Explanatory Memorandum to COM(2022)703 - Amendment of Regulation (EU) No 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital age - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2022)703 - Amendment of Regulation (EU) No 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital ... |
|---|---|
| source | COM(2022)703  |
| date | 08-12-2022 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
This proposal is part of the package of legislation on the VAT in the Digital Age initiative, together with a proposal for a Council Directive on amending Directive 2006/112/EC as regards VAT rules for the digital age 1 , and the proposal for a Council implementing Regulation amending Council Implementing Regulation (EU) No 282/2011 as regards information requirements for certain VAT schemes 2 . The context of this initiative as a whole is set out comprehensively in the explanatory memorandum for the proposal for a Council Directive amending Directive 2006/112/EC 3 .
This explanatory memorandum describes modifications required to Council Regulation (EU) No 904/2010 on administrative cooperation and the fight against fraud in the field of VAT stemming from changes to the VAT Directive.
The proposal to amend Council Regulation (EU) No 904/2010 is an important part of the package. The VAT in the Digital Age package modernises the way cross-border transactions within the single market are reported for VAT purposes to make use of well-established technology and address VAT fraud. The current way of collecting aggregated data through recapitulative statements 4 and exchanging data through the VAT Information Exchange System has been in use since the introduction of the single market in 1993. It is no longer fit for purpose in light of the scale of cross-border transactions and the level of VAT fraud. The amended VAT Directive replaces recapitulative statements with new, transaction-based reporting obligations. To complement these changes, the amended Regulation provides for the necessary practical rules on how these newly collected data will be exchanged between Member States, the IT infrastructure required, and the personal data protection rules that will govern the new exchanges. These details are necessary to ensure that the new rules are implemented smoothly and that the new measures can reduce VAT fraud.
Following the structure of the VAT in the Digital Age initiative the following parts of the package should be noted:
Modernising VAT reporting obligations 5 , by introducing Digital Reporting Requirements, which will standardise the information that needs to be submitted by taxable persons on each transaction to the tax authorities in an electronic format. At the same time it will impose the use of e-invoicing for cross-border transactions;
Addressing the challenges of the platform economy 6 , by updating the VAT rules applicable to the platform economy in order to address the issue of equal treatment, clarifying the place of supply rules applicable to these transactions and enhancing the role of the platforms in the collection of VAT when they facilitate the supply of short-term accommodation rental or passenger transport services; and
Avoiding the need for multiple VAT registrations in the EU and improving the functioning of the tool implemented to declare and pay the VAT due on distance sales of goods 7 , by introducing Single VAT Registration (SVR). That is, improving and expanding the existing systems of One-Stop Shop (OSS)/Import One-Stop Shop (IOSS) and reverse charge in order to minimise the instances for which a taxable person is required to register in another Member State.
• Consistency with existing policy provisions in the policy area
This proposal is part of the package of legislation on the VAT in the digital age initiative. The consistency 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 8 .
• Consistency with other Union policies
This proposal is part of the package of legislation on the VAT in the digital age initiative. The consistency 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.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
This Regulation amends Council Regulation (EU) No 904/2010 on the basis of Article 113 of the Treaty on the Functioning of the European Union. This Article provides for the Council, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, to adopt provisions for the harmonisation of Member States' rules in the area of indirect taxation.
• Subsidiarity (for non-exclusive competence)
Member States are primarily responsible for VAT management, collection and control. However, VAT fraud is often linked to cross-border transactions within the single market or involves traders established in Member States other than the one in which VAT is due. VAT fraud adversely affects how the single market functions and causes severe losses to the EU budget.
The EU cooperation instruments which allow the exchange of information between tax administrations are indispensable for the proper control of cross-border transactions and the fight against VAT fraud.
This initiative is consistent with the principle of subsidiarity, as the objectives sought by the present initiative cannot be achieved by the Member States themselves. Therefore, it is necessary for the Commission, which is responsible for ensuring the smooth functioning of the single market and for promoting the general interests of the European Union, to propose action to improve the situation.
This cannot be done solely at Member State level or using non-legislative instruments. Acting at EU level in relation to administrative cooperation instruments would offer value over and above what can be achieved nationally, requiring amendments to Council Regulation (EU) No 904/2010 on administrative cooperation and combating fraud in the field of value added tax.
