10 Protecting the EU's financial interests
| Committee's assessment
| Legally and politically important |
| Committee's decision | Not cleared from scrutiny; further information requested
|
| Document details | Draft Directive on the fight against fraud to the Union's financial interests by means of criminal law
|
| Legal base | Article 83(2) TFEU; co-decision; QMV
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| Department
Document numbers
| HM Treasury
(34091), 12683/12 + ADDs 1-4, COM(12) 363
|
Summary and Committee's conclusions
10.1 EU institutions and Member States share responsibility for
countering fraud affecting the financial interests of the EU.
The proposed Directive (commonly known as the PIF[54]
Directive) aims to enforce these responsibilities by harmonising
fraud related criminal offences and sanctions.
10.2 The original text of the proposal contained
provisions on minimum custodial sentences, VAT and extraterritorial
jurisdiction to which the Government was opposed. It was also
based on Article 325 TFEU but, since the agreement of a General
Approach in June 2013 it has been replaced in the text by a JHA
legal base, Article 83(2) TFEU. Also at that General Approach,
the provisions on minimum custodial sentences and VAT were removed
from the text (though extraterritorial provisions remained).
10.3 One of the scrutiny issues resulting from the
General Approach was the Government's ongoing failure to clarify
whether it agreed with the Council Legal Service that the three
month opt-in period provided by JHA Protocol 21 was triggered
by the change to a JHA legal base or whether it asserted that
the process was triggered by the original publication of the proposal.
10.4 Instead the Government told us that it did not
intend to opt into the proposal prior to adoption but would ensure
that we were able to scrutinise any post-adoption opt-in. Since
the General Approach, the Government has updated us on the first
reading position of the European Parliament. This supported the
change to a JHA Title V legal base and the removal of provisions
relating to minimum terms of imprisonment, but, contrary to the
Government's view, also supported inclusion of VAT fraud provisions.
The Government continues to regard the latter as a matter for
national competence.
10.5 The Government now updates us on developments
in trilogue negotiations since they began in September. It also
provides some clarity on the application of the JHA Protocol to
the proposal, though not enough on the question of when the three
month opt-in period was actually triggered.
10.6 We thank the Minister for this helpful update
which has clarified most of the issues which we raised for his
attention in our last Report of 3 September 2014. We look forward
to receiving further updates on developments as trilogues progress
during the Latvian Presidency.
10.7 We note that the Minister has confirmed that,
applying the Government's policy set out in the letter of 3 June
2014 from the Home and Justice Secretaries:
i) the Government considers that the PIF
Directive is a "whole JHA measure" to which Protocol
21 applies; and
ii) in relation to legislative measures containing
JHA content but not citing a Title V legal base, Government policy
is to assert the opt-in and seek a formal change to the legal
base.
10.8 However, the Minister does not specifically
address the question which we have been asking of his department
ever since there was a change to a Title V JHA legal basis at
the agreement of a General Approach on this proposal: does the
Government agree with the Council Legal Service that the three
month opt-in period was triggered at that point? We refer the
Minister to the letter of 25 July 2014 from the Home and Justice
Secretaries in which they stated:
"You note that the Council Legal Service
has expressed the view that the three month period for the exercise
of the opt-in begins when the Council decide to inform the European
Parliament of a proposed new Title V legal basis. We do not agree.
The Government considers that the JHA opt-in is triggered on the
basis of JHA content and therefore we consider that the three
month period for asserting the opt-in begins on the date of publication
of the last-language version of a proposal that contains such
content. At most, we would consider reiterating an earlier opt-in
decision at the point where the legal base is formally changed.
The 8 week period for Parliament to consider whether the UK should
opt-in to the measure also begins on the date of publication of
the last language version."
10.9 Although the period for opting into the negotiations
on this particular measure has, in any view, passed, could the
Minister now clarify, for future reference, when the Government
considers a change in legal base to be formal and how this might
apply in the case of the current proposal? Does the Government
consider that a legal base only becomes formal upon the adoption
of a measure? In which case, what is the difference between this
and a post adoption-opt in?
10.10 We continue to retain the document under
scrutiny.
Full details of
the document: Draft Directive on the
fight against fraud to the Union's financial interests by means
of criminal law: 34091, 12683/12, + ADDs 1-4, COM(12) 363.
