Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Council Directive 77/799/EEC concerning mutual assistance by the competent authorities of the Member States in the field of direct and indirect taxation

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. Introduction

There are two different legal bases for administrative cooperation between Member States where VAT is concerned: Directive 77/799/EEC [1] concerning mutual assistance by the competent authorities of the Member States in the fields of direct taxation and value added tax, and Regulation (EEC) No 218/92 [2] on administrative cooperation in the field of indirect taxation (VAT).

[1] OJ L 336, 27.12.1977, p. 15.

[2] OJ L 24, 1.2.1992, p. 1.

When Directive 77/799/EEC was adopted, it covered taxes on income and capital only and did not include VAT. Directive 79/1070/EEC extends it to VAT [3].

[3] OJ L 331, 27.12.1979, p. 8.

The Directive creates a legal base for the exchange of information between Member States. However, it lays down that information exchange must be through the "competent authorities" and hence cannot take place directly between two services of two different Member States.

Three categories of information exchange are provided for: exchange on request concerning a particular case, automatic exchange and spontaneous exchange. The Directive makes no specific provisions where VAT is concerned in regard to the latter two categories of information exchange, merely referring to the possibility of concluding bilateral agreements between Member States. However, very few bilateral agreements have been signed with a view to such exchanges in the field of VAT. The Directive also provides for Member States to authorise officials from the applicant Member State to participate in certain controls, but few Member States have availed themselves of this possibility.

The removal as from 1 January 1993 of tax borders between Member States necessitated the strengthening of administrative cooperation. Regulation (EEC) No 218/92 was adopted to supplement the 1977 Directive and to put in place a strengthened system of information exchange for intra-Community supplies and acquisitions of goods.

The main innovation of the 1992 Regulation was provision for an electronic data base (VIES [4]) and for automatic communication to all the other Member States of the total value of all intra-Community supplies to taxable persons identified in those Member States, together with the relevant VAT identification numbers. Where the information available in the data base is insufficient, further information may be requested under Article 5 of the Regulation. The requested authority then has a period of three months in which to reply.

[4] VAT Information Exchange System.

2. A legal arrangement unsuited to the challenges of the internal market

In the opinion of the officials responsible for controls in the Member States and the Commission, the VIES system and the strengthened administrative cooperation introduced by Regulation (EEC) No 218/92 are effective instruments of control. However, the information exchanged automatically or on request from the recapitulative statements provided by taxable persons is not available early enough and cannot be exchanged as quickly as needed, so does not help in fighting fraud effectively. Post-clearance checks are often too late and the provisions of Regulation (EEC) No 218/92 were never intended to deal with individual cases of fraud, which by their nature are immediate. Moreover, the scope of the Regulation does not cover all the transactions that could give rise to fraud. It relates only to intra-Community supplies and acquisitions and not, for instance, to domestic supplies or services. Since most VAT-fraud schemes concern both intra-Community and domestic transactions, the tax authorities are obliged to make use of other legal instruments.

For these reasons, Member States mainly use Directive 77/799/EEC as a legal base for cooperation in fraud matters. However, as Directive 77/799/EEC was originally designed for the exchange of information on direct taxation, it has not been adapted for coping with the specific need for strengthened cooperation in the field of VAT after the introduction of the transitional VAT arrangements on 1 January 1993.

Today the Directive is too weak a framework for truly effective cooperation. This is because the cooperation provided for is too centralised, not sufficiently intensive or adequately defined.

It is too centralised because there is not enough direct contact between local or national anti-fraud offices, the rule being that communication must be between central liaison offices. This leads to inefficiency, under-use by officials and delays.

Cooperation is also not intensive enough, in that apart from the VIES system there are not enough automatic or spontaneous exchanges of information that could help in the detection and prevention of fraud in intra-Community trade.

In addition, there are no clear rules in a whole host of areas (notably in regard to the presence of foreign officials during controls, the possibility of organising multilateral controls or the use to which information communicated by another Member State can be put).

The report presented by the Commission on 28 January 2000 under Article 14 of Regulation (EEC) No 218/92 and Article 12 of Regulation (EEC) No 1553/89 [5] and discussions by the Council's ad hoc group on tax fraud stress that if the present system is to be maintained, there must be a commitment to strengthen control and administrative cooperation.

[5] COM(2000) 28 final.

Accordingly, in its communication to the Council and the European Parliament on a strategy to improve the operation of the VAT system within the context of the internal market [6], the Commission concluded that the existing Community legal instruments for administrative cooperation and mutual assistance must be strengthened. On 5 June 2000, the Council called on the Commission to present proposals at its earliest opportunity on all the recommendations that were unanimously approved by the ad hoc group.