• Proportionality
The proposal is largely based on the current legal framework for administrative cooperation in the field of VAT and adds elements to it only where the framework needs strengthening. All measures proposed have been designed to meet the new digital reporting requirements and Member States’ needs. While they are expected to have positive effects on the fight against VAT fraud, the new provisions would not entail any significant additional costs for business and administrations, except for certain IT developments for tax administrations. Even in these instances, the associated development costs would remain limited.
A central electronic system for VAT information (‘the central VIES’) would be set up. It will allow Member States to transmit VAT information they store at national level, helping to fight VAT fraud effectively. The central VIES would be able to aggregate per taxable person information on cross-border business-to-business (B2B) transactions transmitted by the Member States. It will also allow the reported intra-Community supplies to be cross-checked with intra-Community acquisitions data that has been transmitted. It will also allow the information transmitted by the Member States to be processed with other VAT information exchanged under Regulation (EU) No 904/2010, such as customs or payment data, and retain this information only for the period necessary for tax authorities to carry out VAT controls.
Information will be retained in the central VIES for a period of 5 years, to provide Member States with a reasonable period of time to carry out VAT audits. After this period the data will be definitively erased.
The central VIES would only be accessible to authorised officials appointed by their Member States, and for the purposes of the control of the correct application of VAT legislation and combating VAT fraud. In terms of storage, the central VIES would guarantee an appropriate level of security, in line with the rules governing the processing of personal information by the EU’s institutions.
The exchange of information between national tax authorities and the central VIES will take place through a secure common communication network. This currently supports exchanges of information between tax and customs authorities, and provides all the necessary security features (including encryption of information).
This proposal, therefore, will continue to apply the safeguards laid down under Regulation (EU) No 904/2010 and the European framework on data protection. The overall purpose for exchanging and analysing this VAT-relevant information remains ensuring the correct application of VAT legislation and combating VAT fraud. Fighting VAT fraud is an important objective of general public interest for the EU and its 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 support that important objective and the effectiveness of the tax authorities in pursuing that objective, the restrictions laid down in Article 55(5) of Regulation (EU) No 904/2010 will apply to the central VIES.
The new provisions do not go beyond what is strictly necessary to make administrative cooperation instruments more effective in verifying cross-border transactions and enhancing the fight against VAT fraud in light of the proposed digital reporting requirements and other changes introduced in the VAT in the Digital Age package.
• Choice of the instrument
A Council Regulation is needed to amend current Regulation (EU) No 904/2010.
3. RESULTS OF EX POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex post evaluations/fitness checks of existing legislation
An evaluation of the use of the existing EU framework for administrative cooperation and combating VAT fraud provided for in Regulation (EU) No 904/2010 was carried out in 2017 9 . Overall, the Member States take a positive view of the legal and practical framework implemented with Regulation (EU) No 904/2010.
Changes to the administrative cooperation legal framework are needed following the changes to reporting requirements for cross-border transactions in the VAT Directive. The introduction of new digital reporting requirements significantly increases the amount of data that will need to be exchanged between Member States and the frequency of exchanges. Therefore, a new part is being introduced to the Regulation under Chapter V: Storage and exchange of specific information which will allow these exchanges through a new electronic system called the central VIES.
• Stakeholder consultations
Extensive information on stakeholder consultations is provided in the explanatory memorandum of the proposal to amend the VAT Directive.
Two Fiscalis workshops were organised to gather feedback from Member States on the adaptation of the VAT administrative cooperation framework to support the new digital reporting requirements. The first workshop, which took place in November 2021, gathered the opinions of VAT anti-fraud experts and Eurofisc liaison officials. The second workshop in April 2022 focussed on the heads of the competent liaison offices of Member States. In both instances, Member State representatives underlined the importance of the new digital reporting requirements when accompanied by an appropriate system for exchanging VAT information. It was seen that there was a clear need for automatic cross-checking of DRR data, e.g. reported supplies with acquisitions. There was also a broad consensus that a central system to facilitate the joint processing and analysis of information would be the preferred approach guaranteeing a uniform implementation of cross-checks and interpretation of the results.
• Collection and use of expertise
This proposal is part of the package of legislation on the VAT in the digital age initiative. The collection and use of expertise for 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.
• Impact assessment
This proposal is part of the package of legislation on the VAT in the digital age initiative. The impact assessment is provided for the package as a whole in the explanatory memorandum of the proposal for a Council Directive amending Directive 2006/112/EC.
• Regulatory fitness and simplification
This proposal is part of the package of legislation on the VAT in the digital age initiative. Extensive information on Regulatory fitness and simplification is provided in the explanatory memorandum of the proposal for a Council Directive amending Directive 2006/112/EC.
