Memorandum by OLAF
A. THE ROLE
OF THE
EUROPEAN ANTI-FRAUD
OFFICE IN
THE FIGHT
AGAINST VAT FRAUD
1. The Commission's Anti-Fraud Office (OLAF)
is responsible for the protection of the financial interests of
the Community together with the competent authorities of the European
Member States (see Article 280 EC Treaty). In the area of VAT
OLAF has no investigative powers of its own. The Office therefore
acts as a service platform to assist and co-ordinate the operational
anti-fraud activities of the Member States at their request.
2. The Office dedicates a limited amount
of resources to assist the Member States to combat international
VAT fraud. It has over 10 years' experience in working with the
investigative and prosecution authorities of the Member States
and targets its available resources to combat specific cases of
large-scale VAT fraud where more than two Member States are affected.
3. The particular added value of OLAF consists
in its specific multi-functional and multi-disciplinary structure
which allows it to provide operational and intelligence anti-fraud
assistance in an international environment, cooperating with partners
in the Member States as well as in third countries. OLAF is able
to gather information from and exchange it with its partners,
obtain it from its own sources, arrange coordination meetings
at which investigators and representatives from the judicial authorities
are able to exchange case-related information openly and decide
on future actions, and even finance meetings and missions in other
countries in order to gather evidence. OLAF cannot, and does not
attempt, to direct the actions of the Member States.
B. COMMENTS IN
REPLY TO
THE QUESTIONS
POSED BY
THE SUB-COMMITTEE
Q1. The impact of VAT fraud on the internal
market
4. Cross border (intra-Community)/transnational
VAT fraud does not only affect the financial interests of the
Member States and of the European Community but also has an impact
on honest businesses which find themselves unable to compete on
a level playing field in those sectors which are affected by a
significant amount of VAT fraud.
5. Missing Trader VAT fraud (MTIC fraud)
is a form of organised tax fraud carried out by organised criminals
who put in place a structure of linked companies and persons.
The fraud schemes are based either on virtual or real carousel
transactions (where the same "goods" are sold and resold
several times). In the latter case large numbers of goods (eg
mobile phones) are sold on the market at a price significantly
below the normal market price (because the fraudsters profit from
the VAT which they collect but fail to pass over to the fiscal
authorities). Moreover, the profits from VAT fraud may finance
other types of fraud, for example cigarette smuggling or drugs
trafficking, which has a further negative impact on the Community
and national budgets, on the operation of the internal market
and on honest businesses.
Q2. Counter measures in the Member States
and their weaknesses
6. The exact description of national counter
measures to international VAT fraud which the Member States apply
can only be given by the national authorities. The measures adopted
to combat the fraud can be of an administrative as well as of
a judicial/enforcement nature. OLAF's practical experience has
shown that early cooperation among all relevant authorities can
be decisive for successful anti-fraud work. The use of financial
information as an element of tax investigations can be very helpful.
However, there are considerable differences in the approaches
chosen by the Member States ranging from a very close cooperation
between the various national authorities (or even tax investigation
services which themselves have quasi-police powers) to a relatively
strict separation between administrative and judicial activities.
7. Moreover, cross-border cooperation between
Member States is of particular importance in tackling international
VAT fraud. Regulation (EC) 1798/2003 provides the framework for
administrative cooperation between Member States' tax authorities.
This covers general administrative cooperation as well as cooperation
with a focus on combating VAT fraud, but without any operational
or intelligence support from the Commission (OLAF). This regulation
also provides for a VAT Information Exchange System (VIES) through
which Member States exchange information on intra-Community supplies
of goods.
8. Intra-Community Missing Trader VAT Fraud
is, by definition, not limited to any single Member State. It
cannot be tackled by any Member State acting alone because each
Member State sees only that part of the picture which occurs in
its own national territory. Only through close cooperation and
regular but targeted exchanges of information can Member States
expect to have sufficient data to combat the fraud. Information
exchanged under the VAT Information Exchange System (VIES) makes
a contribution to this objective, but it is not a mechanism for
exchanging fraud information in real time, and the information
which it contains is often available too late to enable the fraudsters
to be identified while the fraud is continuing.
9. The local tax authority has the most
information about a company. Quick, direct contact between the
competent local tax authorities for the exchange of case-related
information is a key to combat the fraud. The tax authorities
are working at national level to improve the situation. The installation
of anti-fraud mail boxes and central anti-fraud units at national
level speed up the international communication, but it seems that
not all Member States are progressing in the same way. There is
still much to do.
10. The Commission has no legal power to
initiate modifications in the work plans and methods of the Member
States to combat cross border VAT fraud. OLAF proposes, facilitates
and stands ready to co-ordinate multi-national action to combat
specific frauds. Although individual investigators and Prosecutors
are often ready to cooperate with OLAF in specific cases (normally
when they can see an advantage to be gained for their case), there
is very strong resistance at a policy level in several Member
States, including the United Kingdom, to having anything to do
with OLAF. The UK refuses to work with OLAF in VAT cases on the
grounds that there is no Community competence in the VAT area.
It seems that they fear that the Commission will use any cooperation
with OLAF as a way of extending the Commission's competence and
influence in this area.
Q3. The Commission's proposal—Mutual
administrative assistance
11. Some Member States argue that current
Community VAT legislation does not provide any basis for the exchange
of operational fraud information, and that this is the reason
why they cannot cooperate with OLAF. This seems a convenient excuse.
The Commission has, nevertheless, presented a legislative proposal
on mutual administrative assistance in the fight against EC fraud,
inter alia also against cross-border VAT fraud in order
to put beyond doubt that such information can be exchanged, but
several Member States—the United Kingdom being one of the
leaders are resisting this proposal very strongly. The proposal
for a Regulation on mutual administrative assistance (COM (2006)
473), which is currently under negotiation in the Council anti-fraud
working group, provides for support and assistance from the European
Commission (OLAF) to the Member States in different areas, including
VAT fraud. It will give a more detailed legal framework for the
role of the Commission (OLAF) as a facilitator and a provider
of services to the Member States. Member States' investigation
services could profit from a European infrastructure, which is
not driven by singular national interests, providing for a multi-disciplinary
cooperation and coordination support, providing for the use of
financial information from the anti-money laundering sector (Financial
Intelligence Units) and assuring also the interface between administrative
assistance and judicial follow-up. Tax authorities could very
much profit from it as it does not follow an approach of pure
tax cooperation but, in contrast, is a multidisciplinary anti-fraud
approach.
12. Based on the principle of subsidiarity
the Regulation's VAT provisions would apply only in cases of particular
interest at Community level, ie more than 500,000 Euro tax damage
and at least two Member States involved. It does not confer on
the Commission (OLAF) any investigation or powers of direction
towards the Member States' authorities. It complements the cooperation
between Member States under Regulation (EC) 1798/2003, without
replacing it, in those important cases where bi-lateral and multi-lateral
tax cooperation is not sufficient and needs to be stepped up by
a more intensive anti-fraud cooperation.
Q4. Can Member States fight VAT fraud on their
own
13. No single Member State is capable of
fighting this fraud alone. Its global nature means that the Member
States and third countries must cooperate closely to tackle the
fraud. OLAF's objective in the VAT area is to supply a service
to the Member States to facilitate contacts, cooperation and exchange
of information. OLAF sees more of the "big picture"
than an individual Member State, and can make more pieces of the
puzzle available to the Member States. OLAF can put the relevant
authorities into contact with each other, and arrange for coordination
meetings to take place with a view to the Member States deciding
on coordinated actions to tackle the frauds. OLAF does not have
the desire, the legal base or the resources to take over any investigation,
but simply wishes to make its knowledge and facilities available.
By refusing to take this assistance the Member States are depriving
themselves of a tool which would be helpful to them in fighting
international VAT fraud. This is a short-sighted policy which
causes unnecessary damage to the Member States, their taxpayers
and the Internal Market.
Q5. Necessity to change the VAT system to
prevent fraud
14. Any ideas for possible changes to the
current VAT system would have to be examined in advance to determine
their likely impact on the types and level of fraud which could
ensue in order to determine whether the changes would produce
a net benefit.
Q6. Fighting VAT fraud at Community level
undermines Member State control over the functioning of national
fiscal systems
15. The VAT system in the Member States
is in fact the Community harmonised system. Therefore, it seems
a reasonable starting point that solutions for fighting frauds
which exploit this system should also be found at a Community
level. Moreover, since the most damaging VAT fraud takes place
at an international rather than a national level, it is at least
arguable that measures should be taken at an international level
to combat such fraud. Such measures could take many forms. However,
from OLAF's perspective, the most effective measures would be
the real time exchange of relevant anti-fraud information between
the Member States and with the Commission so that analyses could
be made to enable a better targeting of resources on fraudsters
before significant damage has been caused to VAT receipts. In
addition, the exchange of information to tackle ongoing frauds
would ensure that all relevant authorities had the full picture,
and action could be coordinated to ensure that the fraud was tackled
in the most effective way, at the best time, and in the appropriate
jurisdictions.
16. This would not mean that national measures
would become irrelevant. Indeed, the results of national control
measures would feed into international actions which, in turn,
would produce benefits at a national level. Effective national
controls would still be a key to successful international anti-fraud
efforts. But some international cooperation and coordinated action
in specific cases is essential to protect national revenues. This
means that national resource allocation will have to take this
factor into account. Difficult choices may sometimes have to be
made, but it is important that sufficient resources can be available
to contribute to tackling frauds which impact on several or all
Member States.
17. OLAF would certainly not wish, or be
in a position, to direct national control policies or fiscal systems.
But in cases of major fraud at Community level OLAF would play
its role of facilitator and coordinator and would expect all Member
States to play their part in ensuring that there are no "information
gaps" or other problems which mean that important cases in
other Member States cannot be pursued because of a lack of will
or because of administrative or procedural problems. At the present
time, OLAF has not committed many resources to the VAT area since
it is clear that several Member States, including the UK, simply
do not want OLAF involved in helping to fight international VAT
fraud. If this attitude were to change, then the resources allocated
to fighting VAT fraud could be reassessed.
Q7. Benefits of a shift to the origin system
18. This question raises matters of tax
policy and not of specific anti-fraud policy, and therefore falls
outside the competence of OLAF.
19 January 2007
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