European Scrutiny Committee Contents

67 Value added taxation



COM(09) 427

Draft Council Regulation on administrative cooperation and combating fraud in the field of value added tax (Recast)

Legal baseArticle 113 TFEU; consultation; unanimity
DepartmentHM Treasury
Basis of considerationMinister's letter of 7 June 2010
Previous Committee ReportHC 19-xxvii (2008-09), chapter 9 (14 October 2009) and HC 5-v (2009-10), chapter 4 (6 January 2010)
To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionCleared


67.1 The main instrument governing the exchange of information and assistance in VAT matters is the Administrative Cooperation Regulation (Council Regulation (EC) No 1798/2003). This has been amended on a number of occasions, most recently in late 2008. The Regulation is therefore in need of consolidation.

67.2 This draft Regulation is to recast (consolidate and amend) the existing Administrative Cooperation Regulation. The proposal sets out the Commission's aim of providing Member States with the means for efficient and well organised administrative co-operation procedures on VAT issues to combat cross-border VAT fraud more effectively and for better collection of VAT in cases where the place of taxation is different from the place of establishment of the supplier.

67.3 The draft Regulation would recast the present Regulation to take into account changes that have already been agreed in other instruments, align, reorder and harmonise existing legal text, introduce new measures and extend the role of the existing comitology[292] committee (the Standing Committee on Administrative Cooperation) to some of the new elements. The key measures include:

  • common minimum standards for Member States when registering and deregistering traders for VAT;
  • giving authorised personnel in other Member States automatic access to certain data on VAT registered businesses held by a Member State;
  • allowing authorised tax authority personnel access to another Member State's summary intra-Community trading information and certain other data;
  • Eurofisc — the main function of which will be to provide a fast-track network for exchanging specified data between Member States and to provide an early warning system of possible fraud; and
  • an enhanced VAT number verification system to help businesses verify their Community customer's details.

Other changes include:

  • establishing the principle that Member States are collectively responsible for helping each other to secure their VAT revenues;
  • a requirement that tax authorities provide each other with feedback on the value of the information which they exchange; and
  • clarification of existing legislation to facilitate greater use of cooperation tools and to remove inconsistencies of interpretation.

67.4 When the previous Committee considered the proposal, in October 2009, it heard that fighting VAT fraud remained a priority for the Government and that it therefore welcomed the Commission's proposal, supported many of the measures in it but had some reservations, which it would need to address during negotiations. Our predecessors commented that cooperation between Member States to counter VAT fraud was clearly important and rationalising and improving legislation facilitating that cooperation would be welcome. However, they noted the Government's reservations about the detail of the draft Regulation. So before considering that document further the Committee asked to hear about developments on these points in the negotiations and to see, if the need for one emerged, any Impact Assessment.

67.5 In January 2010 the previous Committee reported that the Government had told it that:

  • only two working group meetings on this matter had been held under the Swedish Presidency (July-December 2009) and so there had been only limited discussion of the proposal;
  • so the Government had had little opportunity to explore the proposal with other Member States and test its interpretations of the original text;
  • nevertheless it was aware from those discussions that there was a wide spectrum of views on the proposal;
  • more specifically other Member States shared its concerns with regard to common minimum standards and about the role played by comitology more widely; and
  • the Government anticipated that the Spanish Presidency would see this matter as a priority and that more substantive discussions would take place early in 2010.

Our predecessors looked forward to hearing in due course about more substantive discussion and meanwhile kept the document under scrutiny. [293]

The Minister's letter

67.6 The Exchequer Secretary to the Treasury (Mr David Gauke) tells us that progress on the draft Regulation has accelerated recently under the Spanish Presidency and that there have been extensive changes to the proposed new provisions. He says that the key changes relate to the areas identified to our predecessors:

  • comitology will no longer have a role to play in the establishment of common minimum standards for registration and de-registration and has been restricted to the governance of the technical details of exchange for "direct access" to data; and
  • comitology has been deleted from the Eurofisc provisions — instead the details on how the system will operate have been set out in the draft Regulation and an accompanying explanatory Minutes Statement.

