Special report No 8/2007 concerning administrative cooperation in the field of value added tax, together with the Commission's replies
Date: 2007-11-08
Institutions: European Court of Auditors
Subjects: VAT, administrative cooperation, exchange of information, tax avoidance, tax evasion, tax inspection

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IV

(Notices)

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

COURT OF AUDITORS

SPECIAL REPORT No 8/2007

concerning administrative cooperation in the field of value added tax,
together with the Commission’s replies

(pursuant to Article 248(4), second subparagraph, EC)

(2008/C 20/01)

CONTENTS

Paragraph

Page

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

AUDIT APPROACH AND SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exchange of information on request between Member States

. . . . . . . . . . . . . . . . . . . . .

Intensity of cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Timeliness of reply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Quality of reply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exchange of information without prior request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

VAT Information Exchange System (VIES) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Timely provision of data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Access to and accuracy of data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Verification of VAT numbers by traders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Improvements in functionality of VIES (VIES II) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Instruments for promoting a multilateral control approach . . . . . . . . . . . . . . . . . . . . . . .

Presence of tax officials in other Member States . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Simultaneous and multilateral controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-VII

1-11

1-11

12-17

18-93

18-49

19-23

24-42

43-49

50-56

57-70

60-61

62-65

66-68

69-70

71-77

71-72

73-77

3

5

6

6

8

8

8

8

9

12

13

14

14

14

15

15

15

15

16

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Paragraph

Page

Promotion and evaluation of administrative cooperation by the Commission . . . . . . . . .

Other constraints on effective cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

No common rules for withdrawing VAT identification numbers . . . . . . . . . . . . . . .

Difficulties in cross-border prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Insufficient quantification and analysis of VAT fraud . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

78-83

84-93

85-87

88-91

92-93

94-112

94-103

Recommendations

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104-112

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17

17

17

17

18

18

18

19

20

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GLOSSARY

Administrative cooperation — Exchange of information between Member States whereby tax authorities assist each
other and cooperate with the Commission pursuant to Council Regulation (EC) No 1798/2003 of 7 October 2003 (1) in
order to ensure the proper application of VAT on supplies of goods and services, intra-Community acquisition of goods and
importation of goods. Exchanges of information between Member States cover, as a rule, any information that may help
effect a correct assessment of VAT, including any information relating to specific cases. They take place both on request and
without prior request. The regulation is based on Article 93 EC which stipulates that the Council shall, acting unanimously
on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Commit-
tee, adopt provisions for the harmonisation of legislation concerning turnover taxes to the extent that such harmonisation
is necessary to ensure the establishment and the functioning of the internal market.

Carousel fraud — see Missing trader

Common system of Value Added Tax (VAT) — The principle of the common system of VAT entails the appli-
cation of a general tax on consumption exactly proportional to the price of the goods and services pursuant to the rules laid
down in the Council Directive 2006/112/EC of 28 November 2006 (2). For example, the standard VAT rate set by Member
States must be at least 15 % and the reduced rate at least 5 %. At each stage of the commercial chain, the seller charges VAT
on sales but owes the administration this amount of tax minus the VAT paid on purchases made in the course of business.
This process continues until the final consumer, who bears VAT on the whole value of what is purchased. The VAT col-
lected from the consumer is paid to the revenue authorities by the seller of the goods. If a trader makes intra-Community
supplies of goods, he has the right to obtain refund of the input VAT on dispatch to a trader in another Member State. The
VAT due on the transaction is then payable by the trader in the Member State of destination at the rate in force in this Mem-
ber State.

Fiscalis — A multiannual Community action programme to improve the operation of the taxation systems in the inter-
nal market through communication and information-exchange systems, multilateral controls, staff exchanges, seminars and
other training activities. The Fiscalis Decision (3) does not only cover value added tax, but also excise duties on alcohol and
tobacco products and mineral oils, taxes on income and capital and taxes on insurance premiums. The financial framework
for the programme for the period from 2003 to 2007 was set at 67,3 million euro.

Recapitulative statement — A statement to be submitted by every taxable person identified for VAT purposes who
makes intra-Community supplies. The recapitulative statement shall be drawn up for each calendar quarter and record the
total value of goods supplied to each acquirer in other Member States, listed by VAT identification number.

Missing trader — A missing trader is a trader registered for VAT purposes who, potentially with a fraudulent intent,
acquires or purports to acquire goods or services without paying VAT and supplies these goods or services with VAT, but
does not remit the VAT collected to the national tax authority. The customers of the missing trader can be either bona fide
traders or be also involved in the fraud. The customers may claim refund of the VAT they paid to the missing trader from
the tax authority. If the same goods repeatedly circulate between Member States, it is called a carousel fraud. Such fraud
schemes can be very sophisticated involving missing traders in several Member States and causing damage to the financial
interests of all Member States concerned.

Taxable person — Any person who, independently, carries out in any place any economic activity, whatever the pur-
pose or results of that activity.

SCAC — The Standing Committee on Administrative Cooperation is a regulatory committee pursuant to Article 44 of
Council Regulation (EC) No 1798/2003 assisting the Commission in matters as laid down in that regulation. It is composed
of the representatives of the Member States and chaired by the representative of the Commission. In adopting opinions, the
Committee takes its decisions by the majority laid down in Article 205(2) EC (qualified majority). The Committee usually
meets twice a year.

VAT — see common system of valuea added tax

(1) OJ L 264, 15.10.2003, p. 1.
(2) OJ L 347, 11.12.2006, p. 1.
(3) Decision No 2235/2002/EC of the European Parliament and of the Council of 3 December 2002 adopting a Commu-
nity Programme to improve the operation of taxation systems in the internal market (Fiscalis programme 2003 to 2007)
(OJ L 341, 17.12.2002, p. 1).

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VAT own resources — In 2006, VAT-based own resources amounted to 17,2 billion euro and made up 15,8 % of
Community revenue. VAT own resources are computed on a harmonised VAT assessment base (i.e. on a VAT base cor-
rected for all specific derogations or options used by Member States). Therefore, the Member States’ payments of VAT own
resources to the EU budget are not affected by the different VAT rates or derogations in force. The starting point for the
calculation of the own resources accruing from VAT is the total net VAT revenue collected by each Member State during a
given year. If less VAT is collected because of evasion or fraud, this would normally also lower VAT own resources paid to
the Community budget, unless the assessment bases to be taken into account are capped at 50 % of GNI, as is the case for
some Member States.

VAT identification number — An individual number given to each taxable person intending to make supplies of
goods or services, or to make acquisitions of goods for business purposes. Each number has a prefix of two letters by which
the Member State of issue is identified.

VIES — The VAT Information Exchange System (VIES) is an electronic network for transmitting information relating to
the validity of VAT identification numbers of companies registered in the Member States. Furthermore, information relating
to (tax exempt) intra-Community supplies is also made available to Member States’ administrations through VIES. The infor-
mation relating to VAT-registration data is captured by the national administrations and fed into national databases for
remote consultation. This applies also to the intra-Community supplies declared on ‘recapitulative statements’. The system
was set up to compensate for the elimination of customs formalities and checks.

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SUMMARY

Large scale value added tax evasion and fraud distort the functioning of the single market and affect the

I.
financial interests of the Member States and the financing of the Community budget.

In 2004, new Community legislation came into force to speed up and strengthen cross-border coop-
II.
eration between Member State authorities, mainly through clearer procedures, more comprehensive exchange
of information and increased direct contacts between local tax offices.

III.
The audit of the Court aimed to assess whether information exchanges between Member States take
place in a timely and effective manner and are supported by sound procedures and adequate administrative
structures.

The audit showed that information exchanges between Member States can help Member States to

IV.
assess taxation correctly and to prevent and detect fraud.

V.

However, the Court found that:

(a)

insufficient use is made of the new possibilities to enhance and speed up cooperation and not all Member
States have set up adequate administrative structures and/or operational procedures for ensuring efficient
cooperation;

(b) half of the information exchange upon request does not take place within the timescales required by the

legislation and notifications of late replies or interim replies are rarely given;

(c)

late replies occur in all Member States but their frequency varies considerably between Member States.
There are sometimes significant differences between the number of requests which a Member State claims
to have received and the number of requests other Member States claim to have sent it;

(d)

the framework for exchanges of information without prior request is not well defined and the informa-
tion which is provided spontaneously is not always systematically exploited;

(e)

the late availability and lack of reliability of data in the current Value Added Information Exchange Sys-
tem (VIES) increase the risk of evasion and fraud not being detected.

There is a need for more intensive and rapid cooperation, more direct contacts between local tax offices

VI.
and better monitoring to ensure that Member States provide efficient assistance to each other.

VII.
The weaknesses of VIES should be urgently addressed, for example by radically shortening the times-
cale for collecting and capturing data and by granting broader direct access to data to enable multilateral
consultations.

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INTRODUCTION

Audit background

1.
Value added tax (VAT) evasion and fraud distort fair com-
petition in the single market and reduce Member States’ tax rev-
enue. As the Council has emphasised (1), such fraud must be
tackled effectively and decisively in the interest of honest entre-
preneurs and Member State budgets. In order to complement
national efforts in this regard, the Council agreed on 28 Novem-
ber 2006 on the urgent need to establish at Community level an
anti-fraud strategy to combat tax fraud.

2.
VAT evasion and fraud also impact on the financing of the
budget of the European Union, as they result in an increased need
to call from Member States own resources based on gross national
income (GNI). The GNI resource is intended to cover the balance
of total expenditure not covered of other resources. It follows that
losses caused by VAT fraud affect the overall balance of the own
resources system as laid down by the Community legislator (2). As
the criteria for calculating VAT and GNI resources differ, those
losses might also affect the incidence of the financial burden on
the Member States (3), thus undermining the principle of equity.

