Opinion of the European Economic and Social Committee on the Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee concerning the need to develop a coordinated strategy to improve the fight against fiscal fraud COM(2006) 254 final — 2006/0076 (COD)
Date: 2007-03-15
Institutions: European Economic and Social Committee
Subjects: ESC opinion, EU Member State, European Anti-fraud Office, VAT, administrative cooperation, competence of the institution, cooperation policy, exchange of information, tax evasion, tax system

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10.3
If the aim is to keep public spending down to sustain-
able levels, the EU Member States must pool their efforts to
implement care, accident prevention, monitoring and informa-
tion exchange programmes, in order to forge closer and more
effective links between working life and health.

10.4
Not all jobs are the same. Workforce ageing is also tied
in with the fact that some jobs are more strenuous, risky or
repetitive than others: the effects of age vary according to occu-
pation. An older worker cannot perform physically demanding

manual functions, but can more easily carry out office-based or
mental tasks.

10.5
A longer working life consequently entails greater
health problems for workers in strenuous occupations. This
future plans revolve
factor must be taken into account.
around a later retirement age in those sectors where it
is
possible, then major efforts will have to be made in the field of
health care and health and safety at work.

If

Brussels, 14 March 2007.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

Opinion of the European Economic and Social Committee on the Communication from the
Commission to the Council, the European Parliament and the European Economic and Social
Committee concerning the need to develop a coordinated strategy to improve the fight against
fiscal fraud

COM(2006) 254 final — 2006/0076 (COD)

(2007/C 161/02)

On 31 May 2006 the Commission decided to consult the European Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned communication.

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 23 February 2007. The rappor-
teur was Mr Iozia.

At its 434th plenary session held on 14 and 15 March 2007 (meeting of 15 March), the European
Economic and Social Committee adopted the following opinion by 97 votes to two with one abstention.

1. Conclusions and recommendations

1.3
The Communication's practical response to the issue of
relations with third countries is to propose a Community
approach. The EESC agrees with the proposal.

1.1
The European Economic and Social Committee regrets
that the Commission's initiatives intended to combat fiscal fraud
have not yet been adequately backed up by cooperation from
the Member States. It supports future initiatives in this regard
the powers
and urges the Commission to make use of all
presently invested in the European institutions by the treaties.

1.4
The EESC supports the proposal to reconsider VAT —
something it has itself advocated on previous occasions —
believing that a think-tank should be formed to envisage repla-
cing VAT, with the proviso that any new tax should not lead to
increased payments by businesses or citizens.

The EESC considers the Commission's communication to
1.2
the problems
taking a balanced view of
be well-structured,
involved in tackling fiscal
fraud and singling out stronger
administrative cooperation between the Member States as the
main means of countering the spread of fraud.

1.5
The EESC recommends that the Commission make full
use of OLAF's current powers, under which the European anti-
fraud body holds important functions. The Commission must
assess whether OLAF has adequate means to perform its official
tasks.

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1.6
The EESC views the proposal to ensure increasingly effi-
cient cooperation between national anti-fraud bodies as an abso-
lute priority. This could be achieved by setting up a network of
police forces and investigative bodies, allowing them to share
available databases, and it recommends that the technical and
legal issues involved be carefully examined.

2.2
The Commission thus takes up a theme that has often
been addressed, namely the need for closer administrative coop-
eration between the tax authorities of the Member States — an
instrument for combating fiscal fraud and evasion, which can
produce fiscal
losses and cause distortions of competition,
impairing the functioning of the internal market.

1.7
The proposal for a high-level forum on administrative
cooperation is a step in the right direction. There can be no
possible justification for the apparent bureaucratic resistance
and obstacles to this idea.

2.3 When the communication was presented, László Kovács
— the commissioner responsible for taxation and customs
union — stated: ‘I firmly believe that it is time to look at new
this
ways of effectively combating tax fraud. The scale of
phenomenon has become very worrying.’

The EESC believes it would be helpful to incorporate the
1.8
achievements of some Member States into Community law,
introducing the ‘normal market value’ criterion for anti-fraud
purposes.

1.9
The EESC recommends a cautious approach to intro-
ducing joint liability between vendors and purchasers, but rever-
sing the burden of proof in the case of apparently unjustified
transactions, in the light of judgments by the Court of Justice.

