COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 08.01.1997 
COM(96) 681 final 
REPORT FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 
Second Article 14 Report 
APPLICATION OF COUNCIL REGULATION 
(EEC) NO 218/92 OF 27 JANUARY 1992 ON 
ADMINISTRATIVE COOPERATION IN THE 
FIELD OF INDIRECT TAXATION (VAT) 

CONTENTS 
1. BACKGROUND ' 3 
1.1. The transitional VAT arrangements 3 
1.2. The control implications of the transitional VAT arrangements 3 
1.3. The Community legal framework for administrative cooperation 4 
2. DEVELOPMENTS IN ADMINISTRATIVE COOPERATION DURING 
1994 AND 1995: AN EVALUATION 5 
2.1. Community developments 5 
2.1.1. The 1995 enlargement 5 
2.1.2. Anti-Fraud matters 5 
2.1.3. Multilateral VAT control experiments 6 
2.1.4. Mutual assistance on recovery 7 
2.2. Administrative cooperation at Member State level 8 
2.2.1. Use of the tools of cooperation 8 
2.2.2. Member States' role in collecting data 13 
2.2.3. Central Liaison Offices and their role in meeting deadlines 13 
3. CONCLUSIONS AND RECOMMENDATIONS 15 
3.1. Conclusions 15 
3.2. Recommendations 16 
BACKGROUND 
1.1. The transitional VAT arrangements •fc>* 
In order to achieve the removal of border controls for tax purposes inside the Community 
from 1.1.1993, the Council decided in 1991 to establish the transitional VAT 
arrangements1. These arrangements provide that intra-Community operations between 
taxable persons continue to be taxed at the rate and conditions of the Member State of 
destination. An exemption for supplies of goods destined for another Member State was 
introduced to replace the exemption for exports and the taxable event of "importation" 
was replaced by "acquisition" in the Member State of arrival of the goods. 
Detailed information on the functioning of the transitional VAT arrangements can be 
found in the report from the Commission to the Council and the European Parliament on 
the operation of the transitional arrangements for charging VAT in intra-Community 
trade2. 
1.2. The control implications of the transitional VAT arrangements 
Before 1 January 1993, cross-border trade in goods between taxable persons in the 
Community was controlled by checks at national frontiers on documents accompanying 
the physical movement of the goods. Abolishing border controls resulted in the integration 
of the control of taxation of intra-Community trade into domestic VAT control. 
The demands of VAT control and the challenge presented by the abolition of border 
controls required cooperation between Member States on a new scale. In particular, 
Member States needed information from other Member States in order to be able to 
control the tax. These needs were: 
• To be able to obtain information on all intra-Community transactions made between 
traders on their own VAT identification register and those identified in other Member 
States. 
• To be able to confirm the validity of a VAT identification number of the purchaser. 
These data, which form an input into Member States' methodology to control VAT on 
intra-Community transactions, are provided by the VAT Information Exchange System 
(VIES) which is a common computer network. 
1 Council Directive 91/6S0/EEC supplementing the common system of value added lax and amendim 
Directive 77/3SS/EEC with a view to the abolition of fiscal frontiers. OJ No L :>7f>. }\. 12. I Wl. p. I 
2 C()M(')4)51> filial. 23.1 I. I W4 
1.3. The Community legal framework for administrative cooperation 
Council Regulation (EEC) No 2I8/923 concerns administrative cooperation in the field of 
indirect taxation (VAT). It provides the legal framework which obliges the Member States 
to provide to one another the information necessary for controlling VAT on intra-
Community trade; it is designed to complement the provisions of Directive 77/799/EEC4 
(on mutual assistance between Member States in the field of direct and indirect taxation). 
The Regulation also provides Member States with the right to obtain the information 
regularly in aggregated form, as well as to obtain supplementary detailed information on 
request. Directive 76/308/EEC provides for mutual assistance between Member States in 
the recovery of, inter alia, VAT claims owing to national administrations5. 