67.7 The Minister comments that:

  • as a result of the changes to the proposal, the Government is satisfied that it respects both the principles of subsidiarity and proportionality;
  • it believes that the proposal will provide anti-fraud benefits for the UK and other Member States as a whole, while ensuring that no additional burdens on business are generated;
  • the basic elements of the proposal remain unchanged from the original;
  • common minimum standards should help to ensure that entry to the VAT system will be better policed and Member State's VAT registers more up to date;
  • access changes to specified information will speed up the checking of basic information and thus help authorised officials in their investigations, whilst the establishment of Eurofisc will facilitate the exchange of targeted information thus acting as an early warning system for frauds;
  • introduction of feedback arrangements will help Member States to ensure that the information exchanged is useful and in turn provide material to refine the system;
  • the enhanced VAT number checking system will assist business engaged in intra-community trade; and
  • given the absence of any impact on business and only a limited resource requirement for HMRC, the Government confirms that an impact assessment will not be necessary for the proposal.

67.8 The Minister tells us that the Presidency is keen to close down discussions on the draft Regulation and tabled it for political agreement at the ECOFIN Council of on 8 June 2010, with all other Member States willing to agree. He says that:

  • the decision to put this proposal forward for political agreement put the Government in a very difficult position;
  • if it were to block agreement on the grounds that parliamentary scrutiny was not yet concluded, it would in effect be blocking agreement to an important anti-fraud proposal that it supports and for which the Presidency and other Member States have made significant concessions helpful to the UK in order to get the Government's agreement;
  • as all other Member States want to see the proposal agreed, blocking agreement would risk sending out unhelpful and misleading signals that the Government is reluctant to fight fraud or help other Member States do so; and
  • this would be particularly sensitive in the current economic climate where all Member States have been affected by VAT fraud and all are looking to protect tax receipts in order to repair their fiscal positions.

67.9 The Minister continues that:

  • the Government reluctantly decided, therefore, that if it were the sole Member State blocking agreement at the ECOFIN Council, it would not be in the UK's best interest to block agreement to the proposal;
  • mindful, however, of the fact that neither we nor the Lords' European Union Committee would have had an opportunity to consider the significant developments that have been made on the proposal, the Government planned to abstain from the vote;
  • the Government was aware that since this is a tax proposal and decided under unanimity this would still result in the proposal being agreed prior to the conclusion of the parliamentary scrutiny process;
  • it felt, nevertheless, it important to reflect its scrutiny position and to make it clear that in the circumstances it could not vote for the proposal;
  • the Government's decision to not block agreement was particularly guided by its belief that all of the concerns expressed previously by our predecessors and in the Lords had been satisfactorily addressed in the current proposal; and additionally
  • to block the proposal would risk the possibility of the package being reopened at a later stage which could only result in a revised proposal that would be less acceptable to the Government.

67.10 The Minister says finally that he thought it appropriate to write before the ECOFIN meeting to warn us of the likely agreement of this proposal and that, in the circumstance, the Government hoped we can appreciate the impetus behind its decision.


67.11 We note the improvements in the text of the draft Regulation that have been negotiated, which meet the concerns drawn to the attention of our predecessors, and now clear the document.

67.12 As for the breach of the scrutiny reserve resolution we note and accept the Minister's explanation. Moreover we appreciate the Government's effort to mitigate the extent of the breach by its decision on abstention, particularly for the message it sends to the EU institutions and other Member States about parliamentary scrutiny.

292   Comitology is the system of committees which oversees the exercise by the Commission of powers delegated to it by the Council and the European Parliament. Comitology committees are made up of representatives of the Member States and chaired by the Commission. There are three types of procedure (advisory, management and regulatory), an important difference between which is the degree of involvement and power of Member States' representatives. So-called "Regulatory with Scrutiny", introduced in July 2006, gives a scrutiny role to the European Parliament in most applications of comitology. Back

293   See headnote. Back

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