Correspondence with Ministers November 2007 to April 2008 - European Union Committee Contents


Letter from the Chairman to Rt Hon Jane Kennedy MP, Financial Secretary, HM Treasury

Thank you for your Explanatory Memorandum 5188/08 which was considered by Sub-Committee A at their meeting on 5 February 2008. The Sub-Committee cleared the document from scrutiny but asked me to write to you to request further information on some detail of the European Court of Auditors (ECA) Report that is attached to the Memorandum.

  The Sub-Committee recall that the former Paymaster General told them that the Government preferred administrative solutions to the problem of Missing Trader Intra-Community Fraud rather than changes to the VAT system, and in particular that the Government supported information exchange between Member States (Stopping the Carousel: Missing Trader Fraud in the EU 20th Report 2006-07 (HL 101), at Q 225). The Sub-Committee noted that Table 2 on Page 20 of the ECA Report suggests that one in three requests to the United Kingdom are not responded to within 90 days. The table also identifies the United Kingdom as only the 10th best Member State for responding to information requests, and paragraph 28 of the ECA Report highlights some very delayed responses to requests from 2003 and 2004. While the Sub-Committee acknowledges that the UK receives more requests than many Member States and is by no means the worst at replying to them promptly, the Sub-Committee would welcome your comments on these statistics. The Sub-Committee would also be grateful if you were able to provide comparable figures to those in the table, for 2007.

6 February 2008

Letter from Rt Hon Jane Kennedy MP to the Chairman

  Thank you for your letter dated 6 February 2008 on behalf of Sub-Committee A in which you advised me that the above document has been cleared from scrutiny, but that you would welcome my comments on some statistical information that appears in the Report.

  You noted that, according to Table 2 on Page 20 of the Report, the United Kingdom is only the 10th best Member State for responding to requests for information from other Member States and that paragraph 28 of the Report highlights some very delayed responses from 2003 and 2004. You ask how this performance accords with the Government's statements that its preferred response to VAT fraud is to improve administrative co-operation and information exchange arrangements rather than change the EC VAT system.

  You will see that in 2005 the UK's performance in meeting the 90 day response target was considerably better. The reason for the marked deterioration in performance in 2006 was that HMRC then introduced delegated arrangements for managing the exchange of information in respect of suspected VAT Missing Trader Intra-Community (MTIC) transactions. While this resulted in more direct and therefore faster exchanges in certain high risk areas, many routine exchanges were not processed as rapidly as they needed to be by staff who were new to this work. These transitional difficulties have now been addressed, and the latest provisional figures HMRC have are that they have responded to 69% within the 90 day deadline and that they expect this figure to continue to rise in future years.

  Turning to the very delayed responses mentioned in paragraph 28 of the Report, as at 31 December 2007, the number of requests outstanding for more than a year has fallen significantly from 121 to 53, a drop of over 50%. I understand that most of those that are still outstanding relate to businesses that are subject to criminal investigation and that with these cases there is difficulty in obtaining the required information. However, the requesting Member State has been notified of the position.

  Although it is important that deadlines for responding to information requests should be respected, the United Kingdom has expressed concerns to the Commission about simply using these annual statistics to measure a Member States' performance. Clearly there are instances where speed is of the essence, but the quality of the information that is exchanged is also important and yet the current system totally relies on a crude deadline and pays no regard to the results or outcomes from the information that is exchanged. This issue has now been picked up and at an EU level work will shortly begin to look at whether a more output focused performance measurement system can be developed.

  In conclusion, the Government remains of the view that strengthened administrative co-operation and information exchange is one of the most effective ways of fighting MTIC fraud. That is why we are fully engaged and supportive of the discussions that are currently underway in the Commission led Anti-Tax Fraud Strategy (ATFS) Working Group.

19 February 2008

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