Opinion of the European Economic and Social Committee on the ‘Proposal for a Council Regulation on administrative cooperation and combating fraud in the field of value added tax’ COM(2009) 427 final — 2009/0118 (CNS)
Date: 2010-02-17
Institutions: European Economic and Social Committee
Subjects: VAT, administrative cooperation, domestic market, fraud, intra-EU trade, tax evasion








C_2010347EN.01007301.xml










18.12.2010   


EN


Official Journal of the European Union


C 347/73





Opinion of the European Economic and Social Committee on the ‘Proposal for a Council Regulation on administrative cooperation and combating fraud in the field of value added tax’
COM(2009) 427 final — 2009/0118 (CNS)
(2010/C 347/11)
Rapporteur: Mr BURANI

On 23 September 2009 the Council decided to consult the European Economic and Social Committee, under Article 93 of the Treaty establishing the European Community, on the

Proposal for a Council Regulation on administrative cooperation and combating fraud in the field of value added tax (Recast)

COM(2009) 427 final - 2009/0118 (CNS).
The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 2 February 2010.
At its 460th plenary session, held on 17-18 February 2010 (meeting of 17 February), the European Economic and Social Committee adopted the following opinion by 203 votes to one with five abstentions.
1.   Conclusions and recommendations
1.1   Council Regulation (EC) No 1798/2003 on administrative cooperation in the field of value added tax has been in force since 1 January 2004. Every three years the Commission is required to submit a report on the functioning of administrative cooperation; alongside this commitment – discharged with the August 2009 report – it has submitted a new Proposal for a Regulation (recast). With this proposal, the Commission fine-tunes the current Regulation's legal framework in a number of respects, in the light of experience gained from its initial years of application; its stated main aim is to give Member States a more effective tool to combat fraud, in the form of better administrative cooperation.
1.2   The Commission report is very useful for understanding the proposal: application of the Regulation has been unsatisfactory, for many reasons. Briefly, to quote the comments of the European Court of Auditors, reproduced word for word in the report, ‘administrative cooperation between Member States in the field of VAT is still not intensive enough to cope with intra-Community VAT evasion and fraud’.
1.3   The EESC notes that resistance to change is having detrimental effects on Member States’ and the EU's finances; while there are, it is true, practical considerations, the main reason lies in an unprofessed desire to protect particular interests, which are taking precedence over the common good.
1.4   On a practical level, there are, objectively speaking, different ideas of how to ensure the ‘proper conduct’ of cross-border transactions: on the one hand, there is a desire to prioritise genuine administrative cooperation, and, on the other, a tendency to place more emphasis on combating fraud. The Commission has an advisory body for each of these aspects – the ATFS Group (1) and the SCAC Committee (2) (see point 2.3). A merger of these bodies or the creation of a joint, coordinated structure could help to lessen the underlying ‘conflict of interest’ between the two areas.
1.5   The main problem, however, is political resistance, a tangible example of which is the dispute over the Court of Auditors’ competence to verify whether the Regulation is being properly implemented: one Member State has taken a case to the Court of Justice.
1.6   The new proposal makes a large number of innovations – too many to summarise here. The main points include the requirement for Member States to implement the Regulation in its entirety and within the time stipulated. If adopted, this text will give the Commission the much-needed power to impose sanctions.
1.7   Setting up a single central liaison office in each Member State should streamline the cooperation system: Member States’ obligation to communicate information on a taxable person established within their territory is confirmed, and the right to refuse to conduct enquiries on behalf of another administration is limited to a small number of specific cases. The new rules are particularly important for distance selling; moreover, the EESC feels that their effectiveness is dependent on the adoption of the requisite IT systems across the board: it would therefore be prudent not to make the rules mandatory until 2015, at the end of the transitional period.
1.8   Various articles provide for a number of automatic
processes: automatic communication, on a Member State's own initiative, of any information which may be useful to another administration; the requirement to provide feedback upon receipt of information; automated access to databases. Moreover, these all require common procedures to be established, a task which the Commission must address without delay.
1.9   Some concern is raised by a rule which provides for participation of officials of other Member States concerned in enquiries, including in places other than the offices of the host Member State: the EESC does not consider this rule to be appropriate, because of the obvious need to protect confidential, sensitive information.
1.10   The creation of a common structure to combat VAT fraud (Eurofisc) may be the most significant innovation: it would organise swift, multilateral exchanges of information. The EESC unreservedly supports this initiative but, at the same time, draws attention to a longstanding issue: the need to establish cooperation and liaison with other bodies engaged in the fight against organised crime and money laundering.
2.   Background
