Select Committee on European Scrutiny Fourth Report


COM(01) 294

Draft Regulation on administrative co-operation in the field of value
added tax;

Draft Directive amending Council Directive 77/99/EEC concerning
mutual assistance by the competent authorities of the Member States in
the field of direct and indirect taxation

Legal base: Article 95 EC; co-decision; qualified majority voting
Document originated: 18 June 2001
Forwarded to the Council: 19 June 2001
Deposited in Parliament: 18 July 2001
Department: HM Customs and Excise
Basis of consideration: EM of 10 October 2001
Previous Committee Report: None
To be discussed in Council: No date set
Committee's assessment: Politically important
Committee's decision: Not cleared; further information requested


8.1  In its Communication to the European Parliament on a strategy to improve the operation of the VAT system,[36] the Commission mentioned that administrative co-operation and mutual assistance needed to be strengthened. The Council accordingly directed the Commission to propose measures for more effective control and co-operation.[37]

8.2  The Commission has put forward these two proposals: the first is a new regulation which brings together all VAT mutual administrative assistance provisions into one document; the second amends Directive 77/99/EEC on mutual assistance to remove superfluous references to VAT and to extend mutual assistance to taxes on insurance premiums.

The document

8.3  The Commission argues that the present regime is hampered by certain measures:

    —  Regulation 218/92/EEC, which provides for an electronic data base (VIES)[38], is an effective control instrument permitting information to be exchanged automatically. However it was not intended to deal with individual cases of fraud which are more immediate. Nor does the Regulation cover all transactions which could potentially be fraudulent. Information is therefore not exchanged soon enough or fast enough to prevent fraud; and

    —  the existence of two legal bases under the Directive and Regulation result in operational difficulties.

8.4  Some transactions are considered to be services in some Member States and goods in others. Furthermore, under the Regulation Member States are required to install central liaison offices which will have responsibility for the exchange of information. However, some Member States provide for a different entity to deal with mutual assistance and exchange of information under the Directive.

8.5  To overcome these shortcomings, the Commission's proposals aim to establish a single legislative framework which provides clear, binding rules governing co-operation, devolving co-operation and increasing the speed and volume of information exchanges.

8.6  The main changes are described by the Paymaster General (Dawn Primarolo) in her Explanatory Memorandum of October 2001 as follows:

      "(a)  Clearer binding rules

    —  A single legal base for VAT mutual administrative assistance activity;

    —  A legal base and rules for exchanging information with non-EU countries;

    —  New procedures on a range of issues such as organising multilateral controls; and

    —  Inclusion of taxes on insurance premiums in Directive 77/799/EEC.

      "(b)  Devolving co-operation to enhance effectiveness

    —  Provision for the Central Liaison Offices (CLOs) in Member States' indirect tax administrations to allow direct contacts between officials and special anti-fraud units;

    —  Arrangements to allow the presence of officials in one Member State in the territory of another if both agree; and

    —  The ability to arrange simultaneous control exercises by officials in several Member States where they are more likely to be effective than control by just one Member State.

      "(c)  Stepping up information exchanges

    —  Reducing the deadline for exchanges of information from 3 months to 1 month when the information is already in the possession of the requested authority, with the possibility of even shorter deadlines in special circumstances where both authorities agree;

    —  A requirement that a requested authority must respond to all requests and provide a date for providing information when it will have difficulty complying with the agreed rules; and

    —  Allowing the exchange of non-VAT Information Exchange System (VIES) data where there is a real risk of tax evasion or avoidance (e.g. information about the movement of new vehicles)."

The Government's view

8.7  In her Explanatory Memorandum the Paymaster General comments on the policy implications of the proposal as follows:

    "The UK has consistently supported moves to improve mutual assistance between Member States. We consider that existing information exchange and information sharing arrangements need further strengthening in response to increasingly sophisticated tax fraud within the single market. We broadly welcome the move to a single instrument covering mutual assistance for VAT matters and the fact that the recommendations of the Council High Level Ad Hoc Group on Tax Fraud are being taken forward for indirect taxes.

    "In general the Government considers that the proposals strike an appropriate balance between the desirability of improving co-operation and the need to preserve national competence in tax administration. For example, the Regulation would allow foreign tax officials to accompany national tax officials on visits to registered traders, but only with the prior agreement of the requested authority and on the basis that all enquiries remain the responsibility of the requested host authority. We will carry out detailed analysis of all the individual proposals to ensure that they achieve and are proportionate to the required objectives."

8.8  However the Government has concerns with two areas. The first is the legal base, Article 95. The Minister comments:

    "...Article 95 of the Treaty Establishing the European Communities (EC) ... requires agreement by a Qualified Majority in the Council and co-decision with the European Parliament. The proposals replace legislation which was adopted under legal bases requiring unanimous agreement and consultation with the European Parliament. The Government strongly holds the view that these successor proposals should also have a unanimity legal base."

8.9  Secondly, the Minister indicates that the Government would need to be to satisfied both that the inclusion of insurance premium tax within the area of mutual assistance is desirable in itself and that it "would not prejudice the UK's general position that insurance taxes are not subject to EU approximation".


8.10  We note and share the Minister's concerns relating to the approximation of insurance taxes. We ask the Minister to inform us when she has reached a view on whether adoption of this proposal would prejudice the UK's general position on the approximation of such taxes.

8.11  We also note that the proposed legal base for this measure would require qualified majority voting in place of the unanimity required for the previous legislation. We ask the Minister to inform us of the outcome of her efforts to secure a legal base requiring unanimity.

8.12  In the meantime, we shall hold the document under scrutiny.

36  COM(00) 348. Back

37  ECOFIN Council on 5 June 2000 approved the report of the Council High Level Ad Hoc Group on Tax Fraud. Back

38  VAT Information Exchange System. Back

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