Clamp down on cross-border tax fraud

Date: 06/03/1997

By Chris Johnstone

NEW moves to step up tax cooperation between EU governments in an effort to crack down on cross-border fraud costing billions of ecu a year are to be unveiled by the European Commission.

The proposals, which are due within the next month, follow a Commission report warning that the current framework for cooperation is in danger of breaking down, with increasing delays in information exchange between tax administrations.

The Commission will propose a tighter structure for liaison, within a new independent programme called Fiscalis, to plug loopholes in the current system.

Part of the new system will comprise an information network - possibly a type of complex e-mail - which will allow tax officials in every member state to contact each other directly when tracking possible cross-border fraud by criminals.

The programme, which may well include a file of pre-translated questions in the EU's main languages to help officials communicate with each other, is seen by Commission officials as an essential instrument to pave the way for the EU's proposed new value added tax regime in 1999, which will make the receiver of goods liable to the tax rather than the sender.

Commission officials expect this change will prompt an increasing need for national officials checking up on local claims for VAT deductions to swap information, to ensure that the goods were sent in the first place.

Existing levels of tax cooperation between national governments were attacked in a January report from the Commission to the European Parliament and Council of Ministers.

It found that the current framework for exchanging information was little used and the success rate in recovering outstanding tax was well below expected. Nevertheless, fraud cases involving revenue losses of between 2 and 60 million ecu had been brought to the Commission's attention.

Part of the problem involves the current EU framework for tax cooperation, the VAT Information Exchange System (VIES), which often forces tax fraud officers to put their queries through central liaison offices acting as national clearing offices for processing questions and answers.

As the number of queries has increased, so too have national delays in dealing with them, in spite of guidelines establishing a relatively generous three-month deadline for answers to be given.

Italy was found to be the worst offender, with delays of more than three months in 20&percent; of all cases dealt with at the end of 1995. French and Spanish tax administrations were close behind, with excessive delays in around 17&percent; of cases.

“There is a danger that an unmanageable backlog could build up, to the detriment of effective VAT control, if corrective action is not taken in time,” warns the report, adding that some administrations seem to give a low priority to recovering lost tax revenues for other countries.