Brussels, 31/05/2006 (Agence Europe) - On 31 May the European Commission adopted a communication whose aim is to launch a debate with all parties concerned on a European strategy to combat tax fraud. László Kovács the Commissioner responsible for taxation and customs union said that national policies had reached their limit and that they needed a coordinated Community approach. The communication opens the debate by suggesting three areas of reflection with different goals and requiring different levels of application: reinforced administrative cooperation, self-liquidation mechanism for internal operations in a state subject to VAT and excise duties and reforming Community legislation on VAT and duty. The Ecofin Council of 7 June will deal with dossier.
The communication, according to a Commission expert seeks to wake Member States up and remind them of their current obligations regarding administrative cooperation. He adds that at the very least these Member States should implement the necessary means to achieve this task. It proposes a new Community approach to administrative cooperation with third countries. It also believes that the time has come for a monitoring system to be implemented on the basis of quantifiable indicators so that each Member State can ensure how best to prove assistance to its counterparts. It is also proposing strengthening the provisions in force for direct taxation and assistance in the recovery of taxes. The Commission is highlighting the need for tax bodies to implement its guide on risk management and suggests that a system of best practices be applied to the domain of taxation for managing risk in the customs sector. Finally, it calls for the creation of a permanent Forum for administrative cooperation at Community level.
Reinforcing international cooperation on VAT constitutes another crucial point. Underlining the fact that relations with third countries depend on bilateral agreements, the Commission looks at whether they should “develop a Community approach” in the context of cooperation with third countries. According to the Commission “tax cooperation clauses under the economic partnership agreements that the Union concludes with its partners” would support such an objective.
Commissioner Kovács said that several Member States, including Germany and Austria propose an amendment to the VAT deduction system by extending the “self-liquidation mechanism” in the internal operations of a Member State and added that the Commission was currently studying these requests. The Commissioner said that “experts” believe that it is possible to use this mechanism for “targeted measures” but consider that there is no sufficient legal basis for extending it to a Member State level. He also provided a positive balance sheet of the United Kingdom's request for applying this mechanism to “computer chips in mobile phones”. The self-liquidation mechanism could be used more for fighting “carrousel fraud” - an artificial chain of sales of goods on an intra-Community level which involves unjustified requests for VAT reimbursement. It would be less efficient in countering fraudulent identities of tax payers.
The Commissioner recognised that the “application of the self-liquidation mechanism proved efficient in specific sectors like the building industry” but is less effective in fighting against the “risks of new kinds of fraud”. Before providing a response to these three countries, the Commission wants to launch the debate on the advantages and disadvantages of such a mechanism, which would be applied in a few countries. The Commission highlighted the fact that there will be no modification to European legislation for replacing a system without a profound and preliminary examination of all possible repercussions of such a change. Preliminary conditions would include: considerably reducing the possibilities for committing fraud, preventing disproportionate administrative charges for companies, ensuring the neutrality of tax, as well as a non-discriminatory treatment of national and foreign operators.
Mr Kovács highlighted the third possible option, which consists in “totally amending the VAT system by introducing the principle of taxation in the country of origin and not in the country of consummation”. This idea is “even more risky and would be even more difficult to implement”, he added. Admitting that there was nothing new in this idea, he called on Member States to analyse the problem again. According to the Commission, it will be perhaps necessary to look at “the taxation of intra-Community deliveries with a single tax that was sufficiently high” in order to prevent carrousel fraud. The Commission also suggests getting rid of “distortions” to the internal market rules resulting from the “current structure of tobacco taxation”. Observed in all areas of direct and indirect tax, tax fraud stands at around € 200-250 billion - 2 and 2.5% of the EU's GDP. The Commissioner indicated that “enemy number one” is VAT fraud, which is around “€ 60 billion”.