Proposal for a Council Regulation (EC) on verification measures, measures relating to the refund system and administrative cooperation measures necessary for the application of Directive 98/. . ./EC (98/C 219/12) COM(1998) 377 final - 98/0210(CNS)

(Submitted by the Commission on 17 June 1998)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 99 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament,

Having regard to the opinion of the Economic and Social Committee,

Whereas amending the sixth Directive in such a way as to enable a taxable person to deduct the VAT due or paid in a Member State in which he is not established requires the introduction of a bilateral refund and compensation system in respect of debts between Member States in order to allow the Member State in which, pursuant to Article 17(3a) of the sixth Directive, deduction is carried out to request a refund of the amount in question from the Member State in which VAT was due or paid;

Whereas the practical operation of such a debt refund and compensation system requires the application of common rules, in particular with regard to exchange rates, the date on which the balance between two Member States is to be determined and the date on which the balance has to be paid to each other;

Whereas Member States may enter into bilateral agreements laying down special provisions between contracting Member States which derogate from these rules as regards the deadline for payment of the balance and the volume of documents to be transmitted for verification purposes;

Whereas cooperation between Member States in the area of control has not yet reached the quality or extent needed to permit an effective verification of the deduction made pursuant to Article 17(3a) of the sixth VAT Directive 77/388/EEC; whereas temporary provision for additional verification procedures is therefore necessary;

Whereas these additional procedures reduce the simplification effect resulting from the amendment, by Council Directive 98/. . ./EC of . ./. ./1998 of the rules governing the right to deduct the VAT paid in a Member State where the taxable person is not established; a regular review of the procedures must take place to assess their need and justification;

Whereas the Commission will present to the Council before the end of the second year in which these procedures are applied a report on the need and justification for them and on the development of cooperation between Member States in the area of verification, where appropriate accompanied by proposals rescinding the additional procedures; whereas to this end, Member States will supply the Commission with the necessary information;

Whereas the Commission, assisted by the Standing Committee on Administrative Cooperation in the field of Indirect Taxation, set up by Article 10 of Council Regulation (EEC) No 218/92, should be given the power to adopt measures implementing this Regulation;

HAS ADOPTED THIS REGULATION:

Article 1

Purpose

This Regulation establishes the verification procedures, the rules and procedures relating to the refund system and the administrative cooperation procedures necessary for the application of Directive 98/. . ./EC.

Article 2

Definitions

1. For the purposes of this Directive:

- 'Member State of deduction` means the Member State in which a taxable person exercises his right to deduct pursuant to Article 17(3a) of the sixth Directive,

- 'Member State of purchase` means the Member State in which the VAT eligible for deduction pursuant to Article 17(3a) of the sixth Directive was due or paid.

2. Each Member State shall notify the other Member States and the Commission of the authorities appointed for the purposes of applying this Regulation.

Article 3

Verification by the Member State of deduction

1. The Member State of deduction shall, at the time when the periodic return, together with the specific document and copies of invoices or import documents, is submitted, carry out an initial verification to ensure that the limits on the right to deduct and, where appropriate, the deductible proportion have been correctly applied. In addition, it shall check whether the nature and type of expenditure gives rise to the presumption that the taxable person is carrying out taxable transaction on the territory of the Member State of purchase for which he is liable to pay tax.

2. Where irregularities are detected, the Member State of deduction shall forthwith carry out the necessary adjustments.

3. Where the Member State of deduction considers that expenditure shown by the taxable person indicates that taxable transactions are being carried out on the territory of the Member State of purchase, the Member State of deduction shall immediately inform that Member State thereof.

Article 4

Compensation between Member States

1. The Member State of deduction has the right to obtain from the Member State of purchase a refund of the amount of VAT deducted, with due account being taken of the adjustments resulting from the verification referred to in Article 3.

2. Each Member State shall inform the other Member States of the total amount, in euro, of the VAT to be refunded pursuant to paragraph 1. This shall be done not later than 31 July of each year in respect of VAT deducted in returns submitted during the first half of the year in question, and not later than 31 January of each year in respect of VAT deducted in returns submitted during the second half of the previous year.

3. The exchange rate shall be determined on 31 January and on 31 July of each year, as appropriate, in accordance with the Community provisions in force for calculating customs value.

Article 5

Provisional balance

On the basis of the information transmitted pursuant to Article 4(2), Member States shall, on 31 January and 31 July, bilaterally decide the provisional balance between refund amounts payable and refund amounts receivable.

Article 6

Exchange of information

1. The Member State of deduction shall inform the Member State of purchase of the taxable transactions that may present a risk of evasion in respect of which VAT is deducted pursuant to Article 17(3a) of the sixth Directive. Such information shall be sent not later than the 15th day of the month following the month in which the periodic return, together with the specific document and copies of invoices or import documents, is submitted.

2. The criteria for selecting the transactions that have to be notified shall be laid down in accordance with the procedure provided for in Article 10.

3. However, Member States may agree bilaterally on additional criteria.

4. Member States shall supply the Commission with any information concerning the use made of information exchanged which the Commission deems necessary for drawing up the report provided for in Article 12 below.

Article 7

Verification by the Member State of purchase

Within three months of receiving the information referred to in Article 6, the Member State of purchase shall inform the Member State of deduction of the cases where it has detected irregularities as a result of which it has established either that the taxable transaction was fictitious or that the transaction was carried out as part of the taxable person's taxable activities on its territory.

In such situations, the taxable person may not exercise the right to deduct laid down by Article 17(3a) of the sixth Directive.

Article 8

Time limit for modifying the provisional balance

1. Provided that the three-month deadline referred to in Article 7 is met, the VAT amount relating to transactions in respect of which the Member State of purchase has detected irregularities shall be excluded from the amount which the Member State of deduction can obtain as a refund pursuant to Article 4.

2. Once the three-month deadline referred to in Article 7 has passed, the Member State of deduction may no longer request a change in the amount to be refunded.

Article 9

Payment of the balance between Member States

1. The final balance shall be determined on 30 April and 31 October. Where the provisional balance has already been determined, it shall be adjusted by setting off against it the VAT relating to any irregularities detected on the basis of the procedure provided for in Articles 6 and 7.

2. The final balance that a Member State must refund to another Member State shall be paid not later than 15 May in respect of final balances determined on 30 April and not later than 15 November in respect of final balances determined on 31 October.

3. Payment of the balance shall be made in euro.

4. However, Member States may, by bilateral agreement, derogate from this Article. They may, inter alia, agree on a different deadline for payment of the balance or allow payment of the balance to be carried forward in certain circumstances.

Article 10

Implementing measures

1. The measures necessary for the implementation of this Regulation shall be adopted by the Commission in accordance with the procedure provided for in Article 10(3) and (4) of Council Regulation (EEC) No 218/92.

2. To this end, the Commission shall be assisted by the Standing Committee on Administrative Cooperation in the field of Indirect Taxation set up pursuant to Article 10(1) of that Regulation.

Article 11

Communication of bilateral measures

Member States shall inform the Commission of any bilateral agreements entered into in the fields of Articles 6 and 9.

Article 12

Report

The Commission shall present to the Council, before the end of the second year of application of the verification measures referred to in Articles 6 and 7, a report on the need and justification for them and on the development of cooperation between Member States in the area of verification, where appropriate accompanied by proposals repealing the said measures.

Article 13

Final provisions

This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Communities.

It shall apply from 1 January 1999.

This Regulation shall be binding in its entirety and directly applicable in all Member States.