The EESC feels that the Commission's proposal to intro-
1.10
duce simplified requirements for operators who cooperate with
the authorities and, by the same token, stricter controls and
procedures for parties judged to be a risk, merits further consid-
eration.

1.11
The EESC calls upon the Commission to continue
funding Community programmes to promote activities in the
field of the protection of the Community's financial interests,
such as Hercule II.

1.12
Directive 77/799/EEC with existing provisions
indirect
systems.

The EESC recommends harmonising the provisions of
concerning
taxation as well as standardising the various VAT

2. Gist of the Communication

2.1
The Commission communication proposes developing ‘a
strategy to improve the fight against fiscal fraud’, noting that
although the Community legal framework has been improved
and consolidated, it is not sufficiently used and administrative
cooperation is not commensurate with the size of intra-Com-
munity trade.

2.4
Economists say that tax fraud accounts for a total of
2-2.5 % of GDP, or EUR 200 to 250 billion. So-called VAT
carousel fraud is one of the biggest problems, but smuggling
and counterfeiting of alcohol and tobacco, and fraud involving
direct taxation are equally serious issues. Since 1993, the free
movement of goods, services, people and capital within the
internal market has made it more difficult for the Member
States to combat tax fraud effectively on their own.

2.5
In the sphere of indirect taxes, Community standards lay
down direct common rules for the Member States (uniform
procedures, identification of the competent authorities, informa-
tion provision arrangements) to facilitate administrative coop-
eration and information exchange.

2.6

The Commission identifies three priority areas for action:

2.6.1 Improving the functioning of cooperation

2.6.1.1
combated more effectively through:

The Commission believes that

tax fraud can be

— more efficient cooperation mechanisms. The absence of a
Community administrative culture is an obstacle to the fight
against tax fraud, and this absence is often tied in with
language problems,
lack of human resources or limited
knowledge of cooperation procedures among staff. At opera-
tional
level, these problems are reflected in the failure to
meet deadlines for meeting requests for cooperation in the
tax field from other Member States;

— reinforcement of legislation relating to cooperation on direct

taxes and assistance in the collection of taxes;

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— faster investigation procedures and better risk management,
which would enable the Member States to be promptly
informed about potential risks of fraud to which they might
be subject, especially involving new foreign companies plan-
ning to set up for the first time on their territory;

— the setting up of a permanent

forum on administrative
cooperation at Community level for all direct and indirect
taxes.

2.6.2 Increased cooperation with third countr ies

2.6.2.1
‘… tax evasion does not stop at the external borders
of the European Union.’ The Commission proposes a Com-
munity approach to cooperation with third countries which, as
it is at present based on bilateral agreements between individual
countries, generates a range of situations which fraudsters can
easily take advantage of. The Commission also proposes that tax
cooperation clauses should be included in the economic part-
nership agreements that
the Community concludes with its
economic partners.

2.6.3 Modifying the common VAT system

2.6.3.1
The Commission opens the debate on the possibility
of strengthening the principle of joint and several liability for
the payment of VAT, subject to the principles of proportionality
and legal certainty.

The Commission is also considering the possibility of
2.6.3.2
extending application of
the reverse charge mechanism —
currently mandatory only for certain transactions, whereas for
others it can be imposed more or less at the Member State's
discretion — for
transactions within a Member State. The
Commission considers that any change to the prevailing VAT
rules must substantially reduce the risk of fraud, exclude new
risks and above all not create disproportionate red tape for
companies and for authorities, and it must in addition ensure
tax neutrality and non-discriminatory treatment of operators.

3. Community legal framework

that

the legal

The Committee believes

3.1
instruments
provided by the present legislative framework are up to the task
of combating tax fraud. There is, on the other hand, an urgent
need to press the Member States to make wider use of existing
instruments for administrative cooperation and to comply with
the deadlines and procedures laid down.
In a present-day
climate of economic globalisation in which fraud is also taking
on a transnational dimension,
it is essential that requests for
information be met as investigations are taking place.

In order, however,

3.2
to have a more uniform system
between the direct and indirect tax aspects, the Commission
could harmonise the provisions of Directive 77/799/EEC in line
with existing provisions concerning indirect taxation, and intro-
duce more efficient methods for exchanging information given
the opportunities offered by computer technology.
It is also
important to standardise the various VAT systems, with particu-
lar regard to the obligations of liable parties.

