Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards tax evasion linked to import and other cross-border transactions
Date: 2008-12-01
Institutions: European Commission
Subjects: VAT, administrative formalities, domestic market, fraud, intra-EU trade, tax evasion

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 1.12.2008 
COM(2008) 805 final 

2008/0228 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2006/112/EC on the common system of value added tax as regards 
tax evasion linked to import and other cross-border transactions 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

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CONTEXT OF THE PROPOSAL 

•  Grounds for and objectives of the proposal 

This  proposal  is  part  of  a  set  of  conventional  measures  that  will  be  presented  in  the 
short  term  in  the  context  of  a  coordinated  approach  at  EU  level  in  the  fight  against 
VAT fraud.  

This  proposal  contains  amendments  to  the  VAT  Directive  necessary  for  the 
implementation of two of the measures announced linked to a certain exemption from 
VAT upon importation and joint and several liability. 

The  objectives  of  the  proposal  are  on  the  one  hand  to  clarify  the  conditions  for  an 
already  existing  specific  exemption  at  importation  which  is  currently  the  subject  of 
abuse through fraud schemes and on the other hand to provide tax administrations with 
a  tool  for  recovering  VAT  from  non-established  traders  in  cases  where  the  non 
compliance of these traders with regard to their reporting obligations has facilitated the 
fraud. 

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•  General context 

At the ECOFIN meeting of 4 December 2007 the Council invited the Commission to 
continue its work on the conventional measures to combat VAT fraud, notably in the 
context  of  the  Anti  Tax  Fraud  Strategy  (ATFS)  expert  group,  to  present  its  findings 
during the first half of 2008 and to consider legislative proposals on the conventional 
measures where appropriate. 

Discussions that took place since then have made it clear that Member States want the 
Commission  to  accelerate  the  work  on  conventional  measures  concerning  the  fight 
against  VAT  fraud  and  to  present  to  the  Council  legislative  proposals  to  rectify  the 
shortcomings encountered in the current legislation. 

The  Commission  will,  as  a  response 
the  Council's  demand,  present  a 
Communication  on  a  coordinated  strategy  to  improve  the  fight  against  VAT  fraud  in 
the  European  Union,  setting  out  a  series  of  measures  for  which  it  intends  to  present 
legislative  proposals  in  the  short  term.  This  Communication  is  also  presented  for 
adoption by the Commission today. 

to 

The  present  proposal  is  part  of  the  first  set  of  proposals  announced  in  this 
Communication.  

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•  Existing provisions in the area of the proposal 

a) Exemption from VAT upon importation 

Article 143(d) of the VAT Directive (Council Directive 2006/112/EC of 28 November 
2006)  provides  for  an  exemption  from  VAT  on  importation  when  this  importation  is 
followed by an intra-Community supply or transfer of the imported goods to a taxable 

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person  in  another  Member  State.  The  practical  implementation  of  this  provision, 
including the conditions for this exemption to apply, is left to the Member States and 
certain divergences have resulted. 

Article  145(1)  of  the  VAT  Directive  states  that  the  Commission  shall,  where 
appropriate,  present  to  the  Council  proposals  designed  to  delimit  the  scope  of  the 
exemptions  provided  for  in  Article  143  and  to  lay  down  the  detailed  rules  for  their 
implementation. Up to now the Commission has not submitted such a proposal.  

Fraud investigators in the Member States have drawn the attention of the Commission 
to the increasing use of this particular exemption at importation in the missing trader in 
intra-Community (MTIC) fraud schemes they have detected.  

Further analysis of this issue has demonstrated that the fraudulent use of this provision 
is  largely  facilitated  by  the  inadequate  implementation  of  this  exemption  in  national 
law,  leading  to  a  situation  whereby  the  follow-up  of  the  physical  movement  of  the 
imported  goods  by  the  customs  and  tax  authorities  within  the  Community  is  not 
guaranteed.  

Considering the large-scale abuse of this particular exemption, it is appropriate for the 
Commission to take a legislative initiative with a view to laying down detailed rules at 
Community level for the implementation of this provision. 

b) Joint and several liability 

Article 205 of the VAT Directive allows Member States to provide that a person other 
than the person liable for the payment of VAT is to be held jointly and severally liable 
for the payment of VAT. In view of the principles of proportionality, transparency and 
legal certainty, and in order to ensure a uniform application of this provision in cases 
where  the  person  carrying  out  an  exempt  intra-Community  supply  of  goods  did  not 
fulfil his reporting obligations, it is necessary to introduce the compulsory application 
of the joint and several liability in such a case and to define in detail the conditions for 
this liability to apply. 