[6] COM(2000) 348 final.

3. The existence of two legal bases also causes needless complexity with extremely adverse effects

In addition to the aforementioned shortcomings and loopholes, the existence of two different legal bases for administrative cooperation in the field of VAT has proved to be a source of complexity which hampers the smooth operation of the system.

The Regulation applies only to intra-Community supplies and acquisitions of goods. The Directive must be referred to for intra-Community supplies of services and other VAT transactions. But the two instruments have different operating rules.

The time-limits for providing information in response to requests are different and the use to which the information received may be put is also different.

In accordance with the requirements of the Regulation, Member States have set up central liaison offices whose primary responsibility is the exchange of information under the Regulation. However, some Member States have put a different entity in charge of the exchange of information under the Directive. This means that there is no synergy between the Regulation and the Directive for VAT control purposes. Some Member States are, for instance, fairly strict on the type of information VAT authorities may request according to the Regulation and the Directive, and often reject requests for assistance on purely formal grounds.

It is also clear that the existence of two different legal bases for administrative cooperation in the VAT field constitutes a real problem because certain transactions are considered as services in some Member States and as goods in others.

The Commission thus considers that the existence of two different legal bases has an adverse impact on cooperation in the field of VAT control. It therefore proposes a single, reinforced legal framework (a new regulation replacing, strengthening and modernising the provisions of the 1992 Regulation and incorporating the provisions of the 1977 Directive) providing the way forward for closer cooperation which is essential today to fight VAT fraud effectively.

The aim of the reform is to create a synergy between the authorities responsible for VAT application and control, removing borders between tax authorities and encouraging officials to cooperate as if they belonged to the same administration. This may seem ambitious but it is absolutely imperative in the fight against fraudsters who operate unhindered by borders.

4. Outline of the draft regulation

To strengthen administrative cooperation in the field of VAT, the Commission proposes tightening up the legal provisions of Regulation (EEC) No 218/92 and incorporating the provisions of Directive 77/799/EEC. This proposal establishes a single legal framework which sets out clear and binding rules governing cooperation between Member States. The framework provides for more direct contacts between services with a view to making cooperation more efficient and faster. It will also facilitate more intensive and swifter exchanges of information between administrations and between administrations and the Commission for the purpose of combating fraud more effectively. The aim of this proposal is to establish an effective system of mutual assistance and information exchange in order to ensure the proper functioning of the VAT system. Although it confers the role of guardian of the proper functioning of administrative cooperation on the Commission, it does not assign any operational role in investigating or combating tax fraud. VAT fraud within the Community must nevertheless be met by a response at Community level and it must be countered by joint action by the Member States and the Commission. While the Member States bear primary responsibility for the measures required for the proper operation of the common system of VAT, the Commission's role in this area should be one of coordination and stimulation. For this reason the Commission will submit, under Article 280 of the EC Treaty, a separate proposal for a regulation laying down specific anti-fraud provisions which confer a role on the Commission in coordinating the exchange of information at Community level.

4.1. Chapter I: General Provisions

4.1.1. Article 1: Objectives (Article 1 of Regulation (EEC) No 218/92)

This Article is amended to reflect the fact that the Regulation now covers much more than intra-Community transactions alone and that it lays down rules enabling the competent authorities of the Member States to exchange information with the Commission.

The amended Article also emphasises the fact that the Regulation does not affect the application in the Member States of the rules on mutual assistance in criminal matters.

4.1.2. Article 2: Definitions (Article 2 of Regulation (EEC) No 218/92)

The new arrangements introduced by the Regulation make certain additional definitions necessary: "territorial service", "structured exchange", "automatic exchange", "by electronic means" and "administrative enquiry". Other definitions have been adjusted slightly. In the event of the adoption of the proposal for a Council Directive amending Directive 77/388/EEC as regards the value added tax arrangements applicable to certain services supplied by electronic means (COM(2000) 349 final of 7 June 2000), a reference to the new point (f) in Article 9(2) of the Sixth Directive would be included in the definition of an intra-Community supply of services.

4.1.3. Article 3: Decentralisation of administrative cooperation (new provision)

In principle, all exchanges of information must go through the competent authority within the meaning of Article 2 of Regulation (EEC) No 218/92 or Article 1 of Directive 77/799/EEC. If this procedure is not respected, the information exchanged will not be considered valid and cannot be used against the fraudster.

