REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT on the application of Council Regulation (EU) no 904/2010 concerning administrative cooperation and combating fraud in the field of value added tax
Date: 2014-02-12
Institutions: European Commission
Subjects: VAT, exchange of information, intergovernmental cooperation (EU), tax collection, tax evasion













EUR-Lex - 52014DC0071 - EN











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52014DC0071

REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT on the application of Council Regulation (EU) no 904/2010 concerning administrative cooperation and combating fraud in the field of value added tax /* COM/2014/071 final */









REPORT FROM THE COMMISSION TO THE
COUNCIL AND THE EUROPEAN PARLIAMENT
on the application of Council Regulation
(EU) no 904/2010 concerning administrative cooperation and combating fraud in
the field of value added tax
1.           Introduction
According to Article 59 of Council Regulation
No. 904/2010 on administrative cooperation in the field of VAT, the Commission
must report by 1 November 2013 and thereafter every 5 years to the European
Parliament and the Council on the application of this Regulation. This report
is the first since the adoption and entry into force of Council Regulation No
904/2010. The latter is a recast of the former Council Regulation No 1798/2003
and offers Member States further tools for enhanced administrative cooperation
to support the fight against VAT fraud. 
The Recast Regulation was designed to improve
considerably the legal framework governing administrative cooperation and act
as an important tool in the fight against VAT fraud. In
particular, the Regulation introduced some new arrangements relating to:
·      The quality of the information contained in the databases;
·      The setting-up of the Eurofisc network providing for multilateral,
swift and targeted exhange of information relating to VAT fraud; 
·      The introduction of a feedback mechanism;
·      Automated access to databases of other Member States.
The Commission would stress that the report
should be seen as an opportunity to pool Member States' experience with the aim
of improving the operation and use of those arrangements. (Article 49, Paragraph
1). 
This report assesses the functioning of
administrative cooperation within the current legal framework and focuses in
particular both on an analysis of the extent to which previous recommendations have
been taken into account to enhance administrative cooperation and on the use
that is made of the newly-introduced arrangements in order to evaluate whether
these changes have been effective. Furthermore, the report touches upon new
ideas in the field of VAT administrative cooperation, such as joint audits. 
Moreover, this report should not just be seen
as an overview of the application of the regulation as such, but more
importantly as a basis for a permanent and structured dialogue between the
Commission, the European Parliament, the Council and the Member States in order
to improve the efficiency of administrative cooperation in the field of VAT
with the specific objective of fighting VAT fraud more effectively.
It should also be
noted that the present report forms part of a wider package of documents on
this subject.
Just recently,
on 19 September 2013, the Commission published the study to quantify and
analyze the VAT gap. The VAT gap for the 26 Member States was assessed as being
close to Euro 193 billion in 2011, which represents around 18% of the theoretical
VAT liability or 1.5% of the GDP of these Member States. As pointed out in that
report, the value of the VAT gap should not be directly associated with fraud
and evasion as the figure also includes the effects of simple (statistical or
reporting) errors (e.g. in National Accounts statistics) as well as financial
insolvencies and payment problems. Nevertheless, as other studies have also clearly
showed, VAT fraud continues to be a serious problem for Member States. . 
Therefore, the
present report comes at the right time as it gives an overview of the use that
Member States make of the tools of administrative cooperation and fight against
VAT fraud offered to them through this Regulation. 
In addition to
this report, the Commission publishes another report on the collection and
monitoring of VAT according to Article 12(3) of Council Regulation 1553/89 (the
so-called article 12 report). 
The VAT Gap study,
together with both Commission reports, gives an overview of the problem that
VAT fraud still represents in the EU, while also looking both at the way in
which Member States tackle this cross-border problem with the tools offered to
them through EU legislation on administrative cooperation in the field of VAT and
at the VAT collection and control procedures used in Member States, thus
enabling them to assess risks and identify opportunities to improve their
domestic VAT control and collection systems. 
Finally, the present report cannot be dissociated
from the broader context of the coordinated strategy to improve the fight
against VAT fraud set out in the previous Commission Communication on this
subject[1],
as well as the Commission Communication on the future of VAT – towards a
simpler, more robust and efficient VAT system tailored to the single market[2]. In the latter, action
N° 14 indicates that the Commission will ensure and monitor the full
implementation of the anti-fraud measures and report on their efficiency and
the need for further action in 2014. Similarly, Action
N° 16 refers to the possibility of setting up EU cross border audit teams to
facilitate and improve cross border multilateral controls, while Action N° 19
indicates that the Commission will continue to follow the work of Eurofisc and
encourage Member States to further develop this tool in order to try finding
new fraud schemes or to prevent them from developing. 
2.           sources of information
used for the evaluation of the application of Regulation No 904/2010.
Since this report should reflect the practical
use of the different instruments of administrative cooperation and fight
against VAT fraud made by national tax authorities, an evaluation could only be
made on the basis of substantial input from Member States.