The Community legislative framework can be broadly

3.3
divided into five basic types:

— Mutual assistance

— VAT cooperation

— Cooperation on excise duties

— Recovery of claims

— Fiscalis programme.

References to Community legislation,
summary of

the relevant provisions, are set out

together with a
in

3.4
brief
Appendix A.

4. General comments

2.7 Other innovative approaches

2.7.1
measures should be considered, including:

The Commission also proposes that other specific

— reinforcing tax declaration obligations for parties considered

to represent a risk;

— lightening tax declaration obligations for companies that
obtain an authorisation by entering into a partnership with
tax administrations;

— the use of standard computer formats of high quality for

rapid exchange of information.

4.1
The EESC believes that the increasing frequency of tax
fraud should be combated more vigorously and laments the fact
that Member States' action and their cooperation is considered
by the Commission to be insufficient, despite a complex, well-
structured legal framework.

The distorting effect of tax evasion and avoidance on the
4.2
smooth functioning of the economy and the internal market is
a serious issue which has hitherto been underestimated, as has
the relationship between tax fraud, money laundering and
economic crime. Indeed, fraud aimed at wrongfully obtaining
national or EU financial aid is often carried out by means of
false tax documents and, vice versa, the money gained from tax
fraud, including in cross-border transactions, is often used for
subsequent illegal or criminal acts.

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4.3 With regard to tax avoidance — which, unlike tax
evasion, involves practices which are not unlawful per se, but
which are designed solely to obtain an undue tax saving — the
legislation has not dealt
Committee points out that national
with this issue uniformly. To avoid the proliferation of adminis-
trative and social costs linked to inconsistent legislation, the
Committee would welcome moves to harmonise national legis-
lation in this area; a general anti-avoidance provision could be
introduced, a common list of cases in which tax administrations
can exercise repudiation — for tax purposes — of the legal
effects of transactions where tax avoidance is deemed to have
occurred.

4.4
The EESC believes that the Commission's proposals take
a too cautious approach to the issue, considering the power
conferred on the Commission by the Treaties to take all the
necessary measures to secure the financial stability of the Euro-
Indeed, Council Decision 1999/468/EC of
pean institutions.
28 June 1999 confers on the Commission substantial
imple-
menting powers. The Committee also points to the principle of
subsidiarity — laid down under Article 5 of the Treaty of Rome
— which stipulates that the Community shall also take action in
areas which do not fall within its exclusive competence, when-
ever the objectives of the proposed action cannot be achieved
by the Member States or rather, can be better achieved by the
Community. The EESC calls upon the Commission to make full
use of these powers.

4.5
As early as June 2001, with the Communication on
Tax policy in the European Union — Priorities for the years ahead
(COM(2001) 260 final), the Commission stressed the need to
make use of all other available instruments, in addition to legis-
lation, to achieve priorities. In that context, it was highlighted
that decisions on tax policy had, and still have, to be adopted
unanimously (1).

Even then, the EESC upheld the need to change the tran-
4.6
sitional
system and introduce without delay the definitive
system based on the principle of taxation in the country of
origin. With some irony, the EESC wondered at that time: ‘how
many more years of the ramshackle transitional system will have to be
endured before this objective can be attained?’, calling for simplifica-
tion and modernisation of rules, more uniform application of
the rules and closer administrative cooperation. It would appear
that no progress has been made.

4.7
The EESC upholds the general approach of strengthening
cooperation by moving beyond the current VAT information
exchange system — VIES — and developing measures for auto-
matic or spontaneous information exchange between Member
States.

4.8
The EESC welcomes the opening of the debate on chan-
ging the VAT system, but stresses the need for an in-depth
impact assessment to be carried out, based on the assumption

that any changes to the system should make it more effective
and simpler and not serve to increase the tax burden on people
and businesses. In this regard, the Committee would point to a
proposal it made in a previous opinion (2) to consider an alter-
native to the VAT system, that would ensure a level of revenue
at least equal to the current one but would be less costly to
society and more efficient from the point of view of collection.

5. Specific comments

5.1 Value added tax

The current VAT system for intra-Community trade is based on
the principle of applying tax in the receiving country, in order
to ensure equal treatment of national products and products
from other EU countries, by means of the mechanism whereby
goods move between countries untaxed and are subsequently
taxed in the receiving country at the same rate as for internal
transactions.

this

transitional

Rather than applying the principle of taxation in the county of
origin,
introduced — on a
system was
temporary basis, however — because of the time needed to
adopt a suitable structure to allow the correct redistribution
between the Member States of the revenue collected, in propor-
therefore be
tion to consumption. Such a system cannot
adopted until VAT rates have been harmonised,
in order to
avoid distorting competition.

