Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC on the common system of value added tax as regards a quick reaction mechanism against VAT fraud
Date: 2012-07-31
Institutions: European Commission
Subjects: VAT, derogation from EU law, tax evasion

EUROPEAN COMMISSION 

Brussels, 31.7.2012  
COM(2012) 428 final 

2012/0205 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2006/112/EC on the common system of value added tax as regards a 
quick reaction mechanism against VAT fraud 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

In  the  Annual  Growth  Survey  20121  and  its  Annex  IV  (‘Growth-friendly  tax  policies  in 
Member States and better tax coordination in the EU’), the Commission has emphasized the 
need to raise the efficiency of VAT in the context of fiscal consolidation. It was pointed out 
that improving tax collection and tackling tax evasion more efficiently could contribute to an 
increase of government revenue. 

VAT  fraud  schemes  evolve  rapidly  and  Member  States  are  sometimes  confronted  with 
situations  whereby  the  EU  VAT  law  in  force  does  not  provide  a  legal  base  for  the 
counteractions they wish to take. 

Until  now,  such  situations  have  been  tackled  either  by  an  amendment  of  Council  Directive 
2006/112/EC of 28 November 2006 on the common system of value added tax2 (hereafter the 
'VAT Directive') or individual derogations have been granted to Member States on the basis 
of Article 395 of the VAT Directive. This article currently offers the option to Member States 
to  obtain  a  derogation  in  order  to  combat  fraud  (simplification  being  the  other  possible 
objective  under  this  article).  This  requires  a  (positive)  proposal  from  the  Commission,  a 
process which can take up to 8 months according to paragraph 4 of Article 395 of the VAT 
Directive, and unanimous adoption by the Council, which can lead to further delays. 

In  both  cases,  the  process  is,  by  nature,  slow  and  cumbersome  in  comparison  to  quickly 
emerging  fraud  phenomena  at  international  level,  e.g.  carousel  fraud  in  services  which  are 
very quickly supplied on to the next trader (rather than the more traditional type of fraud in 
goods).  The  process  for  granting  derogations  or  for  amending  the  VAT  Directive  can 
therefore  lead  to  considerable  and  irreparable  financial  losses.  A  recent  example  is  the 
estimated  loss  of  EUR  5  billion  between  June  2008  and  December  2009  in  relation  to  the 
greenhouse gas emission allowances trade3. 

Member States may therefore be tempted to take immediate measures without an appropriate 
legal  basis  in  the  EU  legislation.  However,  this  situation  remains  unsatisfactory  as  these 
measures, even where they are appropriate and proportionate in relation to the fraud situation, 
could be challenged before the Courts because of the lack of a legal basis. 

Making  the  EU  VAT  system  more  robust  is  also  one  of  the  key  objectives  set  out  in  the 
Communication  on  the  future  of  VAT4  presented  on  6  December  2011  and  the  current 
proposal has been indicated as a priority action for pursuing that objective. 

The purpose of this proposal is therefore to foresee a procedure in the VAT Directive which, 
in very specific situations, would provide a legal base for Member States to take immediate 
measures. This would be called the Quick Reaction Mechanism (hereafter 'QRM'). 

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COM(2011) 815, 23.11.2011. 
OJ L 347, 11.12.2006, p. 1. 
Europol  press  release  of  9  December  2009,  'Carbon  Credit  fraud  causes  more  than  EUR  5  billion 
damage for European Taxpayer' 
COM(2011) 851 final 

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The purpose of the QRM is not to replace the current derogation system. Its scope is therefore 
limited  to  massive  and  sudden  fraud  situations  in  (a)  specific  economic  sector(s)  in  a 
particular Member State that cannot be stopped via traditional control and enforcement means 
and which would lead to irreparable losses. 

As  this  new  mechanism  would  only  bring  added  value  if  decisions  can  be  adopted  much 
quicker  than  under  the  current  procedures,  it  is  proposed  that  the  Commission  would  make 
use of implementing powers as foreseen in Article 291 of the Treaty on the Functioning of the 
European Union as to ensure a correct implementation of the VAT Directive, and to prevent 
budget losses and violations of the principles of fair taxation. 