Therefore, before drawing up this report, the
Commission considered that the information required for a comprehensive assessment of administrative cooperation under the
new Regulation would be best collected by means of a questionnaire
addressed to Member States. The Commission Staff working document acompanying
this report provides a detailed overview and analysis of the replies given by
the Member States to the questionnaire[3].

Member States were also given the opportunity
to elaborate further on certain replies given to the questionnaire and, more
generally, to share their views on the functioning of VAT administrative
cooperation and on possible further improvements. However, only one Member State showed an interest in pursuing a discussion with the Commission on this issue.

The Commission also gathered information from discussions
relating to administrative cooperation and the fight against fiscal fraud held
during numerous meetings of the Anti-Tax Fraud Strategy expert group (ATFS) and
the meetings of the Standing Committee on Administrative Cooperation (SCAC), as
well as from the annual reports of the Eurofisc network.
Another interesting source of information was
the annual statistics sent by the Member States under Article 49 (3) of
Regulation (EU) n° 904/2010. Information relating to the statistics for 2011
and 2012 in particular was taken into account to underpin a number of
conclusions.  
3.           Main findings
3.1.        Exchange of information
upon request (Articles 7 to 12)
3.1.1.     Problems identified by the
previous report
The previous report on the functioning of the
administrative cooperation[4]
identified a number of problems relating to exchanges of information. These
concerned problems existing in the requested Member State, but noticed by the
requesting Member State, relating to the identification of the central liasion
office (CLO), the lack of timeliness of replies and the absence of a notification
about delays in meeting the deadline for replying to requests for exchanges of  information.
The key factor to effective information
exchange is the existence of an efficient internal management and procedural
system in each Member States, in order to ensure proper and timely treatment of
such requests for information. 
It appears that there are no longer any problems
regarding the identification of contact points in the CLO or the description of
the responsibility of each liaison office. The condition remains, however, that
the relevant information which is available on CIRCABC (Communication
and Information Resource Centre for Administrations, Businesses and Citizens
–website). must be continuously
updated.
As regards the timeliness of replies and the
notification procedure, it appears that many Member States are still unable to
respond to replies within the deadline, and that requesting Member States are
rarely informed of the reasons for the failure to do so. Statistics show that
the aggregate number of late replies have reached an unacceptable level
(approximately 43%). The seriousness of the problem differs between the Member
States, but the overall situation must be improved in particular taking into
account the suggestions made by Member States themselves (this topic is further
elaborated in chapter 3.1.3).
The Commission considers that it is up to
Member States to take action on this matter. In some Member States delayed
answers can serious cause problems if there is a legal time limit for conducting
audits or if the information is required urgently e.g. in fraud cases or when
there is a time limit for tax assesment.
In order to assist Member States to improve the exchanges of information,
new e-forms have been drawn up. These new e-forms have now been introduced and the
Commission expects that they will help  tax administrations to handle requests
faster.
In addition, the recently-introduced possibility
for competent authorities of Member States to have an automated access to
certain types of information available in the databases of other Member States,
should both substantially reduce the number of requests for
"standard" information and facilitate and speed-up administrative cooperation,
thus releasing time and resources for in-depth enquiries required for more
complex requests.  
3.1.2.     Requests for information
and for administrative enquiries (Article 7)
Article 7 of Council Regulation (EU) No 904/2010
provides for the possibility for Member States to send requests for information
and requests for administrative enquiries to each other. 
In the majority of Member States, almost all
requests for information triggered an administrative enquiry. It appears that
good use is made of the best practices[5]
approved by the SCAC to avoid undue administrative burden in this connection.
Only very few requests to conduct an administrative enquiry were refused. 
There are some specific and valid reasons why
an administrative enquiry based upon Article 7 of the Regulation sometimes may prove
to be more difficult to carry out for a Tax Authority compared to a domestic
administrative enquiry, e.g. because relevant and clear information in the
Article 7 request is missing or the request needs to be translated. These factors
can cause considerable delays in responding to such requests. 
Nevertheless, the Commission is convinced that
the problem of translation at least will be largely solved with the introduction
of the new e-forms applicable since July 2013, where most information can be
made available in fixed fields.
3.1.3.     Time limit for providing
information (Articles 10 – 12)
The time limit for providing information is laid
down in Articles 10 – 12 of Regulation 904/2010. This time period is either 3
months or 1 month. In order to fight efficiently against VAT fraud and to
ensure a proper collection of VAT, it is important for Member States to
exchange information as soon as possible.
In the previous report, all Member States
declared that they had a monitoring system in place using their intranet or
other specific software in order to follow up such requests; it is usually the
CLO that monitors the process.
Nevertheless, the latest statistical data
received from Member States clearly show that the vast majority of Member
States still have problems in meeting the deadline for all requests, and that
they are well aware of the shortcomings in their internal administration and
procedures. Some Member States have taken or intend taking concrete measures to
improve the timeliness of their replies. 
