Luxembourg, 05/06/2007 (Agence Europe) - On Tuesday 5 June, European finance ministers continued their discussion on the most appropriate instruments to combat tax fraud, picking up from where they left off at their informal meeting in Berlin (see EUROPE 9412). They agreed to strengthen European legislation on administrative cooperation, legislative proposals being expected for the end of 2007. With regard to the more ambitious measures envisaged by the Commission in its communication of May 2006 (see EUROPE 9202), the Ecofin Council limited itself to calling, for the end of 2007, for a later analysis of the impact for the EU of putting in place generally a reverse charge mechanism for Value Added Tax (VAT) from a threshold set at €5000. The Commission was also invited to continue to assess the model whereby the taxation of Community operations would be carried out in the member state of departure, with a bilateral compensation mechanism being put in place.
In its conclusions, the Ecofin Council agreed that there was cause for implementing, as a priority, the following conventional measures to combat tax fraud: 1) to introduce amendments in declaring intra-Community supplies, with the aim of reducing timeframes; 2) to ensure more rapid sharing of such information among tax administrations; 3) to examine joint and several liability where information on intra-Community supplies has not been provided; 4) to improve confirmation messages and information on business identified for VAT purposes to operators active in intra-Community trade. The Commission is invited to submit the necessary legislative proposals “by the end of 2007”.
Germany and Austria back setting up a general national reverse charge mechanism for VAT returns. This system, which member states can choose to implement, would mean that tax debt for national operations is, above a certain threshold, transferred from the supplier to the recipient firm, say the Ecofin Council conclusions. However, most member states continue to have reservations about a system which would require a unanimous vote for it to become law. The finance ministers restricted themselves, then, to calling on the Commission to continue the assessment. Before the end of the year, the Commission will analyse the effects of such an option on the internal market, where the threshold is set at €5000. The analysis should seek to address the following aspects: 1) the effects on Member States that do not apply the reverse-charge system, especially the effects on their budgets, including with regard to the competitiveness of their companies; 2) the coherence and harmonisation of VAT law in the EU; 3) the costs for taxpayers and administrative authorities of implementing a reverse-charge system; 4) the risk of new forms of fraud; 5) the possibility of running a pilot project for a limited period of time in an interested member state. This last point came from the Berlin informal Council. If it comes to pass, this idea could allow Austria to test the system. “Germany came to realise that the general reverse charge system would never come about,” commented a diplomatic source, comparing the pilot study to come to a “vine leaf” granted to the German presidency.
Finally, setting up a taxation of intra-Community transactions in the member state of departure at a uniform rate of 15% and using a compensation mechanism did not win unanimous approval in Council. Ministers agreed, nonetheless, that the pilot study of such a system should be continued. The Commission will, before the end of the year, bring forward a study focusing on the budgetary effect of the compensation mechanism, additional costs, and the risk of new forms of fraud. However, the proposal to tax intra-Community transactions in the member state of arrival was abandoned because of the hostility to a very large number of delegations. (mb)