Explanatory Memorandum to COM(2018)813 - Amendment of Regulation (EU) No 904/2010 as regards measures to strengthen administrative cooperation in order to combat VAT fraud - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2018)813 - Amendment of Regulation (EU) No 904/2010 as regards measures to strengthen administrative cooperation in order to combat VAT ... |
|---|---|
| source | COM(2018)813  |
| date | 12-12-2018 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
This proposal is part of the package of legislation on the mandatory transmission and exchange of VAT-relevant payment information. The context of the package as a whole is set out comprehensively in the explanatory memorandum of the proposal for a Council Directive amending Directive 2006/112/EC as regards introducing certain requirements for payment service providers 1 .
The proposal to amend Regulation (EU) No 904/2010 on administrative cooperation and fighting fraud in the field of value added tax 2 is an important part of the package. This is because the proposal lays down rules for the Member States to collect in a harmonised way the records made electronically available by the payment service providers pursuant to Article 243(b) of the VAT Directive. Furthermore, the proposal sets up a new central electronic system for the storage of the payment information and for the further processing of this information by anti-fraud officials in the Member States within the Eurofisc framework. Eurofisc is the network for the multilateral exchange of early-warning signals to fight VAT fraud, established pursuant to Chapter X of Regulation (EU) No 904/2010.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The legal basis for this initiative is Article 113 of the Treaty on the Functioning of the European Union (TFEU). This Article provides for the Council, acting unanimously in accordance with a special legislative procedure, to adopt provisions for the harmonisation of Member States’ rules in the area of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and functioning of the single market and to avoid distortion of competition.
• Subsidiarity
This initiative is consistent with the principle of subsidiarity, as the main problem at stake, e-commerce VAT fraud, is common to all Member States and is exacerbated by the insufficient tools at the disposal of tax authorities. Member States alone are not able to obtain from third parties such as payment service providers the information necessary to control VAT cross-border supplies of goods and services, ensure that the e-commerce VAT rules are correctly applied and tackle e-commerce VAT fraud.
In particular, the objective of exchanging cross-border payment information in order to fight e-commerce VAT fraud cannot be achieved by Member States alone (because they lack the legal basis to collect information in another jurisdiction) not by inter-connecting national electronic systems through an electronic interface. In fact, such a system would not be able to aggregate payment information from different payment service providers on the same payee and recognise double records on the same payments. Nor would such system be able to provide a full overview of payments received by the payees from payers in the Union.
A central European system for the collection and exchange of payment data is the most effective way to give tax authorities a complete view to control compliance with VAT rule on e-commerce and fight VAT fraud. Any initiative to introduce new tools for cooperation that are targeted at the problem requires a proposal by the Commission to amend Council Regulation (EU) No 904/2010.
• Proportionality
The initiative does not go beyond what is necessary to meet the objective of fighting e-commerce VAT fraud. In particular, in terms of data protection, the processing of payment information complies with the principles of necessity (only the information necessary to achieve the objective of combating e-commerce VAT fraud is processed) and proportionality (the type of information and the way it is processed by the anti-fraud experts of tax authorities do not exceed the limits of what is appropriate to achieve the objective of fighting e-commerce VAT fraud), and is in line with the General Data Protection Regulation 3 , Regulation (EU) 2018/1725 4 and the Charter of Fundamental Rights 5 .
The safeguards laid down under Regulation (EU) No 904/2010 and the European framework on data protection will apply to the exchange of payment information under the present proposal. For the assessment of the necessity and proportionality principles, it should be first noted that the collection, exchange and analysis of VAT-relevant information has as its objective the fight against e-commerce VAT fraud. This is well documented by the stakeholder consultation, in which the tax authorities stressed the need for payment information to fight e-commerce VAT fraud effectively. The respondents to the public consultations (individuals and businesses) also confirmed that payment information is necessary to help tax authorities fight e-commerce VAT fraud (as long as the information on consumers is kept confidential). In addition, only information related to potential e-commerce VAT fraud would be sent to the tax authorities and exchanged between them. This means that only the information necessary to detect potential fraudsters established outside the Member State of consumption would be exchanged (i.e. no information about domestic payments will be exchanged). This information would include the number of payment transactions made, the date of the payment transactions, and the information on where — in principle — the place of taxation should be. It is not necessary to exchange any information identifying people who make payments online (i.e. consumers), apart from information on the origin of the payment (e.g. the location of the bank used to make the payment, which is necessary to establish the place of taxation). Therefore, it would not be possible to use the payment information to monitor the purchasing habits of consumers.