Background and previous scrutiny
10.11 The background to the proposal, an outline
of its provisions and the Government's view of it, are set out
in our Twelfth Report of 2012-13.[55]
10.12 The history of the negotiation of this proposal
and of scrutiny issues (including the scrutiny override at General
Approach and the application of the JHA opt-in Protocol to the
proposal) is long and complicated. Only those aspects directly
relevant to the issues addressed by our last Report and the response
that the Minister now writes are outlined here: greater detail
is set out at paragraphs 14.10-14.21 of our Ninth Report of 3
September.
The Minister's letter of 2 February 2015
10.13 The Financial Secretary to the Treasury (Mr
David Gauke) first sets out an update on EU discussions of the
proposal:
"Trilogue discussions under the Italian
Presidency began in September 2014 and reached a concluded position
in December 2014. These discussions focussed on the scope of
the directive, the definition and scope of offences covered by
the directive and extra-territorial provisions.
"Throughout these discussions, the UK has
remained focussed on eliminating the unacceptable elements of
the draft directive. I am pleased to report that many Member
States continue to support the UK's stance on a number of issues,
including the approach to defining "serious offences"
and our views on reporting obligations. Most importantly, Member
States have sought to stick closely to Council's General Approach
which the Committee may recall the UK was able to support.
"The Latvian Presidency has indicated their
intention to push for adoption of the PIF directive during their
term. Trilogue discussions are scheduled to restart in February
and will focus on outstanding issues, including VAT. As the Committee
is aware, the UK remains firmly opposed to the inclusion of VAT
within the PIF directive's scope and will work with other Member
States to avoid its inclusion.
10.14 He then addresses specific provisions in the
original proposal on which we requested further information in
our last Report. He says that:
· the
removal of provisions on extra-territorial jurisdiction "remains
an important negotiating objective for the UK";
· the
Government agrees with the view stated in the ECA Opinion 8/2012
that "[VAT] fraud cannot be tackled at national level alone.
An effective fight against VAT fraud thus requires efficient
cooperation between Member States" since HMRC continues to
work closely with other Member States and international agencies
to combat fraud, including cross border fraud; but
· the
Government maintains that while "VAT fraud has an indirect
impact on Member States' contributions to the EU budget, the consequences
of VAT fraud are overwhelmingly felt by Member States".
In the UK, 97% of VAT revenue is retained by the Exchequer making
this first and foremost a fraud against UK tax revenues. This
is why the Government remains opposed to the inclusion of VAT
in the proposal.
10.15 On the question of the application of the JHA
opt-in Protocol to the proposal, the Minister says:
"I would like to apologise to the Committee
for the circumstances that have led to the unfortunate delay in
providing a definitive response on this issue. As set out by
the then Economic Secretary in her letter of 28 October 2013,
the PIF dossier has raised complex questions which have now been
resolved.
"The joint letter from the Home Secretary
and the Secretary of State for Justice of 3 June 2014 confirms
that the Government's policy on legislative measures containing
JHA content but not citing a Title V legal base is to assert the
opt-in and seek a formal change to the legal base. In light of
this position, I can confirm that the UK does consider the draft
PIF directive to be a whole JHA measure which falls within the
scope of Protocol 21 of the Lisbon Treaty. As the Committee is
aware, Protocol 21 allows the UK to choose whether to opt into
proposed JHA legislation.
"Given the Government's reservations concerning
elements of the draft PIF directive, the UK therefore did not
opt in to the PIF directive during the initial three month period
allowed for in Protocol 21 but will consider the case for a post-adoption
opt-in should our concerns with the draft text be addressed.
We have been clear during negotiations that this is the case and
will continue to work towards securing a formal change to the
PIF directive's legal base. The Committee may recall that Council
supported a change of legal base and that the European Parliament
endorsed this element of Council's General Approach in their first
reading position."
Previous Committee Reports
Ninth Report HC 219-ix (2014-15), chapter 14 (3 September
2014); Twenty-second Report HC 83-xx (2013-14), chapter 13 (6
November 2013); Thirteenth Report HC 83-xiii (2013-14), chapter
18 (4 September 2013); Twelfth Report, HC 86-xii (2012-13) chapter
10 (12 September 2012); Also see (34549) 17670/12: Thirty-eighth
Report HC 86-xxxvii (2012-13), chapter 9 (26 March 2013).
54 The PIF acronym is derived from the French for protecting
financial interests. Back
55
Twelfth Report HC 86-xii (2012-13), chapter 10 (12 September 2012). Back
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