Though investigations into the magnitude of VAT evasion
3.
and fraud have not been carried out in all Member States, several
estimates have been published. The International VAT Associa-
tion (4) quotes estimates of VAT losses ranging from 60 billion
to 100 billion euro per annum across the European Union. In the
United Kingdom alone, HM Revenue and Customs (HMRC) esti-
mate that in the tax year 2005-2006 VAT revenue losses
amounted to 18,2 billion euro (5). In Germany, the Ministry of
Finance published (6) the results of a study which estimated, for
2005, VAT losses of 17 billion euro.

4.
Most of the VAT evasion is linked to undeclared economic
activities (shadow economy). There is, however, also a significant
part of VAT evasion that occurs as a side-effect of the VAT
arrangements put in place when the single market was introduced

(1) Conclusions of the Economic and Financial Affairs Council of

5 June 2007.

(2) Council Decision 2000/597/EC, Euratom of 29 September 2000 on
the system of the European Communities’ own resources (OJ L 253,
7.10.2000, p. 42).

(3) See paragraph 10 of the Court’s Opinion No 4/2005 on a proposal
for a Council decision on the system of the European Communities’
own resources and on a proposal for a Council Regulation on the
implementing measures for the correction of budgetary imbalances
in accordance with Articles 4 and 5 of the Council decision of (…)
on the system of
the European Communities’ own resources
(OJ C 167, 7.7.2005, p. 1).
International VAT Association, Combating VAT fraud in the EU —
the way forward, March 2007.

(4)

(5) HM Revenue & Customs, Measuring Indirect Tax Losses — 2006,

December 2006.

(6) Monatsbericht des BMF — January 2006, p. 45.

intra-Community trade, goods supplied are
in 1993. For
exempted from VAT. The VAT due is then payable in the Mem-
ber State where the goods arrive. These arrangements can give
rise to VAT evasion either in the supplier country or in the coun-
try of destination. Three main types of evasion take place:

(a) declaration of intra-Community deliveries whilst retaining

goods for sale in the domestic market without VAT;

(b)

failure to pay VAT due on arrival in the Member State of
destination;

(c) missing trader fraud (7).

Fraud schemes are often sophisticated extending over several
Member States and involving numerous companies. For example,
Eurojust reported in March 2007 (8) a case of international VAT
carousel fraud estimated at 2,1 billion euro and involving 18
Member States. In the UK alone, according to HMRC (5), losses of
between 3 billion and 4,5 billion euro in the tax year 2005-2006
could be attributable to so-called Missing Trader
Intra-
Community VAT fraud.

5.
Whilst goods move freely across internal borders, the
action of national tax authorities still remains largely constrained
by those same borders. If a trader makes intra-Community sup-
plies, he has the right to obtain a refund of the input VAT. The
VAT due is then payable by the trader in the Member State of des-
tination. Cooperation between Member States’ authorities is
therefore necessary in order to exchange the information needed
to assess VAT correctly. The common system for the exchange of
information between the Member States is governed by Council
Regulation (EC) 1798/2003 of 7 October 2003 on administra-
tive cooperation in the field of value added tax (9) (hereafter called
the regulation), which entered into force on 1 January 2004,
repealing the former Regulation (EEC) No 218/92 (10). The regu-
lation lays down the conditions under which tax authorities in the
Member States are to cooperate with one another and with the
Commission. The regulation does not preclude more comprehen-
sive mutual assistance on the basis of other legal acts, including
bilateral or multilateral agreements. Where Member States con-
clude additional bilateral arrangements on administrative coop-
eration, they are required to inform the Commission and the
other Member States thereof without delay.

(7) See glossary.
(8) See Eurojust press release dated 13 March 2007.
(9) OJ L 264, 15.10.2003, p. 1.
(10) OJ L 24, 1.2.1992, p. 1.

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When adopting the regulation in October 2003, the Coun-
6.
cil stated (1) that there had been until then an under-use of the
arrangements for administrative cooperation. The Council called
for exchange of information to be made more intensive to com-
bat fraud more effectively.

Three types of exchange of information are foreseen under

7.
the regulation (see Figure 1):

(a) Exchange of information through the VIES electronic database.
Member States are required to input information on VAT
numbers attributed to traders and on intra-Community sup-
plies of goods declared by those traders. Other Member States
can then interrogate the database to obtain this information
and check it against declarations made by their own traders.

(b) Exchange of more detailed information on specific request,
for example where inquiries made through VIES give rise to
suspicions about a transaction and/or as a result of risk
analysis.

(c) Exchange of information without prior request, for example
where a Member State has grounds to believe that a breach
of VAT legislation has been committed in another Member
State.

Exchanges of information under the regulation are mainly
8.
channelled through Central Liaison Offices (CLO). Each Member
State has to designate a single CLO with principal responsibility
for contacts with other Member States. In addition, competence
to exchange information directly with other Member States may
be delegated to other departments or to individual officials.

9.
Furthermore, the regulation lays down rules for controls
conducted simultaneously in two or more Member States and
allows for tax officials to be present in other Member States, for
example in order to have access to documentation held there or
to attend in ongoing enquiries.

10.
The regulation also provides a role for the Commission
in promoting and evaluating administrative cooperation between
Member States. In this it is assisted by a committee made up of
representatives of Member States, the Standing Committee on
Administrative Cooperation (SCAC).

11.
Furthermore, the regulation is, together with Decision
No 2235/2002/EC on the Fiscalis programme, the legal basis for
Community expenditure (2) to develop and keep operational elec-
tronic systems for information exchange between national admin-
istrations, multilateral controls, training seminars for tax officials,
and the exchange of officials between administrations. The

Figure 1

Types of information exchange

(1) See recitals 12 and 13 of the regulation.

(2) See the general budget of the European Union for the financial year
2007, section III, chapter 14 05 — Taxation policy (OJ L 77,
16.3.2007, p. 776/777).

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financial framework for Fiscalis for the period from 2003 to 2007
was set at 67,3 million euro.

At the Commission, the operation of the relevant depart-
16.
ments was examined including a review of the management of
the Fiscalis programme. The operation of the Standing Commit-
tee on Administrative Cooperation (SCAC) was also reviewed.

AUDIT APPROACH AND SCOPE

12.
The objective of the Court’s audit was to assess whether
the information exchanges between Member States are carried
out in a timely and effective manner and whether adequate
administrative structures and procedures are in place to support
administrative cooperation. The audit covered:

17.
In addition, use has been made of reports and work of
National Audit Offices in Member States that have performed
similar audits. Issues raised in previous Court reports (3) were also
followed up.

— exchange of information on request,

OBSERVATIONS

— exchange of information without prior request,

— information through the VIES database,

Exchange of information on request between Member States

— tools for enhancing a multilateral control approach, and

— the Commission’s promotion and evaluation of administra-

tive cooperation.

13.
In 2006, CLOs in seven Member States (1) were visited.
A sample of 420 exchanges of information on request, sent or
received in 2005 by these Member States, was examined and the
timeliness and quality of the responses was assessed. However,
the accuracy of individual tax assessments was not itself subjected
to audit.

Audit missions were

carried out pursuant

to
14.
Article 248(3) of the Treaty which provides that the Court’s audit
shall be, if necessary, performed on the premises of any body
which manages revenue or expenditure on behalf of the Commu-
nity and in the Member States, including on the premises of any
natural or legal person in receipt of payments from the budget.
The German Ministry of Finance, however, did not comply with
an audit request by the Court stating that, in its opinion, there was
no legal basis for such an audit. Observations concerning Ger-
many in this report are therefore based on findings from audit
missions to other Member States, information obtained during
audit missions at the Commission, and publicly available reports.

18.
Article 5 of the regulation provides for Member States to
exchange information on request. As a rule, any information that
may help to effect a correct assessment of VAT may be subject to
a request, including any information relating to specific cases. In
order to obtain the information sought by the tax administration
in another Member State, the requested authority is required to
proceed as though acting on its own account.

Intensity of cooperation

19.
Since the regulation came into force on 1 January 2004,
the number of requests for information has increased by 62 %. It
went up from 18 162 requests in 2003 to 29 381 in 2006.

Increase in exchanges of information mainly due to enlargement

In 23 cases (2) selected from the sample, the Court invited
15.
Member States to provide details on how the information
obtained through exchanges was followed up by the local tax
offices which had initiated the requests.

20.
However, an analysis of the figures provided by Member
States to the Commission (4) shows that this increase appears to
be mainly attributable to enlargement (5) with the number of
requests sent amongst EU-15 in 2005 and 2006 being below the
level reached in 2004 (see Table 1).

(1) Audit missions took place in France, Italy, Luxembourg, the Nether-

lands, Poland, Slovenia and the UK.

(2) Germany — 4 cases; Belgium, France and the UK — 3 cases; Austria,
Ireland and the Netherlands — 2 cases; Finland, Hungary, Italy and
Poland — 1 case. So far, France and Germany have not provided
answers to the request of the Court.

(3) Special Report No 9/98 concerning the protection of the financial
interests of the European Union in the field of VAT on intra-
Community trade (OJ C 356, 20.11.1998, p. 1) and Annual Report
2001, paragraphs 1.45 to 1.55 (OJ C 295, 28.11.2002, p. 9).

(4) Figures for 2006 are still provisional.
(5) From EU-15 to EU-25 on 1 May 2004.

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Number of requests for exchange of information (according to requesting Member States)

Table 1

Year

Requests exchanged amongst EU-15

Requests sent or received by EU-10

Total number of requests

2002

2003

2004

2005

2006

17 059

18 162

21 587

19 649

20 533

—

—

514

6 100

8 848

17 059

18 162

22 101

25 749

29 381

Source: Member State statistics pursuant to Commission Regulation (EC) No 1925/2004, audit calculations.

2006 statistics provisional.

21.
In 2006, more than 3,3 million traders across the EU
declared that they had made acquisitions from other Member
States. This means that even with the conservative assumption
that each of the 29 381 exchanges of information on request in
2006 concerned different traders, the probability of being sub-
ject to such an exchange of information was below 0,9 %. In real-
ity, the probability was even lower, as a number of companies
were subject to several requests.

