number in 
that Member State. The authority must see that those involved in intra-
Community supply of goods or services are authorized to obtain confirmation 
of the validity of a given trader's VAT identification number. 
The nerwork was to be, at the least, capable of meeting these minimum 
requirements. Despite the very short time available, and the complexity of the 
project, the problems were all .solved and the VIES was fully operational by the 
date set in the legislation. 
2.1 Technical aspects of design and operation 
It quickly became apparent that the difficulties to be overcome for the 
establishment of such a network would not just be technical. Information 
technology within the tax administrations applied to the job of ensuring 
compliance with tax provisions varies considerably from one 
Member State to another, both in terms of use and in terms of 
development. The linguistic problems caused by the use of nine different 
languages in the twelve member countries had to be solved, and 
allowance had to be made for the fact that the data exchanged involve 
twelve different national currencies. 
In response to the conclusions reached by the Council on 
3 December 1990, the Commission launched a fact-finding study early in 
1991 as a first step towards a system for the computerized exchange of 
information on VAT. Meanwhile arrangements were made for a 
complete feasibility study of the proposed system. The report produced 
after the fact-finding study identified the creation of data bases and a 
telecommunications network to link them together as essential elements 
of the project. It also listed the numerous questions relating to the needs 
of users that would have to be answered, independently of the technical 
solutions that would eventually emerge. These questions included the 
identification of intra-Community suppliers, the rules for composing and 
forming VAT numbers, the processing of information from late or 
amended recapitulative statements, and the period during which data 
would be kept. 
After the feasibility study, the solution of national gateways, as illustrated 
below, was adopted for the basic architecture of the system. 
MS-A Application d'accès de l'Etat Membre A 
MS-A GW Logiciel Etat Membre A de la passerelle 
MS-A VGW Logiciel VIES de la passerelle de l'Etat Membre A 
MS-R Application d'accès de l'Etat Membre R 
MS-R GW Logiciel Etat Membre R de la passerelle 
MS-R VGW Logiciel VIES de la passerelle de 1 ' Etat Membre R 
Gateway Passerelle de l'Etat Membre 
This decision, adopted unanimously, took account of the Member States' 
concern to keep the network under their control and avoided problems of 
confidentiality, which could have arisen with a more centralized system. 
The architectural principle adopted for the VIES is that of the distributed 
information system. This means that data is stored where it is produced 
(in each Member State) and may be obtained by uniform methods of 
accessing, independently of the points of interrogation and response. 
This architecture makes it possible: 
(i)to avoid duplication of data, which makes it much easier to manage the 
databases; 
(ii) to use the existing computer structures of the Member States, which 
leads to major savings in the cost of setting up the project and enables 
the intra-Community VAT data system to be integrated with the 
national systems; 
(iii)to ensure that officials in the Member States accept the new 
computerized system, by enabling them to access information in the 
same way as they access national data; 
(iv)to keep down training and maintenance costs in the Member States; 
(v) to protect data by avoiding their duplication at a central point or in all 
the Member States; 
(vi)to enable a clear distinction to be drawn between responsibility for 
national developments and that for developments undertaken centrally 
by the Commission, in accordance with the principle of subsidiarity. 
Once the main technical questions were solved, the hardware was 
installed and the network was set up during the summer of 1992. The 
project was operational on the date planned, 1 January 1993, to deal with 
questions about VAT identification information. On 1 July 1993, in line 
with the timetable, the first exchanges of turnover data took place. 
2.2 Verification of VAT identification numbers 
Article 6 of Regulation (EEC) No 218/92 lays down obligations for the 
Member States both towards one another and towards traders with VAT 
numbers. Each Member State is to maintain an electronic data base 
containing the VAT identification numbers of its traders. It must also be 
able to give an applicant Member State, without delay but on specific 
request, the name and address of the person to whom a given number 
was issued, the date of issue and, where appropriate, the date of cessation 
of validity of the VAT number. The Member States must also see that 
persons involved in the intra-Community supply of goods or services are 
able to obtain confirmation of the VAT number of any specified person 
(the prospective customer). 
Thus the first task of the national administrations was to issue individual 
identification numbers to the taxable persons concerned, pursuant to 
Article 22(lXc) and (e)ofthe sixth VAT Directive (77/388/EEC). With 
the exception of some isolated problems, which have been solved, this 
major undertaking was completed on schedule. 