The Commission, however, takes the view that there are considerable advantages in direct communication between inspectors or between anti-fraud units: quicker exchange of information, better mutual understanding of the request for information and better motivation of the inspectors involved, no wasting of scarce resources due to unnecessary requests, etc. But although the existing legal framework provides for the possibility to establish direct contact between inspectors, Member States have made little use of this and the initiatives in this area are often of a very disparate nature, creating different and vague procedures to be followed.

The proposal therefore creates a clear legal framework for decentralised cooperation and at the same time gives a pivotal role to the central liaison offices.

The structure of Article 3 is as follows:

- Officially, information will continue to be exchanged via the competent authorities but each Member State must henceforward have a single competent authority (to which several administrations may report).

- Each authority must designate one central liaison office to be responsible for cooperation. That central liaison office (which currently exists under the Regulation) will be responsible for cooperation on request by default (where the requesting authority does not know which local office to contact or where a request is made to a local office which is not competent to deal with it) and will have a central role to play in communicating certain information automatically and spontaneously.

- Each authority will also appoint at least one official per territorial service who will be responsible for information exchange. The concept of territorial service will be applicable by the Member States on a case by case basis, as the situation differs according to the size of the Member State. National control services, where they exist, should also have one official responsible for information exchange.

- Provision is also made for direct contacts between other officials, on condition that the information simultaneously goes through the competent authorities (i.e. by delegation via the central liaison offices or the competent officials).

4.1.4. Article 4: Interference with criminal procedures (Article 3 of Regulation (EEC) No 218/92)

When the requested information relates to cases in which representatives of Member States' national administrations conduct enquiries with a mandate from or under the authority of the judicial authorities, the exchange of any information is often refused or substantially delayed. As a consequence, the administrative authority in the applicant Member State is often unable to launch in good time administrative or criminal proceedings against fraudsters operating on its territory.

Article 4 sets out the Member States' obligations in regard to administrative mutual assistance where there is interference with criminal proceedings, in line with the rules governing mutual assistance in criminal matters.

4.2. Chapter II: Cooperation on request

4.2.1. A single and more binding legal framework

Under Article 5 of Regulation (EEC) No 218/92, further information may be requested in particular cases concerning, in particular, invoice numbers, dates and values for individual intra-Community transactions. To obtain any other information, the Member States must refer to Article 2 of Directive 77/799/EEC, which is a very general provision enabling the competent authority of a Member State to ask the competent authority of another Member State to communicate to it, in regard to a specific case, any information which might enable them to effect a correct assessment of VAT. Under Article 5 of the Regulation, the requested authority has three months in which to respond to the request for information; however, the Directive does not set a deadline for providing information.

A single legal basis will be established by means of a single Chapter covering exchange on request (whether concerning additional information to that available in the VIES system, or any other information). The proposal redefines Member States' rights and obligations and distinguishes between a request for information (Section 1), a request for administrative enquiries (Section 2), presence in administrative offices and participation in administrative enquiries (Section 4), simultaneous controls (Section 5) and request for notification (Section 6). Section 3 lays down a deadline of three months from receipt of the request for information (and one month when the information is already available), but provides for the possibility of setting a different deadline in specific cases.

4.2.2. Section 1: Request for information (Article 5 of Regulation (EEC) No 218/92 and Article 2 of Directive 77/799/EEC)

Article 5(1) and (2) correspond to Article 2 of Directive 77/799/EEC and Article 5 of Regulation (EEC) No 218/92, and will henceforward be the sole legal basis for all information requests.

Under Article 5(3), to obtain the information sought, the requested authority must proceed as though acting on its own account or at the request of another authority in its own country. However, this paragraph must be read in conjunction with Article 36. Under that Article, the requested authority may refuse to carry out enquiries or to transmit information where the administrative burden is disproportionate; where the requesting authority has not exhausted the usual sources of information; where the legislation or administrative practice of the Member State called on to furnish information prevents it from carrying out enquiries or from collecting or using this information for its own purposes; where the provision of information would be contrary to public policy or would lead to the disclosure of a commercial, industrial or professional secret or of a commercial process. Requests for information are made on a standard form. Experience having shown that for 15 Member States to reach an agreement on a standard form is a very lengthy process, it is proposed that the form be adopted in accordance with the procedure provided for in Article 40(2) (regulatory procedure).

Article 7 specifies that information may be requested in the form of reports, certificates and any other such documents or certified true copies or extracts thereof. Original documents will be provided only where this is not contrary to the legislation in force in the requested Member State.

