Select Committee on European Legislation Fifteenth Report


ADMINISTRATIVE CO-OPERATION ON INDIRECT TAXATION (VAT)

6. We consider that the following raises questions of political importance, but make no recommendation for its further consideration:-


H M CUSTOMS AND EXCISE
(17857)
5175/97
COM(96)681
Commission Report on administrative co-operation in the field of indirect taxation (VAT).
Legal base: Article 14 of Council Regulation (EEC) 218/92.

Background

    6.1  Before 1993, cross-border trade in goods between taxable persons was checked at frontiers. The abolition of border controls on 1 January 1993 required co-operation between Member States on a new scale, in particular to obtain information on intra-Community transactions and to permit confirmation of the validity of VAT numbers. The VAT Information Exchange System (VIES), which is a common computer network, was set up for this purpose.

    6.2  Under the Regulation[17] which provides the legal framework for the VIES system, the Commission is required to report every two years on the conditions of its application. The Commission's first report, in 1994, outlined the new administrative framework. This second report describes the development of the arrangements since 1993, and makes recommendations for improvements.

The report

    6.3  In an Explanatory Memorandum dated "February 1997", the Exchequer Secretary (Mr Oppenheim) notes that the report concludes that Member States have derived benefits from administrative co-operation, the quality of VIES data has improved and that technically the system continues to function to a high standard.[18]

    6.4  The report, however, is not without criticism. The Commission comments less favourably on:

        (i)  the little use made of the network for the communication of messages between Member States in the fight against fraud;

        (ii)  the reluctance of some Member States to co-operate with one another on a multilateral basis in investigating suspected fraud cases;

        (iii)  the unwillingness (or inability) of most States to provide details of additional tax discovered because of information exchanged over the VIES;

        (iv)  the limited access provided for officials to the VIES system in some Member States;

        (v)  bottlenecks and backlogs in some Central Liaison Offices which act as the normal channel of communication between competent authorities.

    6.5  In its conclusion, the Commission says that, although administrative co-operation is improving, and the VIES has continued to function to a high standard, there are still unsatisfactory features of the present control arrangements, some of which arise from the deficiencies of the basic legislation (the 6th VAT Directive).

    6.6  Pending a major overhaul of the Community VAT legislation, the Commission makes a number of recommendations which the Minister summarises in his Memorandum:

      --   the taxation of intra-EC trade should be incorporated into the standard control methodology of Member States;

      --   the use of the specific enquiry facilities should be more widespread;

      --   Member States should engage in more multilateral control work at the largest businesses;

      --   greater efforts are needed to increase activity in the prevention and detection of fraud;

      --   Member States should consider the adequacy of enforcement policies to ensure that traders make timely and correct declarations of trade;

      --   efforts to improve the arrangements for recovery of tax need to be sustained; and

      --   the Community, in partnership with Member States, must encourage the development of administrative co-operation to enhance the ability to meet the challenges now and in the years ahead.

The Government's view

    6.7  The Minister notes:

        "The UK has taken the lead in the promotion of multilateral assurance programmes and has appointed an office with special responsibility for EC administrative co-operation in the task of debt recovery. The Government is content with the recommendations in the report which are aimed at improving administrative co-operation between Member States in the field of indirect taxation. Such measures accord broadly with the approach already adopted by the UK in these matters and where administrative action may be required, this would be entirely an operational consideration....

        "The recommendations have no financial implications for UK expenditure. Implementing these recommendations would not require additional expenditure and would not impose additional compliance costs on business."

Conclusion

    6.8  This report indicates that, although the VIES system operates to a very high standard, some Member States could do more to make the administration of VAT and the prevention or discovery of fraud more effective. We therefore think that it raises matters of political importance but, as this is a report rather than a formal proposal, we make no recommendation for a debate.

17  Council Regulation (EEC) No. 218/92; OJ No. L 24, 1.2.1992. Back

18  However, it should be noted that in our report on Document 9466/96, which we considered in our Twenty-ninth Report of last Session under our reference (17373) on 16 October 1996, we said, at paragraph 8.12: "The shortcomings of the existing transitional VAT system are well known. It is complicated, it does not facilitate intra-Community trade as much as it should and it is subject to fraud, particularly in the transit procedures." It follows that even if the VIES system is functioning at "a high standard", it is doing so in relation to a transitional VAT system which is far from perfect.  Back


 


© Parliamentary copyright 1997
Prepared 4 March 1997