A central electronic system of payment information (‘CESOP’) would be set up. It will allow Member States to transmit payment information they store at national level, helping to effectively fight e-commerce VAT fraud. CESOP would be able to aggregate per payee all VAT-relevant payment information transmitted by the Member States, and it would allow the creation of a complete overview of payments received by the payees (i.e. the businesses) from payers (i.e. the consumers making purchases online) in the EU. CESOP would recognise any multiple recording of the same payment transaction, clean the information received by the Member States (i.e. remove duplicates, correct or report errors, etc.), allow Eurofisc liaison officials to crosscheck payment data with VAT information exchanged under Regulation (EU) No 904/2010, and retain the information only for the period necessary for tax authorities to carry out VAT controls. CESOP would only be accessible to Eurofisc liaison officials from the Member States, and the only purpose for which CESOP would allow enquiries is for investigations into suspected or detected VAT fraud.
In terms of storage, CESOP would guarantee the appropriate level of security in line with the rules governing the processing of personal information by the Union’s Institutions.
The exchange of information between tax authorities would exclusively take place within the Eurofisc network. The central electronic system will be accessible only to Eurofisc liaison officials. Access to CESOP would be regulated through use of a user identifier, and the system would keep track of any access. Furthermore, information would be retained on CESOP for only 2 years to allow Member States a reasonable period of time to carry out VAT audits. The information would then be erased after 2 years.
The system would not have an interface with the internet, as payment service providers would submit their information to national authorities. The exchanges of information among national tax authorities would take place through the secure common communication network, which supports all exchanges of information between tax and customs authorities, and provides all the necessary security features (including encryption of information).
Fighting VAT fraud is an important objective of general public interest of the Union and of the Member States, as referred to in Article 23(1)(e) of the General Data Protection Regulation and in Article 20(1)(b) of Regulation (EU) 2018/1725. In order to safeguard that important objective and the effectiveness of tax authorities in pursuing that objective, the restrictions laid down in article 55(5) of Regulation (EU) No 904/2010 will apply to CESOP.
• Choice of the instrument
Since this proposal amends Regulation (EU) No 904/2010, it also has to be a regulation.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations
The current proposal is supported by an evaluation of Regulation (EU) No 904/2010, in particular its sections focusing on its use in the field of e-commerce VAT fraud 6 . The result of the ex-post evaluation is explained in the explanatory memorandum of the proposal to amend the VAT Directive.
4. BUDGETARY IMPLICATIONS
The budgetary implications are set out in detail in the explanatory memorandum of the proposal for a Council Directive amending Directive 2006/112/EC as regards introducing certain requirements for payment service providers.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The Eurofisc reports and the annual statistics of the Member States are presented and discussed in the Standing Committee on Administrative Cooperation 7 in accordance with Article 49 of Regulation (EU) No 904/2010. The Standing Committee is chaired by the European Commission. In addition, the Commission will seek to obtain from Member States any relevant information on the functioning of the new system and on fraud. Where relevant, coordination will be ensured within the Fiscalis Committee (this committee has still not yet been set up under the new Fiscalis programme 8 ).
Regulation (EU) No 904/2010 and Directive 2006/112/EC already lay down rules for periodic Commission evaluations and reporting. Therefore, in line with these existing obligations, every 5 years, the Commission will report to the European Parliament and the Council on the functioning of the new administrative cooperation tool, pursuant to Article 59 of Regulation (EU) No 904/2010.
Furthermore, every 4 years the Commission will report to the European Parliament and the Council on the operation of the new VAT obligations imposed on payment service providers pursuant to Article 404 of Directive 2006/112/EC. The Commission will ensure that the two reports are coordinated and built on the same findings.