4.2.3. Section 2: Application to conduct administrative enquiries (new provision)

In the event of fraud and in particular where simulated or fictitious transactions are involved, requests for information on the basis of Article 5 may be inappropriate, not allowing the requesting authority to obtain the necessary items of evidence.

It is therefore proposed giving the requesting authority the possibility of asking the requested authority to conduct the appropriate administrative enquiries for transactions which breach or appear to the requesting authority to breach VAT legislation and the taxation of which is deemed to take place on the requesting authority's territory, and for transactions which may provide evidence of a breach of VAT legislation in the territory of the applicant Member State.

Under Article 9, the requested authority must proceed as if acting on its own account or at the request of another authority of its own country, within the limits to the exchange of information provided for by Article 36 (see 4.2.2).

4.2.4. Section 3: Deadline for providing information (Article 5(1) of Regulation (EEC) No 218/92)

The Commission considers that the excessive time taken to provide information is chiefly due to the overly centralised nature of the current legal framework. For this reason, it proposes decentralised contacts under Article 3.

The three-month deadline set by Article 5(1) of Regulation (EEC) No 218/92 for providing information remains unchanged. However, where the requested authority is already in possession of that information, the time-limit is reduced to one month. For certain special cases, in particular involving carousel fraud or complex controls, a different deadline may be set under the procedure referred to in Article 40(2).

Where the requested authority is unable to respond to the request by the deadline, it must inform the requesting authority forthwith of the reasons for its failure to do so and state when it will be able to respond.

4.2.5. Section 4: Presence of officials of the tax administrations of other Member States (Article 6 of Directive 77/799/EEC)

Although the Fiscalis programme [7] provides for Community funding for multilateral controls, Regulation (EEC) No 218/92 does not create a legal base for the presence of officials from the tax administration of the other Member States. Again, the Member States have to exploit the possibility offered by Article 6 of Directive 77/799/EEC. However, this is only an option provided for by the Directive and few Member States have used it. Pursuant to that Article, some Member States have authorised the presence on their territory of tax officials from other Member States, but most of the Member States have not provided for that possibility in their national legislation and in practice the vast majority of Member States only permit the presence of foreign officials during controls with the permission of the taxable person. However, the taxable person is unlikely to give permission where the purpose of the control is to investigate suspected fraud. Moreover, a small number of Member States even formally forbid an official of another Member State to be present at an investigation on the territory of the other Member State, claiming legal problems.

[7] Decision No 888/98/EC of the European Parliament and of the Council of 30 March 1998 establishing a programme of Community action to ameliorate the indirect taxation systems of the internal market (Fiscalis programme), OJ L 126, 28.4.1998, pp. 1-5.

It is regrettable that in a single market where fraudsters can operate unhindered by borders, the tax authorities still work in isolation from each other and it is so difficult, if not impossible, for them to "cross" the borders between them. The inspectors' presence from another Member State in administrative offices and their participation in administrative enquiries can be extremely useful, in particular where there are indications of irregularities or large-scale cross-border fraud in one or more Member States; in cases whose complexity makes the presence of officials desirable; or in cases for which the prescription period is due to expire and where the presence of officials can speed up the enquiry. Article 13 of the proposal accordingly permits the presence of officials of the tax authorities of one Member State on the territory of another Member State if both the States concerned consider it desirable. At the same time, Articles 13 and 14 create a legal structure specifying the rights and obligations of all the parties and the procedures to be followed by the national officials who conduct investigations in another Member State. Article 13(1) provides for the presence of officials of the tax authorities of one Member State in the administrative offices of another Member State. Article 13(2) defines a legal structure governing the presence of the officials appointed by the requesting authority to undertake the administrative enquiries of taxable persons. These Articles constitute a legal base making the tax administration no longer dependent on the consent of the taxable person.

4.2.6. Section 5: Simultaneous controls (new provision)

The Commission considers that simultaneous controls should be an integral part of the normal control plans of the Member States. To encourage the Member States to include simultaneous controls in their control plans, some multilateral controls are funded from the Fiscalis programme budget. However, the Fiscalis decision does not constitute a legal base for exchanging information within the framework of a multilateral control. Simultaneous control is basically a structured framework for exchanging information between several tax administrations. The inspectors who participate in such a control therefore need to use one of the legal bases for exchanging tax information (Directive 77/799/EEC or Regulation (EEC) No 218/92).

This proposal provides for an obligation of principle for the Member States to use simultaneous controls wherever these seem more effective than national controls. It also creates a legal structure specifying the rights and obligations of all parties and the broad outline of the procedures to be followed. Article 16 sets out the provisions of the existing bilateral agreement in this field.