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•  Consistency with the other policies and objectives of the Union 

Combating  tax  evasion  is  part  of  the  Lisbon  Strategy.  In  its  communication  of  25 
October  2005  on  the  contribution  of  taxation  and  customs  policies  to  the  Lisbon 
strategy, the Commission stressed that tax fraud creates a significant distortion in the 
functioning  of  the  internal  market,  prevents  fair  competition  and  erodes  revenue  that 
should be used to fund public services at national level. Increased levels of fraud result 
in  an  increasing  tax  burden  placed  on  businesses  that  comply  with  the  tax  rules  as 
governments are forced to make up the resulting shortfall in revenue. 

The  proposal  offers  Member  States  more  certainty  on  the  scope  of  some  of  the 
measures they can take to fight fraud more effectively and to ensure the collection of 
the VAT due on specific transactions when the supplier knowingly contributed to the 
risk that a VAT loss occurs on their territory. 

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2. 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

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Consultation methods, main sectors targeted and general profile of respondents 

The  technical  work  in  this  particular  field  was  carried  out  with  experts  from  the 
Member States. 

Summary of responses and how they have been taken into account 

a) Exemption from VAT upon importation 

The  work  carried  out  by  the  experts  on  importation  resulted  in  a  number  of 
recommendations. Some of these recommendations were that the importer of the goods 
should be identified for VAT purposes in the Member State of importation or appoint a 
fiscal representative in that Member State, as already provided for in Article 214(1)(a) 
of  the  VAT  Directive.  In  addition  this  importer  should  communicate  to  the  officials 
that deal with the VAT obligations upon importation the VAT identification number of 
the taxable person established in another Member State and to whom the goods will be 
sent. Furthermore, it should be ensured that this importer should be able to prove at the 
time of importation that the goods will leave the Member State of importation in order 
to be dispatched or transported to another Member State. These recommendations are 
the basis for the proposed modification of Article 143(d) of the VAT Directive.  

Other recommendations concerned more administrative practices which do not require 
an amendment of the VAT Directive. 

b) Joint and several liability 

The basic conditions for the cross border application of the joint and several liability 
principle were equally discussed with experts of the Member States and these elements 
have been incorporated in the draft legal text. 

•  Collection and use of expertise 

There was no need for external expertise. 

•  Impact assessment 

Both  measures  concern  more  technical  adaptations  to  two  Articles  of  the  VAT 
Directive in order to further clarify the application of these two Articles. 

As no substantial changes to the existing Community VAT legislation are involved, an 
impact  assessment  was  not  considered  necessary.  There  are  no  additional  burdens  on 
business  involved,  nor  will  this  lead  to  additional  costs  for  operators  or  for  tax 
administrations. 

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3. 

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LEGAL ELEMENTS OF THE PROPOSAL 

•  Summary of the proposed action 

The proposal aims at modifying two existing Articles of the VAT Directive.  

a) Exemption from VAT upon importation 

The  first  measure  will  further  specify  the  conditions  that  should  apply  for  a  certain 
exemption upon importation to be applied correctly.  

b) Joint and several liability 

The  second  measure  intends  to  impose  a  joint  and  several  liability  on  the  taxable 
person making the intra-Community supply, for the VAT due on the intra-Community 
acquisition  of  these  goods  in  another  Member  State,  in  which  he  is  not  established, 
when  he  did  not  or  not  timely  submit  a  recapitulative  statement  or  when  this 
recapitulative statement did not contain the relevant information. 

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•  Legal basis 

Article 93 of the EC Treaty 

•  Subsidiarity principle 

The  subsidiarity  principle  applies  insofar  as  the  proposal  does  not  fall  under  the 
exclusive competence of the Community. 

The  objectives  of  the  proposal  cannot  be sufficiently  achieved  by  the  Member  States 
for the following reason(s). 

In  this  instance,  Council  Directive  2006/112/EC  lays  down  the  rules  governing  the 
functioning  of  the  Community  VAT  system.  In  order  to  further  clarify  two  of  these 
harmonised  provisions  in  force,  they  have  to  be  amended  by  an  act  adopted  by  the 
Community.  The  Member  States  cannot  adopt  national  legislation  that  is  contrary  to 
Community law. 

Community action will better achieve the objectives of the proposal for the following 
reason(s). 

Measures  taken  at  Community  level  enable  tax  evasion  to  be  combated  more 
effectively. 

