Documents considered by the Committee on 1 March 2017 Contents

16Protecting the EU’s financial interests

Committee’s assessment

Legally and politically important

Committee’s decision

Cleared from scrutiny; further information requested; drawn to the attention of the Treasury Committee

Document details

Proposed Directive on the fight against fraud to the EU’s financial interests by means of criminal law.

Legal base

Article 83(2) TFEU; ordinary legislative procedure; QMV


HM Treasury

Document Number

(34091), 12683/12 + ADDs 1–4, COM(12) 363

Summary and Committee’s conclusions

16.1According to 2010 Commission data, suspected fraud amounts to approximately €600 million (£509.61 million)99 per year in relation to the revenue and expenditure aspects of the EU’s budget. 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 Directive,100 aims to ease enforcement of these responsibilities by harmonising fraud related criminal offences and sanctions.

16.2The 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 Council text by a JHA legal base, Article 83(2) TFEU. Much of our predecessor’s early scrutiny concerned the Government’s approach to the exercise of its JHA opt-in, purportedly in relation to the first legal basis and then to the actual Title V legal basis. To summarise, it does not appear on any analysis that the Government is participating in this proposal, though since the General Approach it has been considering whether it might participate post-adoption.

16.3Also the General Approach did not include the provisions on minimum custodial sentences and VAT were removed from the text (though extraterritorial provisions remained). In trilogues, the European Parliament supported the change to a JHA Title V legal base and the removal of provisions relating to minimum terms of imprisonment, but also supported inclusion of VAT fraud provisions. The previous Government’s view was that this was a matter of a national competence. However, the push for inclusion gained impetus following a ruling from the CJEU in Taricco.101 The Court held that VAT is an EU Own Resource and falls within scope of the 1995 PIF Convention which this proposal is intended to replace.

16.4The Government now writes to inform us that a final text, agreed at the December JHA Council, includes some cross-border VAT fraud with damages over €10 million (£8.49 million).102 Minimum sanctions for procurement offences have also been removed from the text. Formal adoption is expected later during the Maltese Presidency. The compromise achieved was linked in part to the European Public Prosecutor’s Office (EPPO) proposal which would need to rely on an adopted PIF Directive. We report on the EPPO proposal at chapter 10 of this Report. In view of these developments, the Government tells us that it intends not to opt-into the measure after its adoption.

16.5Now that the Government provides final confirmation of its intention not to opt into the proposal after adoption, we clear this document from scrutiny but draw it and this chapter to the attention of the Treasury Committee.

Full details of the documents

Proposed 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.

Minister’s letter of 20 February 2017

16.6In her letter of 20 February, the Financial Secretary at the Treasury (Jane Ellison) states:

“When David Gauke wrote in January 2016 he confirmed that the inclusion or exclusion of VAT fraud in the scope of the Directive continued to be a sticking point for both the Council and the European Parliament. The majority in the Council wanted to exclude VAT fraud from the scope whilst the European Parliament and the Commission supported inclusion.

“The proposal, and especially the issue of whether VAT fraud should be included in the scope of the Directive, was the subject of extensive discussions in 2016 under both the Dutch and Slovak Presidencies. Our view that VAT should not be included has not changed. Equally, the view of the European Parliament that VAT must be included in the Directive has not altered. During discussions, a willingness emerged amongst some Member States to consider a compromise in order to facilitate movement on this dossier, and the linked discussions on the European Public Prosecutor’s Office. The majority of Member States were eventually persuaded of the value of a limited compromise allowing for the inclusion of some VAT frauds.

“Despite the continued existence of a blocking minority against the proposal including VAT, the Presidency re-commenced trilateral discussions in the autumn of last year to explore such a compromise. At the December 2016 Justice and Home Affairs Council, a qualified majority decided that it could agree that VAT fraud with damages of over €10m should be included within the scope, where it related to cross border supplies between two or more countries and where it was combined with certain actions or non-fulfilment of obligations.

“You will recall that, given the Government’s reservations about the proposal, the UK did not opt-in to this Directive. However as David Gauke outlined previously, the Government intended to consider the case for a post-adoption opt-in were our concerns with the draft to be overcome.

“We support effective co-operation between Member States to tackle cross border VAT fraud and believe that Member States should also have and apply effective sanctions to counter VAT fraud. In our view, however, and for the reasons given in earlier correspondence, including VAT in the Directive is inappropriate. Including VAT would be an instance of a tax measure in a non-tax dossier and would go against the principle that all tax issues should be agreed by unanimity at ECOFIN. Although there is now confirmation of a change to the Directive’s legal base to Article 83(2), our original concerns have not all been satisfied. We do not currently intend, therefore, to opt-in to the Directive, post adoption.

“For completeness, the other (non-VAT) significant change in the Directive is the confirmation of the deletion of a provision that allowed for sanctions relating to procurement, which the UK and other Member States considered was mis-placed in the Directive.

“The General Affairs Council reached political agreement on the Directive on 7th February. It is due to be formally adopted at a Justice and Home Affairs Council later this year under the Maltese Presidency.”

Previous Committee Reports

Twenty-second Report HC 342-xxi (2015–16), chapter 4 (3 February 2016); Thirty-seventh Report HC 219-xxxvi (2014–15), chapter 1 (18 March 2015); Thirty-second Report HC 219-xxxi (2014–15), chapter 10 (4 February 2015); 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).

99 €1 = £0.84935 as at 1 February 2017.

100 This is an acronym of the French for protecting financial interests.

101 C-105/14 Ivo Taricco and others.

102 €1 = £0.84935 as at 1 February 2017.

3 March 2017