4.2.7. Section 6: Request for notification (new provision)

Article 5 of Directive 76/308/EEC [8] provides for notification to the addressee of all instruments and decisions, including those of a judicial nature, relating to a claim or to its recovery, which emanate from the Member State in which the requesting authority is situated. However, where no claim has yet arisen, the current legal framework does not provide for notification of the instruments or decisions emanating from the tax authorities of other Member States. Article 17 of this proposal provides a clear legal base for such notification.

[8] Council Directive 76/308/EEC, 15 March 1976, OJ L 73, 19.3.1976, p. 18.

4.3. Chapter III: Exchange of information without prior request

4.3.1. Articles 20 to 24: Structured and automatic exchanges of information in high-risk sectors (Articles 3 and 4 of Directive 77/799/EEC)

To increase the possibilities of detecting and preventing fraud in intra-Community trade, Member States should also exchange at Community level information other than the VIES data. The Commission became aware that although most of the Member States support the idea of an intensified exchange of relevant information, this information is, in fact, rarely exchanged. In order to increase the possibilities of detecting and preventing fraud in intra-Community trade, Member States should at least exchange information in the following situations:

(a) cases where taxation is deemed to take place in the Member State of destination and the efficiency of the control system necessarily depends on the information provided by the Member State of origin

Examples: intra-Community supplies of new vehicles (land vehicles, vessels and aircraft referred to in Article 28a(2) of Directive 77/388/EEC) or distance sales not taxed in the state of origin;

(b) cases where there is a suspicion of fraud in the other Member State

Examples: intra-Community services of a character deemed irregular (for example, because they are not invoiced to their actual recipients) or discrepancies between intra-Community supplies and acquisitions (cases where the information communicated under Article 4(3) of Regulation (EEC) No 218/92 departs significantly from the declared value of intra-Community acquisitions);

(c) cases which generally represent a higher risk for tax fraud or avoidance in the other Member State

Examples: potential phoenix companies (such as companies which, in their initial years of trading, supply a large number of intra-Community goods and services to customers in another State);VAT refunds to taxable persons not established in the territory of the country (Council Directive 79/1072/EEC) or the allocation of VAT identification numbers to operators based in the other Member State;

(d) where a case of fraud has been discovered on the territory of a Member State which might have repercussions in the other Member State

Example: shadow companies which have carried out intra-Community transactions or taxable persons convicted for VAT fraud in intra-Community trade.

The existing legal framework is clearly unsuited to all these situations. Currently, there are no real obligations as regards automatic or spontaneous exchanges of information. These two types of exchanges are provided for in principle, but under the relevant provisions the exchange of information is not mandatory for any information category. Only very few bilateral agreements have been concluded on this basis. The categories of information to be exchanged must therefore be stipulated in the Community legislation itself.

This proposal now therefore provides for two types of spontaneous exchange: structured and automatic exchanges. The sole difference between structured exchange and automatic exchange will be where the authority responsible for transmission is unable to collect the information to be exchanged on a regular basis. It will be impossible, for example, for a Member State to exchange information automatically where taxable persons in that Member State are under no obligation to communicate such information.

This proposal also sets out a framework within which the Member States will establish such information exchanges. The framework will have the advantage of being both flexible and effective. The proposal is restricted to determining in which types of situation information exchange should take place; for each Member State, the exact categories of information, whether the exchange is automatic or structured and the frequency of the exchanges, will be decided in accordance with the procedure referred to in Article 40(2). The flexibility of the system lies in the fact that under the procedure it will be possible to conclude an agreement under which 10 Member States will exchange information automatically while the other five do so in a structured way.

The decisions taken under committee procedures must under no circumstances affect the obligations of persons liable for payment as laid down by Article 22 of Directive 77/388/EEC and must therefore relate to information which is already available within the tax administration.

4.3.2. Obstacles hampering the exchange of personal data (new provision)

A number of Member States have difficulties in exchanging personal data because of the restrictions contained in their national law. They claim that the rules on data protection seriously restrict the information which can be exchanged. In particular, they claim that the implementation of Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data [9] hampers the exchange of personal data even in cases where fraud is known to exist and even more so in respect of information indicating a high risk of fraud.

[9] OJ L 281, 23.11.1995, p. 31.