It will also guarantee that the provisions are applied in a harmonised manner. 

a) Exemption from VAT upon importation 

In order to avoid that importation with an exemption from VAT is shifted to Member 
States  that  do  not  apply  such  strict  conditions,  it  is  necessary  to  establish  these 
additional conditions at European level.  

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b) Joint and several liability 

The  principle  of  legal  certainty  requires  that  all  traders  established  in  the  EU  must 
know that they can be held jointly and severally liable for the payment of VAT due on 
the  intra-Community  acquisition  of  goods  in  another  Member  State  and  what  the 
conditions are that crystallise the application of this joint and several liability to apply 
to  them.  These  conditions  need  to  be  precise  and  must  apply  equally  in  all  Member 
States. 

The proposal therefore complies with the subsidiarity principle. 

•  Proportionality principle 

The proposal complies with the proportionality principle for the following reason(s). 

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The proposed modifications to the Directive are minimal. 

a) Exemption from VAT upon importation 

The supplementary conditions for using the VAT exemption on importation should in 
fact already today be applicable and they are only inserted to assist Member States in 
adopting a harmonised approach to control the practical application of the exemption. 
The  information  the  importer  has  to  submit  is  not  different  to  the  information  that  is 
already  currently  comprised  in  the  exemption  for  VAT  due  upon  importation.  The 
importer must simply show that the import is followed by an exempt intra-Community 
supply or transfer of the goods to another Member State and he must declare this in his 
recapitulative statement. 

No  additional  financial  burdens  are  imposed  and  the  administrative  burdens  are  not 
new, they are very minor and limited to importers wanting to make use of the customs 
4200  procedure,  thus  avoiding  having  to  pay  the  VAT  on  importation  when  the 
importation  is  followed  by  an  intra-Community  supply  or  a  transfer  of  the  goods  to 
another Member State. In fact this information should even today already be available 
to these importers. 

b) Joint and several liability 

For  joint  and  several  liability,  a  specific  conditional  and  obligatory  joint  and  several 
liability  rule  is  introduced  in  all  EU  Member  States  for  cases  whereby  the  supplier 
contributed  by  omission  to  a  loss  of  the  VAT  payable  in  respect  of  the  intra-
Community acquisition of these goods in another Member State by not submitting or 
submitting late his recapitulative statement or submitting a recapitulative statement not 
containing  all  the  information  related  to  this  intra-Community  supply.  The  supplier 
must also be allowed to prove before the tax administration of the Member State where 
the VAT on the intra-Community acquisition is due, that his omission is duly justified 
and that the shortcomings in his reporting obligations were merely unintended material 
errors. 

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Furthermore,  the  current  jurisprudence  of  the  European  Court  of  Justice  remains 
applicable to this provision. This rule introduces a clear and precise obligation on the 
taxable  person  making  the  intra-Community  supply  so  that  he  may  know  without 

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ambiguity what his rights and obligations are so that he can take measures accordingly. 
Therefore the proposed measure respects the condition of legal certainty for the trader 
involved.  

The  fact  that  the  supplier  has  to  submit  a  correct  recapitulative  statement  does  not 
constitute an additional administrative burden on business as this obligation is already 
currently  applicable  in  the  Community  VAT  legislation.  It  is  important  to  recall  that 
the information Member States receive through the recapitulative statements submitted 
by the suppliers of goods is their main, if not only piece of information in relation to 
intra-Community  acquisitions  taking  place  on  their  territory.  Therefore,  it  is  essential 
that  this  information  is  submitted  and  transmitted  and  that  it  reflects  correct  data,  so 
that it can be used as a control tool.  

This taxable person making the intra-Community supply will furthermore, only risk to 
be  held  jointly  and  severally  liable  insofar  the  acquirer  has  not  submitted  his  VAT 
return related to the intra-Community acquisition.  

Both  proposed  measures  are  therefore  well  targeted  and  limited  in  scope  and  respect 
the proportionality principle as well as the requirement for legal certainty. 

•  Choice of instruments 

Proposed instruments: directive. 

Other means would not be adequate for the following reason(s). 

The proposal aims  at modifying two Articles of the VAT Directive and therefore the 
amending instrument should also be a Directive. 

BUDGETARY IMPLICATION 

The proposal has no implication for the Community budget. 

ADDITIONAL INFORMATION 

•  Correlation table 

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The  Member  States  are  required  to  communicate  to  the  Commission  the  text  of 
national  provisions  transposing  the  Directive  as  well  as  a  correlation  table  between 
those provisions and this Directive. 