For the adoption of the implementing decisions, authorising a derogating anti-fraud measure 
to the requesting Member State concerned, use would be made of the examination procedure, 
as explicitly foreseen regarding taxation in Article 2, paragraph 2, point (b)(v) of Regulation 
(EU) No 182/2011 of the European Parliament  and  the  Council  of  16  February  2011  laying 
down the rules and general principles concerning mechanisms for control by Member States 
of  the  Commission's  exercise  of  implementing  powers5  (hereafter  the 
'Comitology 
Regulation'),  of  which  the  practical  and  legal  aspects  are  set  out  in  Article  5  of  the  said 
Regulation. 

In conjunction with this article, the Commission would adopt immediately applicable acts on 
the  basis  of  duly  justified  grounds  of  urgency,  within  the  meaning  of  Article  8  of  the 
Comitology Regulation. This is the fastest option to provide for a legal basis for a derogating 
measure  to  be  applied  in  a  Member  State  in  short  notice.  This  underlines,  as  already 
mentioned, the exceptional character of the QRM and explains its limited scope. 

In  derogation  of  the  foreseen  standard  application  period  of  6  months  in  Article  8(2)  of  the 
Comitology Regulation, it is proposed to increase the application period of any authorisation 
given  under  the  QRM  to  maximum  one  year.  This  would  allow  Member  States  in  the 
meantime  to  follow  the  standard  procedure  provided  for  under  Article  395  of  the  VAT 
Directive or to implement other anti-fraud measures which do not require a derogation. 

In  accordance  with  Article  8(3)  of  the  Comitology  Regulation,  the  act  would  have  to  be 
submitted to the relevant Comitology committee, which would be the Standing Committee on 
Administrative  Cooperation  (SCAC),  within  14  days  of  its  adoption  by  the  Commission. 
Article 3(5) of the Comitology Regulation provides the possibility, in duly justified cases, to 
obtain the committee's opinion by written procedure and the Commission has the intention to 
make  use  of  that  option  with  a  view  to  speeding  up  the  procedure  as  much  as  possible.  As 
allowed under the second paragraph of Article 3(5) of the Comitology Regulation, it will not 
be  possible  for  a  Member  State  to  terminate  the  written  procedure  upon  request  in  order  to 
convene  a  meeting  as  this  would  considerably  slow  down  the  whole  procedure.  It  is  to  be 
understood  that,  should  the  committee  deliver  a  negative  opinion,  the  Commission  has  to 
immediately  repeal  the  derogation  in  accordance  with  Article  8(3)  of  the  Comitology 
Regulation. 

As to the content of the derogations which could be authorised under the QRM, it is proposed 
to define and agree a list of anti-fraud measures as, once a QRM request is submitted, there 
will be little or no time for a fundamental debate between Member States on the type of anti-

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OJ L 55, 28.2.2011, p. 13. 

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fraud  measures.  This  will  also  allow  the  Commission  to  work  on  the  basis  of,  to  a  large 
extent, pre-established texts, thereby reducing timeframes for case-handling and translations.  

The only anti-fraud measure currently specified in this proposal is the so-called reverse charge 
mechanism,  under  which  the  taxable  recipient  becomes  liable  for  the  payment  of  the  VAT 
instead  of,  as  a  general  rule,  the  supplier  of  the  goods  or  services.  Insofar  as  the  recipient 
disposes of a full right of deduction, he will account and deduct the VAT in the same VAT 
return and the result is that no effective payment or refund is taking place; thus reducing the 
possibilities  of  fraud.  This  measure,  and  notwithstanding  its  possible  medium-term  negative 
side-effects,  has  proven  to  be  an  effective  tool  in  stopping  fraud  (and  in  particular  carousel 
fraud) when targeted to certain specific sectors. 

The other measures would have to be determined by the Council, acting unanimously upon a 
proposal  from  the  Commission,  so  that  these  measures  are  established  before  being 
considered as part of any QRM request. 

In procedural terms, Member States should send an application to the Commission outlining 
their  intention  of  introducing  a  derogation  measure  on  the  basis  of  the  QRM  system.  The 
exceptional circumstances of the fraud situation should be explained in detail as to justify the 
application of the QRM; the Commission shall ask for additional information when required. 
Once  all  the  necessary  information  is  available,  the  Commission  will  either  authorise  the 
measure or inform the Member State concerned of its refusal within one month. 