Timeliness of replies

Half of the requests answered late

Limited direct contact between local offices

22.
An important reason why cooperation has not become
more intensive is the limited exploitation of the possibilities of
decentralisation offered by the regulation. When adopting the
regulation, the Council stated (1) that, up to then, there had not
been enough direct contact between local tax offices, with com-
munication between central liaison offices being the rule and that
this centralisation had led to under-use of the arrangements for
administrative cooperation. The Council concluded that provi-
sions should be made to bring about more direct contacts between
services.

24.
Rapid replies to requests for information are critical for
effective cooperation. They allow fraudulent companies to be
quickly identified and make it more difficult for fraudsters to hide
their gains from VAT fraud. Therefore the regulation obliges
Member States to exchange information as quickly as possible
and no later than three months after the receipt of a request.
Where the requested authority is already in possession of that
information, the time limit is reduced to one month.

Statistics for 2006 provided by Member States show that
25.
almost 50 % of requests were not answered within the deadline.
This figure was even higher than in 2005 when 42 % of the replies
were late.

23.
Limited use has been made so far by Member States of
this option. Only a few Member States (2) have devolved compe-
tence to territorial services. If such decentralisation is imple-
mented only in a minority of Member States, it fails to produce
its full effects as there are no counterparts for decentralised coop-
eration in most of the other Member States.

Late replies occur in all Member States but their fre-
26.
quency varies significantly between Member States. In 2006, two
Member States (3) replied within the deadline in almost 90 % of
cases, whereas eight Member States (4) replied late in more than
50 % of cases (see Table 2).

(1) See recital 12 of the regulation.
(2) In Finland and France this competence has been systematically and

(3) Lithuania and Slovenia.
(4) Czech Republic, Denmark, Spain, France, Italy, Luxembourg, the Neth-

comprehensively delegated to regional tax offices.

erlands and Portugal.

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Table 2

Late replies by Member State

Number of requests received
according to requesting
Member States

Late replies according
to requesting Member States
(after 90 day deadline)

% of late replies

Belgium

Czech Republic

Denmark

Germany

Estonia

Greece

Spain

France

Ireland

Italy

Cyprus

Latvia

Lithuania

Luxembourg

Hungary

Malta

Netherlands

Austria

Poland

Portugal

Slovenia

Slovak Republic

Finland

Sweden

United Kingdom

2005

1 471

409

679

6 255

132

213

2 837

2 138

237

2 802

139

144

192

456

283

12

2 143

885

588

506

96

316

179

395

2006

1 610

639

832

6 929

203

318

3 225

2 380

319

2 963

285

403

166

576

537

29

2 588

1 092

772

514

118

509

177

416

2 242

25 749

1 781

29 381

Total

2005

2006

537

54

282

2 707

16

103

1 515

917

96

1 786

40

13

13

123

82

4

604

347

511

3 195

44

138

2 028

1 308

158

1 924

119

122

18

306

193

12

1 171

1 597

145

80

288

9

40

25

118

526

289

308

404

15

129

44

109

643

10 690

14 565

2005

36,5

13,2

41,5

43,3

12,1

48,4

53,4

42,9

40,5

63,7

28,8

9,0

6,8

27,0

29,0

33,3

54,6

16,4

13,6

56,9

9,4

12,7

14,0

29,9

23,5

41,5

Source: Member State statistics pursuant to Regulation (EC) No 1925/2004, audit calculations.

2006 statistics provisional.

2006

37,5

54,3

61,4

46,1

21,7

43,4

62,9

55,0

49,5

64,9

41,8

30,3

10,8

53,1

35,9

41,4

61,7

26,5

39,9

78,6

12,7

25,3

24,9

26,2

36,1

49,6

27.
As far as the replies given within one month are con-
cerned, the statistics showed a decrease in the number of times for
which this deadline has been met from 2 154 cases in 2004 down
to 1 885 in 2006. Compared to the total number of requests, this
means that the share of early replies fell from 9,7 % in 2004
to 6,4 % in 2006.

reasons for this and when it would be able to respond. Neverthe-
less, prior notice of probable delays is only rarely given. Late
replies’ notifications were sent in 3 out of 57 cases not answered
on time which were examined by the Court.

28.
In addition, in certain Member States visited, a number of
requests were found to have remained outstanding for one year
or more. In Italy for example, there were, at the time of the Court’s
audit visit in May 2006, 182 unanswered requests received in the
last four months of 2004 alone. In the United Kingdom, in early
2006, 121 requests were still outstanding from 2003 and 2004.

30.
Statistics from Member States for 2006 showed that in
only 5 % of all cases (737 out of 14 565 late replies) had delays
been notified to the requesting authorities. Absence of such noti-
fication prevents the requesting Member State from taking alter-
native action in the knowledge that the request will not be
promptly answered.

Few interim replies

29.
The regulation stipulates explicitly that where the
requested authority is unable to respond by the deadline it shall
inform the requesting authority in writing forthwith of the

31.
Furthermore, during the audit only very few cases were
found where partial information was given that was already in the
possession of the requested authority and therefore rapidly

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available, followed by a more comprehensive answer once tax
control visits had taken place.

Lack of priority given to requests by local tax offices

Though both the Dutch and French CLOs set intermedi-
37.
ate deadlines for the LTOs to respond to requests received, in nei-
ther CLO was there evidence of monitoring of these timetables.
Only where reminders were received from the requesting Mem-
ber State was any action taken towards the LTO which was late
in providing answers.

32.
The audit revealed a number of factors which impact
negatively on the timeliness of replies. Most of the delays in
responding to requests occur at Local Tax Office (LTO) level.
Mechanisms are not always in place to ensure that LTOs give as
much priority to administrative cooperation as to their other
activities (1). A similar observation was made in a report provided
by the National Audit Office of Denmark (NAOD) (2). Danish cus-
toms and tax authorities had set target figures for compliance
with case processing time limits, but, at the time of the audit,
requests from the tax authorities of other countries were not
included in these target figures. According to a follow-up report
by the NAOD, the minister responsible has taken initiatives to
deal with the issue.

33.
A number of other causes were found which have a nega-
tive impact on the treatment of requests for information. These
included: inadequate use of the information request forms (e.g.
multiple requests in a single standard form, over use of ‘free-text’
boxes of these forms and use of non-electronic communications)
by the sending Member States, difficulties in understanding what
was actually requested (e.g. due to unclear information, language
problems or mistakes in using the standard forms), and doubts
about the usefulness of certain requests in the Member States
receiving them.

Weaknesses in monitoring systems of some Member States

34.
Delays can also be caused by the fact that not all Mem-
ber States have set up adequate systems for monitoring and man-
aging timely response to requests.

Weaknesses in the organisational set-up of CLOs

In some Member States visited with a high number of late
38.
replies, the Court found that complicated organisational set-ups
also contribute to delays and create problems in monitoring.

39.
In Italy, in addition to the CLO, there are three liaison
departments at central Member State level, all of them equally
competent in the field of VAT cooperation. Other Member States
are free to contact each time any one of the three liaison depart-
ments and send the requests directly to the department selected.
Working procedures of the three liaison departments are not har-
monised and there is insufficient coordination amongst them and
weak supervision by the CLO. Furthermore, such an organisa-
tional set-up is not in line with the regulation which provides (3)
that liaison departments have to be given specific territorial com-
petence or specialised operational responsibility.

40.
The Dutch CLO comprises two independent operating
units, one located in Amsterdam and the other in Almelo, each
with its own management structure. The Court found cases where
it took nearly three months before replies to requests provided by
LTOs were passed on to the requesting Member States. In these
cases, LTOs had delivered replies to the CLO in Almelo which
were transmitted to the CLO Amsterdam from where they were
sent to the requesting Member States.

35.
Positive examples of such management of requests
received were found in Luxembourg, Poland, Slovenia and the
UK, where CLOs set
internal deadlines and monitor them
effectively.

41.
In Germany, according to the information made available
to other Member States (4), the tasks of the CLO have been split
between three units of the Central Federal Tax Office, one based
in Bonn, the two others in Saarlouis. No information was made
available to other Member States about who was heading the
CLO.

36.
In Italy, where the software put in place for this purpose
by the CLO was not effectively used, cases of input errors and
missing data were found which led to mismanagement of
requests. In the CLO reminders to liaison departments were pro-
grammed for only 10 days before the expiry of deadlines, too late
for necessary action to be undertaken.

(1) Article 5(4) of the regulation stipulates that, in order to obtain the
information sought by a requesting authority from another Member
State, the requested authority shall proceed as though acting on its
own account.

(2) Report to the Public Accounts Committee on measures to counter
VAT carousel fraud, The National Audit Office of Denmark, Septem-
ber 2006.

42.
The coordination problems caused by the complicated
organisational structures and the weaknesses of monitoring sys-
tems contribute to the significant discrepancies in the statistics
produced by different Member States. In several cases there are
significant differences between the number of requests which a
Member State claims to have received and the number of requests
which other Member States claim to have sent it (see Table 3).

(3) Article 2(3).
(4) Document ‘Kontaktpunkte für die gegenseitige Amtshilfe im Bereich

der Umsatzsteuer, Stand: 1 Februar 2007’.

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Official Journal of the European Union

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Table 3

Discrepancies by Member State (2005)

Number of requests received

According
to receiving
Member State

According
to requesting
Member States

Discrepancy

%

Belgium

Czech Republic

Denmark

Germany

Estonia

Greece

Spain

France

Ireland

Italy

Cyprus

Latvia

Lithuania

Luxembourg

Hungary

Malta

Netherlands

Austria

Poland

Portugal

Slovenia

Slovak Republic

Finland

Sweden

United Kingdom

1 552

371

642

8 295

139

238

2 652

2 296

259

1 284

114

153

180

468

320

13

1 471

409

679

6 255

132

213

2 837

2 138

237

2 802

139

144

192

456

283

12

2 089

2 143

942

557

481

89

306

173

438

885

588

506

96

316

179

395

2 241

26 292

Total

2 242

25 749

SUM OF ABSOLUTE AMOUNTS OF DISCREPANCIES

Source: Member State statistics pursuant to Regulation (EC) No 1925/2004, audit calculations.

