Opinion of the Economic and Social Committee on:the Proposal for a Regulation of the European Parliament and of the Council on administrative cooperation in the field of value added tax, andthe 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
Date: 2002-01-16
Institutions: European Economic and Social Committee
Subjects: VAT, administrative cooperation, direct tax, indirect tax

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Opinion of the Economic and Social Committee on:

— the ‘Proposal

for a Regulation of the European Parliament and of the Council on

administrative cooperation in the field of value added tax’, and

— the ‘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’

(2002/C 80/16)

On 9 July 2001, the Council decided to consult the Economic and Social Committee, under Article 95 of
the Treaty establishing the European Community, on the above-mentioned proposals.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 10 January 2002.
The rapporteur was Mr Walker.

At its 387th plenary session (meeting of 16 January 2002), the Economic and Social Committee adopted
the following opinion by 89 votes to one with five abstentions.

1.

Introduction

1.1.
There are two different legal bases for administrative
co-operation 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 co-operation in the field of
indirect taxation (VAT). When Directive 77/779/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).
The Directive creates a legal base for the exchange of infor-
mation between Member States. However,
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.

it

1.1.1.
Three categories of information exchange are pro-
vided 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 the 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 opportunity.

1.1.1.1.
The removal as from 1 January 1993 of tax borders
between Member States necessitated the strengthening of
administrative co-operation. 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 database VAT Information Exchange System (VIES)
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 database is insufficient, further
information may be requested under Article 5 of the Regu-
lation. The requested authority then has a period of three
months in which to reply.

Although the VIES system and the strengthened admin-
1.2.
istrative
co-operation introduced by Regulation (EEC)
No 218/92 are regarded by the officials concerned as effective
instruments of control, they exhibit the following weaknesses:

— the information exchanged automatically or on request
from the recapitulative statements provided by taxable
persons is not available early enough and cannot be
exchanged sufficiently quickly, to be effective in fighting
fraud;

(1) OJ L 336, 27.12.1977, p. 15.
(2) OJ L 24, 1.2.1992, p. 1.
(3) OJ L 331, 27.12.1979, p. 8.

— since the information exchanged under VIES is only
available after six months, it can only be used for post-
clearance checks, which are often too late and the
provisions of Regulation (EEC) No 218/92 were never

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intended to deal with individual cases of fraud, which are,
by their nature, immediate;

— the Regulation does not cover all the transactions that
could give rise to fraud, being limited to intra-Community
supplies and acquisitions, whereas most VAT-fraud
schemes concern both intra-Community and domestic
transactions, forcing the tax authorities to make use of
other legal instruments.

response to requests are different and the use to which the
information received may be put are 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. The situation is exacer-
bated by the fact that certain transactions are considered as
services in some Member States and as goods in others.

1.3.
For these reasons, Member States mainly use Directive
77/779/EEC as a legal base for co-operation in fraud matters.
However, as this Directive was originally designed for the
exchange of information on direct taxation and has not been
adapted for coping with the specific need for strengthened co-
operation following the introduction of the current transitional
it gives rise to the following
system on 1 January 1993,
shortcomings:

— the co-operation provided for is too centralised, not

sufficiently intensive and inadequately defined;

— there is insufficient direct contact between local and

national anti-fraud offices;

— the rule that communication must be between central
liaison offices leads to inefficiency, under-use by officials
and delays;

— apart

from the VIES system,

there are not enough
automatic or spontaneous exchanges of information that
could help in the detection or prevention of fraud in
intra-Community trade;

— there are no clear rules in a whole host of areas (notably
with 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 may be put).

two different

the existence of

In addition to the aforementioned shortcomings and
1.4.
loopholes,
legal bases for
administrative co-operation in the field of VAT has proved to
be a source of complexity that 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

The report (1) presented by the Commission on 28 Jan-
1.5.
uary 2000 under Article 14 of Regulation (EEC) No 218/92 and
Article 12 of Regulation (EEC) No 1553/89, 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 commit-
ment to strengthen control and administrative co-operation.
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.

transactions

1.6.
A measure of the extent and seriousness of the problem
is provided by the fact that, according to Commission figures (2)
Member States have to supervise intra-Community VAT-
around
to
exempted
EUR 930 000 000 000 per annum — a category of transaction
that was subject to border controls before 1 January 1993 but
now has to be controlled by tax authorities. Member States
have to control about 24 million VAT traders, who deliver
annually some 100 million declarations.

value

of

a

2. The Commission’s proposals

2.1.
In order to strengthen administrative co-operation in
the field of VAT, the Commission proposes to tighten up
the legal provisions of Regulation (EEC) No 218/92 and
incorporate the provisions of Directive 77/779/EEC to estab-
lish a single legal framework that sets out clear and binding
rules governing co-operation between Member States. The
framework provides for more direct contacts between services
in different Member States with a view to making co-operation
faster and more efficient. It will also facilitate swifter and
more intensive exchanges of information between national
administrations and between administrations and the Com-
mission for the purpose of combating fraud more effectively.