The Standing Committee on Administrative Cooperation in the field of Indirect Taxation 
(SCAC) was set up under Article 10 of the Regulation. The SCAC, managed and chaired 
by the Commission, is responsible for keeping a continuous watch on the development of 
administrative cooperation and mutual assistance. It also monitors the performance of the 
Member States in the collection, exchange and exploitation of the data. At Member State 
level, the day to day operation of the arrangements is overseen by a network of Central 
Liaison Offices (CLOs). 
Article 11 of Regulation (EEC) No 218/92 requires that "Member States and the 
Commission shall examine and evaluate the operation of the arrangements for 
administrative cooperation provided for in this Regulation ...". Under Article 1 1, the 
Commission is also responsible for pooling Member States' experience concerning new 
means of tax evasion and avoidance. 
Article 14 requires that "Every two years after the date of entry into force of this 
Regulation, the Commission shall report to the European Parliament and the Council on 
the conditions of application of this Regulation on the basis, in particular, of the 
continuous monitoring procedures provided for in Article 1 I ". 
The first report under Article 14 of Regulation (EEC) No 218/92 which was published on 
23 June 19946 outlined the new administrative framework which was put in place 
following the removal of border controls for VAT purposes and reported on its successful 
implementation. This second report describes the development of the arrangements since 
1993, evaluates their effectiveness and makes recommendations for improvements. 
3 O.I No L 24. 1.2. 1992. p. I. 
4 OJ No L 366. 27. 12. 1977. p. 15. Directive last amended b\ Dnvciive ';2/l2/EEC (OJ No t. 7<,. .•> ; 
3. 1992. p. I). 
5 O.I No L 7.v 19. .V l')7(v p. IS Directive last amauled In Dnvciive {>2/ luX/N •'.(.' (O.l no I 3'JO. 31. 12 i<)'>2. p. 
124). 
6 COM(94) 262 final. 
2. DEVELOPMENTS IN ADMINISTRATIVE COOPERATION DURING 1994 AND 1995: 
AN EVALUATION 
2.1. Community developments 
2.1.1. The 1995 enlargement 
One of the main tasks facing the SCAC and its Technical Sub-Committee during 1994 
was to prepare for enlargement of the Community on 1 January 1995. The acceding 
Member States and the Community had to prepare to ensure that the transitional VAT 
arrangements for intra-Community trade could be properly applied from the date of 
accession. This task principally fell to the new Member States themselves, but the SCAC 
still had to ensure that Austria, Finland and Sweden were connected to the VIES network 
and the system was adapted for the enlarged Community. 
The VIES was successfully made available for testing by the three new Member States 
and the Community of 12 from the first week of December 1994, and was fully 
operational for the Community of 15 from 1 January 1995. 
2.1.2. Ami-Fraud mailers 
In 1992, the SCAC had set up an Anti-Fraud Sub-Committee whose purpose was w'to 
examine the existing legislative, administrative and technical arrangements - already in 
existence and/or in the course of development within the Community - for anti-fraud 
activity in the field of indirect taxation." At the time, the Commission had recommended 
that the Member States adopt a more strategic and operational programme for the fight 
against fraud, but this was rejected by some Member States. During 1994 the Sub-
Committee met only twice and it did not meet at all during 1995. The activity at its 
meeting in December 1994 was limited to cases of VAT fraud, provided by a few Member 
States. 
In practice, the work of the Sub-committee in its early years concentrated on the 
installation of a computerised network (Fiscal SCENT) in the Member States and on the 
training of national officials in its use. Although all Member States are now connected to 
the network and despite the training of officials, it is clear that with a few exceptions, very 
little use is made of the network for the communication of messages between Member 
States. This suggests that the full potential of the system is not being exploited. This is 
particularly worrying as the purpose of the fiscal SCENT was to facilitate rapid and 
secure contacts between national services dealing with VAT fraud. In 1996, the 
Commission has relaunched its efforts to demonstrate the advantages of the system. 
