Following a political agreement reached last June, on 7 October, the Council adopted, without discussion, the European Commission proposal to recast the Council regulation [1798/2003] on administrative cooperation and combating fraud on VAT. The draft proposal supplements the 2003 regulation, which lays down the conditions under which the Member States’ authorities responsible for VAT administration are to cooperate with each other and with the Commission, as regards exchange of information.
According to the Commission, the proposal will have no impact on economic operators but on Member States’ tax authorities. The Commission has carried out no impact assessment, as it believes the Member States are better positioned to assess the impact of the proposal. The Council has amended the Commission proposal, in fact the text of the draft regulation has been improved nevertheless, it is still likely to impose administrative burdens on the Member States. David Gauke, the Exchequer Secretary to the Treasury, told to the European Scrutiny Committee that the proposal only entails “a limited resource requirement for HMRC” consequently the Government did not carry out an impact assessment.
The Regulation sets out joint responsibility for the protection of VAT revenues. It introduces a requirement for Member States to cooperate to protect the VAT revenue of all Member States. However, whereas under the Commission proposal the Member States would have been required to monitor the correct application of tax owed on their own territory as well as tax relating to activity on their own territory but owed within another Member State, under the adopted regulation they should “provide assistance to other Member States for ensuring the correct application of tax relating to activity carried out on their own territory but owed in another Member State.” It is no longer a “must” but a “should.”
The draft proposal introduces new rules, which regulate the exchange of information between Member States’ tax authorities in order to combat VAT fraud. Under the Council regulation 1798/2003, a Member State which receives a request for assistance from another Member State is required to communicate information concerning VAT or carry out a specific administrative enquiry. The new regulation limits the ability for Member States to refuse to provide such information and provides for these requests to be sent through a standard form, except in “exceptional cases” where the requesting authority provides reasons for which it considers the standard form not to be suitable. Such form will be adopted through the comitology procedure.
HMRC, at the request of other Member States authorities, is therefore required to provide them with “any pertinent information it obtains or has in its possession as well as the results of administrative enquiries” within three months, but if it already possesses the information the time limit is one month. Moreover, if the HMRC is not able to provide the required information within the deadline it must inform the requesting authority and justify its failure to do it.
The regulation also governs exchanges of information without prior request. Member States are presently required to automatically exchange VAT information where taxation is considered to take place in the Member State of destination and the information given by the Member State of origin is necessary for the effectiveness of the control system of the Member State of destination as well as where a Member State believes that a breach of VAT legislation has been committed. From January 2015, 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.
The European Commission has been given the power to decide, through the comitology procedure the precise categories of information subject to automatic exchange, the frequency of such exchange, the practical arrangements for the exchange of information as well as the standard forms required to forward information. Under the regulation, as amended by the Council, Member States may not take part in the automatic exchange of a particular category of information if where the gathering of information for such exchange would impose new obligations on persons liable for VAT or a disproportionate administrative burden on the Member State. However, all Member States are required to take part in exchanges of the information available to them with regard to telecommunications services, broadcasting services and electronically supplied services regardless of whether those taxable persons make use of the special scheme provided for in Section 3 of Chapter 6 of Title XII of Directive 2006/112/EC.
HMRC is also required to “spontaneously exchange” any information that may be useful to the competent authorities of the other Member States and which has not been forwarded under the automatic exchange. The exchange of information is , therefore, either “automatic” or “spontaneous.”
The draft regulation has amended the provisions, specifying that such exchanges must take place in any case where the provided criteria are met. Under the new regulation, the member state competent authority which provides information may request feedback on the quality of the information exchanged, providing that this does not imposed a “disproportionate administrative burden” on the competent authority which received the information. The practical arrangements will be decided by the Commission through the comitology procedure.
The new regulation also lays down new rules on the kind of information that should be stored in national tax databases as well as the common procedures for registration of taxpayers in Member States. Under the existing regulation, Member States are required to keep an electronic database to store and process information collected through the recapitulative statement (EC Sales List). In order to enable Member States to rapidly exchange certain information relating to the taxpayers established on their territory, the Commission has proposed to enhance their VAT databases. The amount of storage and exchange of information on taxable persons and their intra-Community transactions to be included in those databases has been, therefore, increased. This information includes: data on the identity, activity or legal form of persons to whom a VAT identification number has been issued. The technical details concerning such data would be adopted through the comitology procedure. Member States are required to place all the information in the database system “without delay” or “no later than one month after the end of the period to which the information relates.”
Moreover, each Member States’ tax authorities are required to grant “automated access” to information contained on their national taxpayer databases to other Member States. With regards to information collected through the recapitulative statement, several details must be accessible such as VAT identification numbers issued by the Member State receiving the information, the VAT numbers of the persons who carried out intra-Community supplies of goods and services as well as the total value of the supplies of goods and services from each person holding a VAT identification number.