It was agreed that the network response time for administrative 
departments' requests concerning VAT numbers would be no more than 
ten seconds. If the request relates to a valid number, the applicant 
authority receives all the relevant data on screen: name, address, date of 
issue and, where appropriate, date of cessation of validity. The network 
is available to official departments seven days a week round the clock in 
eleven Member States. One Member State has restricted access over the 
weekend, when applications are in any case infrequent, because of budget 
constraints. 
As the Member States wished when the Regulation on administrative 
cooperation was adopted, the SCAC has given priority to the effective 
application of arrangements to enable traders to obtain confirmation of 
the validity of a VAT number. Traders access the system for VAT 
number verification through the national departments, who reply merely 
yes or no to the question whether a specific number is valid, and/or 
relates to a specific name and/or address at a given date. For reasons of 
data protection and security, the national authorities will not supply the 
name and address corresponding to a valid number. The methods 
adopted in the Member States to deal with applications from traders 
differ considerably. France, Italy and the Netherlands have on-line 
systems to make it easier for traders to access the information, while 
others had set up units to communicate with traders by telephone, post or 
fax, 
2.3 Turnover data capture, storage and transmission 
In accordance with Article 4 of Regulation (EEC) No 218/92, each 
Member State must maintain an electronic data base in which to store and 
process information collected from the recapitulative statements of the 
intra-Community suppliers on its territory. More specifically, each 
Member State must be able to obtain from any other Member State, 
automatically and immediately, access to information in the form of a 
quarterly list of VAT identification numbers for all the intra-Community 
purchasers in the Member State, and the net total value of turnover 
associated with each VAT number. A breakdown of the total net figure 
into overall amounts declared by each supplier in the Member State 
where the data were collected is then available on request. 
8 
The first job of national departments in applying these arrangements was 
to draw up forms for collecting data for the quarterly recapitulative 
statement required under Article 22(6)(b) of the sixth VAT Directive. A 
number of Member States (Germany, Denmark, Spain, Ireland, Italy, 
Luxembourg, the Netherlands and the United Kingdom) have expressed a 
desire to apply the provision in the sixth Directive that authorizes certain 
taxable persons to make recapitulative statements at half-yearly or yearly 
intervals, instead of quarterly. The relevant decisions were adopted by 
the Council on 21 December 1992 and 22 November 1993. Four 
Member States, France, Italy, Portugal and the United Kingdom, have 
also made provision for monthly statements, as they are allowed to do 
under the Directive. In addition, France and Italy have adopted a single 
form for the recapitulative statement and for the declarations required 
pursuant to Council Regulation (EEC) No 3330/91 of 7 November 1991 
(Intrastat). 
The Member States and the Commission then approved the technical 
arrangements for data transmission. The communication of total net 
values for intra-Community supplies to all operators identified for 
purposes of VAT (Article 4(2)) is pre-programmed and requires no 
specific instructions; it can also be effected Member State by 
Member State. It was decided that the communication of the same 
figures broken down by supplier (Article 4(3)) would be carried out only 
on special application for a specific person or group of persons, but not 
generally. This decision, which the SCAC confirmed, corresponds to the 
provision in the Regulation for such communication by the authority of a 
Member State "wherever it considers it necessary for the control of intra-
Community acquisitions of goods." The agreed response time for mass 
data transmission is one day, and for individual applications between 
thirty seconds and five minutes. Information will remain available for at 
least five years. 
Processing methods were also adopted. For example, data can be 
corrected after transmission. The correction may be from the 
administration (auditing, factual error) or from the taxpayer (spontaneous 
declaration). Two flags have been provided to indicate that the data 
transmitted relates to process work, or derives from recapitulative 
statements of a periodicity other than quarterly. Finally, data relating to 
operations involving three taxpayers identified in three different 
Member States availing of the provisions of Directive 92/111/EEC are to 
be found in a separate field, and can thus be distinguished from those 
corresponding to ordinary transactions, 
2.4 Other functions of the VIES 
Under Article 5, a Member State may, in specific cases, request further 
information at any time if the information supplied under Article 4 
(turnover figures) is insufficient. The information must be provided as 
, quickly as possible, and at the latest three months after receipt of the 
application. To help with these requests for further information, a 
standard form keeping linguistic problems to a minimum has been 
devised. It can also be used for certain requests for mutual assistance. 