This lack of common activity in the fight against fraud on a Community level is 
regrettable. It stems partly from the limited terms of reference initially given to the Sub-
Committee by the Member States, which fell well short of trying to formulate a 
Community strategy for the fight against fraud. In addition, the reluctance of some 
Member States to cooperate with one another on a multilateral basis in investigating 
suspected fraud also hampered the Community's ability to develop a coherent strategy. 
The Commission accordingly encountered problems in meeting its responsibility under 
Article 1 1 of Regulation (EEC) No 218/92 to pool Member States' experience concerning 
new means of tax avoidance and evasion. 
However the SCAC has, during 1996, adopted the Commission's proposed new terms of 
reference for the Sub-Committee with the aim of encouraging and facilitating a greater 
coordination of Member States' efforts and resources in the fight against fraud. The 
relaunched Sub-Committee has adopted an ambitious work programme: to identify the 
aspects of the indirect tax system most sensitive to fraud; to evaluate the functioning and 
adequacy of the arrangements in place to tackle fraud and to maximise their effective use. 
For this work programme to succeed, all Member States will need to commit themselves 
to the exchange of information based on concrete investigation case studies. Only a real 
willingness to pool information will permit the development of a Community strategy, 
which is essential for the proper functioning of the internal market, to deal with VAT 
fraud. 
The Commission has been informed on an ad hoc basis of cases which concern revenue 
loss of between 2 and 60 million ECU. It is clear from such cases that a need exists for a 
close coordination of the efforts of the national authorities in complex transnational cases. 
The assistance which the Commission can provide in coordinating Community action in 
this area is hampered by the lack of a sufficiently broad legal basis such as already exists in 
the fields of Customs and Agriculture. 
2. /. 3. Multilateral VA T control experiments 
Companies trading in several Member States are normally treated as separate national 
entities for the purposes of VAT control. The Commission and Member States became 
concerned in 1994 that multinational companies were capable of exploiting any apparent 
differences in treatment by Member States' tax administrations to the detriment of fair 
competition and overall control. As multinational traders are responsible for large 
amounts of VAT, Member States need to give a high priority to the control of these 
traders. 
In 1994 and 1995 the SCAC launched experiments, using Directive 77/799/EEC as its 
principal legal basis, with financial support from the Community, on the joint control of 
multinational companies. 
The objective of the experiments was to test the effectiveness of the tools provided by the 
Community legislative framework for administrative cooperation in controlling 
multinational enterprises. The experiments also provided an opportunity to compare the 
different control methods in the Member States. 
Certain Member States did not participate in the experiments, for a number of reasons. 
Some preferred bilateral rather than multilateral VAT control and some felt that they 
could not participate because of the involvement of the Commission. The national 
legislation of some Member States inhibited their participation, notwithstanding that 
Community legislation permits such activities. 
As a result of the coordinated controls, those Member States that did participate reported 
that they had obtained a more complete knowledge and understanding of the activities of. 
the traders controlled. Trade practices designed purely to maximise tax advantages were 
discovered. Indeed some administrations discovered activities of the traders which were 
previously completely unknown to them. The controls also confirmed that traders were 
exploiting the complexity and ambiguity of the transitional VAT arrangements and the 
different interpretations permitted to Member States. 
The results of the experiments showed that the tools provided by the Community legal 
framework can be used to improve the control of multinational traders. They also, 
however, highlighted a number of legal and practical impediments to fully effective 
cooperation in the control of these complex, but not unusual, trading activities. The 
SCAC adopted a first set of general guidelines to be followed for future multilateral VAT 
controls. 
The Commission will, in the short term, continue to fund some experiments, to further 
demonstrate the necessity of multilateral, rather than national or bilateral VAT control, 
and to refine the guidelines already issued. Despite the evident success of the two 
experiments, however, Member States have yet to undertake such multilateral controls on 
their own initiative as part of their day to day control 
The Commission believes that, to meet the challenges posed by such traders, these 
controls should become a common part of national control strategies. In addition, the 
Commission believes that those Member States who have not taken part in the 
experiments to date should do so as soon as possible. 
