Proposal for a Directive of the European Parliament and of the Council amending Directive 77/799/EEC concerning mutual assistance by the competent authorities of the Member States in the field of direct and indirect taxation
Date: 2003-07-28
Institutions: European Commission
Subjects: administrative cooperation, amendment of a law, deepening of the European Union, direct tax, exchange of information, fraud, indirect tax, tax authorities, tax evasion, tax law

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 31.07.2003
COM(2003) 446 final/2

2003/0170 (COD)

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Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending 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

The  Directive  on  Mutual  Assistance  dates  from  1977.  It  sets  out  the  rules  under  which  the
Competent  Authorities  of  Member  States  provide  mutual  assistance  and  exchange  of
information in order that they may apply their tax laws effectively.

Such an instrument was needed because there was an ever-increasing risk that practices of tax
evasion and  tax  avoidance  across  national  frontiers  would  lead  to  budget  losses  and  also  to
violations  of  the  principle  of  fair  taxation.  In  turn,  these  would  give  rise  to  distortions  in
capital movements and in conditions of competition with adverse effects on the operation of
the common market (now the internal market).

Although,  in  most  instances,  Member  States  have  negotiated  bilateral  treaties  with  other
member States, these were not regarded as adequate to counter new forms of tax evasion and
avoidance that tended to take on a multinational character. Accordingly, there was a need to
strengthen  the  collaboration  between  tax  administrations  of  Member  States  in  accordance
with a system of common principles and rules.

The  Directive  makes  provision  for  three  types  of  information  exchange  –  information  on
request, automatic exchange and spontaneous exchange. It also contains safeguards relating to
secrecy so that any information exchanged is handled with proper respect and  consideration
for the rights of taxpayers. In addition, there are limits to the exchange of information in order
to ensure that there is reciprocity in the types of information that can be exchanged. It is not
possible  for  a  Member  State  to  seek  information  from  another  Member  State  if  the  state
making  the  request  would  be  precluded  by  its  own  laws,  or  administrative  practices,  from
obtaining similar information.

The Directive also allows collaboration between Member States and the Commission for the
purposes of permanent study of the way in which co-operation procedures work in practice so
that  the  Commission  can  decide  whether  it  is  necessary  to  propose  appropriate  community
rules in order to bring about necessary improvements.

When it was first adopted, it applied only to direct taxes. Over time, that changed and  first,
Value Added tax and later, Excise Duties were brought within its  scope.  More recently, the
Commission  has  presented  a  proposal  [COM  (2001)  294  final]  to  have  an  entirely  separate
instrument for Value Added Tax and another proposal will be made for a new instrument to
deal exclusively with Excise Duties. The Directive has been in place for a quarter of a century
and  was  designed  for  conditions  that  were  markedly  different  than  those  that  exist  today.
Thus, this is an opportune moment to review the original Directive  in  order  to  modernise it
and while recognising that there are significant differences between the different types of tax,
to  bring  its  provisions  into  closer  alignment  with  the  arrangements  for  administrative  co-
operation and mutual assistance in relation to indirect taxes.

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2.

THE AD-HOC WORKING PARTY ON TAX FRAUD

In  September  1999,  the  Committee  of  Permanent  Representatives  (COREPER)  set  up  a
working party consisting of high level tax officials responsible for tax control, designated by
the  member  States  and  a  representative  of  the  Commission.  It  was  chaired  by  the  Member
State holding the Presidency of the Council and was required, by 30 May 2000, to present a
report  to  the  COREPER  with  a  view  to  submission  to  the  ECOFIN  Council.  The  AD-hoc
Working Party’s terms of reference included the following matters:

(cid:1)  to assess the situation concerning tax fraud at that time;

(cid:1)  to study possible weaknesses in existing Community rules and control systems;

(cid:1)  to  study  the  efficiency  of  existing  administrative  co-operation  arrangements  for
dealing with tax evasion and fraud in the areas of both indirect and direct taxation;
and

(cid:1)  to examine the possibility of improved administrative co-operation in these areas,
making  suggestions  for  any  new  arrangements  or  measures  that  it  considered
appropriate.  It  was  to  take  account  of  all  work  done  and  being  done  in  similar
bodies.

