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EU Member States to cooperate more in the area of VAT – but what does this mean for your business?

Deloitte perspective

On 30 November 2017 the European Commission launched its proposals for the amendment of its Council Regulation on the administrative cooperation in the field of Value Added Tax. The proposal aims at improving administrative cooperation of tax authorities of Member States and cooperation between tax authorities and other law enforcement bodies, such as customs authorities.

7 December 2017

One of the main objectives of the cooperation is to reduce the amount of VAT fraud. The proposed amendments to the Council Regulation must also prepare the ground for full implementation of the definitive VAT regime according to the European Commission. The proposed measures would be gradually implemented.

The proposed changes with effect from 1 January 2019

A first set of changes is proposed with effect from 1 January 2019:

Enhanced cooperation between Member States

Enhanced cooperation between Member States is necessary to combat cross-border VAT fraud more effectively and in a more timely manner and strengthens trust between Member States. The proposed measures include faster exchanges of information between tax administrations without prior request through standard forms, joint audits between two or more Member States and access for Eurofisc officials to the Member States’ VIES data.

When joint audits take place, tax officials of other Member States will have the same powers of inspection as the Member State of establishment of the taxable person. This includes access to the premises of the taxable person and its documents. Both tax authorities may agree on producing a common audit report.

When the proposal is adopted you may be confronted with officials of tax authorities of other Member States during an audit. Upon request they must be able to produce written authority stating their identity and their official capacity.

The Member State of the taxable person may be obliged to participate and initiate a VAT audit when at least two other Member States consider an administrative enquiry or audit necessary. Those Member States should assist the Member State of establishment by actively taking part in the audit.

Working with other law enforcement bodies

The proposal also includes a more enhanced cooperation between tax authorities and other law enforcement bodies. The proposal includes additional powers for Eurofisc to initiate and coordinate cross-border investigations and to forward information on VAT fraud trends and serious cases to Europol and the European Anti-Fraud Office (OLAF).

Member States participating in the European Public Prosecutor’s Office (EPPO) would have to disclose serious VAT fraud cases to Europol and OLAF. Serious fraud cases are considered as those involving two or more Member States and with a total damage of at least EUR 10 million.

The Commission is currently developing Transaction Network Analysis (TNA) software for voluntary use by Member States as of 2018. Participation in Eurofisc also remains voluntary. TNA software is used to jointly process and exchange VAT data within Eurofisc.

We think it is unlikely that you will notice something of these changes in a direct way. Through this enhanced cooperation VAT fraud can be tackled more effectively and in a timelier manner. As a result, this will benefit businesses indirectly because (the possibility of) VAT fraud may result in more burdensome administrative obligations (administrative measures targeted at discovering fraud often have a broader scope than just fraudulent transactions) disturbance of competition and the risk of being denied the right to VAT deduction or the exemption for intracommunity supplies.

Cross-border VAT refund

Taxable persons can get a VAT refund in a Member State where they are not established and do not carry out taxable transactions for which they are liable to pay VAT to the tax authorities. The refund request is done through an electronic portal of the taxable persons Member State of establishment. The Member State of establishment forwards the request to the Member State of refund and the refund – if approved- is granted by the Member State of refund directly to the taxable person.

Currently under Directive 2010/24/EU the authorities of the Member State of establishment of the taxpayer may send a request for recovery or precautionary measures to the Member State of refund for the VAT refund amounts to be seized for the benefit of the Member State of establishment. In case the taxpayer concerned wants to contest the recovery or precautionary measures taken he must undertake this action in the Member State of refund.

A simplification would be introduced to ease recovery assistance requests by the Member State of establishment towards the Member State of refund. The proposals offer tax authorities the opportunity to transfer VAT refunds directly to the Member State of establishment in case of outstanding VAT debts if the taxpayer gives his consent. The Member State of establishment can then use this money to settle a taxable persons VAT debts or to hold the money as a precautionary measure in case of disputed VAT debts.

In case it concerns disputed VAT debts the transfer of the money is permitted only where the Member State of establishment has effective judicial control in place which enables local courts to grant the release of the amount retained or any part of it at the request of the taxable person and in all stages of the proceedings. Again, transfer of the money to the Member State of establishment is only allowed in the first place when the taxpayer has given his consent for the direct transfer of the VAT.

Once the proposal has been adopted and has come into force you may be confronted with a request from the tax authorities for your consent to settle refunds of foreign VAT with your outstanding VAT debts in your Member State of establishment. In that case, you will need to consider whether you will give the consent or not.  

The proposed changes with effect from 1 January 2020

As of 1 January 2020, a cooperation between customs authorities and tax authorities is proposed. This includes information sharing on cars under customs procedures 42 and 63.

The proposed measures are aimed at fraud in case of importation of cars where it is declared that the cars will be subsequently supplied to a business in another Member State, where it will be subject to an intracommunity acquisition. In that case an exemption applies for the import VAT. However the exemption is often abused and the goods are diverted to the black market without VAT having been paid.

In order to tackle this fraud, relevant information in relation to customs procedures 42 and 63 (e.g. VAT numbers, value of the imported goods, type of commodities etc.) would be shared by the Member State of import with the tax authorities in the Member State of destination. The tax authorities will be able to cross-check this information with the information reported by the importer in his recapitulative statement and VAT return and by the recipient (customer of the importer) in his VAT return. Customs authorities responsible for checking the conditions for the VAT exemption in customs procedures 42 and 63 will also be granted automated access to the VIES–system so they can check the validity of VAT identification numbers. Eurofisc officials would have access to car registration data from other Member States (EUCARIS-platform), where automated exchanges on vehicle registrations already takes place.

In case of an invalid VAT identification number of the customer or in case of a situation where the cross-check results in a mismatch you as an importer might be contacted by the customs or tax authorities once the proposal has been adopted and has come into force.

The proposed changes with effect from 1 January 2021

In order to facilitate the correct application on VAT on cross-border transactions, additional information will be available for taxable persons on the European Commission’s website related to VAT rates and measures targeting small enterprises. You may use this information to determine the VAT treatment of your transactions. It is yet uncertain if this information is binding to Member States and how it will be kept up to date.

Next steps

These legislative proposals will be submitted to the European Parliament for consultation and discussion. At a later stage, it will be forwarded to the European Council for adoption. The proposal will require unanimous agreement from all Member States in the Council before it can enter into force.

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