9 VAT fraud
| (25552)
8550/04
COM(04) 260
| Commission Report on the use of administrative cooperation arrangements in the fight against VAT fraud
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| Legal base | — |
| Document originated | 16 April 2004
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| Deposited in Parliament | 22 April 2004
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| Department | Customs and Excise
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| Basis of consideration | EM of 6 May 2004
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| Previous Committee Report | None
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| To be discussed in Council | None planned
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
9.1 The legislative arrangements for value added tax (VAT) on
intra-Community trade are complex and offer opportunity for fraud.
So the Community has legislation-based arrangements for administrative
cooperation and mutual assistance in countering fraud.
The document
9.2 The Commission is required by the VAT Information Exchange
System (VIES) Regulation, Regulation (EEC) No. 218/92, to report
every two years on the working of the administrative cooperation
arrangements for VAT. This document is the fourth (and final)[17]
report. In it the Commission discusses initiatives taken to tackle
the problem of VAT fraud, namely:
- the new legal framework for administrative co-operation (the
VAT Administrative Co-operation Regulation), which includes clear
and binding rules for the more rapid exchange of VAT information
and provides for direct contact between tax officials in anti-fraud
units; and
- an enhanced programme, the Fiscalis 2007 Programme,
which includes a financial framework and is intended to promote
day to day co operation between officials and provide EU funding
for seminars, study visits and multilateral (cross-border) control
audits.[18]
The Commission also outlines plans for future initiatives:
- a feasibility study into a
new VIES ( to be called VIES II); and
- a draft Regulation on mutual administrative assistance
for the protection of the Community's financial interests against
fraud and other illegal activities, intended to cover VAT fraud,
laundering of the proceeds from EC fraud, structural funds fraud
and other areas of fraud not yet covered by secondary EC legislation.
9.3 Whilst noting a great deal of progress already
made, the Commission considers possible measures to meet the specific
challenge of "missing trader fraud",[19]
either by adapting the controls already in place or by making
changes, such as taxing in the country of origin, to the VAT system
itself. It concludes that the disadvantages associated with the
latter option far outweigh the potential benefits and recommends
that Member States make further use of the strengthened administrative
co-operation machinery and information exchange arrangements recently
put in place. And in respect of countering VAT "carousel
fraud",[20] the
report draws Member States' attention to the measures successfully
introduced by the UK and the Netherlands.
9.4 The Commission concludes by proposing a number
of practical recommendations for early adoption by all Member
States, particularly ten new ones, such as risk-analysis systems
and computerised auditing.
The Government's views
9.5 The Economic Secretary to the Treasury (John
Healey) tells us:
"The UK broadly welcomes the report as it reinforces
the UK's view that the best way of fighting VAT fraud is by means
of increased administrative co-operation and exchange of information
between Member States. In respect of VAT 'carousel fraud', the
report recognises the success of measures already adopted by both
the UK and the Netherlands. The UK is in a strong position to
move forward in all the areas highlighted in the report, although
we note and value the fact that as none of the Commission's recommendations
are mandatory, issues can be progressed in a way which complements
national needs and priorities. We have reservations about the
value of the Commission's proposed complementary Regulation on
mutual administrative assistance for the protection of the Community's
financial interests, although we cannot make a firm evaluation
until the proposal is published. Finally, the Government welcomes
the Commission's reasoned rejection of calls for the introduction
of an EU VAT system based on taxation in the country of origin.
As the Commission correctly points out, the disadvantages of such
a system would far outweigh the potential benefits."
Conclusion
9.6 This document is a useful summary of how matters
are developing in relation to cooperation in combating VAT fraud.
We clear the document.
17 The VIES Regulation has now been replaced by the
more comprehensive VAT Administrative Cooperation Regulation,
Regulation (EC) No. 1798/2003. Back
18
See (23182) 5520/02: HC 63-i (2002-03), para 12 (20 November 2002). Back
19
Missing trader fraud or VAT Missing Trader Intra-Community (MTIC)
fraud involves obtaining a VAT registration number in one Member
State purchase goods free from VAT in another Member State, selling
them at a VAT inclusive purchase price in the Member State of
registration and then going missing without paying the output
tax due in the Member State of registration. Where the goods are
sold on to the retail market in the Member State of registration,
this constitutes the "acquisition" variety of MTIC fraud. Back
20
Carousel fraud is a variety of MTIC fraud in which the same goods
travel around Europe from one Member State to another and back
again without ever reaching an end user. Back
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