In order to streamline the process as much as possible, the request of a Member State would 
be based on a standardised form, adopted by the Commission, containing a pre-established list 
of questions allowing for a quicker and more comprehensive examination and assessment of 
the  fraud  situation  for  which  the  derogation  demand  is  lodged.  As  regards  its  internal 
organisation, the Commission will ensure that an accelerated decision-making procedure is in 
place. The derogation would be granted by the Commission itself without the need to wait for 
a  decision  of  the  Council  and  even  before  an  opinion  is  delivered  by  the  competent 
committee. Furthermore, since only one Member State would be concerned, the adoption of 
the Decision could take place on the basis of one single language version. The combination of 
all these factors should make it possible that the deadline of 1 month, after the Commission 
having obtained all the necessary information, is met. 

2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENTS 

Public  consultation  as  to  the  possible  use  of  a  QRM  was  already  held  in  the  context  of  the 
above-mentioned  Communication  on  the  future  of  VAT.  Prior  to  that  public  consultation, 
discussions  took  place  with  the  Member  States  (via  the  Anti  Tax  Fraud  Strategy  Group) 
showing that there was a genuine interest for such a mechanism to be put in place. 

The current proposal is mainly of a procedural nature. Its purpose is to speed up, in cases of 
urgency,  the  possibility  already  existing  for  Member  States  to  obtain  an  authorisation  to 
derogate  from  the  provisions  of  the  VAT  Directive.  An  impact  assessment  was  therefore 
irrelevant in this context. Only the subsequent national measures, authorised under the QRM 
(like  those  authorised  today  under  Article  395),  could  have  a  certain  impact  which,  in  any 
case, should not be significant given the limited scope and duration. 

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Furthermore, as it is not known for which concrete and specific cases a Member State might 
ask for the proposed QRM procedure, it is not possible to estimate any quantitative impact the 
QRM  could  have  compared  to  the  current  derogation  procedure,  as  this  would  obviously 
always depend on the specific case. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

With a view to assist the Member States better in their fight against aggressive forms of VAT 
fraud,  the  proposed  measure  complements  the  procedure  for  adopting  certain  derogatory 
measures to ensure a quicker and, as a result, a more adequate and effective response to these 
phenomena. This proposal therefore amends the VAT Directive. 

The EU action is justified on grounds of subsidiarity following the legal basis for work in the 
area of indirect taxation provided for in Article 113  of the Treaty on the Functioning of the 
European Union. Use is made of the implementing powers of the Commission on the basis of 
Article 291 of the TFEU and in accordance with the Comitology Regulation, which stipulates 
that  the  examination  procedure  is  to  be  used  for  taxation  issues.  The  risk  of  irreparable 
financial  losses  justifies  the  use  of  immediately  applicable  acts.  As  a  consequence,  the 
procedure for adopting this type of derogation measure will be speeded up. 

The above-mentioned sudden and massive fraud phenomena very often have an international 
dimension  (e.g.  so-called  carousel  and  missing  trader  fraud).  When  confronted  with  new 
forms of trade (e.g. internationally tradable services), Member States are not in a position to 
individually  counter  these  (intangible)  fraud  circuits  which  involve  several  countries  at  the 
same time. Therefore, the objective of combating fraud can be better achieved at EU level via 
a  Directive  which  offers  the  possibility  to  Member  States  to  obtain,  in  exceptional  cases,  a 
legal  basis  for  a  derogating  measure  in  a  much  quicker  way  than  that  which  is  currently 
possible. This does therefore not go beyond what is necessary to achieve the objective. 

The proposed instrument is a Directive as the legislation being amended is a Directive and so 
no other legislative act would be suitable. 

4. 

BUDGETARY IMPLICATION 

The proposal has no negative impact on the EU budget. 

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2012/0205 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2006/112/EC on the common system of value added tax as regards a 
quick reaction mechanism against VAT fraud 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 113 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Parliament6, 

Having regard to the opinion of the European Economic and Social Committee7, 

Acting in accordance with a special legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

Tax  fraud  in  the  field  of  value  added  tax  (VAT)  leads  to  considerable  budget  losses 
and affects the conditions of competition and thus the operation of the internal market. 
Specific sudden and massive forms of tax fraud have recently developed especially via 
the use of electronic means which facilitate rapid illegitimate trade on a large scale. 