5.1.1 VAT carousel fraud

The transitional system for intra-Community trade, while greatly
freeing up the movement of goods, exposes individual Member
States to losses deriving from tax evasion and fraud.

One type of VAT fraud with particularly serious
5.1.1.1
consequences, in terms of amounts of tax evaded, and which is
highly difficult to detect, is known as carousel fraud. It involves
VAT avoidance systems, in which companies are created ad hoc
to operate internationally. The aim is to avoid paying VAT due
in order to allow the other links in the fraud chain to deduct
fictitious tax payments and thus obtain a refund of the VAT or
reduce the VAT due. To achieve this unlawful objective, the
defaulting party generally does not operate or trade as a real
business, and often its headquarters are nothing more than a
post-office box. Such companies then disappear, after several
months of ‘trading’, without producing the required tax return
and paying the tax due, thus making detection very difficult for
the tax authorities.

(1) EESC opinion on Tax policy in the European Union — Priorities for the years

ahead — OJ C 48, 21.2.2002, pp. 73–79.

(2) EESC opinion on the Proposal for a Council Directive amending Directive
77/388/EEC as regards the place of supply of services — OJ C 117 of
30.4.2004, pp. 15-20.

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5.1.1.2
The EESC believes that carousel fraud might have
been made possible in particular by inadequate cooperation
between Member States, as well as by differentiated rate systems.
The EESC therefore suggests that all necessary forms of coopera-
tion and intelligence exchange should be activated to combat
the phenomenon effectively.

tate direct information exchange by means of a certified elec-
tronic mail system. Opening up access to Member States' tax
return databases — as has happened with level 1 and 2 VIES
data — should also be considered.

5.1.2 Administrative cooperation on VAT

VAT evasion has led Member State financial adminis-
5.1.2.1
trations to refine their investigative techniques more and more,
with the aim of combating the phenomenon more effectively.

Administrative cooperation has a key role to play in combating
VAT fraud, given that such fraud is committed by a chain of
companies across the Member States.

By means of relevant treaty instruments, the Member States
have established a system of information exchange which has
proved useful for determining the status of taxpayers and for
combating and curbing transnational tax fraud.

As regards cooperation, the EESC pointed out long ago the need
for the Commission to play a more active role, and it therefore
welcomes the creation of a monitoring system to verify the
quantity and quality of assistance provided.

5.1.2.2
Information exchange is currently far from being
standard practice, due to cultural differences, varying levels of
computerisation and a lack of legislation to curb Member States'
inertia. An EU-wide culture therefore needs to be created
whereby it is accepted that cross-border information requests
must not be considered an exceptional occurrence but rather
standard practice within the investigative process, whenever rele-
vant.

To this end, we must overcome the obstacles to an EU adminis-
trative culture, incentivising full use of the existing cooperation
instruments, and compliance with deadlines and procedures laid
down, so that investigative bodies can have the requested infor-
mation in a timeframe conducive to their investigative work.

5.1.2.3
Furthermore, in line with the Commission's call for
the use of standard computer formats for the exchange of infor-
mation, the Committee would propose considering the case for
creating a network for Member State police forces and investiga-
tive bodies involved in the fight against fraud. This could facili-

Such an initiative, which would, however, require prior agree-
ment on the specific data to be included in such archives as well
as its compatibility with national legislation on privacy, would
be a real step forward in improving the fight against tax fraud,
in that it would provide investigative bodies with the informa-
tion they need directly,
time and without excessive
bureaucracy.

in real

5.1.2.4
Also, although legislation on Member State informa-
tion exchange is well-structured and generally satisfactory, the
greatest obstacle to curbing tax evasion within the EU lies in the
inconsistency of
legislation across the Member States with
regard to powers of inquiry, as well as the varying degrees of
deterrence.