2.1.4. Mutual assistance on recovery 
It has been clear for some time that there were shortcomings in the functioning of 
cooperation under Directive 76/308/EEC, which provides for mutual assistance between 
Member States in the recovery of VAT claims. The number of claims for which assistance 
is requested is very small and Member States acknowledge that the success rate in 
recovering the often significant amounts of tax outstanding are well below what should be 
expected. The Commission, with the help of the Member States, undertook an extensive 
analysis of the causes of these problems. The results of the Commission's analysis, broadly 
endorsed by the SCAC, identified five main factors behind the shortcomings: 
• wide divergence between Member States' national recovery powers; 
• lack of equal legal treatment between inter-Member State claims and domestic claims; 
• low priority given to recovering claims for other Member States. 
• slow, complicated and poorly understood mutual assistance arrangements and; 
• the sheer difficulty of tracing some debtors; 
The Commission will make proposals in early 1997 to improve the functioning of the 
Directive. This will also have to be backed up by a sustained effort from the Member 
States both to make greater use of the Directive and to give higher priority to responding 
to requests made under it. 
2.2. Administrative cooperation at Member State level 
2.2.1. Use of the tools of cooperation 
The purpose of the Community arrangements for administrative cooperation put in place 
by Regulation (EEC) No 218/92 is to avoid tax revenue losses for Member States. Article 
4(2) of the Regulation provides information on request to a Member State about whether 
one of its traders has made intra-Community purchases during a particular quarter. Article 
4(3) of the Regulation identifies the suppliers from which the purchases have been made. 
The aggregated form of Article 4(2) data is also exchanged automatically between 
Member States at the end of each quarter by the VIES. Member States can also, under 
Article 5 of the Regulation and Article 2 of Directive 77/799/EEC, make more specific 
requests for information, for the purpose of control of particular traders, relating for 
example to the invoice numbers, dates and values of individual transactions. The use of 
Articles 4(2), 4(3) and 5 of the Regulation by Member States are the key elements in the 
control of traders engaged in intra-Community trade. 
At the time of the adoption of the transitional VAT arrangements, the Community did not 
lay down any particular single control methodology or method of exploiting the VIES 
data and other opportunities to gather information. Each Member State retained the right 
to control its own traders in the way which it deemed appropriate. Nevertheless, the 
Community has, in the context of the Matthaeus-Tax programme7, fostered a debate on 
the methodology of control of intra-Community trade The programme has provided 
opportunities for Member States to compare approaches to VAT control generally and 
the intra-Community trade and the use of the VIES in particular and to identify best 
practice. 
7 0.) No L 2S<). 13. I 1. 1093. p. 27. Further details of the programme can be found in the Commission 
reports lo the Council and the European Parliament (COM(95) 663 final) and COM(%) 343 final). 
Early in 1993, in an effort to evaluate the effectiveness of the use to which the VIES data 
is put, the Commission asked Member States to provide details of additional tax 
discovered because of the information exchanged over the VIES. At the time, most 
Member States were unwilling (or unable) to provide this information, though they did 
agree to report to the Commission the number of cases in which further control action 
was taken arising from information exchanged over the VIES; nevertheless even now, 
only two or three Member States regularly provide this information. Accordingly, the 
Commission can only evaluate the Member States' exploitation of the administrative 
cooperation framework by examining their use of its key elements which consist of 
requests made under Article 5 of the Regulation and Article 2 of the Directive, and 
enquiries made under Articles 4(2) and 4(3) of the Regulation. 
Figure 1: Number of requests made per quarter during 1994 and 1995 under Article 
5 of Regulation (EEC) No 218/92 and Article 2 ofDirective 77/799/EEC 
1Q94 2Q94 3Q94 4Q94 1Q95 2Q95 3Q95 4Q95 
Figure 1 above indicates a gradual increase in the use of requests for information by 
Member States. However, the number of requests which have been made is only a fraction 
of the tens of thousands of requests per annum which Member States themselves 
estimated in June 1993. 
