The European Commission has recently adopted a Communication on concrete ways to reinforce the fight against tax fraud and tax evasion including in relation to third countries. It has put forward far-reaching ideas to improve the fight against tax fraud and evasion in the EU, including a cross-border tax identification number and minimum sanctions for tax crimes which represent another step towards greater integration in the area of tax fraud and tax evasion. Such proposals would have therefore an impact on member states sovereignty over the collection of their taxes. Such measures are therefore a threat to member states sovereignty over direct taxation.
It is important to recall that the Council regulation on administrative cooperation and combating fraud on VAT, adopted in 2010, introduced new rules on the exchange of information between Member States’ tax authorities in order to combat VAT fraud. The ability for Member States to refuse to provide information concerning VAT has been limited. Member States are required to keep an electronic database to store and process information collected through the recapitulative statement (EC Sales List), including data on the identity, activity or legal form of persons to whom a VAT identification number has been issued as well as data on their turnover. Member States are required to automatically exchange data so that each Member State of consumption may ascertain whether the taxable persons established on its territory declare and pay the correct amount of VAT, due on all kinds of telecommunications, broadcasting and electronically supplied services. Moreover, each Member States’ tax authorities are required to grant “automated access” to information contained on their national taxpayer databases to other Member States. Hence, Her Majesty’s Revenue & Customs and all Member States’ tax authorities would be required to grant “direct access” to UK taxpayer information contained on national databases, without their knowledge or consent. This regulation has also created a legal basis to establish Eurofisc, a common structure for collecting personal data to supposedly combat cross border VAT fraud. The Eurofisc is already up and running. Member States, within the framework of Eurofisc, set up a multilateral early warning mechanism for combating VAT fraud, coordinate the rapid exchange of the abovementioned information as well as the work of the Eurofisc liaison officials reacting to warnings received.
The European Commission is planning to introduce similar measures to other areas of tax such as giving Member States' tax administrations direct access to other areas of tax of each other's national databases as well as extending the scope of automated access in the VAT area. The Commission wants to extend EUROFISC and its Early Warning System to the direct tax area. According to the European Commission “To ensure that information exchanged can be used immediately, it is essential to improve the identification of taxpayers.” Hence, in order to achieve such aim, the European Commission is planning to propose a Tax Identification Number (TIN) to each taxpayer engaged in crossborder activity.
It remains to be seen if Member States will be willing to accept further sharing their national tax databases with each other. Given the threat to the UK taxpayer of European-wide sharing of their personal data as well as the increasing exchange of their information, the immediate access to their identities, activity and turnover data, the UK Government must say NO to such proposals from the outset. It is important to mention that unanimity is required to adopt such proposals. Consequently, the UK can veto them.
The European Commission is also planning to introduce common rules against tax fraudsters and evaders concerning certain types of tax offences, including administrative or criminal sanctions. It is well known that the Commission is seeking to harmonise criminal law in the Union. It is important to recall that Article 83 TFEU, introduced by the Lisbon Treaty, allows the Union to define certain criminal offences and set minimum sentences for those found guilty of them, overriding Member States criminal laws and sentencing policies.
The Commission will present, before the end of 2012, an Action Plan on fighting fraud and evasion identifying “specific measures which could be developed rapidly if the appropriate political priority is given.”
