Combating tax fraud
The debate on tax fraud was launched at EU level in May 2006 by the Commission's Communication (COM(2006) 254 ) on a European strategy to combat tax fraud (see speech by Commissioner Kovács, press release IP/06/697 and MEMO/06/221 ).
The Council made quickly clear that priority should be given to VAT fraud and efforts are now fully focused on this issue.
The debate on VAT fraud has been divided into 2 main areas:
- Conventional measures to reinforce the existing VAT system
- More far reaching measures to modify the system, namely
- An option for Member States to introduce a general reverse charge system;
- Taxation of Intra-Community transactions
As a response to the ECOFIN Council conclusions of 28 November 2006, the Commission created a new expert group with Member States, the "Anti Tax Fraud Strategy (ATFS)" expert group, with a view to conduct the technical discussions on the conventional measures.
Furthermore, in order to provide European businesses the opportunity to express their views on the way VAT is tackled today and how to fight VAT fraud, two "VAT fraud conferences" were organised on 29 March 2007 and 23 January 2009 respectively.
Fighting 'EU fraud' in general and tax fraud in particular on the investigation side is a matter for the European Commission's Anti-Fraud Office (OLAF). For more information see OLAF's website.
1. More far reaching measures
In February 2008 the Commission presented its Communication (COM/2008/109) on the two more "far reaching" measures to change the VAT system in order to fight fraud. In this Communication the Commission analyses the taxation of Intra-Community transactions and the introduction of the option of a general reverse charge system. The Communication raised a number of key questions on the way forward for the far reaching measures.
Until now the Council has not provided the required steering to the Commission as to the desirability of a pilot project for the reverse charge in a volunteering Member State (Austria). In absence of such steering, the Commission will not take further action in this area.
2. Conventional measures
On 23 November 2007 the Commission presented a Communication (See the Commission's Communication COM/2007/758 and the working document SEC/2007/1584 ) by which it asked the Council for political steering on some key elements of the VAT anti-fraud strategy within the EU.
These key elements concerned the conventional measures like the need of tax administrations for accurate information, the integration of an EU approach into the management of the VAT system and the importance of updated information on the VAT status of persons.
The ECOFIN Council meeting of 4 December 2007 provided political steering for further work on certain conventional measures targeting to fight VAT fraud more efficiently.
The work carried out in ATFS on the conventional measures has lead to a first Commission proposal, adopted on 17 March 2008 (see press release IP/08/454 and COM/2008/147 ) for the amendment of the VAT Directive and the VAT Administrative Cooperation Regulation to speed up the collection and exchange of information on intra-Community transactions from 2010 onwards. The aim of this proposal is to ensure that Tax Authorities of the destination Member States are informed much quicker than today about intra-Community acquisitions taking place on their territory and therefore have the possibility to act at an earlier stage.
Based on that first Commission proposal, the Council on 16 December 2008 adopted a Directive and a Regulation, after consultation of the European Parliament and the European Economic and Social Committee. See the press notice (10th item), the Council's press release and the adopted texts (EU OJ No L 14 of 20 January 2009).
At the ECOFIN of 14 May 2008, the Commission reported on the work that has been carried out in the first half of 2008 in close cooperation with the Member States. It also announced the presentation of a communication for November 2008 and the different legislative proposals it intends to present by the end of 2008, including a timetable.
1. The Communication
The European Commission has adopted on 1 December 2008 a Communication (COM/2008/807 , see also press release IP/08/1846 ) setting out a short term action plan with a list of future legislative measures aiming at enhancing tax administrations capacity to prevent and detect VAT fraud (in particular "missing trader fraud") as well as to recover taxes in case of fraud. Most of these measures directly result from the discussions on the conventional measures that took place in the Anti Tax Fraud Strategy (ATFS) group.
This Communication intends also to initiate a reflection on a longer term scale notably about the relation between taxpayers and Tax Administrations and the opportunities offered by IT in that context.
2. Proposal presented in December 2008 and Directive adopted in June 2009
- Harmonise the conditions for the importer to benefit from the exemption of VAT upon importation, when this importation is followed by an intra-Community supply or transfer of goods to another Member State. This should avoid the increasing misuse that fraudsters make of this particular exemption in missing trader fraud schemes. That part of the proposal was adopted by the EU Council on 25 June 2009 and this new Directive will apply as from 1 January 2011 (see the Council press release and the text of the Directive). Under the Directive the exemption will apply only if the importer has provided the Member State of import with his VAT identification number, his customer's VAT number and the evidence that the goods are intended to be transported to another Member State.
- Make the supplier in intra-community transactions liable for the VAT loss created by his missing customer in another Member State, when he contributed to the loss by not reporting (or by reporting false or incomplete information or by reporting late) his supply to his VAT authority. The proposal will provide tax administrations with a tool for recovering VAT from non-established traders, that intentionally do not report (or report incomplete/false data or report late) their supply to the tax authorities.