This means that
where investigators' powers of
where penalties are insufficient to act as a deterrent.

fraud is particularly prevalent

in countries
inquiry are less pervasive or

5.1.2.5
Therefore, while respecting Member States' sover-
eignty, the Committee would advocate harmonising the penal-
ties for fraud cases of comparable gravity, at EU level, as already
envisaged, for example, in the fight against money laundering.
This would prevent less stringent legislation or less efficient
audit systems from effectively creating safe havens
the
proceeds of criminal activity and for operating carousel fraud.

for

5.1.3 Nor mal marke t value as a cr iter ion for deter-
anti-fraud

amount

taxable

the

for

mining
pur poses

5.1.3.1 Measures to counter tax evasion must be in line with
EU principles, including non-discrimination and proportionality,
as the Court of Justice has often stressed. One of the areas in
which the various systems vary greatly is in the use of criteria to
determine the taxable amount which differ from the considera-
tion agreed between the parties, not only in the case of goods
for private consumption or for purposes other than those of the
business, but also in all cases where there is considered to be a
risk of fraud or tax evasion.

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In this regard, the EESC points out that in all Member State
systems the criterion for determining the taxable amount is
largely based on the parties' willingness to negotiate and aims to
ensure that the actual consideration is taxed given that the
taxable amount is generally the contractual consideration agreed
on for the goods or service rendered. Alongside this ‘basic’
taxable amount criterion, another factor used is normal market
value, as a means of adjusting or re-establishing the taxable
amount, under certain conditions.

— there is transfer or establishment of real or customary rights

in property transactions.

In this regard, the Court of Justice (4) has ruled that
5.1.3.5
national measures designed to prevent tax evasion or avoidance
may not in principle derogate from the basis for charging VAT
in accordance with the consideration agreed on, as laid down in
Article 11, except within the limits
strictly necessary for
achieving that aim.

5.1.3.2
The concept of normal market value for VAT
purposes is practically the same in all Member States and is
broadly in line with Directive 77/388/EEC of 17 May 1977
(Sixth Directive) which defines it as the average sum paid for the
same kind of goods and services, in conditions of free competi-
tion and at the same stage of marketing, at the time and in the
place that the goods or services were acquired or provided, or, if
this is not possible, the time and place nearest thereto.

5.1.3.6
In other words, normal value is the reference point
for detecting fraud. The taxable amount, based on the agreed
consideration,
lower than the normal value, must not be
substituted by the latter, but tax authorities may infer the exis-
tence of fraud by reversing the burden of proof.

if

5.1.3.3
an alternative method of determining the taxable amount:

In all Member State systems, normal value represents

5.1.4 Joint and several

liability for

the payment of

VAT

— in cases where a monetary consideration is totally or
partially lacking. Here, the normal value criterion allows the
taxable amount to be quantified in monetary terms, while
also having an anti-evasion function;

5.1.4.1 With a view to curbing carousel fraud, provision has
been made in some national legislation for the purchaser to be
held jointly and severally liable for the payment of VAT which
the supplier has failed to pay in the case of certain categories of
goods, where the sale price is lower than the normal value.

— in cases where the legislative authorities presume that there

is a risk (3) of tax fraud.

5.1.3.4
In addition to these cases, there is also a derogation
from the principle of determining the taxable amount based on
the consideration in cases where:

— there is provision for regulatory or administrative authorities
to fix minimum taxable amounts or amounts not lower
than normal value with regard to certain goods or commer-
cial sectors, particularly property sales;

— there are provisions that consider the normal value of goods
and services as the taxable amount, when a unit price is
paid for different goods and services;

These provisions derive from Article 21 of

5.1.4.1.1
the
Sixth Directive, which permits Member States to hold a person
jointly and severally liable for paying VAT, other than the
person directly liable,
in accordance with the proportionality
principle.

5.1.4.2
The motivation for doing this is based on the
assumption that transactions for prices which are different from
the market value may well be a front for a different, underlying
situation involving fraud. Essentially, under the conditions laid
down by the legislation, the purchaser is presumed to have
acted in bad faith, when, given the price paid, the latter could
fraud was taking place (5). The
not
purchaser can be released from this presumption on production
of documents proving that the below-normal-value price was
determined by objectively demonstrable events or situations, or
in accordance with legislation, and did not entail a failure to pay
VAT, thus decreasing the joint and several liability arising from
the supplier's failure to pay VAT.

to be aware that

fail

— regulations which, despite the existence of a monetary
consideration, consider the taxable amount as the normal
value, import value or purchase cost, when there is interde-
pendency between the parties;

(3) The risk must be real and the fraud proven for the rule of law within the

Community context to be upheld.