The  working  party  presented  its  report  on  time.  (Council  Document  8668/00  FISC  67
CRIMORG  83)  It  contained  many  recommendations.  Some  of  these  related  to  matters
involving  the  existing  rules  for  administrative  co-operation  and  mutual  assistance,  where
Member  States  already  have  the  power  to  introduce  changes  of  an  organisational  nature,
without the need for any additional legislation.

However,  the  report  also  called  for  changes  to  both  national  and  community  legislation.  It
pointed  out  that  the  existing  Directive  needed  to  be  improved  in  order  to  eliminate  certain
weaknesses that the report’s authors had identified.

After  the  ECOFIN  Council  had  taken  due  note  of  the  report’s  contents,  the  Commission
undertook to consider the ways in which the Ad hoc Working Party’s recommendations could
be taken  forward, in so  far  as  they concerned direct taxation.  Accordingly,  the Commission
initiated  discussions  within  the  framework  of  a  Commission-chaired  working  group
comprising experts from Member States. Deliberations were conducted in this forum, on the
occasion of three separate meetings, in order to search for a consensus view.

3.

1.

2.

OUTLINE  OF  THE  PROPOSED  CHANGES  TO  THE  EXISTING  ARTICLES  AND  THE  NEW
PROVISIONS BASED ON THE SPANISH PROPOSALS

Article 1. This article sets out the changes being proposed in relation to the existing
articles of the main Directive.

The  first  change  that  is  proposed  relates  to  article  2  of  the  Directive  dealing  with
exchange  of  information  on  request.  Article  2.2  recognises  that  the  competent
authority  of  one  Member  State  will  often  need  to  carry  out  enquiries  in  order  to
obtain the information needed to respond to a request from the competent authority
of another Member State.

3

3.

4.

5.

6.

7.

8.

A number of Member States have procedures in their domestic law that require them
to  notify  a  taxpayer  that  a  request  for  assistance  has  been  received  from  the
competent authority of another Member State. The Ad Hoc Group identified this as a
weakness  in  existing  procedure  because  it  often  limited  the  benefit  derived  by  the
requesting  State  from  any  information  subsequently  obtained  as  well  as  slowing
down  the  information  gathering  process.  Delay  of  that  kind  can  undermine  the
investigation process and only serves the interests of the tax evader.

There is  no  such  similar  requirement  in  the  case  where  those  Member  States  make
enquiries on their own behalf. The result of these different procedures is that it takes
considerably longer to obtain information on behalf of another Member State than it
does to obtain information for a domestic enquiry. Such delay is inimical both to the
interest  of  the  Member  State  that  is  trying  to  enforce  its  tax  laws  and  also  to  the
overall interests of the European Union because the smooth working of the internal
market is also affected.

The proposal is that the Directive be amended so that any request for information is
treated  as  made  under  the  domestic  laws  and  practices  of  the  State  in  which  the
authority collecting the information is situated. The text of the suggested amendment
is identical to that contained in the proposal relating to VAT in article 5(3).1

Another area of weakness that the Ad Hoc Group identified in the existing Directive
can  be  found  in  existing  article  7.1.  Currently,  it  is  only  possible  to  disclose
information  where  the  competent  authority  of  the  Member  State  that  supplied  it
makes no objection. The Ad Hoc Group pointed out that the existing text gave rise to
ambiguity.  Some  Member  States  took  the  view  that  it  was  necessary  to  obtain  the
explicit approval of the supplying competent authority before using the information
in  judicial  proceedings.  Other  Member  States  held  the  contrary  view  that  tacit
approval could be assumed if no objection had been raised. The purpose of the text is
to eliminate any possible delay, by rendering it unnecessary to suspend court action
pending  clarification,  in  those  Member  states  that  consider  explicit  approval  is
necessary. The position would be free from any doubt right from the outset.

The existing text of article 8.1 was seen in some quarters as being open to more than
one interpretation. The Commission would like to use this opportunity to revise the
text to  remove any such ambiguity. During  the  discussions  in  the  experts’  working
group,  Member States  agreed  with  the  Commission’s interpretation that the  current
wording did not allow a Member State to refuse to obtain and exchange information
on the grounds that the information in question was not required for its domestic tax
purposes.  It  only  applied  to  types  of  information  that  the  Member  State  could  not
collect or use even for its own purposes. The redrafting of the paragraph is intended
to ensure that this is no longer a matter for interpretation but is now stated in explicit
terms.

