Official Journal of the European Union

C 11/31

Opinion of the European Economic and Social Committee on the ‘Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards a quick reaction mechanism against VAT fraud’

COM(2012) 428 final — 2012/0205 (CNS)

2013/C 11/07

Rapporteur-General: Mr PÁLENÍK

On 5 September 2012, the Council of the European Union decided to consult the European Economic and Social Committee, under Article 113 of the Treaty on the Functioning of the European Union, on the

Proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards a quick reaction mechanism against VAT fraud

COM(2012) 428 final — 2012/0205 (CNS).

On 17 September 2012, the Committee Bureau instructed the Section for Economic and Monetary Union and Economic and Social Cohesion to prepare the Committee's work on the subject.

Given the urgent nature of the work, the European Economic and Social Committee appointed Mr PÁLENÍK as rapporteur-general at its 484th plenary session, held on 14 and 15 November 2012 (meeting of 15 November 2012), and adopted the following opinion by 112 votes to none with two abstentions.

1.   Conclusions and recommendations


This opinion of the European Economic and Social Committee (EESC) has been drafted with regard to a proposal for a Council directive that would introduce a Quick Reaction Mechanism (QRM) to enable the Member States to combat value-added tax (VAT) fraud more effectively, above all by reducing the time needed to introduce a derogation relating to determining those required to pay VAT. The measure also eliminates the risk that national measures to combat VAT fraud could be introduced that would have no legal base in European legislation.


The EESC supports the aim of the proposal – namely to make the fight against tax fraud more effective – and thinks the way put forward is an advance on the current legal situation. On the other hand, the EESC points in this opinion to a number of shortcomings in the proposal and sets out observations and alternative proposals that could help to improve the status quo in the future.


VAT fraud is an extremely damaging practice that diverts substantial amounts of Member State budget revenues and so counters their efforts to consolidate public finances. Forms of VAT fraud evolve relatively rapidly, so legislation to help wipe out these activities needs to be developed as effectively as possible.


The EESC is pleased that the proposal for a directive enables Member States to react flexibly to fraud in a particular sector and almost immediately introduce measures to prevent potential loss of tax revenue. Cutting the time needed for granting derogations from the common VAT system contributes to the fight against tax fraud and tax evasion.


The EESC does have some concerns regarding the introduction of a derogation from the examination procedure enshrined in Article 3(5) of Regulation (EU) No 182/2011, especially since the proposed procedure makes it practically impossible for a Member State's application for a derogation from the common VAT system to be discussed by experts at a meeting of the committee.


Regarding the need to effectively combat VAT fraud, whose forms evolve relatively rapidly, the EESC proposes also enlisting the technical know-how of expert practitioners – many of whom can be found in organised civil society – when further effective measures are being conceived and sought. Meetings of expert groups are needed at which the matter can be discussed in the broadest possible terms.


Since VAT fraud is a sophisticated international criminal activity that is detrimental to public finances, the EESC points to the need for effective collaboration between Member State tax authorities in pursuit of its elimination. It would therefore welcome a greater effort by the European institutions to organise activities that would make a positive contribution to this collaboration.

2.   Rationale


In the present difficult period, in which all European Union (EU) countries are making substantial efforts in an attempt at effective consolidation of public finances, the European Economic and Social Committee welcomes any initiative that can assist with those efforts, on the revenue as well as the expenditure side of public budgets. With this proposal for a Council directive amending Directive 2006/112/EC on the common system of value added tax, the European Commission aims to improve the effectiveness of the fight against tax fraud and evasion, thus assisting consolidation on the revenue side.


The economy of the European Union is facing the most difficult period since its creation, and effective taxation is currently a particularly important element of the attempt at accelerated consolidation of the public finances of the Member States.


According to the Annual Growth Survey 2012, determined fiscal consolidation is the way to produce results and is of fundamental importance for the restoration of macro-financial stability, which is the basis for growth and for securing the future of the European social model. Improving the effectiveness of tax collection and combating tax evasion will help increase the revenues in the state budgets of several Member States. More effective application of the rules related to all types of tax could also help in this respect.


According to Annex IV to COM(2011) 815 final, tax coordination, which relates mainly to cross-border operations, can make the EU single market more efficient. That claim is based on the assumption that most of the remaining barriers to the single market arise from the absence of coordination of tax policy. The introduction of the Quick Reaction Mechanism could partially remove such differences, although the EESC points out that the application of the QRM could also lead to considerable harm in relation to the tax receipts of some Member States.


One of the main tax-related challenges currently facing the EU Member States is the fight against tax fraud and evasion. Effective measures to combat tax fraud and evasion can improve tax collection and can play an important role in increasing tax receipts, with better collection of VAT being one of the possible fiscal consolidation measures.


Europol estimates that VAT fraud and evasion linked to greenhouse gas emission allowances caused a loss of around EUR 5 billion to the budgets of several EU Member States in 2008 and 2009. According to Rob Wainwright, the director of Europol, "[o]rganised VAT fraud remains a significant criminal activity in Europe. It is responsible for draining huge resources from central government revenues and undermining the objective of transforming Europe into a competitive and greener economy."