(1) COM(2000) 28 final.
(2) Ibid, point 5.5.

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2.2.
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 co-operation on the Com-
mission,
it does not assign to it any operational role in
investigating or combating tax fraud.

States in the field of VAT and in other areas of law enforcement.
It has repeatedly reiterated that the failure of Member States to
avail themselves of the mechanisms for co-operation which
currently exist is exacerbating the weaknesses of the tran-
sitional VAT system and facilitating the proliferation of
systematic VAT fraud.

2.2.1.
Nevertheless, the Commission considers that VAT
fraud within the Community must be met by a response at
Community level and must be countered by joint action by
the Member States and the Commission. While the Member
States bear primary responsibility for the proper operation of
the common system of VAT, the Commission feels that
its role in this area should be one of co-ordination and
stimulation.

2.2.2.
Accordingly, the Commission will submit, under
Article 280 of the EC Treaty, a separate proposal for a
regulation laying down specific anti-fraud provisions that
confer a role on the Commission in co-ordinating the exchange
of information at Community level.

for fraud but not

3.2.
The report by the European Court of Auditors in
1998 (4) pointed out that the fight against fraud is characterised
by the absence of an integrated strategy. It stressed that, for
intra-Community transactions, there is a contradiction in that
there exists a Single Market
for law
enforcement. The Court has estimated that the gap between
actual VAT receipts collected annually and the theoretical
amount, calculated on macro-economic figures, is as high as
EUR 70 000 000 000, corresponding to 21 % of the aggregate
revenue of all Member States. The accuracy of this figure has
been questioned but, even if the real figure is only half of the
imputed amount, it represents a staggering loss of revenue for
the Member States and a frightening picture of the way in
which Member State administrations are managing or, rather,
failing to manage, VAT controls.

it

As

2.3.
is necessary to replace Regulation (EEC)
No 218/92 in its entirety and Directive 77/779/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 (1).

2.4.
The aim of this proposal is to reinforce co-operation
between tax administrations, providing them with a simple
and efficient legal framework to fight fraudsters on equal
terms. The proposal is not designed to change in any way the
obligations of taxpayers or the rules governing the application
the Commission is
of VAT legislation. For this reason,
In taking
submitting it under Article 95 of
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 (2), in which it proposed Article 100a of the
EC Treaty (now Article 95) as an appropriate legal base.

the Treaty.

3. General comments

The Committee has, on numerous occasions (3), point-
3.1.
ed out the need for closer co-operation between Member

3.3.
The Committee agrees with the Commission that the
present proposals constitute a measurable improvement on
the status quo and would, if effectively implemented, put the
VAT authorities in the Member States on a more equal footing
with the criminal elements who are exploiting the loopholes
in the current system. However, judging by past experience,
the Committee very much doubts whether, left to themselves,
the Member States will make any greater use of these powers
than they have done hitherto. It would point out that the
proposals essentially constitute enabling legislation; there is
little or nothing which requires Member States to take
advantage of the opportunities that they offer.

3.3.1.
There is a general consensus that the existing instru-
ments for co-operation have been grossly under-used and, in
some cases, largely ignored. This under-use has been attributed,
inter alia, to slow procedures and even an ignorance of existing
instruments,
in particular on the part of local authorities.
Although most Member States express support for the idea of
an intensified exchange of information, such information is
rarely, in fact, exchanged. This situation will not be transfor-
med merely by the introduction of new legislative instruments;
it requires a fundamental change in the attitudes and priorities
of Member State administrations.

(1) COM(98) 364 final, COM(1999) 183 final.
(2) COM(90) 183.
(3) See e.g. OJ C 116, 20.4.2001.

(4) OJ C 349, 17.11.1998, p. 15, 16, 17.

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The Commission has noted (1) that there is a continu-
3.3.2.
ing and growing problem regarding the number of requests
for assistance to which replies have not been given within
the three-month deadline laid down by Regulation (EEC)
No 218/92. Furthermore, Member States have generally pro-
ved unwilling, with some exceptions, to use the possibilities
offered by Article 12 of this Regulation to delegate powers to
level. While it is clear that a balance must be
operational
maintained between the needs of local offices and central
administrations, Central Liaison Offices (CLOs) must be used
as a conduit rather than acting as a bottleneck. The CLOs also
have a greater role to play in informing control officials of the
possibility of exchange of information, particularly with regard
to the control of special schemes, refunds under the 8th
Directive procedure and services provided in accordance with
Article 9(2)(e) of the 6th Directive. However, a number of
CLOs have said that they have neither the powers nor the
resources to fulfil this role.