Figure 2 below analyses the number of requests made by each Member State. 
Figure 2: Number of requests per Member State made during 1994 and 1995 under 
Article 5 of the Regulation and Article 2 of the Directive 
1200 ! 
1000 
800 
600 
400 
200 
0 •:-ËS3- JML •-'wi:-
en ^ a û LU 
ÙL 
The overall growth in the number of Article 5 requests with marked differences between 
Member States is mirrored in the increase in enquiries under Article 4, as can be seen from 
figure 3 below. As a prerequisite to making a request under Article 5 of the Regulation, 
Member States must first use the possibilities provided by Article 4. 
Figure 3: Overall growth during 1994 and 1995 in the number of enquiries made 
under Articles 4(2) and 4(3) of the Regulation. 
1800000 
1600000 % 
1400000 
1200000 4 
1000000 
800000 
600000 
400000 
200000 
0 
1Q94 2Q94 3Q94 4Q94 1Q95 2Q95 3Q95 4Q95 
The overall picture for the steady development of administrative cooperation shown in 
figures 1 and 3 is to be welcomed. The steady growth in the use of the VIES facilities and 
the gradual increase in the number of Article 5 and Article 2 requests reflects the growing 
importance of administrative cooperation in the control of intra-Community trade. But, as 
figures 4 and 5 below demonstrate, this overall growth masks sharp differences between 
Member States in their use of the Article 4(2) and Article 4(3) instruments. 
10 
Figure 4: Number of enquiries made by each Member State during 1994 and 1995 
under Articles 4(2) and 4(3) of the Regulation per trader in that Member State 
making intra-Conimunity supplies. 
Many of the requests made under Article 4 of the Regulation are made to confirm that the 
trader in the requesting Member State did not make any intra-Community acquisitions. 
This is also a valid method of exploiting the VIES data. Figure 5 below indicates Member 
States' use of Article 4(3) of the Regulation to control those traders making purchases 
from other Member States. 
Figure 5: Number of enquiries made by each Member State during 1994 and 1995 
under Article 4(3) of Regulation (EEC) No 218/92, per trader making intra-
Community purchases in that Member State. 
The conclusion that can be drawn from figures I to 5 above is that, while the use of the 
administrative cooperation arrangements is certainly increasing, its use is not sufficient to 
control intra-Community trade adequately in all Member States. The low use of the VIES 
facilities in some Member States may be attributed to a number of factors. Clearly the 
extent to which control officials have access to the system is important. Although the 
VIES data is potentially accessible through more than 55.000 terminals within the 
Community, some Member States allow only limited access to their officials. This also 
tends to explain the corresponding low use of the facilities offered by Article 5 of the 
Regulation and Article 2 of the Directive. 'O1-
Based on the evidence of the use of the VIES and the best practice that has emerged from 
the Matthaeus-Tax programme, the Commission believes that the most effective approach 
to VAT control is an integrated one, using the VIES data as one input among others. 
Firstly, by using the automatically exchanged data to inform risk analysis designed to 
identify the traders or categories of traders to be controlled. Secondly, by making 
enquiries under Article 4 of the Regulation as part of the information gathering effort 
prior to or following a control of a specific trader. And finally, to use the provisions of 
Article 5 to obtain information on specific transactions. 
A high standard of VAT control requires the use of administrative cooperation to be more 
widespread in the Member States and thoroughly integrated into national control strategy. 
Administrative cooperation should not be a specialist function. Those Member States who 
do not allow their ordinary control officials access to the enquiries facilities of the VIES 
should do so. Information about the intra-Community purchases of a trader should be 
seen as another piece of the national control jigsaw, without which control is incomplete. 
