Select Committee on European Scrutiny Thirty-Ninth Report





COM(01) 294


Draft Regulation on administrative co-operation in the field of value added tax;


Draft Directive amending Council Directive 77/799/EEC concerning mutual assistance by the competent authorities of the Member States in the field of direct and indirect taxation.

Legal base:

(a) Article 93 EC; unanimity

(b) Articles 93 and 94 EC; unanimity



HM Customs and Excise

Basis of consideration:

Minister's letter of 30 September 2002

Previous Committee Report:

HC 152-iv (2001-02), paragraph 8 (7 November 2001)

To be discussed in Council:

5 November 2002

Committee's assessment:

Politically important

Committee's decision:




    1. In June 2001 the Commission put forward these two proposals to strengthen administrative co-operation and mutual assistance in the operation of the VAT system. The first proposal is a new Regulation which brings together all VAT mutual administrative assistance provisions into one document; the second amends Directive 77/99/EEC on mutual assistance to remove superfluous references to VAT and to extend mutual assistance to taxes on insurance premiums.
    2. The main changes that would be brought in are:

(a)  Clearer binding rules

    • a single legal base for mutual administrative assistance on VAT;

    • a legal base and rules for exchanging information with non-EU countries;

    • new procedures on a range of issues such as organising multilateral controls; and

    • inclusion of taxes on insurance premiums in Directive 77/799/EEC.

(b)  Devolving co-operation to enhance effectiveness

    • provision for the Central Liaison Offices (CLOs) in Member States' indirect tax administrations to allow direct contacts between officials and special anti-fraud units;

    • arrangements to allow the presence of officials in one Member State in the territory of another if both agree; and

    • the ability to arrange simultaneous control exercises by officials in several Member States where they are more likely to be effective than control by just one Member State.

(c)  Stepping up information exchanges

    • reducing the deadline for exchanges of information from three months to one month when the information is already in the possession of the requested authority, with the possibility of even shorter deadlines in special circumstances where both authorities agree;

    • a requirement that a requested authority must respond to all requests and provide a date for providing information when it will have difficulty complying with the agreed rules; and

    • allowing the exchange of non-VAT Information Exchange System (VIES) data where there is a real risk of tax evasion or avoidance (e.g. information about the movement of new vehicles).

    1. When we looked at the proposals in November 2001 the Paymaster General (Dawn Primarolo) told us the Government supports moves to improve mutual assistance between Member States, considering that existing information exchange and information sharing arrangements need further strengthening in response to increasingly sophisticated tax fraud within the single market.
    2. However, the Minister told us also that the Government has concerns with two areas. The first is with the legal base (Article 95), which permits qualified majority voting in the Council and co-decision with the European Parliament. The Government strongly holds the view that these proposals should have a legal base which requires unanimity, as did the legislation they replace. Secondly, the Minister indicated that the Government would need to be to satisfied both that the inclusion of insurance premium tax within the area of mutual assistance is desirable in itself and that it "would not prejudice the UK's general position that insurance taxes are not subject to EU approximation".
    3. In our Report of 7 November 2001 we noted and shared the Minister's concerns relating to the approximation of insurance taxes. We asked the Minister to inform us when she has reached a view that adoption of this proposal would not prejudice the UK's general position on the approximation of such taxes. We also noted that the proposed legal base for this measure would require qualified majority voting in place of the unanimity required for the previous legislation. We asked the Minister to inform us of the outcome of her efforts to secure a legal base requiring unanimity.
    4. In the meantime, we held the document under scrutiny.
    5. The Minister's letter

    6. In his letter the Chief Secretary to the Treasury (Mr Paul Boateng) tells us of progress in negotiations on the proposals, particularly in relation to our two requests to his ministerial colleague. The Minister tells us that in the negotiations the Government has heard nothing to justify extending mutual assistance provisions to taxes on insurance premiums. So the line against this is being maintained, with the Government arguing that the objective of the proposals is to improve administrative cooperation on VAT and that proposals for such an extension, which could have far-reaching implications in respect of non-harmonised EU taxes, are inappropriate.
    7. On the legal base for the two instruments the Minister tells us that the latest compromise text from the Danish Presidency has Article 93 EC for the Regulation and Articles 93 and 94 EC for the Directive, so that both would have to be agreed unanimously. The Government will seek to dissuade the Presidency from reverting to Article 95 EC as the legal base.
    8. The Minister says: "Although negotiations are not yet complete, good progress has been made towards achieving the UK's negotiating objectives and we intend to maintain a firm line on the one outstanding issue of the extension of the Mutual Assistance Directive provisions to taxes on insurance premiums".
    9. Conclusion

    10. We are pleased to see the progress that has been made in negotiation towards meeting the UK's concerns. We note that the new legal bases for the drafts, requiring unanimity, will greatly strengthen the Government's hand in resisting extension of mutual assistance provisions to taxes on insurance premiums. We now clear the document.


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Prepared 11 November 2002