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•  Detailed explanation of the proposal 

a) Exemption from VAT upon importation 

The modification to Article 143(d) of the VAT Directive envisages the introduction of 
the following three conditions for the exemption to apply, namely: 

- the obligation for the importer to be identified for VAT purposes or to appoint a fiscal 
representative in the Member State of importation; 

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- the obligation for the person invoking this exemption to indicate that the goods will 
leave  the  Member  State  of  importation  in  order  to  be  transported  or  dispatched  to 
another Member State; 

-  the  obligation  for  the  importer  to  provide  at  the  time  of  importation,  the  VAT 
identification number of the taxable person identified for VAT purposes to whom the 
goods will be sent in that other Member State. 

Therefore,  the  person  importing  the  goods  and  wanting  to  make  use  of  a  VAT 
exemption because the goods are destined to go to another Member State, will have to 
show that he is identified for VAT purposes in the Member State of importation and he 
has to indicate at the time of importation that the goods will be subject to an exempt 
intra-Community supply in or transfer from the Member State of importation. For this 
second  condition  to  be  fulfilled  he  will  have  to  prove  that  the  above  mentioned 
conditions are fulfilled.  

On the other hand, the correct application of this exemption depends on a smooth flow 
of  information  between  the  national  customs  and  tax  authorities  and  between  the  tax 
administrations  of  the  different  Member  States  concerned.  This  latter  obligation  to 
collect  and  transmit  this  information  is  a  competence  for  Member  States'  tax  and 
customs administrations. Only a combined and joined approach from the Commission, 
to provide for a stricter legal framework for applying this exemption and from Member 
States  to  collect  and  transmit  this  information  to  the  different  parties  involved  can 
guarantee that this becomes an effective tool to fight the above mentioned abuse. 

b) Joint and several liability 

The modification of Article 205 concerns the obligation for Member States to make the 
supplier  of  the  goods,  who  is  not  established  on  their  territory,  jointly  and  severally 
liable  for  the  VAT  due  on  the  intra-Community  acquisition  of  these  goods  by  his 
customer  when  certain  obligations  are  not  fulfilled  thus  implicitly  contributing  to  a 
VAT  loss  in  the  Member  State  where  the  intra-Community  acquisition  takes  place. 
These  conditions  are  that  the  supplier  did  not  fulfil  his  obligation  to  submit  the 
recapitulative statement for the supply and that the VAT was not declared in the VAT 
return by the person making the intra-Community acquisition of these goods. This way 
the  Member  State  where  the  intra-Community  acquisition  is  located  is  not  informed 
that goods arrive on its territory. Furthermore, in order to respect the general principles 
of proportionality and legal certainty, this supplier can refute the presumption created 
in this Article by duly justifying his shortcoming to the competent tax authorities.  

This way, Member States receive an additional legal base allowing them to collect the 
VAT  due  upon  the  intra-community  acquisition  from  a  taxable  person  involved  in  a 
fraudulent  transaction  or  chain  of  transactions, thus increasing  the risks and  costs for 
those  fraudsters  and  complicating  the  setting  up  of  such  fraud  schemes.  At  the  same 
time  this  will  create  an  incentive  for  the  supplier  to  submit  timely  a  correct  and 
complete  recapitulative  statement  thus  improving  the  quality  of  the  data  to  be 
transmitted through the VIES (value added tax information exchange) system.  

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(Explanatory memorandum validated - 10 456 characters - complying with DGT norm.) 

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2008/0228 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2006/112/EC on the common system of value added tax as regards 
tax evasion linked to import and other cross-border transactions 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
93 thereof, 

Having regard to the proposal from the Commission1, 

Having regard to the opinion of the European Parliament2, 

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

Whereas: 

(1) 

(2) 

(3) 

(4) 

1 
2 
3 
4 

The Council, in the Conclusions of its meeting on Economic and Financial Affairs of 
28 November 2006, has agreed to establish an Anti-tax fraud Strategy implemented at 
Community level, especially for tax fraud in the field of indirect taxation, in order to 
complement national efforts.  

Two measures which have been discussed in that context require an amendment of the 
Council Directive 2006/112/EC of 28 November 2006 on the common system of value 
added tax4. 

The  importation  of  goods  is  exempt  from  value  added  tax  (VAT)  if  followed  by  a 
supply  or  transfer  of  those  goods  to  a  taxable  person  in  another  Member  State.  The 
conditions  under  which  that  exemption  is  granted  are  laid  down  by  Member  States. 
Experience, however, shows that divergences in application are exploited by traders to 
avoid payment of VAT on goods imported under those circumstances. 