The Member States would like to introduce a computerized system for 
these requests. The software supplied is being used at present only by six 
Member States (Belgium, Greece, Spain, Ireland, Portugal and the 
United Kingdom), while the other six are still sending their requests by 
fax. 
The standard forms are transmitted through the message handling system 
being developed on the VIES network. To date, this application is 
limited to this type of exchange, but it could be used for other purposes in 
the future. However, the delegations have agreed, within the SCAC, that 
it would be preferable to await the results of the initial studies on the 
unification of computerized networks developed by DG XXI and those of 
the Commission studies on interpersonal message handling services 
before deciding on further action. 
3. INITIAL ASSESSMENT OF ADMINISTRATIVE COOPERATION IN 
PRACTICE 
A comprehensive assessment of administrative cooperation as it works in 
practice would certainly be premature and difficult, especially any assessment of 
its impact on the control of VAT on intra-Community transactions, but the 
SCAC has, as part of its work, drawn up instruments to measure the various 
exchanges of information, and the VIES itself spontaneously supplies a certain 
amount of data. The fact that cooperation networks are actually functioning 
means that an initial positive assessment may be made of the measures taken to 
apply Regulation (EEC) No 218/92. 
3.1 Deadlines and technical control 
As already pointed out, the main time constraints, tight though they were, 
have been met, and no technical problems have prevented traders from 
checking the identification numbers of their customers, or administrative 
departments from monitoring intra-Community transactions. 
This first function was available from 1 January 1993; at the end of that 
year, the number of interrogations (in synchronous mode) was 1 932 849. 
The average response time for 1993 was 4.53 seconds, less than the 
target of 10 seconds (see Annex). The number of requests varied widely, 
in both absolute and relative terms, from one Member State to another. 
The problems arising for the management of this function of the VIES 
were due to administrative organization in the Member States, and were 
all solved. One Member State had to deal at the beginning of the year 
with a flood of applications for VAT numbers from traders who could 
not receive exempt supplies from other Member States until their number 
had been issued. It was unanimously agreed by the SCAC that exemption 
could bè granted provisionally pending the effective registration of the 
taxable persons concerned. Another Member State issued a number of 
unjustified error messages because of its procedure for identifying 
10 
traders. As intra-Community traders were required to declare themselves 
as such, the VAT numbers of those who had not done so were not 
included in the specific VIES data base even when they were in the 
national register. The departments concerned in that Member State have 
undertaken to check up on all error messages, and are engaged in 
updating the data base of intra-Community traders. 
For turnover figures, eleven Member States were ready to start 
exchanging data as planned on 1 July 1993, and the twelfth joined the 
network a few days later. All the technical options work satisfactorily: 
mass exchange of data, automatically or on request, replies to individual 
questions, corrections, and error messages. The quarterly transfer of the 
largest data file takes just over three hours, well within the originally 
agreed time-limit of 24 hours. A system of computerized management 
for requests for further information (Article 5) is under study to facilitate 
organization and monitoring, especially of response times, by national 
departments. It is also planned to set up a second "gateway" in each 
Member State in the near future so as to be ready for any accidents that 
might occur and so as to be able to carry out testing and development 
without risking data which is stored or being exchanged. 
3.2 A statistical assessment 
As well as the statistics supplied by the VIES technical management 
centre, the Commission receives monthly figures from the Member States 
to enable turnover data to be assessed; the Commission collates these 
figures and sends them back every quarter to all the administrations. The 
purpose of the information transmitted is to assess whether available data 
is complete and accurate. The tables, which are updated regularly, 
include the following information: 
- the expected number of traders who must return a recapitulative 
statement during the quarter; 
- the actual number of traders who have returned a recapitulative 
statement; 
- the number of recapitulative statements processed; 
- the number of incorrect lines found; 
- the number of traders who have declared intra-Community supplies in 
the appropriate box on the periodic VAT return (Article 22(4)(c) of 
the sixth VAT Directive) 
It is possible, by comparing all these figures and estimates, to calculate, 
for example, the rate of spontaneous return of recapitulative statements 
by traders. It is also important for the administrative departments to 
know how correct the statements returned are; it was agreed that 
statements with only a few erroneous lines would not be refused outright. 