81

– 38

– 37

2 040

7

25

– 185

158

22

– 1 518

– 25

9

– 12

12

37

1

– 54

57

– 31

– 25

– 7

– 10

– 6

43

– 1

—

4 441

5,5

– 9,3

– 5,4

32,6

5,3

11,7

– 6,5

7,4

9,3

– 54,2

– 18

6,3

– 6,3

2,6

13,1

8,3

– 2,5

6,4

– 5,3

– 4,9

– 7,3

– 3,2

– 3,4

10,9

0

—

17,2

Quality of reply

(see paragraph 15), Member States affirmed that the answers
received had enabled correct assessment of VAT in the cases
concerned.

Evaluation shows cooperation can lead to results

Examination of

43.
the sampled requests and answers
showed that though the information provided was sometimes
inadequately presented, in most cases it was comprehensive and
detailed, answering the questions posed. In response to the Court’s
questions on the follow-up of a selection of exchanges

44.
Currently there is no legal requirement to assess the
results of administrative cooperation but a few Member States
have conducted such exercises. These evaluations demonstrate
the benefits of administrative cooperation.

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In France, though the financial impact of the cooperation
45.
has not been evaluated, an analysis by the competent authorities
showed that 34 % of replies received in 2005 confirmed or
revealed the existence of fraud in France or another Member State.

Article 18, however, limits the obligation provided for in
51.
Article 17, stating that the Member States may determine by
choice whether they will exchange certain categories of informa-
tion without prior request.

46.
An evaluation by the CLO in Slovenia of 89 requests for
administrative cooperation received by their authorities in 2005
showed that in the case of 21 requests, administrative enquiries
resulted in the collection of additional VAT of approximately
1,5 million euro.

Potential of sending information without prior request not sufficiently
exploited

47.
An analysis made by the Polish CLO in 2006 showed
that 713 exchanges of information on request led to the detec-
tion of 64 fraud cases.

48.
However, it was noted that there are some concerns with
regard to the quality of information exchanged on suspected
Missing Trader Fraud. Germany reported to the SCAC in 2005
problems in obtaining sufficiently detailed information from
other Member States to use in legal action before German courts.
The matter has been repeatedly discussed by the SCAC since and
a supplementary questionnaire has been developed to tackle cases
where more detailed information is needed for legal action in
Member States. So far, however, Member States have not reached
agreement about the circumstances in which this questionnaire
should be used or the requirements for its use.

49.
Furthermore, there is no mechanism whereby the user of
replies to requests for information give feedback on the useful-
ness of the information supplied. Any possible shortcomings in
the reply are not reported back and cannot be taken into account
when dealing with further requests.

Exchange of information without prior request

50.
Article 17 of the regulation provides for Member States
to exchange information without prior request. It specifies that
each Member State should forward information to any other
Member State concerned in three situations. Firstly, where the
effectiveness of the control system in the other Member State nec-
essarily depends on the information provided by the Member
State of origin; secondly, where there is a suspicion of a breach of
VAT legislation in the other Member State; and thirdly, in cases
which present a risk of tax loss (due to fraud or avoidance) in the
other Member State. This represents a very broad obligation.

52.
In total, five categories with 13 subcategories of cases
have been defined (1), where information can be forwarded by
automatic exchange (2) or structured automatic exchange (3).
These categories include, for example, information about VAT
identification numbers allocated to taxable persons established in
another Member State or about taxable persons who are (poten-
tial) missing traders but whose VAT identification number has
not been cancelled.

53.
The exchanges of information show great differences in
the use of these categories by Member States. Germany, for
example, communicated to the Commission that it would partici-
pate in all categories, whilst France announced its participation
only in a single subcategory. The statistics reported by Member
States on these automatic exchanges of information without
request are of poor quality. Discrepancies mainly due to differing
understandings of what constitutes a reportable event make it
impossible to draw any meaningful conclusions from the data
provided.

In addition to the exchanges of information in predefined
54.
categories, Article 19 of the regulation stipulates that Member
States may forward to each other spontaneously any information
that may help them to effect a correct assessment of VAT. An
example for such cooperation is the European Carousel Network
(Eurocanet) which was launched at Belgian initiative and receives
Commission support through the European Anti-Fraud Office
OLAF. The network aims to speed up information exchanges on
a limited number of targeted companies which are suspected of
being involved in missing trader fraud. For this type of informa-
tion exchange, in which not all Member States participate, the
Commission has no access to collect statistical data.

(1) See Articles 3 and 4 of Commission Regulation (EC) No 1925/2004

(OJ L 331, 5.11.2004, p. 13).

(2) Systematic communication of predefined information at pre-

established regular intervals.

(3) Systematic communication of predefined information, as and when

that information becomes available.

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During the audit it was found that information forwarded
55.
without prior request was not always adequately used. The Lux-
embourg CLO, for example, reported that they had repeatedly
received requests for data that they had already provided sponta-
neously to other Member States.

56.
Extra information is also often given as part of a reply to
a request for information, when information is provided which
was not explicitly requested but is considered to be useful, for
example information about other traders involved in business
with a specific company. An audit by the Lithuanian National
Audit Office (1) found that such additional information provided
by other Member States in replies to requests for information was
not forwarded to the appropriate authorities.

Effectiveness of VIES hampered by time taken for data collection and
transmission

61.
Several Member States already collect information on
intra-Community supplies on a monthly basis, and the reduction
of timescales for the transmission of information has been dis-
cussed repeatedly by the SCAC. However, an agreement amongst
Member States on a general application of shorter transmission
periods has not been reached.

VAT Information Exchange System (VIES)

Access to and accuracy of data

57.
VIES is a common computer network for a largely auto-
mated exchange of data between tax administrations. It also
enables traders to obtain confirmation that their trading partners
in other Member States are registered.

58.
The VIES network provides information on the VAT reg-
istration numbers issued by the Member States, including date of
issue, trader’s name, trader’s address and, where applicable, date
of cessation of validity of a VAT number. It is possible to check
the history of a given VAT number, i.e. all modifications made to
its attributes.

Furthermore, Member States communicate through VIES
59.
details of all intra-community supplies by their traders to other
Member States. This is done on the basis of recapitulative state-
ments which are to be drawn up for each calendar quarter by each
intra-Community supplier and record the total value of goods
supplied to each purchaser in other Member States. The tax
administrations can cross-check this information on intra-
Community supplies with declarations made by their national
traders to identify breaches of VAT legislation.

Timely provision of data

60.
Economic operators have to provide recapitulative state-
ments of all their intra-Community supplies of goods to custom-
ers holding a VAT identification number. The statements cover
calendar quarters. According to the regulation, this information
is to be entered into VIES as soon as possible and, at the latest,
within three months of the end of the calendar quarter to which
they relate. This means that even when traders submit their state-
ments on time, information on intra-community supplies made
in January may only be available in VIES in June, i.e. almost six
months later.

Each Member State has only access in VIES to transac-
62.
tions involving its own traders. Because of this, whenever Mem-
ber States, in order to identify possible fraud networks, need
information about trade operations between other Member
States, they have to send a request for information to the Mem-
ber States concerned. This takes time to be answered and com-
mits human resources in both Member States.

63.
Article 22 of the regulation requires Member States to
ensure that their databases are kept up to date, and are complete
and accurate. As discussions in the SCAC show, there is currently
no common approach amongst Member States with regard to the
question of how to ensure quality and reliability of data in VIES.
Although required by Article 22 of the regulation, no criteria have
as yet been defined to determine which changes are not pertinent,
essential or useful and therefore need not to be made.

64.
Work carried out by National Audit Offices also high-
lights the problem of reliability of data. As an example, discrep-
ancies in reporting were identified during an audit conducted in
parallel by the Supreme Audit Offices of the Czech Republic and
of the Slovak Republic (2). Differences between the values of sup-
plies of goods reported by taxable persons from other Member
States and the values of acquisitions of goods reported by taxable
persons from the Czech Republic or the Slovak Republic were
caused, amongst other things, by differing methods of reporting
of data on intra-Community supplies and acquisitions in the indi-
vidual Member States. This involved, for example, the declaration
of intra-Community supplies in the supplier’s recapitulative state-
ment for a different quarter than for intra-Community acquisi-
tions in the acquirer’s VAT return.

(1) Public audit report on the cooperation in the field of exchange of
information on Value added tax, 30 June 2006, No VA-8000-4-13,
p. 18.

(2) See the ‘Report on the Results of Parallel Audit of Value Added Tax
Administration in the Czech Republic and in the Slovak Republic in
2005’.

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A report (1) by the Polish Supreme Chamber of Control
65.
drew attention to the fact that the availability of recapitulative
statements on intra-Community acquisitions
significantly
improves the possibility for checks and facilitates the detection of
attempted fraud. Although some Member States already collect
such data from their traders, only the input in VIES of recapitu-
lative statements on supplies is currently mandatory.

The feasibility study for VIES II mentioned six areas of

70.
development:

— improvement in the collection of VIES data,

— improvement in the overall quality of VIES data,

Verification of VAT numbers by traders

— inclusion of services in VIES (B2B) (2),

66.
Article 27(4) of the regulation provides that suppliers can
obtain confirmation of the validity of the VAT identification
number of any specified person. All Member States have their
own systems to validate VAT numbers. Depending on the Mem-
ber States, the requests for confirmation can be made by tele-
phone, by fax or electronically on a website.

— one-stop-shop mechanism (3),

— exchange of forms,

67.
Since 2002, the Commission has made a tool available
on its website known as ‘VIES VAT number validation’, which
enables traders to perform an on-line check of the validity of a
VAT number. Eleven Member States allow the display of a trad-
er’s name and address when checking the number, while a fur-
ther three Member States display only the name of the trader. The
other thirteen confirm only the validity of a VAT number with-
out providing any information on the trader.