(4) Judgments 324/82 and 131/91, on the sale of new and second-hand
cars, and, more recently, judgment C-412/03 of 20 January 2005.
(5) In this regard, the EESC would highlight Commission Communication
2004/260/EC of 16 April 2004, which, while welcoming the deterrent
effect created in several Member States by the introduction of joint and
several liability, referred to a system that would require complicity
between supplier and purchaser to be proven.

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The EESC shares the concerns expressed by many
5.1.4.3
operators regarding the principle of joint and several
liability
and, in view of the Court of Justice judgment (6), believes that
any measures taken should be limited to seeking guarantees of
payment by those parties which are clearly identified as required
to pay taxes. Provision could therefore be made for a purchaser
to be jointly and severally liable with a supplier to pay tax
where the sale price is lower than the normal value of the
goods sold. It seems quite clear that, given such a strong provi-
sion, where the purchaser is penalised by being exposed to
paying a tax which others are evading, the practical application
of the rule needs to be limited to specific conditions:

— the transaction must be between taxable persons for the
purposes of VAT, with the explicit exception of end consu-
mers;

— the supplier has failed to make all or part of

the VAT

payments due;

— the goods being supplied must belong to one of the cate-

gories explicitly identified in the legislation;

— the goods must be supplied for a price which is lower than

their normal value;

— the difference between the consideration agreed on and the
normal value must not be justifiable by objectively demon-
strable events or situations.

5.1.5
The EESC supports the possibility of extending the
reverse charge mechanism to domestic transactions in Member
States. In a recent opinion, the EESC stated this mechanism ‘to
be a tool that could be needed for preventing tax avoidance and
evasion. It is particularly apt where the vendor is in financial
difficulties’ (7). The Commission itself extended optional applica-
tion of the reverse charge mechanism after a successful experi-
ment with construction materials
services.
Measures must not, however, jeopardise intra-Community trade
in goods and services, where different invoicing requirements
might compromise the effectiveness of the internal market.

and buildings

States to use their respective tax regulations to influence deci-
sions regarding localisation of investments and resources within
the European Union. Nonetheless,
the persisting significant
taxation systems
disparities between Member States' direct
could, in some cases, create barriers to the market integration
process (8), to the detriment of the competitiveness of the Euro-
pean economy.

in

by

the

The approximation of Member States' tax laws was
5.2.2
discussed
Communication
Commission
COM(2003) 726 of 24.11.2003. However, as regards company
tax, particularly the ‘comprehensive’ approaches facilitating the
setting-up of a European company tax based on a common
consolidated tax base (9), there are considerable difficulties in
implementation due to the continuing disparities between the
different Member States as regards tax base criteria. Moreover,
the adoption of a common tax requires, in addition to a high
level of convergence of economic policies, a proper legal frame-
work. As things stand, Article 94 of the EC Treaty provides for
the Council, acting unanimously on a proposal
from the
Commission, to issue directives for the approximation of such
laws, regulations and administrative provisions of the Member
States as directly affect the establishment of functioning of the
common market.

5.2.3
This provision and Member States' continued sover-
eignty in taxation matters, which do not seem to further initia-
tives to create a common consolidated tax base for companies
operating in the European Union, are still a substantial barrier
to the approximation of company tax systems because of both
enlargement to include more Member States, which makes it
particularly difficult to achieve unanimity, and the fact that the
final text of the Constitution for Europe fails to prescribe quali-
fied majority voting for the adoption of laws or framework laws
establishing measures in the field of company tax.

5.2 Direct taxation

5.2.1
Fraud must also be combated from the more general
angle of harmonisation of Member States' laws on direct taxa-
tion and investigation procedures.

Following the enlargement of the European Union to
5.2.1.1
include more countries, the disparities between tax systems look
set to influence, more and more, decisions on capital allocation
in the various Member States and their respective arrangements
for managing entrepreneurial activities. Indeed, a considerable
degree of coordination of economic policy will enable Member

(6) Cases C-354/03, C-355/03, C-484/03 and C-384/04.
(7) OJ C 65 of 17 March 2006, pp. 0103-0104.

