VAT anti-fraud strategy

In order to improve the value added tax (VAT) management system and to protect Member States against VAT fraud, the Commission proposes a review, with particular regard to methods of control, registration, information and collection of revenue in the context of an increase in cross-border transactions. The Community approach and better cooperation between Member States are the essential means to provide an appropriate response.

ACT

Communication from the Commission to the Council of 23 November 2007 concerning some key elements contributing to the establishment of the VAT anti-fraud strategy within the EU [COM(2007) 758 final - not published in the Official Journal].

SUMMARY

The value added tax (VAT) system within the single market is not sufficient to combat VAT fraud, as in the case of carousel frauds. In order to improve the protection of VAT revenue for Member States, there is a need for greater system harmonisation and increased cooperation between Member States. In this Communication, which is a follow-up to the 2006 communication, the Commission proposes measures to improve and strengthen the existing system.

Effective control of VAT operators

Tax administrations need to have relevant and timely information. An increased frequency of statements on intra-Community supplies and faster transmission of this information between tax administrations should contribute towards meeting this requirement. The question is whether this solution will be sufficient to ensure effective control of intra-Community operations or if more needs to be done.

Nevertheless, the requirement for relevant information must comply with the objective for a 25% reduction in the administrative burden for businesses stipulated as part of the renewed Lisbon strategy. The right balance also needs to be ensured between obligations imposed on cross-border trade and obligations imposed on domestic markets.

In addition, reporting obligations for businesses need to be limited (information available in their accounting systems) and simple (electronic transmission) to restrict their impact on businesses. Small and medium-sized businesses not involved in intra-Community trade should not be affected. Furthermore, a greater harmonisation of reporting obligations, and even invoicing rules, could permit a reduction in costs for businesses operating in several Member States. A minimum level of information exchanged between tax administrations could also be determined at Community level.

Tax administrations must also be able to make use of all data collected. To that end, not only does this information need to be detailed, it also needs to be available via high-performance systems capable of locating transactions and operators which require special attention.

Stronger Community approach

The increase in the number of cross-border transactions and of different taxation locations and places of business in the European Union make it more complicated to protect VAT revenue for all Member States. In this context, the Commission proposes a Community approach for the VAT system, enabling cooperation between Member States to be strengthened in three areas, namely:

• Responsibility for control. Increased cooperation, such as mutual assistance for recovery of taxes is to provide a greater guarantee to Member States with regard to the internal market. Nevertheless, costs need to be limited;
• Risk management. The rapid exchange of data between tax administrations regarding activities where risk is inherent is important in order to identify potential losses of tax revenue, particularly with regard to missing trader frauds. The experience of Member States, such as Belgium and its system of rapid exchange of targeted information and risk analysis between 24 Member States, could serve as a point of reference;
• Criminal proceedings. To ensure reciprocity of criminal proceedings between Member States, additional legislative measures are necessary. Nevertheless, the Convention on the protection of financial interests of the European Community (PFI convention) already offers an appropriate framework of criminal law protection.

Status of taxable persons identified for VAT

Tax administrations need to have reliable information relating to registrations. This objective requires a common approach as regards maintaining an up-to-date register of taxable persons identified for VAT. As regards registration, greater vigilance is of the utmost importance when issuing (including monitoring in the initial months) and checking VAT numbers. Centralised access to the register should also be improved. As regards de-registration, tax administrations should automatically check whether the VAT numbers are still used and delete those which are no longer being used from the automated VAT information exchange system (VIES). Changes in national procedures should be made and minimum Community standards should be established.

Collection of VAT revenue in the event of fraud

Tax administrations need to be in a position to collect VAT revenue due in cases of confirmed fraudulent operations. Two regulatory instruments exist in order to meet this challenge, namely:

• Joint and several liability, provided for by the Community VAT rules which permit a person other than the person liable for payment to be made jointly and severally responsible for paying the tax to the state budget. Nevertheless, their application must ensure the legal security of businesses;
• Mutual assistance for the recovery of taxes, as provided by the Recovery Directive. The Commission is due to propose strengthening the system in 2008.

Background

The Council has initiated a process to reinforce the Community framework for the fight against tax fraud. It concerns both "conventional" measures aimed at reinforcing the existing VAT system and "far-reaching" measures modifying this system. In addition, at the start of 2008, following an impact assessment, the Commission is due to present legislative proposals on priority measures established by the Council. This Communication is part of the proposals for conventional measures. It sets out courses of action to be envisaged when considering future policy and defines a Community framework.

RELATED ACTS

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee of 12 December 2008 on a coordinated strategy to improve the fight against VAT fraud in the European Union [COM(2008) 807 final – Not published in the Official Journal]. This Communication presents a short term action plan aimed at improving the methods used in the fight against tax fraud. The action plan contains a set of legislative measures aimed at enhancing tax administration capacity to prevent or detect VAT fraud and to recover taxes.

The European Commission has decided to present these measures in the form of three packages:

• a legislative proposal regarding the reduction of timeframes in order to speed up the exchange of information between Member States;
• a proposal relating to the strengthening of administrative cooperation between Member States which would require changes to Regulation (EC) No 1798/2003;
• a proposal concerning certain anti-fraud aspects.

The Commission is to adapt the management of the VAT system to developments in information technology and to encourage exchange of best practice between Member States.

Last updated: 05.03.2009