The European Commission, keen to reduce cross-border tax fraud, yesterday proposed giving all its 27 member states "direct access" to information on national taxpayer databases. This means that if the proposal goes through, Malta's VAT officials would have access to trace Maltese taxpayers in the databases of other EU member states and vice-versa.
"In the current economic situation it is more important than ever to fight tax fraud efficiently and a fully functioning administrative cooperation between tax administrations is key in that respect," the EU's Taxation Commissioner Laszlo Kovacs said in a statement.
"My objective is to ensure that tax authorities have all technical and legal means to take action against European Union wide VAT fraud and to ensure that each tax administration is prepared to protect other member states' tax revenue as effectively as their own," Kovacs said.
One of the key elements of the proposal is the creation of a legal base to set up Eurofisc, a common operational structure allowing member states to take rapid action in the fight against cross border VAT fraud.
Eurofisc is set out to be an operational structure where member states will, in practice, fight fraud together. According to the Commission it should allow a very fast exchange of targeted information between all member states as well as the setting up of common risk and strategic analysis. This will enable member states to react timely to stop fraud and catch fraudsters, making it more difficult for new fraud schemes to emerge and spread around the Community.
Rapid access to taxpayer databases can be very useful and the new proposal "grants tax authorities of other member states a direct access to a defined set of information contained in these databases," Commissioner Kovacs said.
The proposal also changes the approach of the protection of VAT revenues. In addition to giving member states tools to cooperate more closely and to exchange information faster, the recast regulation sets out that EU member states are jointly responsible for the protection of VAT revenues in all member states.
The proposal, which requires backing from member states and the European parliament if it is to come into effect, is aimed at combating so-called 'carousel' tax fraud.
This occurs when someone acquires goods within the European Community on which no VAT has been paid and then sells them elsewhere within the community with VAT included but disappears without paying the tax to any exchequer.
The commission gave no estimate for the amount of VAT fraud throughout the bloc but studies show overall tax fraud amounted to between €200 to 250 billion per year.
Brussels has long sought tools to tackle the problem and has already put forward other proposals, including the harmonisation of measures to ensure the swift detection and de-registration of 'fake taxable persons.'
Current arrangements on administrative cooperation in the field of VAT date from 2003.
In 2006, the Commission launched a discussion on the need to develop a coordinated strategy to fight against tax fraud. At the end of last year, the European Commission adopted a communication setting out a short-term action plan with a list of future legislative measures enhancing tax administrations capacity to prevent and detect VAT fraud as well as to recover taxes in case of fraud.