This approach entails extensive use by ordinary VAT control officials of the specific 
enquiry and request opportunities provided by the Community. Figures 3 to 5 clearly 
show that certain Member States have followed this approach a great deal more than 
others. Those Member States which make little use of the opportunities provided by the 
tools of administrative cooperation can not have such a complete picture of their traders. 
Member States still have much to do to make administrative cooperation more widely 
known within their administrations. Even in those Member States where use of the system 
is well established, it is still not uncommon to find national officials in Member States who 
are unaware of the opportunities to request information from other Member States, to 
help them deal with particular problems they encounter either during routine VAT control 
or in the course of anti-fraud activities. Extensive training is clearly needed in the use and 
exploitation of the VIES data and other cooperation opportunities. 
The Community also has a role to play in making national officials aware of the 
Community dimension of their work, fostering mutual confidence between officials of 
different national administrations and making cooperation as user-friendly and low in 
opportunity cost as possible. This means equipping them with the skills and infrastructure 
needed to cooperate and encouraging a habit of doing so. 
12 
Low use of the instruments of cooperation raises serious questions about the overall 
credibility and effectiveness of some Member States' control of VAT on intra-Community 
trade. The establishment of the VIES and Regulation (EEC) No 218/92 (adopted by 
unanimity) were originally seen by all the Member States as essential to the effective 
control under the transitional VAT arrangements. The setting up and running of the 
infrastructure has required significant investment from the Community and the Member 
States in terms of human and financial resources and the obligations on traders to file 
quarterly recapitulative statements imposes a considerable burden on them. 
2.2.2. Member States' role in collecting data 
Under Article 4 of Regulation (EEC) No 218/92, Member States "shall ensure that their 
data bases are kept up to date, complete and accurate". The Commission has constantly 
pressed the Member States, in the SCAC and in the periodic meetings of the Heads of 
national Central Liaison Offices (CLOs), to improve the completeness and accuracy of the 
information which they collect and exchange. 
During 1994 and 1995 the compliance rate for recapitulative statements reached 95 % 
(number of statements received from traders compared with the number of statements 
estimated by the tax administrations to be due). Over this period, 1,5 % of the reported 
information8 could not be exchanged because it was regarded as incorrect, as the 
purchaser's VAT identification number declared by the supplier did not correspond to the 
rules governing construction of such numbers in the Member State of the purchaser. 
Such rates of compliance and accuracy are a considerable and welcome improvement on 
performance in the early months of the system and reflect a real effort on the part of 
national administrations and intra-Community traders. Nevertheless, for as long as the 
data collected is not complete and accurate. Member States must do all in their power to 
improve quality by streamlining their own management of their databases, sustained trader 
education and, where necessary, the application of penalties. 
2.2.3. CoUral Liaison Offices and their role in meeting deadlines 
Regulation N° 218/92 EEC provides for the setting up in each Member State of a Central 
Liaison Office (CLO). The legislation does not lay down detailed requirements for the 
constitution of CLOs, but at a very early stage, the Commission and the Member States 
agreed a set of guidelines setting out their main functions and objectives. These were 
principally to act as the normal channel of communication between competent authorities; 
to manage the flow of cooperation and assistance between Member States; to monitor the 
quality and pertinence of requests for assistance and of the responses to them and to 
supervise the respect of deadlines. In short, the CLO should act as a single point of 
contact, through which other Member States can rely on obtaining effective and timely 
assistance with any matters relating to VAT control and cooperation. It is important that 
CLOs should have the resources, powers and the expertise needed to provide that service. 
8 35.000.000 lines of data were reported by intm-Coininimily suppliers. 
13 
Article 5 of Regulation (EEC) No 218/92 states that "The requested authority shall 
provide the information [requested by another Member State] as quickly as possible and in 
any event no more than three months after receipt of the request." No such deadline exists 
for requests under Directive 77/799/EEC, but in 1994 the SCAC decided that requests 
made under Article 2 of the Directive would be subject to the same time limit of three 
months which applies to requests made under Article 5 of the Regulation. This decision 
provided for a streamlining of procedures applying in Member States to the management 
of requests and replies under the two legal bases. 
