8 Value added taxation
| (30239)
16774/08
COM(08) 805
| Draft Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards tax evasion linked to import and other cross-border transactions
|
| Legal base | Article 93 EC; consultation; unanimity
|
| Department | HM Treasury |
| Basis of consideration | Minister's letter of 11 May 2009
|
| Previous Committee Report | HC 19-iv (2008-09), chapter 10 (21 January 2009)
|
| To be discussed in Council | 9 June 2009
|
| Committee's assessment | Politically important
|
| Committee's decision | Hived off proposal cleared. Remainder of draft Directive not cleared; further information awaited
|
Background
8.1 In May 2006 the Commission adopted a Communication concerning
the need to develop a coordinated strategy to improve the fight
against fiscal fraud.[34]
In November 2007 this was followed by a further Communication,
which built on a Commission staff working document of May 2007
reporting progress on the preparation of an anti-fraud strategy
and which discussed some key elements contributing to establishing
the VAT anti-fraud strategy within the Community.[35]
In December 2007, the ECOFIN Council took note of the concerns
raised in the second Communication, provided a series of guidelines
for further anti-fraud work and called on the Commission to present
its findings on measures to strengthen the existing VAT system
against fraud in the first half of 2008.[36]
The Commission reported orally to the Council in May 2008 to discharge
this obligation.[37]
In December 2008, in addition to a Communication setting out its
short-term action plan for the fight against VAT fraud, which
consisted of a number of measures — for most of which legislative
proposals would be forthcoming, the Commission presented this
draft Directive, as the first of those proposals.
8.2 The draft Directive was to amend the VAT Directive,
Directive 2006/112/EC, in order to implement two separate changes.
The first change concerned the exemption from VAT at importation
for goods from third countries, whose final destination in the
Community is not the Member State of importation, using a procedure
known generally as Customs Procedure Code 42 (CPC 42) and in the
UK as Onward Supply Relief. Relief is available at initial importation
on condition that the VAT is declared, and paid, in the Member
State of destination. The proposed change would clarify that exemption
on importation is only available if the importer:
- supplies the Member State of
importation with the VAT numbers of those involved (which in the
UK is already required); and
- submits proof that the goods will be transported
to another Member State (at present claimants in the UK only have
to certify that they will produce commercial evidence that the
goods have been transported to another Member State, if requested).
8.3 The second change proposed concerned joint and
several liability and would modify the provision in the VAT Directive,
which is the basis for holding a person other than the supplier
jointly and severally liable for the payment of VAT due. This
provision is the basis for the UK's more limited domestic joint
and several liability provisions, enacted in 2003 as Section 77A
of the VAT Act 1994, to help tackle "missing trader intra-Community"
fraud. The Commission proposed the change to ensure that businesses
making intra-Community supplies of goods comply with their obligation
to report the supplies in a recapitulative statement (which is
known in the UK as an EC Sales List and which is one of the matters
covered in a previously tabled proposal).[38]
The recapitulative statement alerts the tax authorities in the
Member State of destination (acquisition) that goods have been
supplied to a taxable person in that Member State and that tax
should be accounted for by the recipient. Under the new provision:
- if a business makes a zero-rated
intra-Community supply of goods and fails to submit a recapitulative
statement which accurately details the supply, it could be held
liable for the tax its customer should have accounted for (the
acquisition tax) if the customer does not declare the acquisition
correctly on its VAT return; and
- the supplier would avoid being held jointly and
severally liable for the acquisition tax if it could justify its
shortcomings to the satisfaction of the competent authorities
in the Member State of acquisition.
8.4 When we considered this draft Directive, in January
2009, we said that clearly efforts to limit the opportunities
for VAT fraud were important. But we noted that, whilst the Government
recognised a need to improve the rules relating to both exemption
from VAT at importation and joint and several liability, it doubted
the usefulness of the draft Directive in relation to the former
and had considerable concerns in relation to the effect of the
proposal for the latter. On exemption from VAT at importation
we heard that:
- the Government agreed with
the Commission's recognition that the existing rules were inadequate
and that Community action was necessary to tackle abuse of this
business facilitation mechanism;
- however, its view at that stage was that the
proposed change might be helpful, but of limited impact, whilst
imposing some additional burden on business, in the form of having
to submit proof that the goods would be transported to another
Member State.