•Il 
The rate of spontaneous return has already reached an average of 85%, 
and is steadily rising. The number of errors is tending to decline, as the 
administrative departments have been working hard at keeping taxpayers 
informed so as to avoid the most frequent mistakes, such as repeating or 
omitting country codes in identification numbers. Although the data base 
cannot be regarded as complete for the first three quarters of 1993, the 
Member States have unanimously recognized that this situation, 
understandable in the early stages, was not a handicap for their control 
programmes. It nevertheless seems essential, for the sake of both official 
credibility and tax yield, for turnover figures transmitted in future to be as 
accurate as possible. The Commission will, of course, continue to 
supervise the development of these parameters of data base quality, to 
help wherever it can and to encourage Member States to improve their 
performance. Nevertheless, measures such as reminder letters or 
penalties for traders who fail to comply with the rules are a matter for the 
national administrative departments. 
Recourse to the VIES functions that enable information to be obtained 
concerning a specific customer (turnover, whether overall or broken 
down by supplier) varies considerably from one Member State to another. 
The number of requests in 1993, in absolute terms, ranges from as low as 
69 up to 18 806. The main reason for this wide disparity lies in tax 
control methods and approaches, which differ from one administration to 
another; in the Commission's view, in present circumstances, it is not a 
sign of the quality, or lack of it, of the verifications. 
Lastly, a form has been drawn up to monitor requests received and sent 
under Article 5 of Regulation (EEC) No 218/92. It includes indications 
of the reasons, and origins by Member State, of rejections of VAT 
numbers transmitted and of the number of additional controls carried out 
following the transmission of information by the VIES. The Commission's 
proposal for assessing the amount of back tax collected by correlation 
with the transmissions of data has been rejected by the Member States. 
The form will be used from 1994, and some data relating to 1993 has 
already been communicated to the Commission by Belgium, Greece, 
France and Portugal. 
3.3 Effective cooperation networks 
As well as providing a satisfactory technical infrastructure, the application 
of Regulation (EEC) No 218/92 has enabled national administrations to 
cooperate in order to improve control of indirect taxes, and in particular 
VAT on intra-Community transactions. The directory of Central Liaison 
Offices is regularly updated and sent to the relevant departments, and an 
effort has been made to appoint officials who know foreign languages to 
the posts concerned. Bilateral contacts are encouraged by gatherings 
organized at Community level, such as committee meetings, Matthaeus 
Tax Seminars, or seminars for the heads of CLOs. Commission officials 
have undertaken a number of missions to monitor the technical aspects of 
setting up the system and to assess the needs and requirements of the 
Member States for mutual assistance and fraud control. The Commission 
12 
has drawn up two papers (XXI/1013/93 and XXI/602/93), one for 
administrative departments and information networks, and the other more 
specifically for traders, which summarize the main points of the practical 
arrangements for VAT in the Member States. The main purpose of the 
information circulated was to bring to the attention of administrative 
departments and traders in other Member States the formalities for 
meeting VAT requirements (registration, tax representative, invoices, 
returns etc.). Wide dissemination of this information was helpful in 
replying to most of the questions from traders wishing to do business in a 
particular Member State. 
The pragmatic mode of operation of the SCAC was also helpful. In view 
of the magnitude of the task, the SCAC concentrated on the operational 
side of the system and reached decisions approving solutions to problems 
by consensus. Some of its conclusions come under the procedure laid 
down in Article 10 of Regulation (EEC) No 218/92, and will be codified 
during 1994. 
4. THE OUTLOOK FOR ADMINISTRATIVE COOPERATION AND 
MUTUAL ASSISTANCE 
The common information exchange system for intra-Community transactions 
was introduced when tax controls at internal borders were discontinued, with a 
view to avoiding loss of tax revenue. The transitional VAT regime came into 
operation too recently for any accurate assessment of its impact on public 
budgets, and the data exchanged over only three quarters constitutes too small 
a sample. However, some initial remarks can be made on the use of data for 
control purposes by national administrations. It would also seem that 
Member States are fully aware of the need for greater cooperation; there is a 
general desire for special measures in fraud control and assistance with 
recovery. 