The conclusion that failure to meet the
deadlines to respond to requests for information, is due to internal factors (such
as lack of resources), was already noted in the previous report on the
functioning of administrative cooperation arrangements. The recast Regulation
included some new features based on suggestions made at that time to address
these deficiencies, such as giving direct access to certain data contained in
national databases, but the issue remains nevertheless that the problem must be
addressed at management level in Member States. This could be done for example through
raising awareness of local officials of the need to prioritise these requests
in their planning, by directly contacting the contact points in other Member
States to solve problems, or by recognising the efforts taken by local officers
in the evaluations of their work, etc.
One of the main features of carousel fraud is
the rapidity of transactions and the way in which missing traders disappear
after an intra-Community acquisition has been made. As a consequence, a fast
and smooth exchange of information is essential to stop such fraud. 
The Commission considers that respecting
deadlines imposed by the Regulation is a fundamental point that tax
administrations must comply with. Certain Member States are clearly lagging
behind in this context.The success of administrative cooperation will
inevitably depend on this trend being reversed and on increased efforts from
Member States to provide accurate and timely replies to requests for
information coming from their colleagues in other Member States. In order to
assist them with this target,  the Commission will examine the issue further with
Member States and, if necessary, bilaterally with individual tax
administrations.
The Commission considers that Member States must take urgent action
to ensure that their domestic procedures guarantee that requests for
information are replied to on time.
3.2.        Exchanges of information
without prior request (Articles 13-15)
The list of categories covered by the exchange
of information without prior request has been reduced in the new Commission
implementing regulation N° 79/2012[6].
As a result, Article 2 of this Regulation currently maintains only 2 categories
for which information should be exchanged automatically, while nevertheless
allowing Member States the possibility of abstaining from participating in such
an automatic exchange of information. The fact that the list has been reduced
also implies that the remaining categories are considered by all Member States
as important information for which the automatic exchange of information is
useful/necessary to ensure a proper collection and control of VAT. Therefore,
it is self-evident that Member States should only refrain from exchanging
certain information in exceptional and duly justified cases.
According to the ‘Article 4 – notifications’
received from Member States-  a minority abstain from participating in
automatic exchange of information on non-established taxable persons because
they either experience technical difficulties in retrieving this information or
they consider that it causes them a disproportionate administrative burden to
collect it. 
This information is considered useful because
it complements data that should be exchanged in the framework of the VAT-Refund
Directive. Furthermore, information concerning non-established
taxable persons is also relevant for direct tax purposes.
Based on the same ‘Article 4 – notifications’, ten
Member States abstain from participating in automatic exchange of information
on new means of transport (in particular cars), because they consider that
this information is neither available nor collected or that the collection of such
information would lead to the introduction of new obligations for taxpayers or lead
to an unacceptable increase in administrative and financial burdens.
Nevertheless, as already mentioned above, the
exchange of both types of information is extremely useful and necessary for Member
States in order to ensure a correct taxation, and to fight against fraudulent transactions,
especially in the field of new means of transport. Such information cannot be
obtained domestically, and information from other Member States where the
suppliers are established is fundamental. Although Article 14 allows Member
States to abstain from this automatic exchange of information in duly
justified cases, some Member States have not justified their abstention.
Given that the majority of Member States
consider that the information received is useful and of benefit in practice for
both risk analysis and control purposes, the Commission is of the opinion that Member
States should implement efficient procedures to collect data for the different
categories and not abstain from this automatic exchange, This point was already
mentioned in the Court of Auditors report of 2008 on the functioning of the
administrative cooperation[7].
Member States that are not able to collect the information on new means of
transport are recommended to familiarise themselves with the good practices of
other Member States that are active in this area, for example with Belgium that
has offered other Member States to share their experience on gathering information
on such transactions.
The Commission regrets that some Member States continue to refrain
from exchanging such information, especially since the list of data to which
this exchange of information applies has been considerably reduced.
3.3.        Feedback (as described
under Article 16)
Feedback is a new measure that was introduced in
2012 through the Regulation at the specific request of several Member States.
They consider that feedback will assist the management in tackling shortcomings
in the procedures and in motivating tax auditors to increase the quality of the
information exchanged. 
However, a majority of Member States have not
used the feedback mechanism in 2012, its first year of implementation. 
Member States all agree that feedback should
not be requested systematically, but on a case-by-case basis only in order to
keep the additional work triggered by the feedback tool within acceptable
limits. 
However, the majority of the Member States
considers it too early to draw any firm conclusions as regards the
effectiveness and quality of the feedback. Some Member States witnessed a
positive influence on the motivation of staff and an increase in spontaneous
information. This was also concluded by the expert group[8] that conducted a
brainstorming exercise on the advantages of setting-up a feedback mechanism and
who considered that feedback could play a valuable role in motivating audit
officials and in encouraging a greater level of spontaneous information
exchange. 