• Detailed explanation of the specific provisions of the proposal
In Article 2, new definitions are added to align the exchange of payment information with the terminology used in Directive (EU) 2015/2366 9 (PSD2) on payment services in the internal market.
Section 2 is added to Chapter V to introduce a new central electronic system of payment information (CESOP) to be developed by the Commission. Furthermore, an obligation has been added for the Member States to collect the records made electronically available from payment service providers pursuant to Article 243b of the VAT Directive. To keep the administrative burden of payment service providers to a minimum, under Article 24b(2)(b) a common electronic format to collect these records will have to be adopted through implementing acts. The competent authorities (under the meaning of Regulation (EU) No 904/2010) of the Member States will have to transmit to CESOP the information they collect from the payment service providers established in their own Member State every quarter. The Member States can appoint any national department of the tax authority to collect the payment information from the payment service providers in accordance with the proposed Article 24b(1) and (2). However, only the competent authority under the meaning of Regulation (EU) No 904/2010 can transmit the information to the CESOP (Article 24b(3)).
CESOP will correct formal mistakes in the transmitted information (cleansing) and aggregate the overall payment information transferred by the competent authorities of the Member States per payee (recipient of the funds). Then CESOP will analyse the information (e.g. matching payment information with VAT information available to Eurofisc officials) and will allow Member States’ Eurofisc liaison officials to have a complete overview of the payments received by given payees. In particular Eurofisc liaison officials will be able to see whether the payments received by a given payee in a given period exceed EUR 10 000 across the Member States. The EUR 10 000 threshold on intra-EU supplies has been introduced by the VAT e-commerce Directive as from 2021 10 . When the total annual intra-EU turnover of a given supplier is exceeded, the place of supply is in the Member States of consumption.
The storage period of the information in CESOP will be 2 years. This retention period is proportional, considering the right balance between the need of tax authorities to fight e-commerce VAT fraud, the high volume of information to be stored in CESOP, and the sensitivity of the payment information stored in the system.
The information on incoming payments will allow Member States to detect domestic suppliers selling goods and services abroad without fulfilling their VAT obligations. Information on outgoing payments will allow the detection of suppliers established abroad (either in another Member State or outside the Union) that should pay VAT in a given Member State.
It will take at least 3 years to set up CESOP. During this time, the Commission and the Member States in the Standing Committee on Administrative Cooperation would have to work on a number of technical details listed in Article 24e. This Article grants the Commission the power to adopt an implementing Regulation containing the technical measures to, among other, establish and maintain the system as well as manage it. For the purpose of this article, maintaining the system must be understand as regarding the technical and performance requirements (mostly relevant for IT purposes) to set up the system, to ensure maintenance work, to set up standards for inter-operability with Member States, and other similar measures. The management is a business process related to the monitoring of the system’s performance and lifecycle. For example, the Commission may take the decision to update the system, to migrate it, to generate performance reports, control accesses, etc.
The Commission would bear the costs for the development and maintenance of CESOP as well as the costs of maintaining the connection between CESOP and Member States’ national systems, while the Member States would bear the costs of all necessary developments to their national electronic system. More details are in the financial fiche and in Section 4 of the explanatory memorandum of the proposal for a Council Directive amending Directive 2006/112/EC as regards certain value added tax obligations for certain taxable persons, as part of this package.
Because of these investments and running costs, and because the system will be used by Eurofisc liaison officials, an additional subparagraph is added in Article 37 to introduce a new reporting obligation in the Eurofisc annual report for Member States and the Commission to assess whether the system leads to additional VAT assessed and collected, or to specific VAT controls.
The new paragraph 1a of Article 55 clarifies that payment information cannot be used by the Member States for establishing the assessment base, collecting VAT, or conducting administrative VAT controls unless the payment information has been cross-checked with other information available to the tax authorities. Finally, the restrictions to data-protection obligations and rights in accordance with Article 55(5) of Regulation (EU) No 904/2010 will apply to the CESOP
These restrictions are needed to avoid disproportionate effort by the Member States and the Commission that would render impossible the legal task of (i) the tax authorities to analyse and process the information to fight e-commerce VAT fraud, and (ii) the Commission to manage the system.