COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the desirability of continuing a programme of action to ameliorate the taxation systems of the internal market

1. The need for a continued and modern programme

The Fiscalis programme [1] was adopted by the European Parliament and the Council in 1998 as a five-year programme of Community action to ameliorate the indirect taxation systems of the internal market. The Fiscalis programme has been subject to a mid-term evaluation based on interim reports from Member States. Based on this evaluation, in accordance with Article 12 of the Fiscalis Decision, the Commission is required to submit a communication to the European Parliament and the Council on the desirability of continuing the programme, accompanied, if necessary, by a suitable proposal.

[1] Decision No 888/98/EC of the European Parliament and of the Council establishing a programme of Community action to ameliorate the indirect taxation systems of the internal market (Fiscalis programme), OJ L 126, 28.4.1998, p.1.

The interim evaluation [2] of the Fiscalis programme has concluded that the short-term impact of the programme is encouraging and it is seen as a valuable and inevitable tool for the support of EU fiscal policy and Member States have strongly supported the programme.

[2] SEC(2001) 1328.

As the evaluation is based on results covering the first three years, it is already possible both to see and to measure the programme's short-term impact. It has disseminated significant knowledge and added experience to the participants on specific subjects, has made it possible to improve control and the fight against fraud of the indirect taxation systems and allowed officials to adopt new administrative practices in co-operating with other tax administrations. The report showed that the programme, which also provided the legal basis for funding much of the Community computer support operations, made it possible to encourage better use and distribution of the tax control systems in place. These are key control instruments for intra-community VAT and Excise. The programme also contributed to new computerisation projects within the excise field. By opening it to the applicant countries, it has also been possible for them to already benefit from participation in seminars and exchanges. The programme's activities have proved a worthwhile investment and should therefore be continued. Due to their success, most of the activities of the current programme should be maintained as should its general structure.

The continuation of the programme is therefore not only necessary for the control of VAT within the Community, but also in order to pave the way for the accession of new Member States. Without being aware of the necessary administrative co-operation arrangements in good time in advance of accession, it would be difficult for new Member States to adapt their control and administrative systems to meet the new challenge of operating in an internal market without frontiers. An important element in building new administrative capacity for these countries will be to offer their tax officials full participation in this programme, which also will serve the Community's overall objectives of enlargement.

However, at the same time, there is also a need to take account of new developments in the area of tax policy as well as general developments in Europe. For example, new technology plays a significant role in the modernisation of both tax systems and tax administrations and opens possibilities for improved efficiency and creates an environment for better co-operation between Member States. A new programme should benefit from this evolution. Therefore, the proposal contains a significantly reformed and modernised programme (Fiscalis 2007), the aim of which is to continue to provide the best support for Community tax work.

In this respect, the proposal contains the following improvements when compared to the Fiscalis Decision.

- First the objectives of the programme will be directly linked to the tax policy objectives.

- It will be extended to cover direct taxation.

- The programme will better meet the special needs of applicant countries as a specific objective has been inserted to meet their special needs. It will be possible to include new activities to meet such needs.

- A concerted approach is taken to fiscal communication and information-exchange systems as all will be assembled in the programme.

- Provision is made for more structured rules on evaluation.

2. Overall objectives of the programme

The primary objective of the Fiscalis Decision, as well as the parallel programme in the Customs field (Customs 2002) was the efficient functioning of the internal market and thus it was therefore adopted under Article 100a (now Article 95) of the Treaty. This proposal has the same overall objective but is modified to meet the needs of the new tax policy developments in the Community. The overall objective is to improve the functioning of the taxation systems in the internal market by increasing co-operation between participating countries, their administrations and officials, and to identify and remedy areas, such as legislation and administrative practices which make this co-operation more difficult. Therefore the legal base should be Article 95 of the Treaty.

It should be noted in particular that fiscal fraud creates a significant distortion of the functioning of the internal market. It damages legitimate trade, adversely affects employment and undermines confidence in the Community's taxation systems. One aim of the programme is therefore the protection of the Community and national financial interests against fraud.