68.
The information provided is not fully reliable due to dif-
ferent interpretations of basic notions such as the start or end of
an activity, and due to the fact that some Member States update
their databases with retroactive effect. Where such updates with
retroactive effect have taken place, it is difficult for a tax admin-
istration to verify whether a given VAT number was shown as
being valid at the time when transactions under examination took
place.

Improvements in functionality of VIES (VIES II)

— enhancement of the current functionality.

This feasibility study was announced during a SCAC meeting in
March 2004, based on the scope and objectives proposed by the
Commission. It assumed that the change in the place of taxation
of services would probably be implemented from January 2007,
and that the one-stop shop mechanism would begin in July 2006.
Because of these assumptions, the priority was given to these two
areas. Since both assumptions proved to be wrong, efforts were
made which have so far not resulted in any relevant improvement
to the collection and overall quality of VIES data.

Instruments for promoting a multilateral control approach

Presence of tax officials in other Member States

71.
Article 11 of the regulation provides a legal basis for des-
ignated officials to be present in other Member States, for example
in order to have access to documentation held there or to attend
enquiries that take place with traders.

69.
VIES has been in place since 1992. In 2004, it was
decided that the system needed an upgrade to be ready for new
needs and to incorporate technological
improvements. This
would result in VIES II, with the new features being gradually
added to the existing VIES system.

Limited use has been made of

72.
these possibilities
(see Table 4). For 2006, only six Member States reported cases
where their officials had been present in administrative offices in
other Member States (15 cases in total). Only three Member States
reported cases where their officials had participated in adminis-
trative enquiries in other Member States (3 cases in total).

(1) Information on the Findings of Inspections on Collection by Tax
Authorities of State Budget Income Proceeding from Value Added Tax
in 2004-2005, Supreme Chamber of Control, June 2006.

(2) B2B means business-to-business supply of services.
(3) A system whereby a trader could fulfil his value added tax (VAT) obli-
gations for his activities across the European Union solely in the Mem-
ber State in which he is established.

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Table 4

Use of other instruments

Number of presences in
administrative offices in other
MS

Number of participations in
administrative enquiries in
other MS

Number of simultaneous
controls organised

2005

2006

2005

2006

2005

2006

Belgium

Czech Republic

Denmark

Germany

Estonia

Greece

Spain

France

Ireland

Italy

Cyprus

Latvia

Lithuania

Luxembourg

Hungary

Malta

The Netherlands

Austria

Poland

Portugal

Slovenia

Slovak Republic

Finland

Sweden

United Kingdom

8

0

n/c

0

n/c

n/c

0

1

1

n/c

0

0

0

n/c

0

n/c

1

0

0

0

0

0

0

1

7

3

0

0

5

0

0

n/c

0

1

n/c

0

0

0

0

0

0

3

1

0

0

0

0

0

2

0

Total

19

15

Source: Member State statistics pursuant to Regulation (EC) No 1925/2004.

n/c — Figures not communicated by the Member States.
2006 statistics provisional.

0

0

n/c

0

n/c

n/c

0

1

1

n/c

0

0

0

n/c

0

n/c

3

0

0

0

0

0

0

0

0

5

0

0

0

1

0

0

n/c

0

0

n/c

0

0

0

0

0

0

1

0

0

0

0

0

1

0

0

3

3

0

0

7

0

n/c

0

4

3

0

0

0

0

0

0

n/c

10

0

0

0

0

0

1

0

0

5

0

0

3

1

0

0

4

2

0

0

0

0

0

1

0

1

4

0

0

0

0

0

2

2

28

25

Simultaneous and multilateral controls

73.
Article 12 of the regulation allows for two or more Mem-
ber States to conduct simultaneous controls, in their own terri-
tory, on the tax situation of one or more operators who are of
common or complementary interest. The regulation provides that
a Member State shall identify the taxable person whom it intends
to propose for a simultaneous control. The other Member States
concerned shall then decide whether they wish to take part in the
simultaneous controls.

In 2006, a total of 25 (1) such simultaneous controls

74.
were reported.

(1) This figure may include some double-counting, as some controls were

jointly initiated.

Simultaneous controls can take place in the form of mul-
75.
tilateral controls as provided by the decision on the Fiscalis Pro-
gramme. Under this decision, funding for travel and subsistence
expenses is available. The procedure to launch and conduct such
controls which typically involve a high need for coordination, has
been significantly simplified and clarified (2).

In 2005, a total of 12 such multilateral controls were
76.
organised by 5 different Member States. Although this was a
higher figure than in the years 2001 to 2004 (3), it falls short of
the peak reached in 2000 when 16 multilateral controls took
place.

(2) Multilateral Control Guide — Version 2004.
(3) Annual number of MLCs: 2001: 8 organised by 6 MS; 2002: 5 orga-
nised by 5 MS; 2003; 3 organised by 2 MS, 2004: 7 organised by
6 MS.

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According to the Dutch authorities, such controls can
77.
lead to the imposition of significant amounts of additional VAT.
In one of the three multilateral controls organised by the Nether-
lands and finalised in 2005, a further VAT amount of 35 million
euro was established. The tax administration in Luxembourg
reported (1) a case where a multilateral control conducted over
more than three years together with the UK authorities resulted
in the successful dismantling of a network behind an 80 million
euro fraud with mobile phones.

Pursuant to Article 41(2) of the regulation, access of
83.
Commission staff to the information exchanged is limited to what
is necessary for maintenance and development of the communi-
cation network. Without access to the contents of the operational
information exchanged, the Commission cannot gain on its own
all the insights necessary to detect the reasons for problems and
put forward solutions.

Other constraints on effective cooperation

Promotion and evaluation of administrative cooperation by the
Commission

84.
During the course of the audit, a number of other prob-
lems were identified which prevent the potential benefits of coop-
eration from being fully exploited or constrain possible
improvements.

The regulation attributes to the Commission the role of
78.
supporting and promoting administrative cooperation between
Member States and to evaluate it together with them. Further-
more, the Commission is required to pool the Member States’
experience with the aim of improving cooperation.

79.
In the SCAC, the Commission has made proposals for
improving administrative cooperation. Examples are the initiative
of the Commission to reduce the timeframes for the production
of recapitulative statements of intra-Community supplies or the
suggestion to provide more information about traders in VIES.
Most of these proposals were not followed.

80.
At the request of the SCAC, the Commission has designed
a specific form (Trend form) to indicate developments in the
operations of Missing Trader Fraud. However, so far no Member
State has used the form to provide information. Likewise, the
Commission has not been informed of all bilateral agreements
between Member States on matters covered by the regulation.

81.
In its 2006 communication concerning the need to
develop a co-ordinated strategy to improve the fight against fis-
cal fraud (2), the Commission stated that it considered that the
moment had come to set up a monitoring system, on the basis of
quantifiable indicators, in order to ensure that each Member State
is able to and actually does provide efficient assistance to other
Member States. However, so far the Commission has not made
any concrete legislative proposal for the introduction of such a
monitoring system.

82.
Furthermore, three years after the entry into force of the
regulation, the organisational set-up for administrative coopera-
tion in the Member States and its compliance with the regulation
had not yet been assessed by the Commission.

(1) Administration de l’enregistrement et des domaines, Rapport d’activité

2006, p. 20.

(2) COM(2006) 254 final, dated 31.5.2006.

No common rules for withdrawing VAT identification
numbers

The prompt withdrawal of a trader’s VAT identification
85.
number is an important tool to stop fraudulent activities and to
protect honest entrepreneurs.

86.
From an analysis of the relevant Community legisla-
tion (3), it can be concluded that traders who do not carry out any
real economic activity, but only engage in transactions simulat-
ing such activity in the context of VAT fraud are not entitled to
have a VAT identification number.

87.
However, Community legislation does not lay down pro-
cedures or conditions under which VAT identification numbers
must be cancelled, for example in cases where traders are involved
both in legal economic activity and in fraudulent operations. Such
cases are subject to diverse national legislation and practice.

Difficulties in cross-border prosecution

During its audit missions, the Court was informed that in
88.
some of the Member States (4), it is very difficult to prosecute per-
sons involved in fraudulent schemes, for example participating in
chains set up for carousel fraud, where only other Member States
are defrauded.

89.
The UK National Audit Office (NAO) reported (5) that
Danish tax authorities had informed them that they suspected
some Danish companies were involved in supply chains with
missing traders in the UK. However, there was no tax loss in Den-
mark and therefore only limited criminal investigations could be
undertaken.

(3) Council Directive 2006/112/EC of 28 November 2006 on the com-

mon system of value added tax.

(4) France and Luxembourg.
(5) See paragraph 4.32 of the Comptroller and Auditor General’s Stan-
dard Report dated 7 July 2006 and published alongside the 2005
to 2006 Accounts of HM Revenue & Customs.

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The German Federal Court of Auditors reported (1) that
90.
no mutual agreements with other Member States had been
reached in order to prosecute intra-Community VAT fraud. The
existence of such agreements were, according to German legisla-
tion, the precondition for prosecuting traders involved in this
type of fraud.

So far, most Member States have not fully exploited the
95.
possibilities provided by the Community legislation to devolve
competence and responsibility for direct contacts with tax
authorities in other Member States to their local or regional tax
offices (see paragraphs 19 to 23).

91.
The Convention on the protection of the European Com-
munities’ financial interests (2) stipulates that each Member State
is to establish effective, proportionate and dissuasive criminal
penalties in their national law to combat fraud and to cooperate
effectively with other Member States. Article 1 of the Convention
provides that it also applies in cases where fraud results in the ille-
gal diminution of the resources of the EU budget. However,
according to an explanatory report (3) on the Convention adopted
by the Council, VAT was excluded from its scope (4).

Insufficient quantification and analysis of VAT fraud

Action to prevent intra-Community VAT fraud cannot
92.
be effectively targeted by Member States, or the Commission,
until they have reliable estimates of fraud occurring, including
information about the economic sectors most concerned. The
Commission has not yet developed a successful common
approach on how to achieve this.

