European Commission Proposes Crackdown On VAT Fraud

by Ulrika Lomas, Brussels, Tax-news.com

21 June 2001

The European Commission has proposed a regulation to strengthen cooperation between Member State tax authorities to combat VAT fraud by removing the remaining obstacles to the exchange of information. The proposal comprises three main objectives: to lay down clearer and binding rules governing the exchange of information; to provide for more direct contact between national anti-fraud agencies; and, to facilitate a more intensive exchange of information. It is expected that the proposal will remedy the weakneses identified in last year's Commission report on VAT fraud as part of the new VAT strategy.

'Thanks to this proposal, tax authorities will be better equipped to combat the massive frauds which are perpetrated through abuse of the VAT system,' stated Frits Bolkestein, European Commissioner for Taxation. 'The proposal will make it easier for national administrations to exchange information, and in particular they will have to respond to requests for information more rapidly.'

In a statement released this week the Commission states that the proposed regulation will establish a framework which will define the rights and obligations of all parties involved, concerning matters such as requests for information between Member States, time-limits for responding to requests for assistance, the presence of foreign officials in inspections, and the organisation of multilateral controls.

According to the Commission there is too little direct contact between anti-fraud agencies at either local or national level at present, and this has led to inefficiency, under-use by officials and delays. Under the new legal framework, there will be more provisions for direct contact between national authorities. Such direct communication between inspectors and anti-fraud units would represent a major step forward, ensuring faster exchange of information and a better mutual understanding of the nature of requests.

In addition to the VAT changes, the Commission has also proposed to amend a Directive concerning mutual assistance in the field of direct taxation. Since VAT will now fall under the new regulation, VAT can be excluded from the Directive. As a result, Member States will also be able to exchange information concerning certain taxes imposed on insurance premiums.

At present, tax authorities have no means by which to recover taxes due on insurance premiums paid to foreign companies. As a result, the scope of application of Community law on mutual assistance has to be extended to the taxation of insurance premiums, so as better to protect the financial interests of the Member States and the neutrality of the internal market.

The full text of the proposal can be found on the Europa web site at: http://europa.eu.int/comm/taxation_customs/whatsnew.htm

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