4.1 The use of data for purposes of control 
The VIES includes automatic verification at several stages to check the 
validity of identification numbers given in traders' recapitulative 
statements. Only information associated with VAT numbers 
corresponding to agreed rules of construction, and satisfying the checking 
procedures can be transmitted (electronic check). At this stage, if the 
case arises, the Member State of the supplier is, in practice, obliged to 
make enquiries in order to find out from the supplier the source of the 
anomaly in the identification number of the alleged customer. 
Data transmitted is then systematically compared with the national 
register of identification numbers of VAT-liable persons involved in intra-
Community trading. The Member State that has received information 
including errors relating to identification sends warning messages to the 
sender Member State. These messages explain why the number was 
refused: 
13 
(i)the number complies with the rules for constructing VAT numbers, but 
it has not been allocated; 
(ii) the number was not allocated in the period concerned; or 
(iii)the number ceased to be valid in the course of the period concerned. 
Most of the Member States say that they systematically examine these 
error messages, which are usually sent to local departments. Their 
responses vary: they may request information from firms, assess the tax 
risk incurred, usually on the basis of the size of turnover, reconsider the 
tax exemption granted, or carry out on-the-spot checks. 
The number of warnings generated in 1993 was small, however, in 
relation to the amount of information exchanged; the potential for 
exploitation of such warnings for purposes of control is thus limited. It 
may reasonably be concluded that this shows that suppliers checked their 
customers' identification numbers whenever they thought it necessary. 
For the information transmitted in accordance with Article 4(2), 
(turnover figures for all supposed purchasers), all the Member States 
compare them, often automatically, or will be in a position to do so over 
the next few months, with the figures for acquisitions in the periodic 
VAT returns. This comparison is part of the tax control programme. 
Three Member States, Italy, France and the Netherlands, have noted 
divergencies between the two sources of cross-checking, which have 
enabled them to identify traders presumed to be failing to comply with the 
rules, for further investigation. 
Information under Article 4(3), turnover figures for a specific purchaser, 
broken down by supplier, are the most useful at the actual control stage. 
The wide differences in the number of requests of the type mentioned 
above are mainly due to differences in the application of VAT controls 
for 1993. Because periods of limitation extend over several years, and/or 
in order to ensure that they coincide with verification periods for direct 
and indirect taxation, certain administrations will not start on-the-spot 
VAT checks until this year. This is because VAT can be checked over a 
period that varies, according to the Member State, from three to ten 
years; it is therefore not surprising that the number of controls for 1993 is 
still low. 
4.2 No new fraud, but a need for closer cooperation 
The initial results of verifications and the other information from the 
Member States have not so far led to the discovery of new means of tax 
avoidance or evasion. The various cases reported in the press or by trade 
organizations relate to known methods of tax evasion, such as: 
- issuing of two invoices (especially for new means of transport, 
apparently); 
14 
- failure to declare sales and/or purchases; 
- establishment of ephemeral companies with improper refunding of 
VAT. 
As far as the Commission and national departments are aware, this type 
of evasion has not expanded either. However, indicators other than tax 
data, such as external trade figures, should be analysed and monitored. 
They can show up tax fraud indirectly, when they do not correspond to 
economic reality; for example, an abnormal increase in dispatch of a 
specific type of merchandise from one Member State to another might 
imply that supplies were being improperly exempted, and diverted back to 
the home market. 
Although the introduction of new indirect tax regimes has not basically 
changed the tax rules or the place of taxation, it has given a boost to 
administrative cooperation, as the Member States are now more aware of 
their interdependence. The requirement to return recapitulative 
statements and processing of these statements by the VIES enables 
national departments to be aware of the fact that the taxable persons 
concerned are expected to declare their acquisitions. The few exceptions 
due to differences in national legal definitions of certain transactions do 
not compromise the system as a whole. As to supplies, although it is 
entirely up to the Member State of departure to check on the conditions 
for their exemption, some departments thought it would be helpful to 
know how the same operation was dealt with in the Member State of 
destination. Applications for information of this type had already been 
exchanged by Member States on the basis of Directive 77/799/EEC. 
Although the reply (acquisition declared or not) cannot under any 
circumstances affect the granting of exemption, it is one factor to be 
incorporated in the analysis of risk for programming controls. 
It also appeared that the mutual assistance Directive could provide for 
more frequent spontaneous or automatic exchange of information. For 
example, in the absence of a spontaneous declaration by the taxable 
person, only the authorities in the Member State where the trader is 
established can be aware when the threshold for distance selling has been 
exceeded; such information could he systematically brought to the 
attention of the Member State of destination of the goods, which could 
then tax the relevant transactions in accordance with the special regime. 