2.1   Council Regulation (EC) No 1798/2003 on administrative cooperation in the field of value added tax entered into force on 1 January 2004. The regulation was welcomed by most Member States, which approved the Commission's intention to improve the legal framework for administrative cooperation and provide an instrument to combat fraud
 (3). Article 45 of the regulation required the Commission to submit a report on its application to the European Parliament and the Council every three years. The report of 18 August 2009
 (4) is the most recent response to this obligation.
2.2   In the intervening years, however, people had become more sensitive to the problem of tax fraud. Thus, on the subject of VAT, the Commission's Communication concerning the need to develop a coordinated strategy to improve the fight against fiscal fraud
 (5) of 31 May 2006 mentioned the need to develop a coordinated strategy, in particular against ‘carousel fraud’ (6)
 (7). A subsequent Communication (8) set out a short-term action programme.
2.3   The Commission is now proposing a new regulation
 (9) which seeks to recast the existing regulation. The proposal is the result of the Commission's own considerations and of input from various other sources: Member States’ reports on the operation of the 2004 regulation, their replies to specific questionnaires, special report of the Court of Auditors No 8/2007, and European Parliament resolution 2008/2033(INI) of 2 September 2008. The Commission also received contributions from the Anti Tax Fraud Strategy expert group (ATFS) and the Standing Committee on Administrative Cooperation (SCAC).
3.   General comments
3.1   The abovementioned report COM(2009) 428 is very useful for understanding the new regulation; in it the Commission voices its dissatisfaction with the application of the existing regulation, as summed up by the Court of Auditors’ statement (quoted by the Commission) that ‘despite new arrangements, (…) administrative cooperation between Member States in the field of VAT is still not intensive enough to cope with intra-Community VAT evasion and fraud’. The Commission has done its best to improve the rules and make them easier to apply, but the lack of progress is largely due to resistance to change on the part of some, or possibly many, national authorities. Alongside practical organisational or technological difficulties, there is no denying that a willingness to cooperate fully is still held back by protection of particular interests, whether real or presumed. In the tax field as in no other, the European ideal is struggling to be upheld.
3.2   Sound administrative
cooperation is vital for proper conduct of crossborder transactions and is certainly in the interests of national authorities and of the general public. However, the concept of ‘proper conduct’ implies that these transactions are carried out with proper respect for tax rules. The two concepts are interlinked: administrative cooperation and the fight against tax fraud form one indivisible whole. The Commission is translating this into practice by proposing the creation of a joint body (Eurofisc).
3.3   The Commission has two advisory bodies providing it with expert input at the highest level: the ATFS Group and the SCAC Committee (see point 2.3). A merger creating a single body (or the creation of two groups coordinated by a single decision-making body) could help to lessen the underlying ‘conflict of interest’ between administrative and tax concerns. Rules to combat tax fraud do not always fit in with the streamlining of administrative procedures, and vice versa. Resistance to change is to some extent tied to differing requirements concerning the same problem.
3.4   The greatest problems, however, appear to be political: the report mentioned in point 2.1 notes that in order to elaborate on the replies received to its questionnaires (see point 2.3), the Commission gave Member States the opportunity to ‘share their views on the functioning of VAT administrative cooperation’. It is worrying that ‘only two Member States showed an interest in having an open discussion with the Commission …’. There was another significant development: one Member State actually disputed the competence of the Court of Auditors to carry out audits of the implementation of the regulation on administrative cooperation, and the case is currently before the Court of Justice. These facts speak for themselves, and give little cause for optimism about the future.
3.5   A further political aspect is administrative cooperation between tax authorities and the authorities dealing with money laundering of the proceeds from organised crime and terrorism. The EESC has emphasised the importance of this for some time, but it seems to have met little agreement so far (10).
4.   Specific comments
The main amendments made by the new regulation concern greater responsibility to cooperate on the part of the Member States, specification of the information to be collected and made available, and delimitation of rights of access to that information. The regulation establishes a permanent framework to guarantee the quality of the information and specifies Member States’ responsibility to provide accurate information in good time. Lastly, it creates the legal basis for establishing a structure for targeted cooperation to combat fraud (Eurofisc).
4.1.1   The EESC appreciates and supports the Commission, as the new regulation marks a decisive step forward in regulating this field. Its implementation will, if Member States so wish, improve the organisation of public finance by simplifying procedures and helping to combat fraud.
4.2   The EESC offers below some comments on the main innovative proposals made by the new regulation. They are intended constructively, being also the result of an objective assessment of the obstacles which continue to impede sound administrative cooperation.