3.3.3.
For this reason, the Committee endorses the Com-
mission’s proposal that it should exercise a co-ordination and
stimulation function and approves its intention to bring
forward, under Article 280, a proposal for a regulation laying
down specific anti-fraud provisions that confer a role on the
Commission in co-ordinating the exchange of information at
Community level.

4. Specific comments

that,

The Committee approves the fact

4.1.
in future,
Member States will be required to designate a single Central
Liaison Office to be responsible for co-operation but fears that
this may still constitute a barrier to communication if these
bodies operate in the same way that they have done in the
past. It notes that Article 3(4) stipulates that: ‘The provisions
of this Regulation shall not preclude direct contacts, exchange
of
information or co-operation ... between the different
Member States’ officials other than those referred to in
paragraph 3 ...’ (CLO officials) but would have preferred a
more positive approach which required such contacts rather
than simply not precluding them.

4.2.
The Committee considers that Article 36 gives Member
States too many pretexts for failing to provide the information
requested and thereby limits the effect of Article 5(3), which
stipulates that the requested authority must proceed as though

acting on its own account or at the request of another
authority within its own country in obtaining the information
requested.

The Committee notes that, under Article 10,

the
4.3.
deadline for providing requested information remains at three
months, or one month where the information is already
available to the requested authority. Given the need for rapid
action to pursue enquiries where suspicions of fraud have been
aroused, it feels that these deadlines may be too extended to
be effective in many cases and believes that consideration
should be given to curtailing them.

4.4.
The Committee notes with approval that the per-
mission of the taxable person will no longer be required for
the presence of foreign officials during controls but fails to
understand why Article 14 prevents them from participating
in searches of premises or the formal questioning of persons
under criminal law. It feels that these are unnecessary restric-
tions, which can only serve to hamper investigations into
cross-border VAT fraud.

4.5.
Article 15 stipulates that Member States shall indepen-
dently conduct simultaneous controls in their own territory of
one or more persons ‘who are of common or complementary
interest.’ The Committee considers that this wording is too
vague and that a more precise definition of these terms is
required.

4.6.
Article 22 specifies that, ‘The competent authorities of
the Member States may in any case spontaneously forward to
each other, without prior request, the information referred to
in Article 1 of which they are aware.’ The Committee would
have preferred this Article to stipulate that, ‘The competent
authorities of the Member States shall ...’.

4.7.
The Committee approves the fact that Article 37 lays
down that the information provided may be used in all
circumstances in connection with judicial or administrative
proceedings that may involve sanctions, initiated as a result of
infringements of tax law, notwithstanding that such infor-
mation may be confidential in nature.

(1) OJ C 349, 17.11.1998.

4.7.1.
The Committee also approves that Article 37(3) no
longer requires that the consent of the Member State furnishing
information must be obtained by the recipient Member State
before it can be made available to other Member States.

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4.7.2.
The Committee welcomes the fact that there will no
longer be a requirement for the taxable person involved in an
investigation to be notified of the exchange of information.

The Committee notes that, under Article 42,

4.8.
the
frequency of the Commission’s report to the European Parlia-
ment and the Council is reduced from every two to every three
years. The Committee considers that it would have been
preferable to have maintained the two-year interval.

The Committee agrees with the Commission’s use of

4.9.
Article 95 of the Treaty as the legal base for this proposal.

4.10.
The Committee notes that the Commission has not
carried out an impact assessment for this proposal. While it
would normally wish to see impact assessments conducted
and published as a matter of course, it accepts that, in this
case, the degree of uncertainty concerning the extent to which
Member States will avail themselves of these new instruments
makes it difficult to determine what impact they may have.

5. Conclusions

5.1.
The Committee reiterates the concern which it has
previously expressed about the horrifying scale of revenue

Brussels, 16 January 2002.

losses resulting from VAT fraud and the lack of co-operation
between Member State administrations, which is facilitating,
and even encouraging, this criminal activity. The abolition of
border checks, which is an indispensable concomitant of the
Single Market, requires the existence of comprehensive control
procedures and their effective implementation by the tax
authorities of the Member States, regardless of the system of
taxation in force. That situation does not pertain today and it
is difficult to escape the conclusion that the present system of
administrative co-operation is not an adequate substitute for
the physical controls which it replaced.

5.2.
The Committee considers that the Commission pro-
posals constitute a step in the right direction but feels that they
do not go far enough to correct the manifest weaknesses and
loopholes in the current situation; however, it accepts that
they are probably at the limit of what is politically attainable.
To this extent,
it approves the proposals but has serious
reservations about their ability to make a significant impact in
the fight against fraud without a fundamental change in the
attitudes of Member State administrations and national tax
authorities. It calls upon the Member States to do their part in
stemming the tide of lost revenue by accepting these proposals
and by putting in place the necessary measures to ensure their
effective implementation.

The President

of the Economic and Social Committee

Göke FRERICHS