Council Directive 2006/112/EC of 28 November 2006 on the common system of value 
added tax8 allows Member States to apply for a derogation from that Directive in order 
to prevent certain forms of tax evasion or avoidance. Authorisation of such derogation 
requires  a  proposal  from  the  Commission  and  its  adoption  by  the  Council.  Recent 
experience  has  demonstrated  that  the  process  for  granting  derogations  is  not  always 
flexible enough to ensure a prompt and suitable reaction to requests by Member States. 

In  order  to  ensure  the  principle  of  fair  taxation  and  the  implementation  of  Directive 
2006/112/EC in cases where the current derogation procedure is not appropriate, it is 
necessary to establish a new procedure for granting derogations, called 'Quick reaction 
mechanism'. 

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OJ C , , p. . 
OJ C , , p. . 
OJ L 347, 11.12.2006, p. 1. 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

In  order  to  allow  for  a  quicker  adoption  of  the  necessary  derogations  and  to  ensure 
uniform  conditions  for  the  implementation  of  Directive  2006/112/EC,  implementing 
powers should be conferred on the Commission as regards the authorisation given to 
the  requesting  Member  State  to  introduce  derogation  measures  in  the  specific 
framework  of  the  Quick  Reaction  Mechanism.  Those  powers  should  be  exercised  in 
accordance  with  Regulation  (EU)  No 182/2011  of  the  European  Parliament  and  the 
Council of 16 February 2011 laying down the rules and general principles concerning 
mechanisms  for  control  by  Member  States  of  the  Commission's  exercise  of 
implementing powers9. 

The  Commission  should  adopt  immediately  applicable  implementing  acts  where,  in 
duly justified cases relating to the authorisation given to the requesting Member State 
to  introduce  derogating  measures,  imperative  grounds  of  urgency  so  require. 
Immediately  applicable  implementing  acts  are  necessary  in  cases  of  sudden  and 
massive forms of fraud that could lead to considerable and irreparable losses. 

It  is  necessary  to  extend  the  maximum  period  of  validity  of  immediately  applicable 
implementing  acts  in  order  to  allow  the  Member  State  concerned  to  establish  more 
permanent measures in the meantime. This would also, if need be, provide sufficient 
time for the application of the derogation procedure set out in Article 395 of Directive 
2006/112/EC.  

The designation of the recipient as person liable for the payment of the VAT (reverse 
charge)  is  an  effective  measure  to  stop  at  once  the  most  well-known  types  of  tax 
evasion in certain sectors. However, as the situation may evolve over time, it may also 
be  necessary  to  allow  for  other  measures.  To  that  end,  the  Council  should,  where 
appropriate, upon proposal of the Commission, determine any other measure as falling 
within the scope of the Quick Reaction Mechanism. The type of measures that could 
be  authorised  should  be  established  in  order  to  minimise  the  time  necessary  for  the 
authorisation of the derogations by the Commission. 

It is also necessary to establish the standardised form of requests by Member States in 
order  to  facilitate  their  understanding  and  subsequent  treatment.  In  order  to  ensure 
uniform  conditions  for  the  implementation  of  Directive  2006/112/EC,  implementing 
powers should be conferred on the Commission as regards that standardised form. 

In order to accelerate the adoption of implementing acts relating to the authorisation 
given to the requesting Member State to introduce derogation measures in the specific 
framework  of  the  Quick  Reaction  Mechanism,  the  chair  of  the  Committee  should 
apply  the  written  procedure  within  the  meaning  of  Article  3(5)  of  Regulation  (EU) 
No 182/2011. It is also necessary to exclude the possibility for a committee member to 
request the termination of the written procedure without result. 

(10)  Since  the  objective  of  the  action  to  be  taken,  to  address  sudden  and  massive  fraud 
phenomena  in  the  field  of  VAT  which  very  often  have  an  international  dimension, 
cannot be sufficiently achieved by the Member States, as they are not in a position to 
individually  counter  the  fraud  circuits  related  to  new  forms  of  trade  which  involve 
several countries at the same time, and can therefore, by reason of ensuring a quicker 
and, as a result, a more adequate and effective response to these phenomena, be better 

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OJ L 55, 28.2.2011, p. 13. 