The  terms  of  the  existing  text  of  paragraph  8.3  were  also  the  subject  of  possible
ambiguity concerning the identification of the “State concerned.” Did this refer to the
State from whom information had been requested or was it referring to the State that
had requested information? In the Commission’s view, it can only be a reference to
the  State  that  has  requested  information.  Member  States  agreed  that  this  was  the

1

COM (2001) 294 final

4

                                                
9.

10.

11.

12.

correct  interpretation  and  the  amendment  is  designed  to  remove  any  possible
ambiguity.

The  proposed  new  Directive  also  introduces  new  material  reflecting  suggestions
made during the course of the meetings held in the experts’ working group. They are
designed  to  align  the  provisions  relating  to  direct  taxation  more  closely  with  those
that are being adopted in relation to indirect taxation.

The  proposed  new  article  8a  sets  out  the  procedure  to  be  followed  where  it  is
necessary  to  notify  a  taxpayer  of  instruments  or  decisions  emanating  from  the
administrative authorities of the Member State where the tax liability arises.

The  requirement  for  such  notification  does  not  exist  in  every  Member  State.
However, it would be highly beneficial for those Member States where notification is
required  if  the  procedures  could  be  carried  out  on  their  behalf  by  the  competent
authority  of  another  Member  State.  Where  the  latter  State  does  not  require  such
procedures, in relation to the enforcement or recovery of tax debts under its domestic
laws,  it  is  likely  that  its  tax  officials  will  not  be  aware  of  their  importance  for  the
requesting  State.  The  proposed  amendment  of  the  Directive  will  emphasise  the
importance  of  such  procedures  and  facilitate  any  later  action  under  the  Directive
relating to Mutual Assistance on Recovery of claims.

The  proposed  new  article  8b  deals  with  simultaneous  controls  of  the  affairs  of  a
single taxpayer operating in two or more Member States. Simultaneous controls are
regarded  as  one  of  the  most  efficient  ways  in  which  competent  authorities  can
exchange information. The Ad  Hoc Group had urged that consideration be given to
tackling  abuses  involving  under-invoicing  and  over-invoicing,  where  transactions
took  place  between  related  entities  in  cross-border  situations  (transfer-pricing),  by
stepping up information exchange. It suggested that synchronised inspections would
be one way of  developing  increased  co-operation  between  tax  administrations.  The
amendment to the Directive would make it possible to have these types of  controls
but only where the competent authorities agreed that they wanted to take part.

5

2003/0170 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending 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 Commission2,

Having regard to the opinion of the European Economic and Social Committee3,

Whereas:

(1)

Directive  77/799/EEC  of  19  December  1977  concerning  mutual  assistance  by  the
competent authorities of the Member States in the field of direct and indirect taxation4
established  the  ground  rules  for  administrative  co-operation  and  the  exchange  of
information between Member States in order to detect and prevent tax evasion and tax
fraud. It is essential to improve, expand and modernise those rules.

(2) When a Member State conducts enquiries in order to obtain the information necessary
to respond to a request for information, that State should be regarded as acting on its
own  account;  in  that  way,  there  will  only  be  one  set  of  rules  applying  to  the
information-gathering process, irrespective of the location of the taxpayer concerned,
and the investigation will not be undermined by delays.

(3)

(4)

(5)

2

3

4

It is inappropriate, if the fight against tax fraud is to be effective, that a Member State
which  has  received  information  from  another  Member  State  should  have  to  request
permission to use the information in judicial or other proceedings.

It should be made clear that a Member State is not under any obligation to carry out
enquiries  in  order  to  obtain  the  information  necessary  to  respond  to  a  request  for
assistance  where  either  its  legislative  or  administrative  practices  do  not  permit  its
competent authority to conduct enquiries or to collect such information.

It  should  be  possible  for  the  competent  authority  of  a  Member  State  to  refuse
information  or  assistance  when  the  requesting  Member  State  is  not  in  a  position  to
supply the same type of information, whether for reasons of fact or of law.

OJ C , , p. .
OJ C , , p. .
OJ L 336, 27.12.1977, p. 15.