Member States that use the feedback tool
indicate that the information received could have a positive impact on their
VAT audits and tax revenue. 
In the context of good administrative
cooperation and best practices, feedback should be encouraged, as it is the
best way to inform the tax officials of the other Member State that the information
they forwarded was beneficial and that their extra effort have lead to a positive
result or was at least useful for the requesting Member State.
The Commission is also pleased to note that
some Member States provide feedback spontaneously, not only when requested, but
also when the information obtained from the other Member States has proved
useful domestically. This reflects a positive attitude of those Member States on how cross-border cooperation should work. 
As feedback is important to improve the efficiency of information
exchanges, Member States must increase their use of this mechanism and ensure
that such feedback is given each time it is requested and even provide such
feedback in cases where it is not requested but would be useful for other Member
States. 
In order to achieve this, management should improve training of tax
auditors so that they become aware of the importance of providing feedback and
spontaneous information exchange on the tax collection efforts of other Member
States.
3.4.        Storage and exchange of
information specific to IC transactions (Articles 17-24)
3.4.1.     The VIES database
The provisions relating to the VIES database
were amended in order to increase the amount and quality of information stored
and exchanged. A new list of information to be stored and processed has been
drawn up. However, some of the information will only need to be made available
from 2015 onwards. 
The majority of Member States is generally
satisfied with the changes, pointing to the reduced number of retroactive
corrections and discrepancies, faster updates and more reliable turnover data. Furthermore,
the reduction in the timeframes for submitting and transmitting recapitulative
statements has accelerated the speed of information exchange, thereby providing
tax administration with an important advantage.
In the past, invalidity of VAT-numbers and
delays in the correction of data were often quoted as causing problems reagrding
the quality of the information contained in the database.
The previous Commission report stated that
"frequent updating, which should be done on a daily basis, enhances the
quality of the information contained in the database". The vast
majority of the Member States now apply a system of daily updating.
Although the majority of those Member States which assess quality and reliability is generally satisfied with the changes
implemented with the recast Regulation, it seems nevertheless that there are
still discrepancies and that retroactive corrections continue to be made to
VIES data. 
The Commission notes that, in general, tax
administrations have no relevant or exact data regarding the number of mismatches
available. The question remains whether Member States’ quality checks are
appropriate to improve the reliability of the VIES database.
As regards the retroactive cancelling of VAT
identification numbers, the Commission would repeat what it has already pointed
out on several occasions i.e. that such practices jeopardise legal certainty
for traders and should be avoided. The Regulation clearly states that Member
States should keep their databases updated; reliable information is essential
for the credibility of the VIES system.
The Commission recommends, therefore, that all Member States
introduce measures to keep the VIES database up-to-date. This will, in
combination with the reduction of timeframes, lead to a reliable and updated
VIES system, that will make data on intracommunity transactions available as
quick as possible.
3.4.2.     Automated access to
databases
The Regulation now provides for competent
authorities to be given automated access to certain information held in other Member
States’databases. The purpose of such automated access is to reduce the number
of requests to be handled by the requested Member State and to provide quicker
access to the required data.
Member States have implemented this differently:
some extract the required data from existing databases while others have
created a separate database for this purpose, the ratio being more or less
equal. One cannot conclude, however,  whether a majority of Member States would
clearly prefer to use existing databases or not. It also needs to be borne in
mind that cost efficiency or other technical limitations may play a role in a
particular Member State's decision to use existing databases.
Nevertheless, it is important to note that all
Member States will grant the competent authorities of all other Member States
automated access to the data listed in Article 21 (2) of Regulation 904/2010
under the conditions laid down in that Article. It is still early to can draw a
reliable picture on the use made of this tool as it was implemented only as of
1 January 2013. 
The Commission will monitor the correct application of automated
access and provide more details on the usefulness and effectiveness of this
tool in a future report.
3.5.        Presence of officials in
administrative offices and participation in administrative enquiries in another
  Member State (Article 28) 
The previous report identified a number of
problems in the use of this instrument. 
Statistics submitted annually show that the
practical use made of this instrument is limited, although it is still considered
to be a useful tool, particularly in border regions. The obstacles, which are
mostly issues that need to be addressed at national level (such as developing
language skills, human resources, internal procedures), were the same as those
already mentioned in the previous report.
The most important and recurring reasons for
this limited use were the lack of a national legal basis to allow participation
in national enquiries, specific national conditions hampering the use of the
instrument and language problems. 
The vast majority of Member State allow officials of other Member States to be present in the tax administration’s offices
and to participate in the administrative enquiries, when the conditions
mentioned in Article 28 are respected.
The budgetary problems posed by limited
financial resources will be addressed in the new Fiscalis 2020 programme which includes
funding for such visits to other Member States. Furthermore, raising the
awareness of officials about the potential use of this instrument is required. Member
States should promote the use of this tool domestically, thereby publicising its
benefits. They could also benefit from the positive experience of other Member
States with the use of this tool. 