In its resolution of 12 December 2006 on promoting
93.
activities in the field of value added tax, the Contact Commit-
tee (5) mandated a working group to produce recommendations
for a single model for estimating VAT losses. Such a common
approach would also allow Member States to determine whether
the fight against fraud was genuinely successful, or whether tack-
ling VAT fraud just resulted in it being displaced to other eco-
nomic sectors or other Member States.

CONCLUSIONS AND RECOMMENDATIONS

Conclusions

Despite new arrangements introduced in 2004, adminis-
94.
trative cooperation between Member States in the field of VAT is
still not intensive enough to cope with intra-Community VAT
evasion and fraud.

(1) Bundesrechnungshof, Bemerkungen 2002 zur Haushalts- und
Wirtschaftsführung des Bundes, Ziffer 74 (Strafverfolgung bei innerge-
meinschaftlichem Umsatzsteuerbetrug).

(2) The Convention was drawn up in 1995 on the basis of Article K.3 of
the Treaty on the European Union (OJ C 316, 27.11.1995, p. 49).

(3) OJ C 191, 23.6.1997, p. 1.
(4) The problem was already described in Special Report No 9/98, para-

graphs 2.3 to 2.9.

(5) The Contact Committee consists of the heads of the Supreme Audit

Institutions of the European Union.

96.
The exchange of information upon request, a major
instrument of administrative cooperation between Member
States, is affected by a high proportion of late replies and by the
absence of interim replies. The frequency of late replies varies,
however, considerably between Member States
(see para-
graphs 24 to 31).

97.
Most of the delays in responding to requests occur due to
a lack of priority given to requests by local tax offices. Weak-
nesses in the monitoring systems and/or in the organisational
set-up of Central Liaison Offices in some Member States are other
reasons which also contribute to delays (see paragraphs 32 to 42).

98.
Evaluations show that cooperation leads to results.
Where requests are answered in accordance with the rules, they
often allow to reveal or confirm the existence of fraud and may
result in the collection of additional VAT. However, there are
some concerns that the quality of information exchanged on sus-
pected missing traders is not always sufficient to serve as a basis
for successful
legal action against the fraudsters (see para-
graphs 43 to 49).

99.
The framework for exchanges of information without
prior request is not well defined. Broad obligations to inform
other Member States have been set, but in practice exchange is
limited to certain categories of information which are at the dis-
cretion of Member States. Furthermore, information provided
spontaneously is not always systematically exploited (see para-
graphs 50 to 56).

100.
VIES, the system for information exchange, has serious
weaknesses. Delays in collecting and capturing accurate data and
problems in correcting wrong data undermine its usefulness. The
system contains data on intra-Community supplies only, but not
on intra-Community acquisitions. This constrains the possibili-
ties for cross-checks. Though a decision to upgrade the system
was taken in 2004, progress in implementing new features is
slow (see paragraphs 57 to 70).

101.
Tools available for a multilateral control approach are
rarely used, although Community funding is provided through
the Fiscalis programme (see paragraphs 71 to 77).

Most of

102.
the proposals made by the Commission
through the Standing Committee on Administrative Cooperation
to improve exchange of information between Member States
were not followed (see paragraphs 78 to 83).

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A number of other factors prevent the potential ben-
103.
efits of cooperation from being fully exploited. These include
absence of common rules for withdrawing VAT numbers, diffi-
culties in cross-border prosecution and insufficient tools for
quantifying and analysing VAT fraud (see paragraphs 84 to 93).

(c)

improve the functioning of the validation of VAT numbers;

(d) enhance the possibilities for cross-checks, for example by
including data on intra-Community acquisitions; and

Recommendations

104.
For combating intra-Community VAT fraud success-
fully, higher priority needs to be given by Member States to
administrative cooperation, in respect of both the operational
information exchanges and their administrative management.

Member States should encourage more direct commu-
105.
nication between local inspection staff as an effective way to
speed up the exchange of information. It would at the same time
help to increase the intensity of cooperation and the quality of the
information exchanged.

106.
More efficient monitoring of exchanges of information
between Member States is necessary to ensure that problems are
swiftly identified and tackled and that each Member State pro-
vides effective assistance to other Member States. Improvements
in Member States own monitoring of exchanges of information
would also be needed.

107.
The procedures for exchanges of information without
prior request need to be clarified. Information which is provided
spontaneously should be systematically exploited by Member
States.

108.

To improve VIES, action should be taken to

(a)

radically shorten the timescale for collecting and capturing
data;

(b) ensure that inaccurate data are swiftly corrected;

(e) grant broader direct access to data to enable multilateral

consultations.

109.
The introduction of harmonised rules for withdrawing
VAT numbers from traders involved in fraudulent activities
should be considered.

110.
Having comparable data on intra-Community VAT eva-
sion would contribute to a better targeted cooperation between
Member States. A common approach needs to be developed by
the Commission together with the Member States to quantifying
and analysing VAT evasion.

111.
It should be considered how to improve cross-border
prosecution of intra-Community VAT fraud in the Member States,
for example by changing the Council’s current interpretation of
the Convention on the protection of the European Communities’
financial interests which does not include VAT revenue.

With regard to the Commission proposal for an addi-
112.
tional horizontal regulation on mutual administrative assistance
for the protection of the financial interests of the Community (1),
the Court recalls its recommendation (2) that the Commission
should make an effort to propose a simplification and consolida-
tion of Community anti-fraud legislation with a view to avoiding
duplications and overlapping or contradictory provisions. Exist-
ing weaknesses in cooperation between the Commission and the
Member States could be addressed in the framework of such an
overhaul.

This report was adopted by the Court of Auditors in Luxembourg at
8 November 2007.

its meeting of

For the Court of Auditors
Hubert WEBER
President

(1) COM(2006) 473.
(2) See paragraph 36 of Opinion No 8/2005 on a proposal for a Regula-
tion of the European Parliament and of the Council on mutual admin-
istrative assistance for the protection of the financial interests of the
Community against fraud and any other illegal activities (OJ C 313,
9.12.2005, p. 1).

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THE COMMISSION’S REPLIES

SUMMARY

I-VII.
The Commission largely agrees with the observations made by the Court of Auditors. The Court’s
analysis is in line with the assessment made by the Commission in a communication published in May 2006 (1):
the legal framework for administrative cooperation in the field of VAT was reinforced some years ago (2), but
the Member States do not yet make sufficient use of the new possibilities offered, and the level of administra-
tive cooperation is not commensurate with the size of intra-Community trade.

The Commission continues its efforts for the improvement of this administrative cooperation between the
EU-Member States. Following the publication of the above-mentioned communication in May 2006, a politi-
cal debate has been launched with all the parties concerned on an anti-fraud strategy at European level. Besides
the Standing Committee on Administrative Cooperation (3) — whose discussions and decisions have a more
technical nature — a more policy oriented Anti Tax Fraud Strategy-Group has been created.

Decisions on administrative cooperation at the Community level can only be taken by a unanimous vote of all
Member States.

With regard to the framework for the exchanges of information without prior request, Article 18 of Council
Regulation 1798/2003 — as confirmed in Article 5 of Commission Regulation 1925/2004 — expressly
provides that each Member State shall determine whether it will take part in the exchange of a particular
(sub)category of information, and how it will do this. This text was the result of a political compromise, nec-
essary to obtain unanimity in the Council (as required for acts based on Article 93 of the Treaty).

OBSERVATIONS

20.

The statistics communicated by the Member States show:

— an increase of information exchange requests amongst the
EU-15 in the period after 1.1.2004, compared to the period
before that date, and

— a rapid development of the exchange of information requests

between EU-15 and EU-10.

(1) Communication from the Commission to the Council, the European
Parliament and the European Economic and Social Committee con-
cerning the need to develop a co-ordinated strategy to improve the
fight against fiscal fraud, COM(2006) 254 of 31.5.2006.

(2) Council Regulation (EC) No 1798/2003 of 7 October 2003 on admin-
istrative cooperation in the field of VAT (OJ L 264, 15.10.2003, p. 1)
and Commission Regulation (EC) No 1925/2004 of 29 October 2004
laying down detailed rules for implementing certain provisions of
Council Regulation (EC) No 1798/2003 concerning administrative
cooperation in the field of VAT (OJ L 331, 5.11.2004, p. 13).

(3) This Standing Committee on Administrative Cooperation (SCAC) has
been established in accordance with Article 44 of Council Regulation
(EC) No 1798/2003 to assist the Commission in implementing the
Council Regulation.

It cannot be excluded that the accession of 10 new Member States
in 2004 has led to a geographical shift of transactions and/or of
certain VAT fraud from the EU-15 to transactions with the EU-10,
and, correspondingly, to a shift in the Member States that sent or
received requests for information.

The mere fact that the number of requests sent amongst EU-15
in 2005 is somewhat below the number of 2004, does not allow
to draw any specific conclusions, as:

— the time period analysed is too short to make a comprehen-

sive evaluation of the evolutions,

— the statistics communicated by the Member States on admin-
istrative cooperation in 2004 and 2005 revealed a lack of
accuracy. Given the discrepancies in the statistics, more
detailed guidelines and instructions have been developed.
These were issued on 30.1.2006. At that moment, Member
States considered that it was not appropriate anymore to
revise the statistics already collected for 2004 and 2005.

In 2006, the number of requests was higher than in 2005,
although it was still below the number of 2004.

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Despite the increase of the information exchanges, the
21.
level of administrative cooperation in these years was not com-
mensurate with the size of intra-Community trade (1). Given the
limits of their possibilities (e.g. human resources), Member States
attach great interest to controls based on a risk analysis.

In addition, new electronic forms in XML format are being devel-
oped and will be used from the beginning of 2008. These forms
will be easier to use than the current electronic forms and their
structure will not be alterable. The number of mistakes should
thus be reduced.

22-23.
The intention of the new legislation was to facilitate
decentralisation: more direct contacts between local services can
make the administrative cooperation more efficient and faster (2).

— the CCN/CSI network enables Member States to have a secure
and fast communication between the Central Liaison Offices.

A secured electronic communication channel between local
offices in different Member States will be available from the end
of 2007, in order to support such decentralised communication.