Many Member States also said they were in favour of introducing time-
limits for replying to applications for information under Article 2 of the 
Directive. This matter is a priority in the work schedule of the SCAC for 
1994. 
15 
4.3 Special measures that would be desirable to combat fraud: " Fiscal 
SCENT" 
In reply to the questionnaire drawn up by the Commission, the 
Member States drew attention to the importance of confidential and rapid 
transmission of information in combating fraud, not only for VAT, but 
also for excise duties. A pilot project known as "Fiscal SCENT" was set 
up in 1993. This computer network, based on the existing SCENT 
network for customs matters, is intended to enable targeted anti-fraud 
messages to be exchanged between the departments concerned. 
The purpose of "Fiscal SCENT" is to control certain operations in intra-
Community trade by bringing information on suspected or established 
cases of fraud to the attention of the administrations concerned as quickly 
as possible. The transmitted information may concern physical flows of 
goods; although this type of information is not directly usable for VAT 
purposes, since taxable transactions are declared after the taxable event 
has taken place, it can be important for awareness of events which, by 
their nature, imply the existence of operations (e.g. sales) that should 
have been or should be recorded in the tax returns of the operators. The 
information transmitted may also be useful for preparing more narrowly 
targeted measures such as monitoring of invoices, whose findings can be 
used, for example, in a subsequent tax control. "Fiscal SCENT" is 
especially useful for highly taxed products like tobacco or alcohol, which 
are liable to both VAT and excise duties. The messages exchanged in 
this particular connection are similar to those exchanged via customs 
SCENT if the information relates to the routing of the products. 
The "Fiscal SCENT" network has already begun to function, and it will 
be further developed in 1994. 
4.4. Assistance with recovery 
For mutual assistance with recovery, there is already a Community legal 
instrument, Directive 76/308/EEC, in the field of indirect taxation. It 
could be used more intensively in future as tax claims arise on taxable 
persons not established within the country issuing the claim, a situation 
that is more likely to arise as a result, for example, of the extension of 
distance selling. The Member States have also shown interest in this 
matter, which will be studied along with the concept of tax liability. 
CONCLUSION 
On the technical side, the VIES is operating satisfactorily, and the options 
followed enable it to respond to the various requirements for information 
provided for in the Regulation. However, it is too early to take stock of its 
impact on tax controls, or on their quality. Moreover, the effectiveness of 
control systems can never be measured in purely statistical terms, or 
summarized in terms, for example, of tax recovered. Most of the VAT 
collected is attributable to spontaneous declarations by taxable persons. Tax 
control plays a basic role in prevention, which is much more difficult to assess 
statistically. From this point of view, the existence of an information exchange 
system dealing with virtually all intra-Community transactions certainly 
contributes to this prevention function as well as playing a part in detecting tax 
evasion. 
The close supervision needed for administrative cooperation arrangements 
should not lead to questions of tax avoidance or evasion being examined too 
narrowly. The number of traders who fulfil the requirements for declaration of 
intra-Community trade should be assessed in the light of economic data 
(transport statistics, external trade etc.), and not simply on administrative 
information originating in tax departments. Similarly, clearer knowledge of 
trade practices in particular trade sectors would make it easier to catch certain 
tax infringements. 
Pooling of experience in the Member States on these matters, and the 
development of mutual assistance procedures, are the next steps in 
administrative cooperation. 
17 
ANNEX 
Number of requests for verificatioo of identificatioo numbers in 1993 
350000 
300000 
250000 
200000 
150000 
100000 
50000 llllllll 
1/93 2/93 3/93 4/93 5/93 6/93 7/93 8/93 9/93 10/93 11/93 12/93 
Average monthly response times for VAT Registration requests in 1993 
1/93 2/93 3/93 4/93 5/93 6/93 7/93 8/93 9/93 10/93 11/93 12/93 
ISSN 0254-1475 
COM(94) 262 final 
DOCUMENTS 
EN 09 02 01 
Catalogue number : CB-CO-94-281-EN-C 
ISBN 92-77-71010-1 
Offîce for Official Publications of the European Communities 
L-2985 Luxembourg