If any issue arise in organising an Article 28
event, Member States should try to solve this on a bilateral basis.
The use of this tool could still be improved
since a significant number of Member States continue not to use it frequently.
Nevertheless, by working together within an multilateral control, including the
presence at the taxpayer’s office, a lot of time (including taxpayer’s time too)
will be saved as questions can be solved through mutual cooperation.
The Commission hopes that this tool will be  used more frequently in
future. 
3.6.        Simultaneous controls –
multilateral controls (Articles 29-30)
3.6.1.     Organisation of the
multilateral controls (MLC)
Member States recognize the added value of this
instrument. They are satisfied with the set up of the MLC platform and the MLC
guide. The number of MLC's initiated annually remains the same. Reasons mentioned
by Member States for the fairly low number of MLC’s initiated include claims
that it is difficult to insert MLC initiatives in established annual audit
planning programmes, that it involves extra workload for local officers lacking
experience and that it is difficult to convince management that it is worthwhile
investing in audits that may only show a benefit for the other Member States
involved.
3.6.2.     The communication between
the MLC departments and other departments
The previous report mentioned that there was
still room for improving the communication between the MLC coordinators and
other departments (e.g. CLO and Anti tax fraud units), possibly by adapting
existing MLC procedures in order to allow for a quicker and less bureaucratic
reaction in specific fraud-related cases.
In general, Member States have established appropriate
communication channels between units/persons dealing with fraud prevention and
the MLC coordination units/coordinators. The way such communication is
organised depends largely on the administrative organisation of the tax
administration within the Member State concerned; this can vary from direct
contacts within the same department to contacts between separate departments in
a decentralised structure. 
Member States understand that an established
system of direct communication between the multilateral control coordinating
unit and the unit dealing with the control and anti-fraud has an added value, by
acting swiftly in cases of fraud.
As regards interaction with Eurofisc, targeted
information from the Eurofisc network could be helpful in initiating MLCs. Access
to the Eurofisc network is the sole responsibility of the Eurofisc Liaison Official,
but information that (s)he considers useful for multilateral controls could be
transmitted to the MLCcoordinator. Cooperation between Eurofisc and the MLC
coordination function could be defined in a protocol.
Recently, a project group[9] put forward some
recommendations to enhance the use of this tool, including in the field of
excise duties. Some of these recommendations also point to a closer cooperation
between customs and tax administrations in those Member States where the two
taxes are managed by different domestic departments.   
Belgium has set-up a pilot project to
arrange for a quick analysis team at European level in order to react to early
warnings and to reconstruct the global fraudulent chain of transactions. This
could be a useful source of information for the MLCs. This Belgian pilot
project, designed to step up the fight against VAT fraud will be further
discussed in the Eurofisc platform.
Multilateral controls and the presence of
officials in the administrative offices of other Member States are tools that
should be used more frequently by Member States, especially since the costs
related to their use will henceforth (continue to) be financed through the
Fiscalis programme. It is difficult to understand why the use of the
multilateral control tool is still rather limited and has even decreased in
recent years even though this tool can perfectly demonstrate the benefits it
generates for all Member States concerned. 
Member States should allocate more resources to the use of this tool
and all Member States should ensure that they either launch or actively 
participate in such multilateral controls. An increase to around 75 MLC’s for
2014 should be achieveable especially since this would entail only an average
of around 3 Multilateral controls per Member State.
3.6.3.     A possible future approach:
joint audit
The OECD describes a joint audit as two or
more countries joining together to form a single audit team to examine an
issue(s) / transaction(s) of one or more related taxable persons (both legal
entities and individuals) with cross-border business activities, perhaps
including cross-border transactions involving related affiliated companies
organized in the participating countries, and in which the countries have a
common or complementary interest; where the taxpayer jointly makes
presentations and shares information with the countries, and the team includes
Competent Authority representatives from each country[10].
Only three Member States have had experience
with joint audits as defined above. One Member State has carried out joint
audits with a third country while The Netherlands and the United Kingdom have begun a pilot project in this area. From this rather limited
experience, it can be noted that responsibilities, coordination, powers and
restrictions of the joint audit team are set out in (bilateral) agreements on
mutual administrative assistance and exchange of information in tax matters.
Member States have given very diverging replies
to the question of whether joint audits would be a useful tool compared for
example to an MLC in certain circumstances. The majority of Member States are
of the opinion that too many legal and organisational questions remain
unanswered (for example a lack of legal basis, national procedures not fitting
for this, separate jurisdictions, consent of the taxable person) in order say
whether joint audits by a single audit team could in certain cases be more efficient
than an MLC. 
Nevertheless, some Member States have indicated
that a joint audit might be effective in cases where quick information exchange
is needed, particularly in direct taxation cases where very large companies
with subsidiaries could be involved (e.g. transfer pricing). 