There has been a steady increase in the number of requests made under these legal bases, 
as can be seen from figure 1 above. This increase in the number of requests made has 
unfortunately been matched by a similar increase in the number of requests outstanding for 
which the maximum 3 months deadline has expired. The Commission and the member 
States have been keeping a close watch on these developments, both in the SCAC and in 
meetings of the Heads of CLO; there is clearly a danger that an unmanageable backlog 
could build up, to the detriment of effective VAT control, if corrective action is not taken 
in time. 
Figure 6: Proportion of overdue replies to requests under Article 5 of the.Regulation 
and Article 2 of the Directive outstanding as at 31 December 1995 per requested 
Member State 
The problem of overdue replies is partly due to the fact that requests are becoming ever 
more complex and accordingly take longer to answer. However, that tendency is unlikely 
to change and Member States must take account of it in their planning. In practice, 
differences in the organisation and staffing levels of CLOs between Member States have 
led to a variation in the level of service they are able to provide which can create 
difficulties for the smooth operation of administrative cooperation. There are strong 
indications that, rather than acting as a conduit, some CLOs at least appear to be causing 
bottlenecks in communication as can be seen from figure 6 above. A further problem is 
created in certain Member States by the fact that different parts of the administration are 
competent in respect of VAT, and while "the CLO may be competent for dealing with 
14 
requests under the Regulation, it may not be competent to deal with similar requests made 
under Directive 77/799/EEC. In the Commission's view, this division of tasks undermines 
the complementarity which is explicitly intended in the Community legislation. It also 
undermines the advantages that result from having a single contact point. 
CLOs will only be able to provide their colleagues in other Member States with the 
service which they expect and are entitled to receive, if they can secure an adequate 
response, in terms of allocation of resources and priorities, from their own control 
administration at the appropriate level. Member States which do not reply to requests in 
time must empathise with the control official in the requesting Member State who may be 
depending on the reply to resolve a problem which he has encountered. Missed deadlines 
can lead to missed opportunities for effective control and recovery of the tax. 
Despite the potential improvements identified at meetings of the heads of CLOs, held 
under the Matthaeus-Tax programme, these organisational and staffing differences are 
continuing to hamper the development of administrative cooperation and need to be 
addressed by the Member States. 
In particular, therefore, administrations need to consider the adequacy of resources within 
CLOs; the degree of priority given at local level to requests for information from other 
Member States; the level of human resources assigned to such work at local office level; 
the requirements for training in the use of the system and for an understanding of the 
needs of other Member States; and language training to overcome communication 
difficulties. 
3. CONCLUSIONS AND RECOMMENDATIONS 
3.1. Conclusions 
A substantial effort has been made at Community level, in the SCAC and. in periodic 
meetings of heads of national CLOs, to monitor closely and stimulate the development of 
administrative cooperation. These efforts have yielded valuable benefits. Administrative 
cooperation is gradually becoming more commonly used; a number of Member States 
have begun to integrate it into their national control strategy. In some cases, Member 
States have also reinforced their administrative structures to meet the increase in demand 
which has taken place. 
15 
The completeness and accuracy of the VIES data have significantly improved since 1993. 
Technically, the VIES has continued to function to a very high standard. It offers fast and 
secure access to large quantities of data regularly collected from intra-Community traders. 
The information made available fulfils a real control need. The expansion of the 
arrangements to implement the enlargement of the Community in 1995 was a success 
from the technical and organisational point of view. A start has also been made in 
promoting multilateral VAT control. 
However, in spite of these improvements, the situation is clearly not satisfactory, even if 
that is to a large extent due to the taxation system itself and to the shortcomings of the 6th 
VAT Directive. The differences in its transposition and application by the Member States 
and the complexity of its rules are causing problems for administrations and traders alike 
and the experience gained during the multilateral VAT control experiments indicates that 
traders are exploiting these differences. To provide a solution to such fundamental" 
problems, the Commission has proposed a complete overhaul of the Community VAT 
legislation9. 