The Green Paper on the future of VAT concluded that in 2006, the VAT collection gap represented 12 % of theoretical VAT receipts, while in some Member States the estimated losses were above 20 %. Part of that gap is attributable to fraud that takes advantage of deficiencies in the current system, particularly the possibility of VAT-free cross-border purchases of goods and services. An effective mechanism allowing for the elimination of tax fraud would provide a way to combat the huge economic damage done by such activities and would help with consolidation of the public finances.


The special measures adopted under Article 395a will make the fight against value-added tax fraud and evasion more operational and effective, since they will take account of the specificities of the applicant country's VAT system and administration. Such measures will help create an effective system to seek out and detect new forms of tax fraud and evasion. However, there is cause for concern about the possible loss of significant Member State powers in the field of taxation.


On the basis of information gathered through the process of granting derogations from the directive on the common system of VAT (the directive), the Commission will obtain important practical information and ideas "from below" that will allow it to further improve the directive. Such information will be used to get rid of weaknesses and outdated provisions, and to update obsolete parts of the directive.

3.   General comments


The proposal for a Council directive amending Directive 2006/112/EC on the common system of value added tax extends the Commission's powers in relation to granting derogations to prevent VAT fraud. Such fraud causes major budgetary losses and disrupts competition and the operation of the single market. The EESC welcomes any attempt to make the single market work better and to make the fight against tax fraud and evasion more effective.


The EESC notes that under the second subparagraph of Article 395(1) of Directive 2006/112/EC, measures intended to simplify the procedure for collecting VAT may not, except to a negligible extent, affect the overall amount of the tax revenue of the Member State collected at the stage of final consumption. In the context of the proposal, the EESC is concerned that the impact of applications on the overall amount of tax collected by Member States will not be adequately examined.


The EESC welcomes the effect that the proposal will have on the duration of the approval process for special measures applied by a Member State to combat tax fraud and evasion, which will increase the likelihood that such activities will be tackled effectively.


Since VAT fraud primarily occurs in relation to cross-border trade (so-called carousel and missing trader fraud), the possibility of taking effective action by applying derogations in a single Member State will be very limited, and further coordination of procedures by the tax authorities of the Member States will be necessary.


The EESC also points out that the powers which the Commission would take on under this proposal are highly specialised and complex. It notes that people with professional expertise, particularly from practice, should be at the heart of the group involved in future proposals for measures that would be subject to the procedure set out in the proposed new articles of the directive. Organised civil society offers a good source of such expert practitioners.

4.   Specific comments


In its current form, the proposal only allows accelerated approval (within one month) of special measures derogating from Directive 2006/112/EC in cases where the Member State requests a derogation in respect to the designation of the recipient as the person liable to pay VAT on specific supplies of goods and services by derogation from Article 193 (which currently appears to be an effective tool for combating fraud), whereas in other cases unanimous agreement in the Council is required, which may considerably weaken the effort to combat VAT fraud effectively. The EESC also points out that fraudsters now work effectively together, so it would be expedient for the tax and police authorities of a number of countries to be informed about and involved in the granting of derogations under the proposed new articles of the directive. This applies particularly to countries to which illegal activities might be transferred following the granting of a derogation.


The EESC also proposes that the approval process in the committee under Article 395b(2) and (3) should not rule out the possibility for a member of the committee to request the termination of the written procedure without result, mainly to ensure the effective protection of that member's legitimate interests, which may be harmed by another Member State's request for authorisation of special measures. Another way of dealing with that deficiency would be to introduce a mechanism involving further confirmation of the special measure by the Council of Ministers, under which the measure would cease to apply if not approved.


By introducing the QRM, the proposal for a directive will significantly shorten the time needed for approval of special measures to combat tax fraud and evasion, from the eight months that could previously have been required for a positive proposal from the Commission followed by unanimous approval in the Council down to one month, with the power of approval being transferred to the Commission. The EESC expresses its support for this acceleration as a way of improving the fight against tax fraud. However, Member States must have the opportunity, if necessary, to have a draft application for derogation discussed in advance in the advisory committee and so forestall possible proceedings before the European Court of Justice.


The EESC considers that "appropriate control measures by the Member States" are not defined sufficiently clearly in Article 395a(1) of the proposal. It therefore proposes that the Council remove that discrepancy, as well as expanding their scope to cover the measures referred to in Article 395a(1)(b) of the proposal.


Where a derogation granted on the basis of the procedure set out in Article 395 proves, during its period of validity, to be effective in combating tax fraud and evasion, the EESC proposes that a mechanism be introduced by which this measure could be applied – as a way of disseminating best practices – to other Member States through a simplified procedure similar to that in the proposal under discussion.

Brussels, 15 November 2012.

The President of the European Economic and Social Committee