Those Member States that set up a pilot project
must still verify whether a single audit team can speed up common understanding
of the issues involved (for example, clarification of uncertainties in
international tax questions, better judgement of international tax risks,
tackling cross-border risks more efficiently) and prove less costly for both
administrations and tax payer, given that there will be only one audit with one
result. 
Although the vast majority of the Member States
has no experience regarding the joint audits, it appears that they are not
opposed to the idea in principle (in particular in the area of direct
taxation). 
The many legal and organisational questions that still are
unanswered could be further discussed in a Fiscalis project group, based on
existing experience and on the pilot project currently organised by two Member
States. Based on the outcome, the Commission could make a proposal in order to
create a legal basis for the use of this tool at EU level.
3.7.        Providing information to
taxable persons (Articles 31-32)
In order to increase legal certainty for
traders, the latter can obtain confirmation of the validity of the VAT
identification number (VAT id-nr) in some Member States, provided they provide
their own VAT id-nr.
The VAT information exchange system (VIES) was
created many years ago by Member States, with the assistance of the Commission,
with the aim to provide information to taxable persons. To date, all Member
States, except one, use the VIES to confirm the validity of both the VAT id-nr,
as well as the name and address of the trader.
As regards the application of these provisions,
only one Member State continues not to provide confirmation of the VAT id-nr of
domestic traders to requesting EU-taxable persons in the VIES-on-the-web system;
instead it requires taxable persons seeking this information to pass via the
national CLO in order to obtain confirmation of this data. One other Member State indicated that this was, in consequence, the only reason why it continues to maintain
a domestic system. 
It can be concluded that as concerns the
provision of data to taxable persons in order to validate the VAT id-nr of
their clients, all Member States have such a system in place. 
Member States should ensure that the VIES-on-the-web system is systematically
updated. 
3.8.        Eurofisc (Articles 33-37)
The Eurofisc network is a newly introduced quick
cooperation mechanism created to deal with large scale or new fraud patterns.
The network established four working fields and published its first reports in
March 2012 and April 2013. The provisions creating the network entered into
force in November 2010.
There are currently four working fields
covering different sectors affected by VAT fraud. At present, there is no real perceived
need to create extra working fields, unless new frauds in a significant number
of cases were to emerge in a specific sector. 
Several Member States consider that joint risk
analysis at the level of Eurofisc might be used for cross-analysing data in all
working fields.They would like to set up a pilot project to conduct joint risk
analysis. The result of this analysis would produce targeted information to be communicated
to all Member States concerned, and could eventually give rise to new
Multilateral Controls. Such joint risk analysis could be set up as a separate
working field. Discussions on this issue are still ongoing between Member
States in Eurofisc. Unfortunately, recent discussions on this idea at the Anti
Tax Fraud Strategy Group have shown that not all Member States are convinced
that Eurofisc should pursue the option of joint risk analysis at this stage and
consider that its activities should be limited to targeting improvements in
current working procedures.
In order to enhance the effectiveness of the network,
the Commission considers that risk analysis and feedback are key areas where
things could improve: 
–              
The information received should be more
targeted. The large volume of information that is sometimes sent is difficult
to assess. Therefore, several Member States have suggested that all Member
States should have an effective national risk analysis tool in place to enable
the volume of data to be filtered better and to ensure that only suspect cases
are transmitted.
–              
The VIES database could also be used for risk
analysis purposes. This can be a very fast way to gather information relating to
a potential carrousel network because the data can be made available before the
submission of VAT returns or recapitulative statements. Those Member States that
develop a search tool to analyse this kind of information could exchange best
practices.
–              
A prompt and clear feedback mechanism within the
network is required. Feedback should be used to improve risk analysis, whichs
would lead to more targeted data. The feedback mechanism currently used within
Eurofisc helps Member States to verify the quality of the alerts issued regarding
certain companies as the alerted Member State can report back on the results to
the Member State emitting the alert. 
Furthermore, on the basis of information
received from Eurofisc, tax administrations can initiate audits that may result
in the invalidation of VAT-identification number.
Higher quality of transmitted information and
improved effectiveness of the network can be achieved through enhanced internal
functioning which can be agreed at Eurofisc meetings. Quick and accurate
feedback is essential to the effectiveness of the network. One Member State has argued that creating a joint risk analysis team in a separate working
field would be justified by the fact that it would be an important political
signal that the Member States are serious about making progress in the fight
against fraud.
The Commission notes that several Member States
would like to enhance administrative cooperation further and to allow Eurofisc
liason officials to make better use of the information available in the
network. This would further assist Member States in trying to tackle VAT fraud
before it actually takes place. Despite this, still some Member States prefer
to maintain risk analysis at a national level. 
The Commission considers that those Member States that are prepared
to do so, should pursue the question of making better use of available
information. 
The Commission believes that the development of
joint risk analysis within Eurofisc could be an important step towards the
exchange of more targeted information. The network should therefore explore the
benefits of such joint risk analysis.