Such a move will not, however, happen overnight. And in a number of important respects, 
there is still a great deal more that Member States could and should do to enable the 
fullest possible benefit to be drawn from the existing Community framework. As 
administrative co-operation becomes an increasingly vital link in the VAT control chain, 
failure to make the fullest possible use of it would pose an unacceptable threat to the 
integrity of the VAT system itself. There is a need not only to make better use of the 
possibilities offered by the existing framework but also to construct a new infrastructure 
for the further development of the tools and activities needed to make administrative 
cooperation a daily reality throughout national administrations. As a first stage the 
Commission will shortly be putting forward a proposal foi an action programme to 
reinforce the functioning of the indirect taxation systems of the internal market. This 
programme will also provide a new legal and budgetary basis for Community funding 
from 1998 of the VIES, and other information exchange and communication systems 
necessary for administrative cooperation. 
3.2. Recommendations 
Member States must do more to ensure the fullest possible integration of the control of 
the taxation of intra-Community trade into their national VAT control strategies and 
the methodology of all their control staff, rather than treating it as a specialist 
expertise. This entails giving a greater priority to the use of administrative cooperation. 
9 A Common system of VAT - A programme for the Single Market (COM( W>) 32N final). 
16 
To this end, the use of the specific enquiry and request opportunities provided (at 
substantial cost to traders and national administrations) should be more widespread. 
Similarly multilateral VAT controls - not just experiments, which have already proved 
their worth, but real operational controls should become a common part of national 
control strategies. 
The Community, in partnership with the Member States, also has a duty to encourage 
the development of administrative cooperation. More must be done on a Community 
level and in the Member States to make national officials aware of the Community 
dimension of their work; to foster mutual confidence between officials of different 
national administrations; to make cooperation as user-friendly and low in opportunity 
costs as possible. 
Member States must make greater efforts to ensure that all their traders making intra-
Community supplies make timely and correct declarations, and must reconsider the 
adequacy of their enforcement and penalty policies for non-compliant traders. 
Member States must invest more resources to enable them to answer requests for 
assistance as soon as possible after they have been received from other Member States. 
Organisational and staffing difficulties in certain CLOs need to be urgently and 
vigorously addressed. 
Member States must commit themselves to pool information on concrete investigations 
of fraud at Community level. Only this will permit the development of a Community 
strategy against fraud of any real substance. 
The Commission and Member States must make a greater, effort to increase 
cooperative activity in the detection and prevention of fraud. The lack of complete 
information at Community level allied to the limitations of the existing framework for 
dealing with complex transnational fraud represents an area of risk that must be faced 
up to. 
The Community will need to take the necessary legislative and administrative measures 
to improve the arrangements for administrative cooperation on recovery. These will 
need to be sustained with a greater effort from the Member States to use the 
arrangements and fulfil their responsibilities under them. 
17 
Cooperation is a positive sum game. Effective action by all Member States in each of 
these areas would greatly enhance the ability of the Community as a whole to meet the 
challenges facing administrative cooperation, both now and in the years ahead. With the 
introduction of the new common VAT system for the single market, administrative 
cooperation will become even more central to VAT control. A level of cooperation 
between all the Member States will be required, at least equivalent to that currently 
achieved within each Member State. It is vital that the new tools and methodologies that 
will be needed should meet with a readiness on the part of all Member States to use them 
together and to integrate the Community dimension into their national strategies. The 
experience and achievements to date provide a firm foundation to build on. 
ISSN 0254-1475 
COM(96) 681 final 
DOCUMENTS 
EN 09 06 
Catalogue number : CB-CO-96-692-EN-C 
ISBN 92-78-13617-4 
Office for Official Publications of the European Communities 
L-2985 Luxembourg 
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