Article 1(1) states explicitly that one of the main aims of the recast regulation is ‘to combat VAT fraud’. Article (1)(2) lays down the conditions which Member States must meet in order to fulfil their obligation to ‘act to protect VAT revenue in all the Member States’. The text of the existing regulation is less forthright, as it simply sets out ‘rules and procedures for the exchange of certain information’.
4.3.1   This is a significant innovation: the obligation to take action to cooperate means that the Member States must implement the regulation in its entirety and within the time stipulated. The EESC naturally supports this, but wonders whether in practice Member States will be able or willing to adapt to the new rules, given the delays and exemptions experienced with the existing regulation. Moreover, the binding nature of the regulation means that the Commission has the power to impose sanctions and the Court of Auditors to carry out audits of proper implementation: not everybody is in agreement with this. In the report mentioned in point 2.1, the Commission notes that Germany has contested an infringement procedure and the Court of Auditors’ competence to carry out audits. The Court of Justice's ruling on the case currently before it will have a crucial influence on the future of administrative cooperation in the VAT field.
4.3.2   The new wording of Article 1 thus shows that in taxation matters too we see differing trends in European policy: interpreting the Treaties from different perspectives often leads the Commission to defend competences and powers and the Member States to hold on to their national prerogatives. The EESC sees no need to take a stance on this but would express the hope that adoption of the new Treaty will usher in a new Europe in which Member States adhere steadfastly to the principles enshrined therein.
4.4   Article 4 obliges each Member State to designate a single central liaison office to be responsible for contacts with other Member States. The EESC welcomes this decision, but points out that a central office can only operate smoothly if the related national contact points are also efficient: this condition does not currently seem to be met everywhere.

Article 7 (former Article 5) confirms Member States’ obligation to communicate information on a taxable person established within their territory when so requested by another Member State. In certain cases (11), the requested authority may refuse to conduct an enquiry, but only if it has already provided the requesting authority with information less than two years previously; however, it is still required to provide details of transactions made by the taxable person over the last two years.
4.5.1   The new rules are particularly important for distance selling and rightly seek to promote administrative cooperation. However, even in their present form they are not fully implemented, mainly because the requisite IT structure is lacking. The EESC therefore thinks that for these rules it would be advisable to apply the transitional period scheduled for other provisions, so that they would only become mandatory in 2015 when Council Regulation (EC) 143/2008 enters into force (12).
4.6   Article 15 clarifies the meaning of ‘automatic exchange’ of information, already mentioned in Article 17 of the existing regulation. Each Member State is required to communicate automatically, and on its own initiative, any information which may be useful to another Member State to protect its tax revenue. The clarification is significant: if and when it is applied systematically, the spontaneous transmission of information of interest to other authorities will prove that the concept of administrative cooperation has been fully taken on board.
4.7   Article 17 ties in with Article 15, as it requires the requesting authorities to provide feedback to the authorities which provided the information. Cooperation is thus not only a matter of supplying information but also of keeping the parties which supplied it informed of the results of the actions which ensued.
4.8   Article 18 (former Article 22) specifies the information which each Member State is to include in its database. The EESC considers that these provisions will be beneficial in two ways: as well as improving the operation of the VIES (13) information-exchange system, they will draw Member States’ attention to the application of Directive 2006/112/EC as regards the allocation, variation or cancellation of a VAT number; the importance of proper implementation of the related provisions is shown by the fact that a good part of fraud concerns precisely VAT numbering. Users will also benefit significantly, thanks in particular to the new provisions on minimum
standards for databases introduced by Articles 23 and 24.
4.9   The EESC is a little concerned about Article 22, which requires every Member State to grant the authorities of any other Member State automated access to their databases. The EESC points out that even with the prior agreement of the requested authority
 (14), direct access still poses problems of understanding the language and correct interpretation and use of the information concerned. The Commission itself recognises the problem, as the 23rd ‘whereas’ clause states that ‘common procedures should be established to ensure that the information is comparable’ and the same concept, in a different context, recurs in the 27th ‘whereas’ clause. The EESC considers that the provision on automated access should be put off to a future date, when common administrative and electronic procedures have been adopted by all Member States.

Article 29, which concerns the participation of officials of the Member States concerned in administrative enquiries, specifies in Article 29(1) that these officials may be present not only in the offices but also in ‘any other place’ (in practice, in the offices of the taxable persons being investigated). Article 29(2) deletes the provision whereby the requested Member State could lay down the arrangements for participation of officials of the requesting Member State in enquiries, and confirms that although officials of the requesting Member State ‘shall not exercise the powers of inspection conferred on officials of the requested authority’, they nevertheless ‘may have access to the same premises and documents as the latter …’.
4.10.1   This set of powers and prerogatives seems neither prudent nor justified. The EESC asks for it to be given more serious thought. The presence of an official of another Member State in the offices of a taxable person could lead to ‘the disclosure of a commercial, industrial or professional secret (…) or of information whose disclosure would be contrary to public policy’. These are the precise words of Article 56(4), which lays down the cases in which information may be refused. It is even less acceptable that such information should come into the possession of an official of another Member State because he is in the offices of a taxable person.