3.9.        Relations with the Commission
(Article 49)
Article 49 of the Regulation requires Member
States to examine and evaluate how the arrangements for administrative
cooperation are working. The previous report noted that the vast majority of
Member States do not appear to perform any systematic internal evaluation of
their arrangements, but seem rather to base their self-assessment solely on the
annual statistics that they must provide to the Commission in this connection.
This situation has not changed in the meantime.
During the discussions leading to the adoption
of the new Regulation, the Council was of the opinion that there was no need to
specify in the recast that Member States should conduct audits on regular
intervals of the operation of the administrative cooperation.
Nevertheless, the Commission continues to
believe that such domestic analysis would be very useful for Member States
themselves in order to evaluate the importance, usefulness and effectiveness of
the tools for administrative cooperation for themeselves. In particular for the
Eurofisc network, which was specifically created to fight fraud more
effieciently, Member States have a great interest in evaluating the extent to
which this network has contributed to the reduction of revenue lost through VAT
fraud. As the Commission can only play a supportive role as regards
administrative cooperation in the field of VAT, Member States themselves are
best placed to evaluate the effectiveness of the different tools.
The Commission therefore recommends Member States to adopt such a
procedure in order to carry out a real cost benefit analysis of the different
tools.
3.10.      Relations with third
countries (Article 36)
Member States consider that information coming
from third countries might be useful in facilitating tax assessment or fraud
detection. However, not all Member States have concluded tax treaties covering VAT
matters and thus it is not possible for them to pass information received from
third countries to other Member States. 
Member States do not have uniform approaches to
the exchange of information with third countries. Some Member States have signed/ratified
the OECD convention, which was mainly conceived for direct tax purposes.
Furthermore some Member States have a number of tax information exchange
agreements while others have signed or ratified double taxation conventions. 
Based on figures provided by Member States, it
can only be concluded that there is little overall experience concerning
exchanges of information regarding VAT with third countries. 
The Commission is therefore convinced that an
approach coordinated at EU level to put in place administrative cooperation arrangements
with third countries in the area of VAT, is the way forward. An EU multilateral
agreement could be seen as a long-term project. The new arrangements set up to
implement the mini one stop shop coming into force in 2015 will provide an
additional argument in support of an EU multilateral agreement.
The Commission intends to submit a proposal to obtain the
authorisation of the Council to start negotiations with certain third countries
for a bilateral  agreement on administrative cooperation at the beginning of 2014.
4.           A special Topic: the
mini-one-stop-shop (moss)
As from 1
January 2015, an optional mini One Stop Shop (MOSS) will be introduced as a simplification
measure for certain traders. This will allow a supplier, rather than registering
for VAT in each Member State in which he has a customer, to register, declare
and pay the VAT due on supplies of telecommunications, broadcasting and
electronic services in other Member States via a single web portal in one
single Member State - the Member State of identification. 
The MOSS will
also have an effect on administrative cooperation amongst Member States in the
area of taxpayer audit and control. 
The preparatory
legal and practical work is almost in place. The Commission has also set up a
Fiscalis project group (FPG 86) to look at audit and control issues in the
context of the MOSS. The members of this group have drawn up a list of
recommendations on how information can be requested from traders using a standard
audit file for the MOSS scheme and on how these businesses can best be
contacted in case additional information or enquiries are necessary. Since
there is no obligation on Member States to accept these guidelines unanimously,
the Commission hopes that they will agree to apply these guidelines in the form
of a gentleman's agreement, thus easing the burden on business and facilitating
the use of the simplification mechanism.
5.           General appreciation of
the functioning of the adminstrative cooperation 
In general, the overall assessment of the
functioning of the administrative coperation appears to be positive. Many
Member States indicate that it is essential to ensure the good quality of SCAC
request forms and to respect deadlines for replying to these requests. Furthermore,
some Member States continue to refer to national issues (such as the lack of
resources) and longstanding problems with the exchange of information
(incomplete background data in requests for information; discrepancies in the
statistical information; retroactive changes to VIES databases; different rules
regarding the deadline for replies). 
Some Member States have made a number of
suggestions to improve administrative cooperation in the field of VAT. 
A first set of suggestions fall under the responsibility
of Member States and will require domestic action (for example, increased
management awareness, requests for information to be made only after all
possible ressources are exhausted in the requesting member State).
Other suggestions would require changes to legislation,
for example to make feedback mandatory, imposing penalties for poor performance
in meeting deadlines, or raising the tresholds for requests. However, besides the
difficulty of adopting such legislative measures, the Commission would also
anticipate some practical problems, for example how would penalties be imposed
and by whom; how would the penalty be calculated, etc.
Further suggestions would require changes to the
transmission of data to the Commission, for example, collecting statistics in
order to make a ranking of the deadlines missed (3-6-9 months late). The
Commission considers that it should be feasible to reach a common agreement on this
point in the SCAC.