The Council has introduced new requirements, hence such access is to be granted in connection with an investigation into suspected fraud, is through a Eurofisc liaison official and it is only granted during general working hours. In order to guarantee “the quality and reliability of the information” contained in this database system, the UK and all Member States would be required to perform checks on the information supplied when taxable persons and non-taxable legal persons are identified for VAT purposes. Member States are therefore required to “implement procedures for checking these data as determined by the results of their risk assessment.” Hence, such information and checks related to the activity and identity of the taxable person would no longer be decided through the comitology procedure, as the Commission proposed. Moreover, it seems that Member States would not be required to, after the VAT identification of the taxable persons and non-taxable legal persons, perform a risk analysis on those persons, taking into account their checks.
The Commission also proposed that Member States must give notification in the database system, without delay, of situations such as persons identified in the database who have ceased economic activity and risks identified in the course of a risk analysis and that the rules and procedures for the application of this provision would be adopted through the comitology procedure. Under the adopted regulation Member States re requires to ensure that the VAT identification number is shown as invalid in the electronic system where persons identified for VAT purposes have ceased their economic activity and “where persons have declared false data in order to obtain VAT identification.”
The Commission has proposed to amend the 2003 Council regulation to specify the cases in which Member States are required to carry out multilateral controls, checks on the tax situation of a taxable person, meaning “whenever such controls would appear to be more effective than controls carried out by only one Member State.” The adopted regulation does not provide for “multilateral controls” but "simultaneous controls” of the tax situation of one or more taxable persons which member states may agree too if they are considered “to be more effective than controls carried out by only one Member State.” Member States are required, within two weeks of receipt of a proposal for a simultaneous control, to confirm their agreement or communicate their reasoned refusal to their counterpart authority. The regulation no longer foresees that the Member States concerned must “spontaneously” exchange the information collected.
Member States are required to inform the Commission of their invoicing provisions that are applicable to taxable persons not established on their territory so that this information can be published on the Commission's website. However, the details of the list of information that Member States would have to submit as well as its format would be decided through the comitology procedure.
The regulation has created a legal basis to establish Eurofisc, a common structure for collecting personal data to supposedly combat cross border VAT fraud. The adopted regulation does not define Eurfisc as a “common structure” but a “network for the swift exchange of targeted information between Member States in the subject areas in which Eurofisc will operate.” Member States, within the framework of Eurofisc, will set up a multilateral early warning mechanism for combating VAT fraud, will coordinate the rapid exchange of the abovementioned information as well as the work of the Eurofisc liaison officials reacting to warnings received.
Each Member States will participate in the Eurofisc working fields of its choice but, having chosen to take part in a particular working field it is, therefore, required to participate in the multilateral exchange of targeted information between all participating Member States.
Member States must designate at least one Eurofisc liaison official who would be in charge of designating a coordinator, the so called Eurofisc working field coordinator, to gather the information received from the participating Eurofisc liaison officials and making it available to the other participating Eurofisc liaison officials.
The arrangements for the exchange of information within Eurofisc would no longer be determined through the comitology procedure. In fact, on 7 October the member states agreed on the organisational and operational details for the functioning of Eurofisc. The Eurofisc liaison official(s) will be chosen among Member States' experts in the fight against tax fraud. They will be in charge of channeling “their Member State's exchanges of information in the working fields in which they participate and will study, analyse and exchange experiences regarding different types of fraud, national risk analyses, risk areas and other relevant information related to VAT fraud.”
The Eurofisc working field coordinators “will facilitate the accomplishment of the tasks that are carried out in the working field and encourage delivery by EUROFISC liaison officials of the tasks agreed in the working field.” It will be created a group – Eurofisc Group, compose of Eurofisc liaison officials. Commission representatives may participate in this group meetings, except where issues which involve identifiable taxpayers are discussed.
The member states liaison officials, participating in each working field, will meet in the so called Eurofisc working field meetings, where they will agree, for instance, on the type of information to be exchanged.
Unanimity was required at the Council to adopt the proposal. According to David Gauke , the Government has decided not to block the proposal because it was substantially amended and it will “provide anti-fraud benefits for the UK and other Member States as a whole…” Nevertheless, under the adopted regulation, 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. Moreover, although it has been limited there is still a lot of room left for the unaccountable comitology procedure which will diminish Member States control over the content of this measure. The Commission will continue to be assisted by the Standing Committee on Administrative Cooperation.
The regulation will enter into force on the twentieth day following its publication in the EU Official Journal, which will happen within the next few weeks. But, it will apply from 1 January 2012. Nevertheless, the provisions on Eurofisc will apply from the date of entry into force of this regulation. The provisions related to the quality and reliability of the information available through the electronic system and validity of VAT identification numbers will apply from 1 January 2013.