6

                                                
(6)

(7)

In view of the legal requirement in certain Member States that a taxpayer be notified
of decisions and instruments concerning his tax liability and of the ensuing difficulties
for  the  tax  authorities  in  cases  where  the  taxpayer  has  relocated  to  another  Member
State, it is desirable that, in such circumstances, those authorities should be able to call
upon  the  assistance  of  the  competent  authorities  of  the  Member  State  to  which  the
taxpayer has moved.

Since businesses are often organised in such a  way that affiliated and related  entities
are established in several Member States and enter into business transactions with one
another, it is often necessary to verify that arm’s-length prices have been applied and
to determine whether a potential loss of tax could arise in one or more Member States.
It should therefore  be made  possible  for  simultaneous  controls  to  be  applied  to  such
businesses by two or more Member States with a view to exchanging information so
that the tax liability of each related entity can be correctly assessed.

(8)

Directive 77/799/EEC should therefore be amended accordingly,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

Directive 77/799/EEC is amended as follows:

(1)

In Article 2(2), the following subparagraph is added:

“In  order  to  obtain  the  information  sought,  the  requested  authority  or  the
administrative authority to which it has recourse shall proceed as though acting on its
own account or at the request of another authority in its own Member State.”

(2)

In the second indent of the second subparagraph of Article 7(1), the second  part of
the sentence is replaced by the following:

“such  information  may,  however,  be  disclosed  during  public  hearings  or  in
judgements  if  the  competent  authority  of  the  Member  State  supplying  the
information raises no objection at the time when it first supplies the information.”

(3)

(a)

Article 8 is amended as follows:

Paragraph 1 is replaced by the following:

“This  Directive  does  not  impose  any  obligation  upon  a  Member  State  from  which
information is requested  to  carry  out  inquiries  or  to  communicate  information,  if  it
would  be  contrary  to  its  legislative  or  administrative  practices  for  the  competent
authority of that State to conduct such inquiries or to collect the information sought.”

7

(b)

Paragraph 3 is replaced by the following:

“The  competent  authority  of  a  Member  State  may  decline  transmission  of
information  when  the  Member  State  requesting  it  is  unable,  for  reasons  of  fact  or
law, to provide the same type of information.”

(4)

The following Articles 8a and 8b are inserted:

“Article 8a
Notification

1.

2.

3.

1.

2.

3.

4.

At the request of the competent authority of a Member State, the competent authority
of  another  Member  State  shall,  in  accordance  with  the  rules  governing  the
notification  of  similar  instruments  in  the  Member  State  in  which  it  is  established,
notify  the  addressee  of  all  instruments  and  decisions  which  emanate  from  the
administrative  authorities  of  the  Member  State  in  which  the  requesting  authority  is
established and concern the application in that territory of legislation on direct taxes.

Requests for notification shall indicate the subject of the instrument or decision to be
notified and shall specify the name and  address of the addressee, together with any
other information which may facilitate identification of the addressee.

The  requested  authority  shall  inform  the  requesting  authority  immediately  of  its
response to the request for notification and shall notify it, in particular, of the date of
transmission of the decision or instrument to the addressee.

Article 8b
Simultaneous controls

Where  the  tax  situation  of  one  or  more  taxable  persons  is  of  common  or
complementary  interest  to  two  or  more  Member  States,  those  States  shall  conduct
simultaneous controls, with a view to exchanging the information thus obtained.

Such  simultaneous  controls  shall  be  conducted  whenever  they  would  appear  to  be
more effective than controls conducted by one Member State alone.

The  competent  authority  in  each  Member  State  shall  identify  independently  the
taxable persons whom it intends to propose for simultaneous control. It shall notify
the  respective  competent  authorities  in  the  other  Member  States  concerned  of  the
cases  which,  in  its  view,  should  be  subject  to  simultaneous  control.  It  shall  give
reasons for its choice, as far as possible, by providing the information which led to its
decision.  It  shall  specify  the  period  of  time  during  which  such  controls  should  be
conducted.

The  competent  authority  of  each  Member  State  concerned  shall  decide  whether  it
wishes  to  take  part  in  the  simultaneous  control.  On  receipt  of  a  proposal  for  a
simultaneous  control,  the  competent  authority  shall  confirm  its  agreement  or  its
refusal to its counterpart authority.