• Fundamental rights
This proposal is expected to trigger exchange and joint processing of VAT information, which could include personal data. However, the data collected under the new digital reporting requirements and subsequently exchanged via the central VIES system would be limited to intra-Community business-to-business transactions and will not cover business-to-consumer transactions. The principle of data minimisation has also been applied. Therefore the data collected and subsequently exchanged relate only to a subset of the information contained in an invoice. This minimum data set which is required for the purposes of monitoring the correct application of VAT and for combating VAT fraud is specified by the amendment to Article 264 in the accompanying proposal for a Council Directive amending Directive 2006/112/EC. However protecting personal data and complying with Regulations (EU) 2016/679 10 and (EU) 2018/1725 remain a priority, even where the information to be processed is limited. As a result, the following provisions are being proposed:
·The data in the central VIES will only be kept for 5 years which is the minimum time necessary for analysis and investigations by national tax authorities who are empowered to enforce VAT obligations (data retention).
·The data in the central VIES will be protected as set out in Article 55(1) of Regulation (EU) No 904/2010.
·The data in the central VIES will be used for clearly identified and limited purposes, notably to correctly assess VAT, to monitor the correct application of VAT, and to combat VAT fraud as laid down in Article 1 of Regulation (EU) No 904/2010. In particular the data will be used to carry out risk assessments to identify potential fraudsters at an early stage and to put an end to fraudulent networks whose purpose is to abuse the VAT system by carrying out VAT fraud.
·Users who can access the data in the central VIES will be limited to authorised personnel from Member States, in respect of the need-to-know principle.
·The central VIES will be hosted, maintained and technically managed by the Commission, which has the operational capacity and experience to ensure technical and organisational security measures are put in place to protect personal data. An implementing act will set out the tasks to be carried out by the Commission in relation to technically managing the central VIES .
·An implementing act will set out the roles and responsibilities of the Member States and the Commission when acting as controller and processor under Regulations (EU) 2016/679 and (EU) 2018/1725 .
In addition, these measures are subject to Article 8 of the Charter of Fundamental Rights.
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.
The proposal will lead to limited costs for national administrations and the EU budget for putting the enhanced VAT information exchange system (VIES) in place.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The Standing Committee on Administrative Cooperation (SCAC), established under Article 58(1) of the Council Regulation (EU) No 904/2010, will deal with all possible issues regarding administrative co-operation between Member States resulting from the new rules on the taxation of intra-EU trade. In particular, an implementation plan will be established together with the Member States in SCAC, for the necessary IT changes 11 once the modification is adopted by the Council.
Pursuant to Article 59 of Regulation (EU) No 904/2010, the Regulation’s application is reviewed every five years. In addition, under Article 49, to evaluate how well administrative cooperation is combating tax evasion and avoidance, Member States must communicate to the Commission any available information relevant to the application of the Regulation and, inter alia, annual statistics about the use of the cooperation instruments.
• Explanatory documents (for directives)
Contents
• Detailed explanation of the specific provisions of the proposal
1. introducing a central system for the exchange of VAT information
A first set of amendments in the proposal deals with the development of a new central system for the exchange of VAT information between Member States’ tax administrations at EU level that is adapted to the specificities of Digital Reporting Requirements. Section 3 is added to Chapter V of Regulation (EU) 904/2010 to introduce the central VIES with Articles 24g to 24m as follows:
·Article 24g establishes the central VIES system by determining that the Commission shall develop, maintain, host and technically manage the central system, while each Member State shall develop, maintain, host and technically manage a national electronic system to automatically transmit different categories of information to the central VIES. The most essential part of information exchanged through central VIES will be the information collected through the DRR. The other information relates to the identification of the taxable persons. Finally it is explicitly mentioned that Member States may store the information they have to automatically transmit to the central VIES in the national electronic system which they use for transmitting the information for the purposes of reuse in national controls.
·Article 24h relates to data quality and availability. Exchanging information will only be of value if the data is of sufficient quality. To this end, Member States shall make all necessary updates and adopt measures in order to ensure that the central VIES data is kept up-to-date, and is complete and accurate. For the information to be up-to-date, new or updated information should be entered into the system without delay. This immediate update of information is particularly important for identification information, which is intrinsically linked with VAT number validation. As for the intra-Community transaction reports, gathered through the DRR, the acceptable delay to be entered into the central VIES is within one day after the collection by the tax administration. The cross-checking of information reported by a supplier and their client can only take place after the information is reported by both parties and after each authority transmits it to the central VIES. This means that the acceptable delay for each step should remain at the level of a few days for an analysis to be possible on a sufficiently frequent basis. The information shall remain available in central VIES for five years from the end of the year in which the information was transmitted to the central VIES.