Moreover, a secured electronic communication channel will also
be available to local offices as from the end of 2007.

However, the administrative organisation in the Member States is
primarily the responsibility of the Member States.

24-31.
The statistics that are collected annually and pre-
sented in the SCAC meetings, reveal a problem of late replies. The
Commission is aware of this problem and addresses it repeatedly
in these SCAC meetings, urging the Member States to reduce the
delays and to provide interim replies when they are unable to
reply within the deadlines.

The Commission has taken several initiatives to improve this situ-
ation. These new initiatives relate to:

— automated direct access to data,

— more rapid and more detailed information exchange,

— third Member States’ requests.

Discussions with the Member States on these inititatives are
ongoing within the Anti Tax Fraud Strategy-Group.

The functioning of

32.
the administrative organisation
within the Member States is primarily a national issue. However,
the Commission shares this concern expressed by the Court of
Auditors and has repeatedly drawn Member States’ attention to it
at SCAC meetings. In its Communication of May 2006, the Com-
mission also referred to the Council ad hoc group on tax fraud,
which had identified the absence of a Community administrative
culture as an obstacle to the fight against fraud (3).

Local tax offices should use (correctly) the instruments

33.
developed to facilitate the administrative cooperation:

— standard forms have been prepared and agreed upon by the

Member States.

(1) Cf. COM(2006) 254 of 31.5.2006, point 2.1.
(2) The regulation provided for the possibility of decentralised coopera-
tion, following the suggestion made in the Commission’s proposal for
the regulation (OJ C 270 E, 25.9.2001, p. 87), COM(2001) 294 of
18.6.2001).

(3) COM(2006) 254 of 31.5.2006, point 3.1.

38-42.
The administrative organisation of the competent
authorities within the Member States (and the division of their ter-
ritorial or operational responsibility) is a national competence; it
should be in conformity with the EU legislation and it should not
hamper the functioning of the administrative cooperation with
other Member States.

The functioning of the national CLO structures will be part of the
forthcoming evaluation to be published in 2008.

49.
The Commission already suggested the introduction of a
feedback mechanism at the SCAC meeting of December 2006.
This could enhance the motivation for the exchange of (sponta-
neous) information. Member States showed goodwill to this idea,
which will be further explored in 2008.

With regard to the framework for the exchanges of infor-
51.
mation without prior request, Article 18 of Council Regulation
1798/2003 — as confirmed in Article 5 of Regulation
1925/2004 — expressly provides that each Member State shall
determine whether it will take part in the exchange of a particu-
lar (sub)category of information, and how it will do this. This text
was the result of a political compromise, necessary to obtain una-
nimity in the Council (as required for acts based on Article 93 of
the Treaty).

the availability of

This particular ‘definition’ of the (sub)categories of information
exchanged without prior request, can be explained by the fact that
these
when this provision was adopted,
(sub)categories of information was different from Member State
to Member State (because of different methods to collect and to
store the information concerned). Accordingly, it was foreseen
that those Member States which were not yet in a position to
exchange certain types of information (e.g. because a specific
database was still to be developed), would take up the obligation
to exchange that
information as soon as it was possible
(see Article 5, paragraph 2, of Regulation (EC) No 1925/2004,
about the subsequent modifications of (sub)categories of infor-
mation which Member States exchange, and about the subse-
quent modification of the way in which the information is
exchanged). The aim, expressed in Article 17 of Regulation (EC)
No 1798/2003 and Article 3 of Regulation (EC) No 1925/2004,
was to come to an exchange of information as complete as
possible.

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The functioning of the exchange of information without
53.
prior request should be improved. More efficient methods of
exchanging information, taking account of recent technological
developments and the equipment used by traders, should be
envisaged. More frequent and more detailed automated exchanges
between Member States, or even direct access to national data-
bases, should also be considered (1).

The discussions on possible ways to improve the use of this tool
are currently ongoing within the Anti Tax Fraud Strategy-Group.
The discussion on the use of Eurocanet is a typical example of the
use Member States make of this tool.

Furthermore, conclusions of the work carried out by several Fis-
calis Project Groups (FPGs) and ongoing discussions within these
groups reflect Member States’ desires to improve the use of this
tool and to set up a more structured use of this type of exchange
of
information, e.g. with regard to second hand cars and
importations.

As far as statistics are concerned, the Member States have agreed
with detailed guidelines and instructions, providing for the com-
munication of more precise statistics on the categories of infor-
mation that are exchanged without prior request. These new
guidelines should be applied as from 2007 (for the communica-
tion of statistical data concerning the requests and replies that are
sent and received in 2006).

54.
The Eurocanet (European Carousel network) project, in
which 22 of 27 Member States participate, has promoted an
operational approach enabling the national anti-fraud units to be
involved.

As a result of these discussions, the ECOFIN Council of June 2007
invited the Commisison to come forward with legislative propos-
als with a view of reducing the timeframes for submitting the
recapitualtive statement as well as for exchanging this informa-
tion between the Member States.

The Council indicated these proposals need to be accompanied by
an impact assessment. The Commission is currently carrying out
this assessment, in order to evaluate the impact in terms of costs
for businesses of such a change.

Discussions are currently ongoing with the Member
62.
States on automated access for competent authorities to data con-
tained in the databases of other Member States (part of the activi-
ties of the Anti Tax Fraud Strategy-Group).

The access to national databases was already suggested in the
Commission’s Communication of May 2006, as one of the ele-
ments to improve the exchange of information (1).

The advantage of a multilateral approach is shown by the example
of the Eurocanet project, mentioned by the Court in paragraph 54,
which offers Member States tax investigation services a better
insight or even the full picture of a suspected fraud chain. All
Member States participating have access to all data exchanged
without limitation.

65.
The issue of imposing reporting obligations for recapitu-
lative statements on intra-Community acquisitions has been dis-
cussed in several Fiscalis seminars and project groups. In view of
the problems of quality of data and frequent misreporting by
traders themselves, the benefits of such an obligation are not
demonstrated.
intra-
Community acquisitions would constitute a serious additional
administrative burden for traders.

imposing a reporting of

In addition,

The data management and the analysis remain with the Member
States only. The Commission has currently no access to the data
and therefore cannot provide any analysis. As a consequence, the
Commission is only able to offer financial and administrative sup-
port to enhance the exchange of data between Member States.
However, the Commission would be willing to offer more con-
crete support, such as e.g. analysis on trends and up-coming
schemes at Community level if Member States would ask for it.

60.
Information concerning intra-Community supplies of
goods should be communicated rapidly to other Member States.
The data currently exchanged between the Member States have to
respect the three months period set in Article 25 of Regulation
1798/2003. Accordingly, the issue of a quicker exchange of data
on intra-Community supplies is one of the major elements in the
discussions with Member States which have been launched by the
Commission’s Communication of May 2006. The issue was after-
wards discussed in the Anti Tax Fraud Strategy-Group.

(1) COM(2006) 254 of 31.5.2006, point 5.2.

67.
Since 2002, the Commission has made a VIES VAT num-
ber validation tool available on its website. An open interface is
available since 2005, allowing the automatic verification of VAT
numbers by computer systems.

The option given by 11 Member States to cross-check VAT ID
numbers with names of taxable persons is a useful tool to pre-
vent the abuse of VAT ID numbers.

At the Standing Committee on Information Technology
68.
(SCIT) meeting of June 2007, an agreement was reached to clarify
the understanding of the start date and cessation date of taxable
persons’ economic activities in VIES.

69-70.
The Commission is working on a modernisation of
the VIES system. This presents an opportunity for implementing
improvements with regard to the administrative cooperation to
fight VAT fraud.

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The VIES 2 Feasability study, announced at the SCAC meeting of
March 2004, proposed a planning for this modernisation. This
planning was however not approved by the Member States.

A particular problem was raised by the lack of legal base. This was
made clear in the work undertaken to include services in VIES
(B2B). These activities started under the assumption that the legal
base would be approved by 1.1.2007. Lack of this legal base,
which has still not been approved, led to only half of the Member
States having implemented it. As so far very limited operational
progress has resulted from their investment, many Member States
are very reluctant to consider repeating this approach.

The technical possibilities to cooperate in MLCs are also
improved. Since end 2006, the new version of the Common
Communication Network (CCN) allows the Member States to for-
ward mails (e.g. CLO requests) securely to their local offices. By
end 2007, direct electronic contact between the participants in a
MLC through a secured channel will be possible.

76.
In 2006, 16 new multilateral controls were launched and
in total there were 58 multilateral control meetings and 5 multi-
lateral control selection meetings organised. Since the Fiscalis
seminar in June 2006, more Member States have initialised mul-
tilateral controls.

As for One Stop Shop, since the Feasibility Study was discussed,
this legal base has changed and has led to three new subprojects,
which are still being discussed in the Council. Thus, only at the
SCIT meeting of June 2007, it was considered that the agreement
was stable enough in order to start working on it.

79.
Taking into account the difficulty to obtain an agreement
within the SCAC (whose activities are more of a technical nature),
certain issues are now discussed within the policy oriented Anti
Tax Fraud Strategy-Group, based on the conclusions adopted by
the Council (ECOFIN Council meetings of November 2006 and
June 2007).

As for e-Forms, work is progressing only on the forms which
were considered stable enough (three). For the other forms, dis-
cussions are needed both in SCAC and in working groups, on the
contents of the forms themselves, as well as the usefulness of the
work needed to translate them into the XML format.

As for quality of data, work has started on the reduction of time-
frames and the improvement of treatment of historical VAT reg-
istration records. However, both reduction of timeframes and
other quality of data projects need discussion in SCAC before
work can start.

With regard to the issue of delays in collecting and capturing the
data, discussions with Member States are ongoing, in order to
speed up the periods for submitting the VAT recapitulative state-
ments to 1 month and to speed up the transmission of the data
to other Member States to also 1 month.

71-72.
The possibility to have a presence of tax officials in
other Member States is a flexible instrument for administrative
cooperation. On several occasions (Fiscalis seminars, meetings of
the Anti Tax Fraud Strategy-Group), Member States have been
encouraged to make more use of it.