The Member States should therefore make use of Article 13 of the abovementioned Directive, which provides for exemptions from the normal rules in order to safeguard the financial interests of a Member State (including taxation matters). For this reason, Article 37(4) stipulates that the Member States shall restrict the scope of the obligations and rights provided for in Articles 6(1), 10, 11(1) and 12 to 21 of Directive 95/46/EC so that their national legislation on the protection of individuals with regard to the processing of personal data does not prejudice the interests referred to in Article 13(e) of that Directive.

4.4. Chapter IV: Storage and exchange of information specific to intra-Community transactions

4.4.1. Articles 25 to 29 (Article 4 of Regulation (EEC) No 218/92)

Article 4 of Regulation (EEC) No 218/92 has been split into five separate Articles in the interests of clarity. This Article remains unchanged in substance, with the exception of the incorporation into VIES of specific information on the local office to be contacted in order to obtain further information on each operator included in the data base. This will facilitate direct exchange of information without the need to go through the national authorities (central liaison offices) (see Article 3).

4.4.2. Article 30 (Article 6 of Regulation (EEC) No 218/92)

This Article is unchanged, with the exception of a provision whereby the validity of a person's VAT identification number can be confirmed by electronic means.

4.5. Chapter V: Relations with the Commission (Article 31)

Article 31(1) corresponds to Article 11 of Regulation (EEC) No 218/92 and provides for joint evaluation of the functioning of the Regulation by the Member States and the Commission.

However, the information which the Member States are obliged to provide for the purposes of the evaluation are described at greater length.

First, it is explicitly stated that the Member States must provide all the statistical data required for such an evaluation and that the exact detail of the data to be sent is to be decided by the committee procedure.

The Member States must also provide any information on methods or practices used or suspected of having been used to circumvent VAT legislation which has helped to reveal shortcomings or lacunae in the arrangements for administrative cooperation provided for in this Regulation. Such information is an indication of how effective the system of administrative cooperation is in combating tax evasion.

For the same reason, it might be useful for the Member States to forward to the Commission any other information, including information on specific cases, purely on a voluntary basis. The Commission must communicate this information to the competent authorities of the other Member States concerned to whom the information has not yet been transmitted.

4.6. Chapter VI: Exchanging information with third countries (Article 32: new provision)

The current legal framework does not provide a legal base for exchanging information with non-EU countries. When VAT fraud is linked to import/export transactions, customs cooperation instruments can be used. However, there are many loopholes, for instance for fraud relating to services or in cases of fraud committed inside the Community but where the evidence is located outside.

Article 32(1) therefore provides a legal base for communicating to Member States information emanating from a non-EU country by virtue of a bilateral agreement.

Under Article 32(2), information obtained under the present Regulation may be communicated to a non-EU country with the consent of the competent authorities that supplied it.

4.7. Chapter VII: Conditions governing the exchange of information (Articles 33 to 39)

4.7.1. Article 33: Exchanges by electronic means (new provision)

Under this Article, all information is to be provided, as far as possible, by electronic means under arrangements to be adopted by committee procedure.

4.7.2. Article 34: Translation (new provision)

Requests for assistance and attached documents will be accompanied by a translation into the official language or one of the official languages of the requested authority under arrangements to be adopted by the committee procedure.

4.7.3. Article 35: Costs of applying this Regulation (Article 13 of Regulation (EEC) No 218/92)

Paragraph 2 has been added to bring Article 35 of the Regulation into line with Article 18 of the proposal amending Directive 76/308/EEC [10], which offers the Member States the possibility of agreeing to reimburse expenses actually incurred in cases where mutual assistance poses particular difficulties, involves high costs or relates to the fight against organised crime.

[10] COM(1998) 364 final; COM(1999) 183 final.

4.7.4. Article 36: Limits to the exchange of information (Article 7(1) of Regulation (EEC) No 218/92 and Article 8 of Directive 77/799/EEC)

Under this Article, the requested authority may refuse to carry out enquiries or to transmit information where the administrative burden is disproportionate; where the requesting authority has not exhausted the usual sources of information; where the legislation or administrative practices of the Member State called on to furnish information prevents it from carrying out enquiries or from collecting or using this information for its own purposes; and where the provision of information would be contrary to public policy or would lead to the disclosure of a commercial, industrial or professional secret or of a commercial process.

Article 36(4), like Article 14 of Directive 76/308/EEC, states that the requested authority must inform the requesting authority and the Commission of the grounds for refusing a request for mutual assistance.