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achieved  at  Union  level,  the  Union  may  adopt  measures,  in  accordance  with  the 
principle of subsidiarity, as set out in Article 5 of the Treaty on European Union. 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. 

(11)  Directive 2006/112/EC should therefore be amended accordingly, 

HAS ADOPTED THIS DIRECTIVE: 

In Chapter 2 of Title XIII of Directive 2006/112/EC, the following Section 1a is inserted: 

Article 1 

"Section 1a 
Quick reaction mechanism against VAT fraud 

Article 395a 

1. 

The Commission may adopt implementing acts authorising any Member State 
to introduce the following special measures by derogation from this Directive, 
in order to combat sudden and massive forms of tax fraud in the field of VAT 
which could lead to considerable and irreparable financial losses: 

(a) 

the designation of the recipient as person liable to pay VAT on specific 
supplies of goods and services by derogation from Article 193, following 
a request referred to in paragraph 2 of this Article for such measure; 

(b) 

any  other  measure  determined  by  the  Council  acting  unanimously  on  a 
proposal from the Commission. 

For  the  purposes  of  point  (a),  the  special  measure  shall  be  subject  to 
appropriate  control  measures  by  the  Member  States  with  respect  to  taxable 
persons who supply the goods or services to which that measure applies. 

The  implementing  acts  referred  to  in  the  first  subparagraph  of  this  paragraph 
shall  be  adopted  in  accordance  with  the  examination  procedure  referred  to  in 
Article 395b(2). 

On  duly  justified  imperative  grounds  of  urgency  relating  to  the  authorisation 
given  to  the  requesting  Member  State  to  introduce  derogating  measures 
referred  to  in  the  first  subparagraph  of  this  paragraph,  the  Commission  shall 
adopt  immediately  implementing  acts  in  accordance  with  the  procedure 
referred to in Article 395b(3). Those acts shall remain in force for a period not 
exceeding one year. 

2.  A Member State wishing to introduce a measure as provided for in paragraph 1 
shall send an application to the Commission. The Member State shall provide it 
with the information indicating the sector concerned, the type and the features 
of the fraud, its sudden and massive character and its consequences in terms of 

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considerable  and  irreparable  financial  losses.  If  the  Commission  considers  it 
does not have all the necessary information, it shall contact the Member State 
concerned  within  one  month  of  receipt  of  the  application  and  specify  what 
additional information is required. 

Once  the  Commission  has  all  the  information  it  considers  necessary  for 
appraisal of the request it shall, within one month, either authorise the special 
measure or, in case the Commission objects to the requested measure, inform 
the Member State concerned thereof. 

The  Commission  shall  adopt  an  implementing  act  establishing  a  standardised 
form  for  submission  of  information  referred  to  in  the  first  subparagraph  of 
paragraph  2.  That  implementing  act  shall  be  adopted  in  accordance  with  the 
examination procedure referred to in Article 395b(2). 

Article 395b 

The Commission shall be assisted by the committee established by Article 58 
of  Council  Regulation  (EU)  No  904/2010(*).  That  committee  shall  be  a 
committee  within  the  meaning  of  Regulation  (EU)  No  182/2011  of  the 
European Parliament and of the Council(**). 

3. 

1. 

2.  Where  reference  is  made  to  this  paragraph,  Article  5  of  Regulation  (EU)  No 

182/2011 shall apply. 

3.  Where  reference  is  made  to  this  paragraph,  Article  8  of  Regulation  (EU)  No 

182/2011, in conjunction with Article 5 thereof, shall apply. 

Where the opinion of the committee is to be obtained by written procedure, that 
procedure  shall  be  terminated  without  result  only  when,  within  the  time-limit 
for delivery of the opinion, the chair of the committee so decides. 

__________________________ 

(*) OJ L 268, 12.10.2010, p. 1. 

(**) OJ L 55, 28.2.2011, p. 13." 

Article 2 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions necessary  to  comply  with  this  Directive  by  1  January  2013  at  the  latest. 
They shall forthwith communicate to the Commission the text of those provisions. 

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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