75.
The Commission supports the current increased use of
this tool through the setting up of the multilateral controls (MLC)
platform, a permanent forum for promoting and evaluating MLCs
and assuring the exchange of best practices relating to MLCs.

80.
A ‘Trend form’ was adopted to facilitate the communica-
tion of information with regard to new fraud trends. In almost all
the Commission takes the opportunity to
SCAC meetings,
encourage Member States to share information, using this form.

As noted by the Court, these trend forms have not been used until
now. Nevertheless, the Eurocanet project follows this idea as its
purpose also is to share experiences and best practices. An
exchange of information on new trends and tendencies has not
yet taken place between the Member States, they however use the
Eurocanet Group for discussions on new trends and new
up-coming fraudulent schemes.

81.
The monitoring system is one of the discussion topics of
the present Anti Tax Fraud Strategy-Group with the Member
States.

82.
The Commission in its Communication of May 2006 (1)
made an assessment of the existing legal framework and the prac-
tice concerning administrative cooperation (including the coop-
eration in the field of VAT). It indicated ways to explore how to
improve this cooperation.

Since then, the Council has discussed the functioning of the
administrative cooperation as a tool to fight fraud (ECOFIN Coun-
cil meetings of November 2006 and June 2007), and invited the
Commission to carry out further work, in particular in the field
of VAT. The Commission has now put many resources into the
follow-up of these discussions. The Anti Tax Fraud Strategy-
Group was created and this group has already had 6 meetings.

(1) COM(2006) 254 of 31.5.2006.

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In the meantime, the Member States have been able to gain more
experience with the organisational set-up for the administrative
cooperation, and with possible cooperation problems that may
be linked to the administrative organisation of the competent
authorities within the Member States. This specific issue will be
part of the forthcoming evaluation, to be published in 2008.

The Commission has transmitted a proposal for a Directive of the
European Parliament and the Council on the criminal law protec-
tion of the Community’s financial interests, COM(2001) 272.
This proposal contains provisions relating to the prosecution of
offences affecting the financial
the European
Community.

interests of

The administrative organisation within the Member States falls
under their competence, and it is difficult to provide general
guidelines, as the ideal organisation depends on factors that can
differ from Member State to Member State (size of the territory,
number of taxable persons, general structure of the authorities,
etc.).

83.
Access to the content of the information exhanged has
been requested several times by the Commission (OLAF) without
success.

If
the Commission (OLAF) had access to the information
exchanged it could improve its role as a service platform for
Member States’ services. It would generate significant added value
to the fight against VAT fraud by providing analysis on trends and
newly detected fraudulent schemes (no evaluation of the level of
fraud) from an overall Community perspective which would be
put at the disposal of all Member States’ services. However, Mem-
ber States refuse until now to give the Commission access
although they could profit from operational and intelligence sup-
port from the Commission (OLAF) in their early detection policy.

84.
The Commission has suggested to make an evaluation of
the quality of the information exchanges based on an analysis of
a sample of exchanges, in order to identify the different bottle-
necks in the information exchange flow. This suggestion was
made in the SCAC meeting of December 2006. Several Member
States expressed interest in participating in such a project. Accord-
ingly, a Fiscalis Project Group will be launched in the first trimes-
ter of 2008.

87.
The Commission has attempted to arrange an agreement
about the cancellation of VAT numbers on several occasions.
Member States have not yet come to an agreement.

The Commission is convinced about the need for leg-
88-90.
islation to reinforce cross-border prosecution in situations where
tax losses occur in other Member States (1). Discussions on this
issue have started in the Anti Tax Fraud Strategy-Group.

Although it is frequently requested, introducing new measures of
criminal law has proven difficult. For instance the Convention
drawn up on the basis of Article K.3 of the Treaty on European
Union, on the protection of the European Communities’ finan-
cial interests which has been signed in 1995 has only entered into
force in 2002 after ratification by the Member States.

(1) See COM(2006) 254 of 31.5.2006, point 5.1.

The Commission has also proposed a regulation on mutual
adminstrative assistance for the protection of the financial inter-
ests of the European Community against fraud and any other ille-
gal activities, COM(2006) 473. This provides for rules for
multidisciplinary anti-fraud measures on the level of administra-
tive mutual assistance and for the necessary interface with judi-
cial follow-up, which is an essential prerequisite for effective
prosecution.

91.
The Commission considers that VAT is included in the
scope of the convention, and regrets the position taken by the
Council which is contrary to the financial interests of the Com-
munity and the Member States (2).

92.
The Commission has launched a study whereby the con-
tractor should provide a solid estimate on the amount of tax fraud
in the different EU Member States and this based on 3 different
statistical models. A first result on the estimates of VAT fraud
should be available by the end of 2007.

CONCLUSIONS AND RECOMMENDATIONS

94-103.
The Commission welcomes the conclusions of the
Court. These confirm those of the Commission Communication
of 31 May 2006: the legal framework for administrative coopera-
tion in the field of VAT has been reinforced but the Member
States do not yet make sufficient use of the new possibilities
offered, and the level of administrative cooperation is not com-
mensurate with the size of intra-Community trade.

The Commission continues to encourage the Member States to
improve their administrative cooperation within the framework
of the present legislation. Problems (e.g.
lack of
interim replies, limited use of possibilities related to the presence
of tax officials in other Member States, simultaneous and multi-
lateral controls) are discussed in the SCAC meetings and at Fisca-
lis seminars.

late replies,

(2) Commission staff working paper, Annex to the Report from the Com-
mission on Implementation of the Convention on the Protection of
interests and its protocols,
the European Communities’ financial
Article 10 of
in
SEC(2004) 1299, point 5.1.2.

the Convention (COM(2004) 709 final)

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In its actions to improve the administrative cooperation, the
Commission has to face several obstacles:

The Commission has already taken several initia-
105-107.
tives to support and improve the administrative cooperation
between the EU Member States:

— legislation in this field can only be adopted with unanimity,
which inevitably leads to difficult negotiations and political
compromises,

— a secured electronic communication channel for information
exchanges between local offices in different Member States
will be available from the end of 2007, in order to support
decentralised communications,

— the administrative organisation within the Member States
falls primarily under the competence of the Member States,

— the resources of the Member States put into administrative
cooperation are limited. In some Member States, there is even
a trend to reduce them.

104.
The Commission agrees with the recommendations of
the Court, which are in line with the views expressed by the Com-
mission in its Communication of May 2006.

Considering the importance of VAT fraud, the Commission will
continue to promote a political debate on the need for a strategy
at EU level in view of improving the fight against tax fraud. This
debate began in May 2006 and was taken up by ECOFIN in its
conclusions of November 2006 and June 2007. In order to ensure
the follow up of these conclusions, the Commission has set up
the Anti Tax Fraud Strategy-Group with Member States. This
group is of a more political nature compared to SCAC and is
examining:

— extensive guidelines for the request forms have been made
available to the Member States and new electronic forms in
XML format are being developed and will be used from the
beginning of 2008,

— Fiscalis project groups are currently discussing how to set up
more structured types of exchange of information for spe-
cific cases, e.g. with regard to second hand cars and
importations,

— the Commission has set up the multilateral controls (MLC)
platform, a permanent forum for promoting and evaluating
MLCs and assuring the exchange of best practises relating to
MLCs,

— the Commission has made detailed instructions and guide-
lines for the communication of the statistics concerning
administrative cooperation, in order to obtain a better over-
view of the functioning of the administrative cooperation,

— automated direct access to data in the databases of other
Member States, more rapid and more detailed information
exchange, and third Member States’ requests,

— the Commission has suggested the introduction of a feed-
back mechanism, which could enhance the motivation for
the exchange of (spontaneous) information. Member States
have agreed to further explore this idea. This will be done in
2008,

— the need to take comparable measures against fraudsters, in
particular in terms of sanctions and criminal proceedings,
regardless of whether the fraud leads to losses of revenue in
the Member State concerned,

— the Commission will publish an evaluation of the adminis-
trative cooperation in the field of VAT in 2008. This evalu-
ation will also contain an analysis of the functioning of the
national CLO structures in the EU Member States.

— reducing the time limit for submitting recapitulative state-
ments on intra-Community supplies of goods. On this last
point, the Commision is currently in the process of assessing
the impact of such a change on businesses. The outcome of
this study will determine the scope of the potential legisla-
tive proposal.

108.
With regard to VIES, an agreement was reached in June
2007 to clarify the understanding of the start date and cessation
date of taxable persons’ activities in VIES, so that this informa-
tion is more accurate and complete. An open interface has been
made available, allowing the automatic verification of VAT num-
bers by computer systems, and the work on the modernisation of
VIES is ongoing.

The Commission is also encouraging Member States to make bet-
ter use of the existing infrastructure for operational and intelli-
gence support at Community level, namely the European Anti-
Fraud Office (OLAF).

109.
The Commission will continue to press for an agree-
ment between Member States about the cancellation of VAT
numbers.

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The Commission has launched a study to obtain a solid
110.
estimate on the amount of tax fraud in the EU Member States. A
first result on the estimates on VAT fraud should be available by
the end of 2007.

A comprehensive legal framework needs to be created
111.
to ensure efficient cross-border prosecution. Therefore, the Com-
mission has proposed specific measures such as the Directive of
the European Parliament and the Council on the criminal law pro-
tection of the Community’s financial interests, COM(2001) 272,
as well as the regulation on mutual administrative assistance for

the protection of the financial interests of the European Commu-
nity against fraud and any other illegal activities, COM(2006) 473.
This last, which incorporates in large measure the European Par-
liament recommendation of 25 May 2005, does not cover pros-
ecution as such but measures ensuring the interface with the
judicial follow-up and the support of recovery.

112.
The Commission notes the Court’s recommendations
on simplification and consolidation of anti-fraud legislation. The
Commission will examine the possibility of consolidating anti-
fraud legislation under Article 280 EC Treaty.