·Article 24i is about showing VAT identification information as invalid within the central VIES, once certain conditions are met. The provision comes into effect where persons identified for VAT purposes have ceased their economic activity, declared false data in order to obtain a VAT identification number or have failed to communicate changes to their data which, had the tax administration known, they would have either refused or withdrawn the VAT identification number. This provision is of huge importance with regard to the objective of fighting VAT fraud effectively. It should be underlined that this provision is only about showing the VAT identification number as invalid in a few situations. It doesn’t mandate when Member States should withdraw the VAT identification number.
·Article 24j describes the capabilities that the central VIES shall have with regard to the information transmitted to it. The article provides that the central VIES shall be able to store, as well as cross-check, aggregate and process the information received. Furthermore, the central VIES shall be able to make the information (received, cross-checked, aggregated and processed) accessible to authorised users and systems. The central VIES should also be able to process information together with any information communicated or collected pursuant to Council Regulation (EU) No 904/2010 for control purposes and for combating VAT fraud. A prominent example is cleaning and enriching the data by processing it together with data from other systems, such as the Surveillance system which contains information on VAT exempt importations using Customs Procedures 42/63. This capability is necessary to build synergies between different information systems containing VAT relevant information and maximise the impact of investments in such systems.
·Article 24k describes which officials and systems are provided with automated access to the central VIES. These include the Member State officials who check the requirements for VAT exempt importation of goods, Eurofisc liaison officials as well as any other officials who are explicitly authorised by the competent authority of their Member State. Finally, access to the collected and processed information is foreseen for the national electronic systems which transmit the information to the central VIES. This provision allows for a secure machine-to-machine communication channel facilitating automation and relieving the need for human intervention.
·Article 24l deals with the costs for development and maintenance of the central VIES, as it determines that the costs for establishing, operating and maintaining the central VIES shall be borne by the general budget of the Union. These costs shall, amongst others, include those of the secure connection between central VIES and the national electronic systems referred to in Article 24g(2), and those of the services necessary to carry out the capabilities which are listed in Article 24j. On the other hand, each Member State shall bear the costs of and shall be responsible for all necessary developments to its national electronic systems to permit the exchange of information using the CCN network, or any other similar network.
·Finally, Article 24m relates to the security and compliance of the central VIES system. The first paragraph determines that the Member States shall take all measures necessary to ensure compliance with Article 55 of this Regulation. Article 55 provides obligations with regard to official secrecy, privacy and security of the information stored, processed or exchanged under the Regulation. The second paragraph empowers the Commission to adopt, by means of implementing acts: the tasks to be carried out by the Commission for technically managing the central VIES and the roles and responsibilities of the Member States and the Commission as regards the functions of controller and processor under Regulation (EU) 2016/679 of the European Parliament and of the Council and Regulation (EU) 2018/1725 of the European Parliament and of the Council.
2. Phasing out the existing legacy system for the exchange of VAT information
A second set of amendments in the proposal deals with the phase out of the legacy VIES. The existing VIES system, covered by Section 1 of Chapter V, needs to be retained for two years after establishing the central VIES system in order to facilitate the controls of transactions which were reported with recapitulative statements, prior to the introduction of the Digital Reporting Requirements. The legacy VIES will allow the automatic exchange of information provided via the old reporting requirements for this period. After phasing out the legacy VIES the information could still be exchanged between Member States spontaneously or upon request, using non-automated instruments of administrative cooperation. The phase out of the existing VIES is performed as follows:
·Articles 17, 20, 21, 22 and 23 are amended so that the references of the legacy VIES are removed.
·Article 31 which deals with the provision of information to taxable persons on the validity of the VAT identification numbers as well as the associated name and address of other persons involved in intra-Community transactions is amended. After the amendment the Article will refer to the information kept in the central VIES.
3. Other changes
A third set of amendments in the proposal provides for the necessary adjustments concerning the exchange of information related to the new special transfers of own goods scheme as introduced in Directive 2006/112/EC.
Under Article 242a of Directive 2006/112/EC platform operators are required to keep the records of business to customer supplies made on their platforms. In order to facilitate the operation of the deemed supplier model being introduced in the short-term accommodation rental and passenger transport sectors, this shall be broadened to business to business supplies. It is necessary to introduce a standard format for the transfer of this information.