4.7.5. Article 37(1) and (2): Limits to the use of information (Article 9(1) and (2) of Regulation (EEC) No 218/92 and Article 7(1) and (3) of Directive 77/799/EEC)

Under Article 7(1) of Directive 77/799/EEC, unrestricted use of information from the requested Member State may only be made in the applicant Member State for administrative and tax purposes. In practice, this Article is interpreted in different ways by the Member States. In some Member States, explicit permission is required from the requested Member State when the information is used publicly in judicial proceedings. In other Member States, tacit permission is sufficient.

Article 37 states that any information communicated in whatever form pursuant to the Regulation is of a confidential nature. However, in all circumstances, the information may be used in connection with judicial or administrative proceedings that may involve sanctions, initiated as a result of infringements of tax law.

The information may also be used for the assessment of other taxes, duties and charges covered by Article 2 of Directive 76/308/EEC of 15 March 1976. This provision is in response to the recommendation of the High-level Working Party on Consistency between Taxation and Customs Policy to investigate the possibility of setting up information exchanges between customs and tax administrations. Not only does it provide a legal base for the exchange of such information in relation to VAT, but also for exchanges between the administrations responsible for VAT and other tax authorities within a Member State.

4.7.6. Article 37(3): Requirement to obtain the consent of the requested authority for communication of information to a Member State (Article 9(3) of Regulation (EEC) No 218/92 and Article 7(4) of Directive 77/799/EEC)

Article 9(3) of Regulation (EEC) No 218/92 and Article 7(4) of Directive 77/799/EEC establish a procedure whereby the consent of the Member State furnishing the information must be obtained before the information can be made available to another Member State. These procedures can prevent or delay the transmission of information to Member States that need it.

Article 37(3) no longer requires this agreement. Where the requesting authority considers that information it has received from the requested authority is likely to be useful to the competent authority of a third Member State, it may transmit it to the latter.

4.7.7. Article 37(4): Obstacles hampering the exchange of personal data (new provision)

See point 4.3.2.

4.7.8. Prior notification to the person concerned of the exchange of information

The legislation in force in some Member States provides that the person concerned be notified of the exchange of information. It is clear that in cases of fraud such notification hampers the efficiency of controls. The fact that some Member States systematically notify any request for information to the taxable person means that other Member States are reluctant to make use of the mutual assistance arrangements in cases of suspected fraud.

Article 8 of Regulation (EEC) No 218/92 provides that the person concerned be notified of the exchange of information. Such provisions are obstacles to efficient cooperation between tax administrations since they hamper the requesting authority in its fight against fraud. This proposal no longer provides for this notification and stipulates that the requested authority must proceed as though acting on its own account or at the request of another authority in its own country. The Commission takes the view that since the taxable person does not have to be notified in exchanges of information between the national tax authorities, this should also not be the case in exchanges of information between competent authorities.

4.7.9. Article 38: Evidence (new provision)

Article 38 clarifies the fact that findings, statements, information, documents, certified true copies and any intelligence obtained by the officials of the requested authority and transmitted to the requesting authority may be used as evidence by the competent bodies of the requesting authority on the same basis as equivalent national documents.

4.7.10. Article 39 (Article 12(2) and (3) of Regulation (EEC) No 218/92)

This Article corresponds exactly to Article 12(2) and (3) of Regulation (EEC) No 218/92.

4.8. Chapter VIII: Final Provisions

4.8.1. Articles 40 and 41: Consultation and committee procedures (Article 10 of Regulation (EEC) No 218/92)

The measures required to implement this Regulation are of general scope and are designed to apply essential provisions of the basic instrument. Consequently, the regulatory procedure should be followed as provided for in Article 5 of the Council Decision of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission (1999/468/EC).

4.8.2. Article 42: Commission report to the European Parliament and to the Council (Article 14 of Regulation (EEC) No 218/92)

The frequency of the Commission's report to the European Parliament and to the Council is increased from every two to every three years.

4.8.3. Article 43: Application of other provisions relating to mutual assistance (Article 3(2) of Regulation (EEC) No 218/92 and Article 11 of Directive 77/799/EEC)

Paragraph 1 of this Article corresponds to Article 11 of Directive 77/799/EEC while the second corresponds to Article 9(3). The wording has been changed slightly.

4.8.4. Article 44: Repeal of Regulation (EEC) No 218/92

Regulation (EEC) No 218/92 is repealed and all references made to that Regulation are to be understood as made to this Regulation.

5. Explanation of the proposal for a directive

As it is necessary to replace Regulation (EEC) No 218/92 in its entirety and Directive 77/799/EEC in relation to VAT, the latter is now excluded from the scope of the Directive. On the other hand, the scope of the Directive is extended to cover certain taxes on insurance premiums to take account of the need expressed by the Member States in the negotiations within the Council on the proposal amending Directive 76/308/EEC [11].

