WRITTEN QUESTION P-1726/02

by Carles-Alfred Gasòliba i Böhm (ELDR) to the Commission

(7 June 2002)

Subject: VAT tax fraud in the metal-recovery industry

The introduction of VAT in Spain has, in the metal-recovery industry, enabled specific businesses to develop a wide range of VAT fraud techniques. Illegal metal-recovery businesses, by acquiring the materials in question, use base companies to avoid the relevant VAT charges. When selling to steelworks and foundries, their bills include a 16 % VAT charge, but this VAT is not then paid into the Treasury.

This constitutes not only unfair competition against businesses which abide by current legislation. Fraud of this kind is infecting trade with other Community countries, such as France, Portugal or Germany, which means that the situation is creating severe distortions in metal-recovery industrial trade between Member States.

When these practices came to its attention, the Commission proposed that the Council adopt a Decision(1) authorising Spain to apply a measure derogating from the Sixth Directive 77/388/EEC(2), so as to eliminate the tax fraud. However, the industry itself believes that this authorisation, which expires on 31 December 2003, has failed to curtail tax fraud at all, which has actually increased in recent years. For that reason, various European business groups working in the metal-recovery industry have repeatedly alerted the Commission to the situation, without obtaining any satisfactory answer so far.

Why has the Commission not adopted any emergency measure in this connection, even though it is aware of the seriousness of the problem? What measures does the Commission intend to take to put an end to these practices in the immediate future, and at the very least, by 31 December 2003? Does the Commission agree that these practices could be curtailed by introducing a new provision reversing liability for VAT with regard to the supply of used, waste and other recovery materials consisting of ferrous and non-ferrous metals and their alloys and waste, glass, paper and board, and selection, cutting, fragmentation and pressing operations carried out on such products?

(1) Council Decision 2001/243/EC OJ L 88, 28.3.2001, p. 15.

(2) OJ L 145, 13.6.1977, p. 1.

Answer given by Mr Bolkestein on behalf of the Commission

(12 July 2002)

The Council has indeed authorised Spain, by Decision 1999/81/EC of 18 January 1999(1), to apply a special tax measure in the metal recovery and recycling sector. This decision is based on Article 27 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes common system of value added tax: uniform basis of assessment(2), which allows for special measures to simplify the procedure for charging the tax or to prevent certain types of tax fraud and evasion. Apart from Spain, four other Member States apply special tax measures in the sector concerned; the other Member States apply the normal VAT system.

Contacts the Commission has had with national administrations and representatives of the sector in question have revealed that the special measures are not working satisfactorily in some Member States. Generally speaking, they would like to see them extended.

However, any legislative initiative by the Commission must respect the Community legal framework laid down notably in the case law of the Court of Justice on the proportionality of special measures to combat fraud or tax evasion based on Article 27.

The Commission feels that this Community legal framework does not enable the scope of the special arrangements to be extended on the basis of a derogation pursuant to Article 27 of the Sixth VAT Directive.

In its communication to the Council and Parliament of 17 June 2000(3) on a strategy to improve the operation of the VAT system within the context of the internal market, the Commission therefore undertook to rationalise the many derogations currently in force. However, in certain cases, this rationalisation might entail extending to all Member States certain derogations which have proven to be particularly effective.

The Commission has already said that in conducting this rationalisation it would examine the possibility of introducing, in the Sixth Directive itself, special measures for the sector concerned which go beyond what the Council can authorise on the basis of Article 27 of the Sixth Directive. The Commission will start the preparatory work in principle before the end of this year so that the Council can take a decision before the expiry on 31 December 2003 of the authorisation granted to Spain.

The Commission would assure the Honourable Member that it has already fully informed the representatives of the sector and national administrations concerned of its intentions and it will continue to involve them in the discussions that will take place on the subject.

(1) OJ L 27, 2.2.1999.

(2) OJ L 145, 13.6.1977.

(3) COM(2000) 348 final.