Ecofin Adopts Mutual Assistance Law

by Ulrika Lomas, Tax-News.com, Brussels

Thursday, March 18, 2010

The European Council of Finance Ministers (Ecofin) has adopted a Directive aimed at better clamping down on tax evasion by strengthening mutual assistance between member states in the recovery of taxes.

The Directive's main objective is to better fulfil the member states' needs with regard to the recovery of taxes, providing an overhaul of Directive 76/308 (codified by Directive 2008/55), on the basis of which the member states have engaged in mutual assistance since 1976.

"National provisions on tax recovery are limited in scope to national territories, and fraudsters have taken advantage of this to organize insolvencies in member states where they have debts," said a statement issued by Ecofin following its meeting on March 16. "Member states therefore increasingly request the assistance of other member states to recover taxes, but existing provisions have only allowed a small proportion of debts to be recovered."

According to the statement, the draft directive is designed to provide for an improved assistance system, with rules that are easier to apply, including as regards information held by banks and other financial institutions. It provides for more flexible conditions for requesting assistance and requires information to be exchanged spontaneously.

With regard to other tax matters, the Council also agreed on a general approach, pending the opinion of the European Parliament, on a draft directive aimed at simplifying value-added tax (VAT) invoicing requirements, in particular relating to electronic invoicing.

Ecofin has agreed to the proposed changes because current European Union (EU) provisions on VAT invoicing "have led to a less-than-harmonized set of rules, on account of the many options that remain available to the member states."

"The aims of current provisions have therefore not been fully met," the Council stated.

Ecofin also took note of the fact that compliance with regulatory requirements has "hindered the take-up of technologies that are necessary for the development of e-invoicing."

The European Commission estimates potential annual cost savings for businesses at up to EUR18bn if obstacles to e-invoicing in VAT rules were to be removed.

The draft directive sets out to ensure the acceptance by tax authorities of e-invoices under the same conditions as for paper invoices, and to remove legal obstacles to the transmission and storage of e-invoices.

It also comprises measures to help tax authorities ensure that tax is paid so as to better tackle VAT fraud. These include establishing deadlines for the issuance of invoices, thus enabling speedier exchange of information on intra-EU supplies of goods and services.

In addition, the Council adopted a directive allowing member states to implement, on an optional and temporary basis, a reversal of liability for the payment of VAT (value-added tax) on greenhouse gas emission allowance trading.

The aim of the directive agreed by EU finance ministers is to close off certain forms of tax fraud, in particular so-called carousel schemes whereby supplies are traded several times by different suppliers without VAT being paid to the tax authorities.