The main responsibility for this falls on Member States but they cannot effectively prevent fraud without co-operation and mutual assistance. A failure to respond to the need for effective control and anti-fraud measures will severely affect the function of the internal market. The Fiscalis 2007 programme is therefore aimed at contributing to a better functioning of the internal market by enhancing the efforts of the Community and the Member States to build a network of tax administrations working together, as though there were only one single European tax administration, in order to face the challenge of fraud for which the very notion of borders has completely disappeared.

3. The programme has the following general objectives:

Developments in tax policy since the inception of the Fiscalis programme, within both the Commission and Member States, need to be taken into account under the new programme. The evaluation report also highlights a specific need for the objectives to be linked to the tax policies developed by Member States in co-operation with the Commission and the operational work to which they give rise. This is a requirement that is welcomed. As policy objectives may need to be adapted over time, the Commission proposes a system allowing for greater flexibility to reflect such changes.

3.1. General objective for the VAT field

In the VAT field the Commission has been working intensively, over a long period, to try to achieve the improvements in the system that are considered necessary in order for it to adapt fully to the needs of the Single Market. During the year 2000, the Commission proposed a new strategy, which concentrates on bringing about an overall improvement in the operation of the current VAT system. To implement this strategy, the Commission has set up four main objectives: simplification and modernisation of current rules (including adapting tax administrations to the era of electronic commerce), more uniform application of current rules and a new approach to administrative co-operation. These objectives should be the foundation for the VAT part of a new programme.

3.2. General objective for direct taxation

As a result of the Lisbon European Council setting the strategic goal, that the EU become the most competitive and dynamic knowledge-based economy in the world, a proper functioning of tax systems is essential, both for the efficiency of the labour market, as well as the market for goods, services and capital. This applies not only as regards indirect taxes, value added tax and excise duties, all of which are covered by the existing Fiscalis programme, but is equally valid for the direct taxation field, where hardly any harmonisation or co-ordination exists at Community level.

3.3. General objective for the excise duty field

In the excise duty field, the Commission's strategy is to ensure smoother functioning of the Single Market coupled with achievement of those wider objectives of the Treaty affecting environmental taxation and other excise duties. Therefore, the aims of the programme should be to improve co-operation between Member States so as to ensure a more consistent application of current rules and developing a common approach on legal and administrative aspects in the excise duty field.

3.4. General objective for the applicant countries

In the Commission's Strategic Objectives 2000-2005 [3] enlargement has been fixed as a top priority. To make a success of enlargement and to build a real policy of co-operation with the new neighbours is an essential part of its four main strategic objectives for the five years ahead. In the Commission's work programme for 2001 [4] the Commission will pay particular attention to the accession strategy and also pay more attention to the ability of the applicant countries to implement Community provisions and the steps they are taking to this end. As a tool for this priority area a continued programme could make a significant contribution. In the process of enlargement, it will be essential to ensure that the activities of the programme provide a new common foundation for the smooth accession over the period 2003-2008 and it would be harmful for the applicant countries if the possibilities to participate in it would no longer be possible. However, in order to further ensure the effective application of the tax acquis, by the applicant countries, a general objective has been set for the new programme in order to meet their specific needs, to reinforce their administrative capacity and to help them implement the necessary legislative, administrative, organisational and technical measures. The programme is therefore designed to be an indispensable element in the enlargement process for these countries.

[3] COM(2000)154 final

[4] COM(2001) 28 final

3.5. Specific objectives

The new proposal will also introduce better flexibility, enabling the Commission and Member States to break down the general objectives into targeted goals to meet actual needs. The management Committee, which for the Fiscalis programme was the Standing Committee on Administrative Co-operation, will be retained in that form. It proposes to review these specific objectives on an annual basis. This will ensure that the programme work will be linked to the tax policy work of Member States and the Commission.

4. Conclusion

The first Fiscalis programme has improved administrative co-operation between tax administrations and their officials in the single market and has generated a practice of co-operation in the tax field which previously was fragmented and unstructured. The computerised control systems financed under Fiscalis set up to replace border controls are unanimously considered as indispensable elements of the indirect taxation control systems. Without them, tax control and the fight against fraud would not function. There is therefore a clear need to continue this programme by providing the appropriate funding.

However, there are new challenges to be met, such as enlargement of the European Union, adaptation of tax administrations to the e-economy etc. and therefore the new programme should take these needs into account.