[11] COM(1998) 364 final; COM(1999) 183 final.

6. Conclusion

The aim of this proposal is to reinforce cooperation between tax administrations, providing them with a simple and efficient legal framework to fight fraudsters on equal terms.

This proposal is not designed to change in any way the obligations of taxpayers or the rules governing the application of VAT legislation, but rather to gear administrative cooperation to the challenges of the internal market. That is why the Commission is submitting it under Article 95 of the Treaty.

In taking Article 95 of the Treaty as the legal base, the Commission is consistent with its proposal for Regulation (EEC) No 218/92 of 19 June 1990 (COM(90) 183), in which it proposed Article 100a of the EC Treaty (now Article 95) as an appropriate legal base.

Article 95 constitutes the legal base for the adoption of "measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market." Under paragraph 2 of Article 95, paragraph 1 does not apply to fiscal provisions, the legal base for the harmonisation of indirect taxation being Article 93.

According to the Commission's interpretation, the exemption provided for in paragraph 2 can only preclude application of the general rule laid down in paragraph 1 of Article 95 where fiscal provisions constitute the main purpose of the proposed measure. This might be the case if the proposed instrument concerned the obligations of liable persons or rules concerning the scope of tax, for instance. However, it is not the case here as the regulation is confined to building bridges between tax administrations.

2001/0134 (COD)

Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Council Directive 77/799/EEC concerning mutual assistance by the competent authorities of the Member States in the field of direct and indirect taxation

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 95 thereof,

Having regard to the proposal from the Commission [12],

[12] OJ C

Having regard to the opinion of the Economic and Social Committee [13],

[13] OJ C

Having regard to the opinion of the Committee of the Regions [14],

[14] OJ C

Acting in accordance with the procedure referred to in Article 251 of the Treaty [15],

[15] OJ C

Whereas:

(1) In order to combat value added tax (VAT) evasion it is necessary to strengthen cooperation between tax administrations within the Community and between the latter and the Commission in accordance with common principles.

(2) To that end, Council Regulation (EEC) No 218/92 [16], which supplemented, as regards VAT, the system of cooperation established by Council Directive 77/799/EEC [17], as last amended by the Act of Accession of Austria, Finland and Sweden, has been replaced by Regulation (EC) No .../2001 of the European Parliament and of the Council of ... 2001 on administrative cooperation in the field of value added tax [18]. The latter Regulation sets out all the provisions relating to administrative cooperation in the field of VAT, with the exception of mutual assistance as provided for by Council Directive 76/308/EEC of 15 March 1976 on mutual assistance for the recovery of claims relating to certain levies, duties, taxes and other measures [19], as last amended by Directive 2001/.../EC [20].

[16] OJ L 24, 1.2.1992, p. 1.

[17] OJ L 336, 27.12.1977, p. 15.

[18] OJ L

[19] OJ L 73, 19.3.1976, p. 18.

[20] OJ L

(3) The scope of mutual assistance laid down by Directive 77/799/EEC must be extended to taxation of the insurance premiums referred to in Directive 76/308/EEC so as to better protect the financial interests of the Member States and the neutrality of the internal market.

(4) Directive 77/799/EEC should therefore be amended accordingly,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

Directive 77/799/EEC is amended as follows:

(1) The title is replaced by the following:

"Council Directive of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation, certain excise duties and taxation of insurance premiums".

(2) In Article 1(1), the first indent is replaced by the following:

"taxation of insurance premiums referred to in the fourth indent of Article 3 of Council Directive 76/308/EEC*.

_____________________

* OJ L 73, 19.3.1976, p. 18."

Article 2

References made to Directive 77/799/EEC in relation to value added tax (VAT) shall be construed as references to Regulation (EC) No .../2001 [on administrative cooperation in the field of value added tax].

Article 3

1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 31 December 2002 at the latest. They shall forthwith inform the Commission thereof.

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 provisions of national law which they adopt in the field covered by this Directive.

Article 4

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

Article 5

This Directive is addressed to the Member States.

Done at Brussels,

For the European Parliament For the Council

The President The President

FINANCIAL STATEMENT

When adopted, the proposed Regulation will have no adverse effect on Community own resources. Indeed, since its intention is to strengthen mutual assistance between the Member States' tax administrations, the aim of this Regulation is to increase VAT revenue. The effect on the Community budget will therefore be positive even if it cannot be quantified.