5.2.4 With a view to overcoming the unanimity rule,
Commission Communication SEC(2005) 1785 of 23.12.2005
entitled Tackling the corporation tax obstacles of small and medium-
sized enterprises in the Internal Market. Outline of a possible Home
State Taxation pilot scheme is a tangible step towards actual
harmonisation of company tax bases, providing an analysis of
the pilot scheme Home State Taxation for small and medium-
sized businesses (10). This study revealed that the 23 million
small and medium-sized businesses in EU-25 account for most
of the European economy — making up 99.8 % of all European

(8) Cf. L. KOVÀCS, The future of Europe and the role of taxation and customs
in www.europa.eu.int/comm/commission_barroso/kovacs/

policy,
speeches/speach_amcham.pdf.

(9) EESC opinion on the Creation of a common consolidated corporate tax base

in the EU — OJ C 88 of 11.4.2006, p. 48.

(10) EESC opinion on Tackling the corporation tax obstacles of small and
medium-sized enterprises in the Internal Market — outline of a possible
Home State Taxation pilot scheme — OJ C 195 of 18.6.2006, p. 58.

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C 161/15

businesses — and provide around 66 % of private employ-
ment (11). The actual adoption of
this scheme would allow
greater internationalisation of these businesses' activity, in that
the compliance costs (12) borne by these businesses, which are
much higher than those borne by larger businesses (13), would
be lower, and the possibility of loss carry-over, which is the
main obstacle to developing cross-border economic activities,
would be greater, encouraging the approximation of Member
States' laws on company taxation at Community level.

5.3 Electronic commerce

Growth and technological developments in electronic
5.3.1
commerce are providing economic operators with new opportu-
nities, but new trading methods require tax systems to adapt,
particularly as regards aspects connected with the implementa-
tion of consumption taxes.
Indeed, tax systems, which were
previously governed by conventional trade rules, must take into
account these changes and adapt to cater for the new forms of
trade which are developing.

5.3.2
The main problem with taxation of electronic transac-
tions concerns the possibility of discrimination arising from
transactions being treated differently according to the medium
of delivery of the goods being transacted.

5.3.2.1 When weighing up the possibilities of applying
conventional principles of tax law to cases belonging to the
electronic age, respect for the principle of neutral taxation must
be ensured, preventing discriminatory treatment of
similar
transactions, which differ in the case in point only in the
delivery method (on line or off line).

the commercial

5.3.3
In particular, the greatest difficulties are related to the
direct and indirect taxation of intangible (or digitised) goods, in
transaction (transfer and
that all stages of
delivery) are carried out electronically (on-line trading) by
means of the on-line supply of virtual products. Indeed, the
services and goods are rendered intangible at the start by the
supplier and rendered tangible by the recipient when they
arrive. In this case, there is no physically tangible product which
can be subject to a physical check, even for inspection purposes.

(11) Source: European Commission, SMEs in Europe 2003, Observatory of
European SMEs 2003/No 7, DG Enterprise Publications and European
Commission (2003): The impact of EU enlargement on European SMEs,
Observatory of European SMEs 2003/No 6, DG Enterprise Publica-
tions, in cooperation with Eurostat. Regarding the economic impor-
tance of small and medium-sized businesses in the European Union
cf. European Commission Communication SEC(2005) 1785 of
23.12.2005, pp. 15-17.

(12) The above-mentioned Communication SEC(2005) 1785 mentions
compliance costs in legal and tax consultancy services, translation of
documents, travel expenses and business and financial risks.

(13) According to a European Association of Craft, Small and Medium-
sized Enterprises press release published on 11.6.2004, referred to in
the above-mentioned Communication SEC(2005) 1785, compliance
costs for small and medium-sized businesses are up to 100 times
higher than for large companies. Regarding methods of determining
compliance costs cf. Commission Staff Working Paper SEC(2004)
1128 of 10.9.2004, European Tax Survey.

5.4 OLAF's competences

5.4.1
The EESC believes that the current Community legisla-
tion, which is the legal basis for the creation of OLAF, already
assigns to this body major
responsibilities, as specified by
Article 2 of Commission Decision 1999/352/EC, ECSC,
Euratom. The Commission is therefore asked to make every
endeavour to ensure that its current powers are used in practice,
if necessary giving OLAF further resources necessary for it to
discharge its institutional role, for example, by using the model
of Articles 81 and 86 of the EC Treaty, which regulate competi-
tion.

In this context, OLAF could serve as a body with
5.4.2
analysis and coordination responsibilities at EU level in the area
of combating tax and other fraud, with responsibilities and
competences in the field of administrative cooperation related to
taxation (direct and indirect taxation and excise duties), to facili-
tate the exchange of information between bodies required by
individual national laws to actively combat tax fraud.