3. Communication and proposal on invoicing rules adopted in January 2009
The European Commission on 28 January adopted a proposal to change the VAT Directive (2006/112/EC) in respect to the invoicing rules, based on a Communication on the technological developments in the field of electronic invoicing. The aim of the proposal is to increase the use of electronic invoicing, reduce burdens on business, support small and medium sized enterprises (SMEs) and help Member States to tackle fraud. See our "VAT invoicing" web page for more detail.
4. Measures scheduled for 2009
- Recovery of taxes: On 2 February 2009, the Commission presented a proposal for a new Directive on mutual assistance for the recovery of taxes (see press release IP/09/201 and proposal COM/2009/28). The creation of a European instrument permitting enforcement of legal acts in another Member State and the reinforcement of the possibility to take precautionary measures in another member State are two elements in this proposal which should improve the capacity of Member States in cross border collection of taxes.
- On 18 August 2009, the Commission adopted a proposal for a recast of the Regulation on Administrative Cooperation (Regulation N° 1798/2003), (see press release IP/09/1239 and proposal COM/2009/427 ) which focuses on the improvement of the administrative cooperation and enhancing the fight against VAT fraud. It covers the following items:
- Automated access to specific data: One of the ways to speed up the exchange of information and administrative cooperation is to allow Member States to have automated access to specific objective data related to the identification of a taxable person and to his activities contained in the databases of other Member States. It is expected that such an automated access would reduce the number of (time-consuming) requests for information and therefore reduce the involvement of human resources.
- Common minimum standards for registration and deregistration of taxable persons in VIES (Value added tax Information Exchange System): The VAT Identification number is a key element in the VAT arrangements applicable to Intra-Community trade and the abuse of "inactive" VAT Identification numbers is a well known phenomenon in VAT fraud. Laying down in a legal text common minimum rules for registration and deregistration of taxable persons in VIES should prevent potential fraudsters to obtain or abuse a VAT Identification number. It would also reassure genuine traders that the information they obtain on the VAT status of a commercial partner is more reliable since it has been better controlled.
- EUROFISC: Discussions started on the creation of a European Network composed of officials from national Tax Administrations. The aim of this network, called EUROFISC, will be to improve cooperation in order to detect fraudsters at an early stage. Another task of this network at a later stage could be the setting up of a risk analysis mechanism at EU level. The ECOFIN Council meeting on 7 October 2008 adopted the general principles that will govern the planned Eurofisc system and the Commission included in the recast provisions allowing Eurofisc to be established in the near future. Furthermore, the Commission has expressed its willingness to examine the possibility to entrusting additional tasks to Eurofisc.
- The Commission on 18 August 2009 submitted the report on the functioning of administrative cooperation (see press release IP/09/1239 and report COM/2009/428 ).
- A proposal that will cover a modification of the VAT Directive focussing on the following item:
- Chargeability on Intra-Community transactions: a divergent interpretation of the rules related to the chargeability of the VAT for intra-Community supplies of goods and intra-Community acquisitions, stemming in part from the invoice creating a derogation to the chargeability to tax, leads to deficiencies in the use that can be made of the information exchanged between Member States on these transactions. An amendment of the VAT Directive in view of laying down simple and clear rules would solve this problem.
|Study prepared for the Commission||
The study analyses the gap between the amount of VAT due and the amount received in 25 Member States. See also the press release (IP/09/1655 )
|Study prepared for the Commission||
The study analyses the possible impact on business of measures envisaged for fighting VAT fraud (Timeframes)
|Study prepared for the Commission||
The study analyses the possible impact on business of measures envisaged for fighting VAT fraud (More detailed information)
|COM (2007) 758|
Report from the Commission to the Council and the European Parliament: Fifth report under article 12 of Regulation (EEC, Euratom) No 1553/89 on VAT collection and control procedures - see also annex
|COM (2000) 28||
Report from the Commission to the Council and the European Parliament: Third Article 14 Report on the Application of Council Regulation (EEC) No 218/92 of 27 January 1992 on Administrative Cooperation in the Field of Indirect Taxation (VAT) and Fourth Report under Article 12 of Regulation (EEC, EURATOM) No 1553/89 on VAT Collection and Control Procedures.
|COM (1996) 681||
Report from the Commission to the Council and the European Parliament - Application of Council Regulation (EEC) 218/92 of 27 January 1992 on administrative coopeation in the field of indirect taxation (VAT) - second article 14 report
|COM (1994) 262||Report from the Commission to the Council and the European Parliament - Application of Council Regulation (EEC) N° 218/92 of 27 January 1992 on administrative cooperation in the field of indirect taxation (VAT)|