Another idea suggested that the Commission
should take action in relation to the Member States that systematically fail to
fulfil their commitments under Regulation 904/2010 . Here the Commission could suggest
action through the provision of technical assistance measures or through constant
monitoring under the Article 12(3) of Regulation 1553/89. Dissemination of best
practices and Fiscalis CLO seminars were pointed out as good tools to improve
administrative cooperation.
Some of these suggesstions have been discussed in the past without
success. However, the Commission intends to pursue these suggestions further at
the appropriate level in order to improve the functioning of administrative
cooperation, provided sufficient support from Member States is guaranteed. 
6.           Conclusion
As mentioned at several occasions and most recently
in the coordinated strategy to improve the fight against
VAT fraud set out in the recent Commission Communication presenting an Action
Plan to strenghten the fight against tax fraud and tax evasion (COM(2012 722
final of 6.12.2012), Member States can only address tax fraud and tax evasion
effectively if they work together. Improving administrative cooperation between
Member States' tax administrations is therefore a key objective of the
Commission's strategy in this area. 
The report highlighted areas where
administrative cooperation still can be intensified, by making greater use of
the improved possibilities offered by the Regulation 904/2010 :
·      overall, there must be a quicker reply to requests for information,
since the lateness of the replies is a critical issue;
·      some Member States still refrain from participating in automatic
exchange of information on non-established taxable persons and new means of
transport, although they consider the information to be very useful. This is very
problematic and the Commission therefore intends to strengthen the close
monitoring of developments in this field;
·      feedback, provided spontaneously or on request, is an approach that
must be encouraged in the context of good cooperation and best practices, as it
is the best way to inform tax officials that their work was (to a certain
extent) beneficial; 
·      Member States must promote participation in administrative enquiries
by making use of the exisiting legal provisions in the Regulation. This is a
very useful tool, which was maintained in the revised Regulation and therefore
it is regrettable to see that so little use that is made of this tool by Member
States; 
·      multilateral controls have proven their usefulness. However, it
appears that Member States have made less use of them in recent times. A renewed
engagement from Member States to MLCs is required, and the obstacles to
multilateral controls identified in this report must be overcome;
·      joint audits are an instrument that should be further developed through
a Fiscalis project group based on the experience gained in the pilot project
set up by the Netherlands and the United Kingdom. If required, the Commission will
take the initiative to provide for a legal basis to use the tool at EU-level;
·      within Eurofisc, common risk analysis and an effective feedback
mechanism would be an appropriate response to the need to have more targeted
information available and to make better use of the information that is already
available in the network. It would allow the network to further enhance its
role as a quick reaction from tax administrations against cross border VAT
frauds; 
·      an approach coordinated at EU level to establish administrative
cooperation with third countries in the area of VAT would be a response to the
diverse way the Member States arrange their contacts with third countries at
present. In the short term the Commission will submit a proposal to obtain the
authorisation of the Council to start negotiations with certain third countries
for a bilateral agreement on administrative cooperation in the field of VAT.
The Commission can assist in paving the way
towards effective administrative cooperation between Member States in order to
tackle VAT fraud. It is willing  to support any intitiative that would enhance
cooperation and to take legal action whenever this proves necessary. 
However, Member States must show the political
willingness necessary to follow this path. They have to make the necessary
efforts at domestic level to improve the practical functioning of the
administrative cooperation arrangements in order to reap the full benefits of
these tools. 
Cross-border cooperation is indeed the sole
adequate response to cross-border VAT fraud and Member States need to
prioritise where they allocate resources to in the current difficult economic
climate. The Commission is convinced that it is only through the full use of
these tools together with sufficient resources being made available at domestic
level that the losses to national exchequers as a result of VAT fraud can be
reduced. 
The Commission will report back on the progress
made by Member States in the fields identified in this report. In light of the
seriousness of the problem of VAT fraud, it will not await the next report to
be provided only by end 2018, but has the intention to provide, by the end of
2015, an evaluation of the state of play to the SCAC, foccused on the efforts
done by Member States in order to overcome the shortcomings listed in this report
and to further enhance cross border cooperation in the field of VAT. 
[1]               Communication from the Commission, A coordinated
strategy to improve the fight against VAT fraud in the EU, COM(2008)807 final,
1.12.2008.
[2]               COM (2011) 851, 6.12.2011.
[3]               27 Member States replied to the questionnaire, sent
with letter 1763918 of 19.12.2012
[4]               REPORT FROM THE COMMISSION TO THE COUNCIL AND THE
EUROPEAN PARLIAMENT on the application of Council Regulation (EC) no 1798/2003
concerning administrative cooperation in the field of value added tax, COM
(2009) 428 final of 18.8.2009.
[5]               See the SCAC working document No562.
[6]               OJ L 29, 1.2.2012, p13
[7]               ECA's Special Report 08/2007, OJ C20, 25.1.2008,
chapter 51
[8]               Fiscalis project group 43"Exchange of
information and need for feedback"
[9]               Fiscalis project group 84 "MLC's in the field of
excise duties"
[10]             Joint Audit Report, OECD, FTA September 2010