8.5 On joint and several liability we heard that:
- the UK is one of a minority
of Member States to have implemented domestic joint and several
liability provisions;
- the Government had supported work at Community
level on exploring how such provisions could be applied across
borders;
- but the proposed amendment to the existing legislation
raised a number of concerns; and
- the Government would be working in Council discussions
to avoid a text which would have the effect of limiting the existing
legislation, and, if possible, to clarify that the existing joint
and several liability provision already applies across borders.
8.6 On this basis we asked to hear, in due course,
before considering the document further how Council negotiations
were mitigating the concerns the Government had put to us. Meanwhile
the document remained under scrutiny.[39]
The Minister's letter
8.7 The Financial Secretary to the Treasury (Mr Stephen
Timms) writes now to tell us about developments in negotiating
this draft Directive, saying that:
- whilst resolution of the joint
and several liability part of the proposal remains some way off,
progress has been made on CPC 42;
- the Czech Presidency has concluded that this
should be taken forward in its own right, in a separate draft
Directive, for agreement by the ECOFIN Council, and allowing further
discussion of joint and several liability with a slower timetable;
and
- the Government would like to agree to the proposal
at the June 2009 ECOFIN, which is when it is anticipated the Presidency
will try to confirm agreement.
8.8 The Minister describes changes made to the text
on CPC 42:
- it clarifies that the exemption
from VAT on importation is only available if the importer supplies
the Member State of importation with the VAT number of those involved
in the import and in receiving the onward supply;
- but it makes clear that this is a minimum requirement,
allowing Member States to introduce their own further conditions
if appropriate; and
- the importer will not now automatically have
to provide proof of the future onward supply as Member States
can opt to only require provision of that evidence on request.
The Minister then comments that:
- these amendments, specifically
the option to allow provision of evidence on request, mean that
business in the UK would now be protected from additional requirements
to submit paperwork;
- the evidence required, however, would still change
from the current details of the actual transport for the onward
supply, to other commercial records of the intended onward supply,
for example, orders or details of transport arrangements;
- during negotiations, the Commission's VAT Unit
indicated that it views this clarification of the CPC 42 exemption
as the first step in changes, with accordingly limited ambition
and sees subsequent steps to improve the Community level system
as lying with the Commission's Customs Unit; and
- given the outcome of the negotiations with regard
to burdens on business and the limited changes to existing practices
that the revised text would entail, an impact assessment should
not now be necessary.
8.9 On the joint and several liability element of
the original proposal the Minister tells us that:
- most Member States had problems
with the original text, although no consensus on an alternative
approach has yet emerged;
- the Working Group will continue its discussions
and the Government will work to ensure that the emerging compromise
is effective against fraud and respects the principles of legal
certainty and proportionality;
- the Government still intends to produce an impact
assessment for this part of the proposal; and
- he will inform us, in due course, when the position
on this element of the original proposal is clearer.
Conclusion
8.10 We are grateful for this account of how
matters have developed on this draft Directive. We note the improvements
made in relation to the changes proposed for Customs Procedure
Code 42 (Onward Supply Relief) and the intention to take them
forward in a separate draft Directive. We have no further questions
to raise on this matter and clear it from scrutiny.
8.11 As for the remaining element of the original
draft Directive, concerning joint and several liability, we note
that no clear position has emerged yet on this matter. So, before
we consider the matter further, we should like to hear what outcome
is emerging from the continuing negotiations and to see the impact
assessment the Minister mentions. Meanwhile, to this extent the
original document remains under scrutiny.
34 (27562) 10054/06: see HC 34-xxxiii (2005-06), chapter
20 (28 June 2006). Back
35
(29200) 15672/07 + ADD1 (29249) 10052/07: see HC 16-viii (2007-08),
chapter 24 (16 January 2008). Back
36
See http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/97420.pdf.
Back
37
See http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/100339.pdf. Back
38
(29570) 7688/08: see HC 16-xx (2007-08), chapter 5 (30 April 2008),
HC 16-xxviii (2007-08), chapter 5 (22 July 2008) and HC 16-xxxi
(2007-08), chapter 11 (15 October 2008). Back
39
See headnote. Back
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