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European Commission > Taxation and Customs Union > Taxation > Tax Co-operation, control and anti-fraud > Combating tax fraud

Tax Co-operation, control and anti-fraud

Combating tax fraud

The debate on tax fraud was launched at EU level in May 2006 by the Commission's
Communication (COM(2006) 254 ) on a European strategy to combat tax
fraud (see speech by Commissioner Kovács, press release IP/06/697 and MEMO/06/221).
The Council made quickly clear that priority should be given to VAT fraud and efforts are
now fully focused on this issue.
The debate on VAT fraud has been divided into 2 main areas:
 Conventional measures to reinforce the existing VAT system
 More far reaching measures to modify the system, namely
 An option for Member States to introduce a general reverse charge
system;
 Taxation of Intra-Community transactions

As a response to the ECOFIN Council conclusions of 28 November 2006, the Commission


created a new expert group with Member States, the "Anti Tax Fraud Strategy (ATFS)"
expert group, with a view to conduct the technical discussions on the conventional measures.
Furthermore, in order to provide European businesses the opportunity to express their views
on the way VAT is tackled today and how to fight VAT fraud, two "VAT fraud conferences"
were organised on 29 March 2007 and 23 January 2009 respectively.
Fighting 'EU fraud' in general and tax fraud in particular on the investigation side is a matter
for the European Commission's Anti-Fraud Office (OLAF). For more information see
OLAF's website.

Legislative proposals

1. More far reaching measures


In February 2008 the Commission presented its Communication (COM/2008/109) on the two
more "far reaching" measures to change the VAT system in order to fight fraud. In this
Communication the Commission analyses the taxation of Intra-Community transactions and
the introduction of the option of a general reverse charge system. The Communication raised
a number of key questions on the way forward for the far reaching measures.

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Until now the Council has not provided the required steering to the Commission as to the
desirability of a pilot project for the reverse charge in a volunteering Member State (Austria).
In absence of such steering, the Commission will not take further action in this area.
2. Conventional measures
On 23 November 2007 the Commission presented a Communication (See the Commission's
Communication COM/2007/758 and the working document SEC/2007/1584 )
by which it asked the Council for political steering on some key elements of the VAT anti-
fraud strategy within the EU.
These key elements concerned the conventional measures like the need of tax administrations
for accurate information, the integration of an EU approach into the management of the VAT
system and the importance of updated information on the VAT status of persons.
The ECOFIN Council meeting of 4 December 2007 provided political steering for further
work on certain conventional measures targeting to fight VAT fraud more efficiently.
The work carried out in ATFS on the conventional measures has lead to a first Commission
proposal, adopted on 17 March 2008 (see press release IP/08/454 and COM/2008/147
) for the amendment of the VAT Directive and the VAT Administrative Cooperation
Regulation to speed up the collection and exchange of information on intra-Community
transactions from 2010 onwards. The aim of this proposal is to ensure that Tax Authorities of
the destination Member States are informed much quicker than today about intra-Community
acquisitions taking place on their territory and therefore have the possibility to act at an
earlier stage.
Based on that first Commission proposal, the Council on 16 December 2008 adopted a
Directive and a Regulation, after consultation of the European Parliament and the European
Economic and Social Committee. See the press notice (10th item), the Council's press release
and the adopted texts (EU OJ No L 14 of 20 January 2009).

Working programme

At the ECOFIN of 14 May 2008, the Commission reported on the work that has been carried
out in the first half of 2008 in close cooperation with the Member States. It also announced
the presentation of a communication for November 2008 and the different legislative
proposals it intends to present by the end of 2008, including a timetable.
1. The Communication
The European Commission has adopted on 1 December 2008 a Communication
(COM/2008/807 , see also press release IP/08/1846) setting out a short term
action plan with a list of future legislative measures aiming at enhancing tax administrations
capacity to prevent and detect VAT fraud (in particular "missing trader fraud") as well as to
recover taxes in case of fraud. Most of these measures directly result from the discussions on
the conventional measures that took place in the Anti Tax Fraud Strategy (ATFS) group.
This Communication intends also to initiate a reflection on a longer term scale notably about

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the relation between taxpayers and Tax Administrations and the opportunities offered by IT
in that context.
2. Proposal presented in December 2008 and Directive adopted in June 2009
Also on 1 December 2008, the European Commission presented a proposal to amend the
VAT Directive in two specific areas (see press release IP/08/1846 and proposal
COM/2008/805 ):
 Harmonise the conditions for the importer to benefit from the exemption of VAT upon
importation, when this importation is followed by an intra-Community supply or transfer
of goods to another Member State. This should avoid the increasing misuse that fraudsters
make of this particular exemption in missing trader fraud schemes. That part of the
proposal was adopted by the EU Council on 25 June 2009 and this new Directive will
apply as from 1 January 2011 (see the Council press release and the text of the Directive).
Under the Directive the exemption will apply only if the importer has provided the
Member State of import with his VAT identification number, his customer's VAT number
and the evidence that the goods are intended to be transported to another Member State.
 Make the supplier in intra-community transactions liable for the VAT loss created by his
missing customer in another Member State, when he contributed to the loss by not
reporting (or by reporting false or incomplete information or by reporting late) his supply
to his VAT authority. The proposal will provide tax administrations with a tool for
recovering VAT from non-established traders, that intentionally do not report (or report
incomplete/false data or report late) their supply to the tax authorities.