The  competent  authorities  of  the  Member  States  concerned  shall  appoint  a
representative  with  responsibility  for  supervising  and  co-ordinating  the  control
operation.”

8

Article 2

Member  States  shall  adopt  and  publish,  by  […]  at  the  latest,  the  laws,  regulations  and
administrative  provisions  necessary  to  comply  with  this  Directive.  They  shall  forthwith
communicate to the Commission the text of those provisions and a correlation table between
those provisions and this Directive.

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.

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

Article 3

Article 4

This Directive is addressed to the Member States.

Done at Brussels,

For the European Parliament
The President
[…]

For the Council
The President
[…]

9

ANNEX

ASSESSMENT IMPACT FORM

THE IMPACT OF THE PROPOSAL ON BUSINESS WITH SPECIAL REFERENCE
TO SMALL AND MEDIUM-SIZED ENTERPRISES( SMEs)

Title  of  proposal:  Council  Directive  to  amend  Directive  77/799/EEC  concerning  mutual
assistance by the competent authorities of the Member States in the field of direct taxation

Document reference number : […]

The proposal

Practices of tax evasion and tax avoidance, extending across the frontiers of Member States,
lead  to  budget  losses  and  violate  the  principle  of  fair  taxation.  In  turn,  these  result  in
distortions  of  capital  movements  and  conditions  of  competition  and  adversely  affect  the
workings of the single market. Thus, there is a strong community interest in Member States
being  able  to  enforce  their  tax  laws  effectively.  The  cross-border  nature  of  these  offensive
practices  means  that  national  measures  on  their  own  are  not  sufficient.  Hence,  provision  is
needed for Member States to be able to co-operate and to provide mutual assistance.

The scope of the proposal is to modify several existing provisions of the Directive in order to
make  the  language  clearer  and  to  shorten  some  of  the  procedures  that  need  to  be  followed
when  assistance  is  requested.  There  are  also  some  new  elements.  One  of  these  concerns
notification, in one Member State, of instruments or decisions originating in another Member
State where a taxpayer has moved to the second state. Another makes provision for Member
States to conduct simultaneous controls of a business that operates  in a number  of  different
countries. The Directive applies to direct taxation only because a separate instrument has been
adopted  for  VAT  and  there  is  to  be  another  for  excise  duties.  It  is  important  to  keep  these
aligned even though direct taxes are exclusively the competence of the Member States.

The impact on business

Who will be affected by the proposal?

The proposal is designed to improve the provisions of an existing Directive under which the
competent  authorities  of  Member  States’  tax  authorities  co-operate  to  help  counteract  tax
evasion and tax avoidance. The need to modernise the Directive was highlighted in the report5
delivered in May 2000 by  the Council’s Ad hoc Group  on  Tax  Fraud.  The  only  bodies  that
will be affected by it are the direct tax administrations of Member States.

What will business have to do to comply with the proposal?

Businesses will not be affected by the proposal because it does not place any new burdens on
them. Hence, they will not need to do anything in order to comply with the proposal.

5

Council Document 8668/00 FISC 67 CRIMORG 83

10

                                                
What economic effects is the proposal likely to have?

The  objective  is  to  secure  better  compliance  with  tax  obligations  and  to  help  secure  fair
taxation,  which  will  help  remove  distortions  in  the  operation  of  the  internal  market.  There
should not be any direct impact on levels of employment, creation of new businesses or on the
competitiveness of businesses in general.

Does  the  proposal  contain  measures  to  take  account  of  the  specific  situation  of  small  and
medium-sized firms (reduced or different requirements etc)?

Consequently,  there  is  nothing  in  the  proposal  to  take  account  of  the  specific  positions  of
small or medium- sized firms.

Consultation

List the organisations which have been consulted about the proposal and outline their main
views.

There  has  not  been  any  consultation  with  organisations  other  than  the  national  tax
administrations  of  Member  States.  The  content  of  the  proposal  was  discussed  within  the
framework of a Commission-chaired working group comprising experts from Member States.
Deliberations  were  conducted  in  this  forum,  on  the  occasion  of  three  separate  meetings,  in
order  to  search  for  a  consensus  view.  The  proposal  reflects  the  matters  in  respect  of  which
agreement was reached.

11