In order to prevent that exploitation and based on the obligation for the Commission to 
present, where appropriate, to the Council proposals designed to delimit the scope of 
exemptions  granted  upon  importation  and  to  lay  down  the  detailed  rules  for  their 

OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, OJ L 
347, 11.12.2006. Directive last amended by Directive 2008/8//EC, OJ L 44, 20.2.2008  

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(5) 

(6) 

(7) 

(8) 

implementation, it is necessary to specify the conditions under which this exemption 
applies. 

VAT  is  payable  by  the  person  liable  for  the  payment  to  the  tax  authorities.  To 
safeguard  payment  of  VAT,  Member  States  may  however  provide  that  under 
appropriate  circumstances  another  person  is  held  jointly  and  severally  liable  for  the 
payment of that VAT. 

In order to guarantee that a supplier of goods who contributes to a VAT loss occurring 
when the goods supplied exempt of VAT are acquired by another person, may also be 
held jointly and severally liable for the payment of VAT due on the intra Community 
acquisition  of  those  goods  in  a  Member  State  where  the  supplier  concerned  is  not 
established (non-established supplier), it is appropriate to provide for that possibility. 

To  satisfy  the  requirement  for  legal  certainty  for  the  non-established  supplier,  it  is 
necessary  that  all  Member  States  apply  the  same  rule  and  that  the  conditions  for 
application are transparent. 

Since, for those reasons, the objectives of the proposed actions with a view to address 
the  problem  of  VAT  evasion,  cannot  be  sufficiently  achieved  by  the  Member  States 
themselves and can therefore be better achieved at Community level, the Community 
may  adopt  measures  in  accordance  with  the  principle  of  subsidiarity  as  set  out  in 
Article 5 of the Treaty. In accordance with the principle of proportionality, as set out 
in that Article, this Directive does not go beyond what is necessary in order to achieve 
those objectives. 

(9) 

Directive 2006/112/EC should therefore be amended accordingly, 

HAS ADOPTED THIS DIRECTIVE: 

Article 1 

Directive 2006/112/EC is amended as follows: 

(1) 

Article 143 is amended as follows: 

(a) 

the introductory words are replaced by the following: 

"1.  Member States shall exempt the following transactions:" 

(b) 

the following paragraph is added: 

"2.  The exemption provided for in point (d) of paragraph 1 shall apply only if at 
the  time  of  importation  the  importer  has  clearly  indicated  to  the  competent 
authorities of the Member State of importation all the following information: 

(a) 

(b) 

his  VAT  identification  number  or  the  VAT  identification  number  of 
his fiscal representative in the Member State of importation; 

the VAT identification number of the customer to whom the goods are 
supplied  in  another  Member  State,  or  his  own  VAT  identification 

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number  in  the  Member  State  of  arrival  of  the  goods  when  the  goods 
are  subject  to  a  transfer  from  the  Member  State  of  importation  in 
accordance with the conditions laid down in Article 138(2)(c); 

(c) 

the  proof  that  the  imported  goods  will  be  transported  or  dispatched 
from the Member State of importation to another Member State." 

(2) 

Article 205 is replaced by the following: 

“Article 205 

1. 

2. 

In  the  situations  referred  to  in  Articles  193  to  200  and  Articles  202,  203  and  204, 
Member States may provide that a person other than the person liable for payment of 
VAT is to be held jointly and severally liable for payment of VAT. 

In the situation referred to in Article 200, the person supplying goods in accordance 
with the conditions laid down in Article 138, shall be held jointly and severally liable 
for the payment of the VAT due on the intra-Community acquisition of those goods 
where he has not complied with the obligation provided for in Articles 262 and 263 
to submit a recapitulative statement containing the information concerning the supply 
or  the  recapitulative  statement  submitted  by  him  does  not  set  out  the  information 
concerning this supply as required under Article 264. 

However, the first subparagraph shall not apply in the following situations:  

(a) 

(b) 

the customer has, for the period during which the tax became chargeable on the 
transaction concerned, submitted a VAT return as provided for in Article 250 
containing all the information on this transaction; 

the  person  supplying  goods  in  accordance  with  the  conditions  laid  down  in 
Article 138 can duly justify to the satisfaction of the competent authorities his 
shortcoming referred to in the first subparagraph of this paragraph." 

Article2 

Transposition 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  this  Directive  by  31  December  2009  at  the 
latest.  They  shall  forthwith  communicate  to  the  Commission  the  text  of  those 
provisions and a correlation table between those provisions and this Directive. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

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

Article 3 

Article 4 

This Directive is addressed to the Member States. 

Done at Brussels,  

For the Council 
The President 

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