3. Communication and proposal on invoicing rules adopted in January 2009


The European Commission on 28 January adopted a proposal to change the VAT Directive
(2006/112/EC) in respect to the invoicing rules, based on a Communication on the
technological developments in the field of electronic invoicing. The aim of the proposal is to
increase the use of electronic invoicing, reduce burdens on business, support small and
medium sized enterprises (SMEs) and help Member States to tackle fraud. See our "VAT
invoicing" web page for more detail.
4. Measures scheduled for 2009
 Recovery of taxes: On 2 February 2009, the Commission presented a proposal for a new
Directive on mutual assistance for the recovery of taxes (see press release IP/09/201 and
proposal COM/2009/28). The creation of a European instrument permitting enforcement
of legal acts in another Member State and the reinforcement of the possibility to take
precautionary measures in another member State are two elements in this proposal which
should improve the capacity of Member States in cross border collection of taxes.
 On 18 August 2009, the Commission adopted a proposal for a recast of the Regulation on
Administrative Cooperation (Regulation N° 1798/2003), (see press release IP/09/1239 and
proposal COM/2009/427 ) which focuses on the improvement of the
administrative cooperation and enhancing the fight against VAT fraud. It covers the
following items:

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 Automated access to specific data: One of the ways to speed up the


exchange of information and administrative cooperation is to allow
Member States to have automated access to specific objective data
related to the identification of a taxable person and to his activities
contained in the databases of other Member States. It is expected
that such an automated access would reduce the number of (time-
consuming) requests for information and therefore reduce the
involvement of human resources.
 Common minimum standards for registration and deregistration of
taxable persons in VIES (Value added tax Information Exchange
System): The VAT Identification number is a key element in the VAT
arrangements applicable to Intra-Community trade and the abuse of
"inactive" VAT Identification numbers is a well known phenomenon in
VAT fraud. Laying down in a legal text common minimum rules for
registration and deregistration of taxable persons in VIES should
prevent potential fraudsters to obtain or abuse a VAT Identification
number. It would also reassure genuine traders that the information
they obtain on the VAT status of a commercial partner is more
reliable since it has been better controlled.
 EUROFISC: Discussions started on the creation of a European
Network composed of officials from national Tax Administrations. The
aim of this network, called EUROFISC, will be to improve cooperation
in order to detect fraudsters at an early stage. Another task of this
network at a later stage could be the setting up of a risk analysis
mechanism at EU level. The ECOFIN Council meeting on 7 October
2008 adopted the general principles that will govern the planned
Eurofisc system and the Commission included in the recast provisions
allowing Eurofisc to be established in the near future. Furthermore,
the Commission has expressed its willingness to examine the
possibility to entrusting additional tasks to Eurofisc.

 The Commission on 18 August 2009 submitted the report on the functioning of


administrative cooperation (see press release IP/09/1239 and report COM/2009/428
).
 A proposal that will cover a modification of the VAT Directive focussing on the
following item:
 Chargeability on Intra-Community transactions: a divergent
interpretation of the rules related to the chargeability of the VAT for
intra-Community supplies of goods and intra-Community
acquisitions, stemming in part from the invoice creating a derogation
to the chargeability to tax, leads to deficiencies in the use that can
be made of the information exchanged between Member States on
these transactions. An amendment of the VAT Directive in view of
laying down simple and clear rules would solve this problem.

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Other reports
Study prepared for the Commission The study analyses the gap between the amount of VAT due
and the amount received in 25 Member States. See also the en
30/10/2009 press release (IP/09/1655)

Study prepared for the Commission


The study analyses the possible impact on business of en
17/01/2008 measures envisaged for fighting VAT fraud (Timeframes)

Study prepared for the Commission The study analyses the possible impact on business of
measures envisaged for fighting VAT fraud (More detailed en
17/01/2008 information)

COM (2007) 758 COMMUNICATION FROM THE COMMISSION TO THE COUNCIL


concerning some key elements contributing to the
en
establishment of the VAT anti-fraud strategy within the EU
23/11/2007 (see also IP/07/1754 and SEC(2007)1584 )

COM(2004) 855 Report from the Commission to the Council and the European
Parliament: Fifth report under article 12 of Regulation (EEC,
en
Euratom) No 1553/89 on VAT collection and control
20/01/2005 procedures - see also annex

Report from the Commission to the Council and the European


COM (2000) 28
Parliament: Third Article 14 Report on the Application of Council
Regulation (EEC) No 218/92 of 27 January 1992 on Administrative
Cooperation in the Field of Indirect Taxation (VAT) and Fourth Report
28/01/2000 under Article 12 of Regulation (EEC, EURATOM) No 1553/89 on VAT
Collection and Control Procedures.

COM (1996) 681 Report from the Commission to the Council and the European
Parliament - Application of Council Regulation (EEC) 218/92 of en
27 January 1992 on administrative coopeation in the field of
8/01/1997
indirect taxation (VAT) - second article 14 report

COM (1994) 262 Report from the Commission to the Council and the European
Parliament - Application of Council Regulation (EEC) N°
en
218/92 of 27 January 1992 on administrative cooperation in
23/06/1994 the field of indirect taxation (VAT)

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