The ambassadors of the Member States to the EU (Coreper) gave the green light on Wednesday 3 March to a possible future Administrative Cooperation framework between the EU and China in the area of Value Added Tax (VAT). As a first step, the Member States authorise the European Commission to open negotiations with the Chinese authorities with a view to concluding a Memorandum of Understanding.
In its July action plan to better combat tax fraud, the Commission announced its intention to negotiate VAT administrative cooperation agreements with several non-Member States, starting with the EU’s “main trading partners” (see EUROPE 12528/2).
In a non-paper sent to the Member States, of which EUROPE has obtained a copy, the Commission first proposes the conclusion of a non-binding Memorandum of Understanding, which would outline the framework for possible cooperation, ideally by the third quarter of 2021, before the conclusion of an international agreement, if possible in 2022.
While Member States endorsed the approach envisaged by the Commission, they nevertheless made several observations. In particular, they insisted that no access to EU databases should be granted and that security and data protection rules should be respected in this process and in any agreements. They also stressed that reciprocal cooperation and comparable contributions from both sides should be ensured.
Three-step approach
After several contacts with the Chinese tax administration, it was decided to explore the idea of a three-step approach, explains the Commission in its paper. The first step would be regular exchanges during the second half of 2021 to promote understanding of each other’s VAT policies and legislation.
Before committing itself to any binding instrument, China wishes first to learn from the experience of the Member States in this area.
For its part, the EU also has things to learn. “Particularly interesting for the EU are China’s recent progresses to fight VAT fraud through the introduction of e-invoices crosschecked for verification with VAT returns and the use of risk analysis”, the Commission points out.
The second step, envisaged in the first half of 2022, would be the establishment of a network of VAT contact points of EU Member States and Chinese tax authorities to facilitate the cooperation framework. This would be followed, in the second half of 2022, by a third step aimed at concluding a binding international agreement on an exchange of information between the EU and China.
The exchange of information would help tax authorities on both sides to prevent, detect and investigate VAT fraud, while facilitating trade for legitimate businesses, the Commission says. In this framework, administrative cooperation would also be extended to mutual assistance in the recovery of VAT related claims.
The EU Council’s approval of the opening of negotiations on the Memorandum of Understanding still has to be formally adopted by written procedure. The Commission will also have to return to the EU Council at the end of the negotiations to seek its authorisation to sign the Memorandum of Understanding on behalf of the EU.
See the document: http://bit.ly/3bUU3iN (Original version in French by Marion Fontana)