The development of

intra-Community trade requires
5.5
closer cooperation in the exchange of
information on risk
management. However, the Commission does not put forward
specific initiatives, merely calling on the Member States to use
the guide on risk management for tax administrations. On this
point, the EESC suggests that a central database be set up to
serve as a channel
for the information being exchanged by
administrations, which is currently only standardised in the field
of customs and on a bilateral basis.

5.5.1
In this connection, types of products could be identi-
fied which — on the basis of the results of surveys carried out
by the relevant bodies in the individual Member States — are
more liable to be used for the purposes of carousel fraud. Motor
vehicles and high-tech products such as IT tools and telephony
products are examples of this. Responsibility for carrying out
these analyses could be given to OLAF, which could periodically
pass the results on to the Member States, to help them plan the
next monitoring exercise and allow subsequent targeted opera-
tions. Moreover, a similar communication flow from the
Member States to OLAF should be provided for and regulated.

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5.6
The EESC believes that the possibility of a Community
approach to relations with third countries would certainly be
better than bilateral agreements. To this end, specific provisions
could be included as part of the plans to approve the Com-
munity system of agreements for double taxation referred to in
Commission Communications SEC(2001) No 1681 on Company
Taxation in the Internal Market and COM(2003) No 726 on An
Internal Market without company tax obstacles — achievements,
ongoing initiatives and remaining challenges, also discussed by the
European Parliament in Communication (SEC A5-0048) 2003.
Support should be given to the idea of drawing up specific
cooperation clauses, to be included in economic partnership
agreements. However, in the absence of clear, decisive commit-
ment from the Member States, it is still essential to continue
along the road of bilateral agreements, i.e. not to stop processes
currently underway.

The EESC considers that reinforcing tax declaration obli-
5.7
gations, as proposed by the Commission, should be strictly in
line with the proportionality and simplification principles. The
necessary fight against fraud must not result in unnecessary
burdens for the many honest taxpayers and businesses. To this
end, the EESC advocates a substantial lightening of obligations
for honest businesses which cooperate actively with the tax
administrations, and an appropriate reinforcement of the obliga-
tions for those which, according to objective criteria, are consid-
ered to be a risk.

5.8
The EESC does not agree with the Commission's point
on tax on tobacco and alcohol, which are treated as ‘normal’
commodities. Some Member States see the management of
excise duty on tobacco and alcohol products as a solution to
the associated health problems, which clearly has priority over
the functioning of the single market. The Commission proposes
to eliminate these distortions, but this will still take a long time,
given the widely diverging income levels in the individual
Member States and the different revenue and health policy

Brussels, 15 March 2007.

objectives and measures of
the individual Member States.
Awaiting a reasonable degree of harmonisation of the tax rates,
other solutions should be found to guarantee that the individual
Member States fully preserve their ability to pursue their own
fiscal and health policy objectives. It should however be borne
in mind that tobacco smuggling is only to a very small extent
generated by Community countries, being controlled by crime
multinationals. While it is aware of the high social and health
costs associated with abuse of these kinds of substances, and
hopes that the appropriate bodies will adopt suitable measures
to contain them, the EESC believes that excise duty on tobacco
and alcohol must remain strictly the responsibility of Member
States.

the Community's financial

5.9
The EESC invites the Commission to continue with the
Hercule II programme, calling for Parliament and the Council to
swiftly adopt COM/2006/0339 final, which calls for the Com-
munity action programme to promote activities in the field of
the protection of
interests to be
extended. The programme has already borne considerable fruit,
with 19 training activities in which 2 236 people took part
from the various Member States, five third countries and other
European institutions, in the light, in particular, of the need for
closer cooperation, given the accession to the EU of Romania
and Bulgaria, which should also be able to benefit from these
activities.

The EESC considers that it would be appropriate to set
5.10
up an ongoing high-level forum for discussion and/or consulta-
tion, to ensure a more comprehensive approach to aspects of
fraud and cooperation between Member States. The current scat-
tering of consultation among a variety of high-level committees,
subdivided by area of competence, prevents a useful exchange of
good practice which would improve cooperation and the perfor-
mance of administrations. The Committee considers the bureau-
cratic objections raised and the lack of direction in ECOFIN to
be both incomprehensible and reprehensible.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS