Examination of Witnesses (Questions 260
- 269)
TUESDAY 6 FEBRUARY 2007
RT HON
DAWN PRIMAROLO
MP, MR MIKE
ELAND AND
MR RICHARD
BROWN
Q260 Lord Jordan:
It is still easier than robbing banks.
Dawn Primarolo: If you like it is a mutation
from robbing banks. Robbing a revenue pot is what robbing a bank
was. We are talking here about the tax authorities but I would
hazard a guess if you were able to speak to the banks about theft
and identify fraud and their losses you would find that international
crime of this type is not just something that governments are
victims of; it is international and it does require that international
co-operation, and co-operation between all of the legitimate players
not just governments but banks, advisers, et cetera.
Q261 Lord Kerr of Kinlochard:
I would like to follow up briefly on what the Minister was telling
us about her views on alternative systems. You were very clear
on the arguments against an origin system of the kind the Commission
first proposed, in particular the costs, and the technical and
practical challenges, of a clearing house system. You also were
against the variant that the Germans proposed, and I agree with
you: additional optionality does not make it any more attractive.
But when we took evidence from Commissioner Kovacs in Brussels
he mentioned another possible future prospect. He did not think
this was the most urgent task, and agreed that the most urgent
task was to improve information exchange systems. But he also
talked about the possibility of moving to a new variant of the
origin system, whereby the tax levied at the frontier on the intra-European
export would be the tax chargeable in the country of destination.
This would, as far as I can understand, eliminate the need for
a clearing house. He was not suggesting that this was a question
for today. His priorities sounded very much like yours. But I
thought his was an intriguing suggestion for tomorrow. What do
you think about it?
Dawn Primarolo: It may well be an intriguing
question for tomorrow but it would leave the UK pursuing the collection
of billions of pounds of revenue from companies outside the UK
net who we might not have a relationship with in terms of them
not being registered with us. The challenge would be what would
be the administrative structure we would need under those circumstances,
which we do not currently have in order to collect those not insubstantial
amounts of revenue. We are talking of tens of billions.
Q262 Lord Kerr of Kinlochard:
Would you not be receiving the tax from a fiscal authority that
had collected it, rather than from the initial manufacturer?
Dawn Primarolo: The discussions have been varied
on that. Then there is the question of revenue sharing.
Q263 Lord Kerr of Kinlochard:
I do not think that was part of Commissioner Kovacs' proposal.
It seemed to be simply there should be VAT on intra-EU exports,
but collected by the tax authorities of the exporting country
at the rate payable in the destination country, which seemed to
be a rather elegant solution.
Dawn Primarolo: The specific issue is how a
Member State would be assured that it was receiving the revenue
that it was entitled to, and then systems have to be put in place.
I agree, on the simple proposition that the Commissioner puts,
it appears superficially attractive. The challenge then comes
how to make it operate across all Member States, particularly
when we look at the revenues of some of the Member States that
we are actually talking about. How much goes through our VAT system
in a year?
Mr Brown: £40 billion. If you were talking
about allowing this sort of system Commissioner Kovacs just mentioned,
for the UK there would be £20 billion of tax expected to
be collected via other authorities. In order to trust them with
that we would have to be very confident about the rates of compliance,
and so on, that are associated with the payments. If the compliance
rate was only 90 per cent, which actually is a high figure, you
are still talking about revenue losses to the UK which are comparable
to the MTIC losses that we have been talking about today.
Q264 Lord Kerr of Kinlochard:
You would be, if these numbers were correct. But it seems to me
that the chances of establishing a relationship of trust with
your counterparts in the other Member States are rather higher
than the chances of establishing a total trust with all the traders.
I would have thought this is not impossible as a proposition.
Mr Brown: As Commission Kovacs said, it is not
an idea for today, one would be looking at tomorrow.
Q265 Lord Cobbold:
Would the fraudsters not be able to source exports and imports
of products outside the EU because there would be no VAT on those?
It would still be possible to create a fraud.
Dawn Primarolo: It is difficult to speculate
because of the fraudster's attempt in any system to find ways
to defraud, whether it is the tax authority or someone else. Any
system is going to have the potential. What we are trying to balance
is minimising loss to the revenue with minimum implications and
inconvenience for the vast majority of businesses who find the
system, as it is currently constructed, very beneficial. Obviously
my position as a Minister is that I am keen to find a way to stem
the loss of revenue within the rules. We are doing all we can
to achieve that but, in the end, whatever system we have those
are the principles that we will be balancing. I am keen that whilst
propositions for the future, which may be complicated, should
be there, there are a number of steps that can be taken now that
we should get agreement on that would make it—I was going
to say easier but that is not a word we should use—put us
in a better position to challenge this fraud than we currently
are.
Q266 Lord Inglewood:
Can you specify what those might be in general terms?
Dawn Primarolo: We need to speed up information
exchange, and the Commission has already been asked to bring forward
proposals. We need to look closely at what would be the role of
Eurojust and Europol. How do we facilitate particularly evidence
exchange? We need to try and get to a position where we understand
a base line across Europe so then we can measure progress of whether
we are actually dealing with this. We need to further explore
the combinations of domestic administrative changes by Member
States and whether targeted very narrow reverse charges can actually
squeeze it out of particular types of goods. It seems to me that
is the policy mix that we need to advance at the present stage,
not leaving out the discussions for tomorrow but deal with today
at the same time.
Q267 Chairman:
If I might try to wind up. We are very grateful to you and your
colleagues for coming to talk to us. You have surprised us about
being more optimistic than previous evidence suggests about the
progress you are making in dealing with this particular fraud
and it is encouraging to us. At one point it did all sound very
doom and gloom. We would be very glad of anything you can let
us have by way of a note as to how you are getting on with prosecutions
and dealing with fraud. We perfectly understand there are areas
which you cannot tell us about. In view of this, do you think
you are going to get enough co-operation out of Member States?
What is the level of political will to agree on an anti-fraud
strategy and to co-operate with each other to tackle that fraud?
Are some better than others? The impression from outside, when
you see people arguing about each other's methods of tackling
fraud and many countries not willing to let us have the derogation
we would hope to have to reverse charge on specific goods, one
begins to wonder how much co-operation there is.
Dawn Primarolo: The political will is there
to tackle it and the co-operation is there. The issue at the moment
is there are slightly differing views on how it should be tackled,
and that needs to be settled as quickly as possible. Within that
we are trying to advance an agenda that would improve regardless
of whether those wider questions of differing approaches are settled.
It is a very complex, difficult issue that goes to the heart of
the VAT system, its fractional nature and its zero transfer in
the market, and that makes it particularly challenging at this
time. To ensure we do supply you with the information, perhaps
you may decide there is a little more you want, if you could send
us a note of the specific points then we will respond as quickly
as we can.
Q268 Chairman:
Another specific point occurs to me. Have we an estimate of how
much enforcement is costing us because that would be a useful
piece of data.
Dawn Primarolo: How about a lot.
Q269 Chairman:
How many people are engaged would do just as well.
Dawn Primarolo: We can give the staff numbers.
We can do that definitely.
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