Articles 34 to 39 concern a new development: the establishment of a common structure for combating VAT evasion and avoidance. This body, which the report (15) gives the name Eurofisc, would have the essential task of organising swift multilateral exchanges of information, collecting and disseminating useful information in the context of administrative cooperation. The various articles cover the different aspects of the new body's operation. Moreover, it is not yet clear whether it would be a centralised or a decentralised structure.
4.11.1   The EESC welcomes the setting-up of a body to centralise and disseminate information. When this body becomes operational, however, it may be necessary to revise certain parts of the regulation to ensure compatibility with the present system of bilateral cooperation.
4.11.2   The setting-up of Eurofisc raises another issue which is not mentioned in any part of the regulation or the explanatory memorandum: cooperation and liaison with other bodies engaged in the fight against organised crime and money laundering. In many cases, and at least in the most serious ones, VAT evasion is not an isolated crime but is connected to smuggling of counterfeit goods, drug trafficking, arms trafficking and various other activities conducted and controlled by organised crime and terrorism. Neither in the regulations nor in practice is there any structured cooperation between bodies dealing with different aspects of the same phenomenon, or of different phenomena coming under the same organisations. This leads to duplication of efforts, inefficiency and, often, conflicts of competence.
4.11.3   The EESC's opinion on good governance in tax matters (16) gives more detailed consideration to cooperation between tax authorities and the police authorities dealing with crime and terrorism. Essentially, the problem boils down to the need for better coordination between the tax directives and those on money laundering. It is unacceptable that bodies with similar or related aims – such as direct and indirect taxation authorities, customs, police and secret services – should have no liaison or cooperation agreements.
4.11.4   The EESC is aware of the practical and administrative problems that such a step would pose and realises that it would take a long time to put into practice. However, it points out that the main obstacle is undoubtedly the current lack of political will on the part of the Member States. The Commission should provide a stimulus here and include administrative cooperation between investigating bodies in its medium-long term plans.
4.12   The proposed regulation does not give a date for its entry into force, merely stating that it will enter into force on the twentieth day following that of its publication in the Official Journal. However, Article 45 states that a series of electronic cooperation based procedures are to apply from 1 January 2015. This date seems realistic, assuming that all Member States are willing and able to respect it.
4.13   Article 51 requires each Member State to conduct an (internal) audit of the operation of the cooperation arrangements. Such a measure is undoubtedly necessary and may have been prompted by experience with external audits (see points 3.4 and 4.3.1), on which a ruling by the Court of Justice is pending. However, the EESC wonders about the practical effectiveness of a measure which makes Member States responsible for auditing themselves.
4.14   Article 56 (former Article 40) remains unchanged. It grants Member States the possibility of not supplying information or carrying out enquiries if their laws do not allow this or if it would lead to the disclosure of an industrial or professional secret. A further paragraph should be added specifying that this possibility does not apply to cases covered by banking secrecy. This matter should be considered in the broader context of the abolition of banking secrecy and anti-moneylaundering legislation. However, a doubt remains as to whether information held by a person ‘acting in an agency or fiduciary capacity’ comes under banking secrecy or professional secrecy. The EESC thinks that clarification is needed.

Brussels, 17 February 2010


The President of the European Economic and Social Committee

Mario SEPI




(1)  Anti Tax Fraud Strategy expert group.

(2)  Standing Committee on Administrative Cooperation.

(3)  The EESC issued an opinion on the regulation: see OJ C 267, 27.10.2005, p. 45.

(4)  COM(2009) 428 final. The present opinion does not comment on the report itself; however, the information and views set out by the Commission are of great help in understanding the full import of the measures proposed in the new regulation.

(5)  COM(2006) 254 final.

(6)  This has in certain cases developed into Missing Trader Intra-Community Fraud (MTIC), COM(2009) 511 final, p. 3.

(7)  The EESC also commented on this communication in its opinion on the Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee concerning the need to develop a coordinated strategy to improve the fight against fiscal fraud; OJ C 161, 13.7.2007, p. 8.

(8)  COM(2008) 807 final.

(9)  COM(2009) 427 final.

(10)  See EESC Opinion on Promoting Good Governance in Tax Matters.

(11)  The cases in which the request may be refused are listed in the (new) Annex to the regulation. They concern services such as distance selling, services connected to immovable or tangible movable property, services ancillary to transport, and telecommunication and radio and television broadcasting services.

(12)  Council Regulation (EC) No 143/2008 of 12 February 2008 amending Regulation (EC) No 1798/2003 as regards the introduction of administrative cooperation and the exchange of information concerning the rules relating to the place of supply of services, the special schemes and the refund procedure for value added tax, OJ L 44, 20.2.2008, p. 1.

(13)  VIES: VAT Information Exchange System.

(14)  Article 7 states that ‘at the request of the requesting authority, the requested authority shall communicate the information …’.

(15)  COM(2009) 428 final, point 2.1.

(16)  Commission Communication on Promoting good governance in tax matters - COM(2009) 201 final.