VAT and Administrative Cooperation
The Council of the European Union adopted a new Regulation on administrative cooperation in the field of Value Added Tax on 7 October 2003.
The aim of the Regulation is to improve administrative cooperation between Member States concerning VAT.
The following links provide information about the new Regulation.
- What is administrative cooperation and why is it important?
- Why is there a new Regulation?
- What does the new Regulation provide for?
- What has not changed?
- Taxing insurance premiums
- Flanking measures
- When do the Regulation and Directive take effect?
- Need more information?
- Amendments adopted or proposed
Administrative cooperation concerns the tax and customs administrations of EU Member States cooperating with one another to share information. Close cooperation between these bodies is vital to detect and reduce tax fraud.
In the field of VAT, this system of administrative cooperation has, until now, been based on Regulation Nr 218/92 and Council Directive 77/799/EEC. However, a new Regulation Nr 1798/2003 of 7 October 2003 now sets up a single legal framework merging the legal apparatus of Regulation Nr 218/92 and the provisions of Directive 77/799/EEC on VAT.
VAT fraud costs the Member States of the European Union millions of euros annually. In addition, it distorts competition for honest traders and undermines confidence in the European taxation systems. Very simply, the current system does not efficiently and effectively combat this problem.
The current system of VAT administrative cooperation, based on Regulation Nr 218/92 and Council Directive 77/799/EEC , no longer meets modern requirements arising from the ever closer integration of economies within the internal market. It is too general, too centralised and not sufficiently intensive to cope with the requirements of the current VAT.
The new Regulation sets up a single legal framework merging the legal apparatus of Regulation Nr 218/92 and the provisions of Directive 77/799/EEC on VAT. The amendments as compared to the previous legal frame work are of three kinds:
The new Regulation provides an arrangement specifying the rights and obligations of all interested parties and laying down procedures which govern administrative cooperation between Member States in the field of VAT. It lays down clear and binding rules for, inter alia:
facilitating information exchange
- form requirements for both information requests and information provided;
- time limits to provide the information;
- possibilities for the use of information;
- procedures and situations for refusing information requests;
- procedures for handling information exchange with non Member States.
facilitating VAT investigations
- requesting other Member States to conduct administrative enquiries;
- presence of foreign officials during controls;
- cross-border notification of decisions emanating from the tax authorities of another Member State ;
- procedures for organising multilateral controls.
The new Regulation also provides for more direct contact between tax inspectors of different Member States, with a view to making cooperation faster and more effective while retaining the pivotal function of the central liaison offices. Direct communication between inspection staff or fraud units is the only effective way to speed up the exchange of information.
The new provisions aim to intensify the spontaneous exchange of information between administrations in order to combat fraud more effectively.
This Regulation provides for two types of spontaneous exchange:
- structured automatic exchange and
- automatic exchange.
The sole difference between these two types of exchange is that where the authority responsible for transmission is unable to collect the information to be exchanged on a regular basis, structured automatic exchange will take place. It will be impossible, for example, for a Member State to exchange information automatically where taxable persons in that Member State are under no obligation to communicate such information.
The Regulation specifies that Member States should, at the very least, exchange information in the following situations:
- where taxation is deemed to take place in the Member State of destination (for example in cases of distance sales);
- where there is a suspicion of a breach of VAT legislation in the other Member State (for example in cases of significant discrepancies between intra-Community supplies and acquisitions); and
- cases which represent a risk for tax loss (due to fraud or avoidance) in the other Member State (for example, cases of carousel fraud).
However, the precise category of information and the way in which the exchange will be handled by each Member State will be decided via the Committee Procedure. The flexibility of the new system lies in the this Procedure, according to which it will be possible to conclude an agreement under which e.g. 10 Member States will exchange information automatically while the other five will do so in a structured automatic way.
The following exchange of information has not been changed but is now incorporated in the new Regulation:
Exchange of information specific to intra-community transactions
Since 1 January 1993 , a computerised VAT Information Exchange System (V.I.E.S.) enables companies to rapidly obtain confirmation of the VAT numbers of their trading partners and enables VAT administrations to monitor and control the flow of intra-Community trade to detect all kinds of irregularities
Exchange of information specific to e-commerce
In addition, from 1 July 2003 onwards, the Regulation provides additional measures necessary for
- registering foreign e-commerce traders for VAT purposes and
- distributing VAT receipts to the Member States where the services were actually used.
For more information on VAT and e-commerce see here.
The amendment of Directive 77/799/EEC (concerning mutual assistance in the field of direct taxation) means that Member States will now be able to exchange information concerning certain taxes imposed on insurance premiums. Henceforward tax administrations will be able to request information on transactions of insurance companies established in other Member States and to recover the taxes due on their territory.
Another important instrument encouraging administrative cooperation in the field of VAT and mutual assistance on insurance taxes is the FISCALIS 2007 Decision.
FISCALIS 2007 provides for funding for e.g. multilateral controls and exchanges of tax officials between Member States.
1 January 2004
- The text of the Regulation on administrative cooperation in the field of VAT
- The text of the Directive regarding administrative cooperation for insurance premium taxation
- The press release for the Regulation and Directive on administrative cooperation in the field of VAT
- The European Commission's Proposal for a Regulation on administrative cooperation in the field of value added tax
- The press release for the Commission's Proposal for a Regulation on administrative cooperation in the field of value added tax (IP/01/857)
- VAT fraud FAQ (MEMO/01/230)
- SCADPLUS (summaries of European Commission legislation)
In 2008 amendments to Regulation 1798/2003 on administrative co-operation were adopted. Others were proposed.
- A Regulation on information exchange between Member States was adopted by the EU Council on 12 February 2008 as part of the 'VAT package'. The Regulation is necessary to underpin the new arrangements in the package, which relate to the place of supply of services, a mini one stop shop for certain types of services, and VAT refunds to non-established businesses (See IP/08/208 );
- The measures proposed on 17 March 2008 to tackle VAT fraud more effectively include reducing the period for transmission between Member States of information on intra-Community transactions carried out by persons liable to VAT (See IP/08/454 )