European Commission Taxation and Customs Union EUROPEAN COMMISSION DIRECTORATE GENERAL TAXATION AND CUSTOMS UNION The changing relationship between tax authorities and taxpayers, the enhanced dialogue Frank Van Driessche April 2011

2 European Commission Taxation and Customs Union Structure 1.The EU Taxation and Customs Union 2.A new approach: the partnership model 3.The Business Expert Group on VAT as an example of increased cooperation and transparency

3 European Commission Taxation and Customs Union 1. The EU Taxation and Customs Union General overview Member states of the European Union Candidate countries 27 Member States 500 million people Single market Fundamental freedoms (movement of individuals, workers, goods, services and capital, establishment) Single currency (17 Member States) Customs union Gross domestic product 2008: € billion EU budget 2011: €141.9 billion

4 European Commission Taxation and Customs Union 1. The EU Taxation and Customs Union – Elimination of tax obstacles to all forms of cross-border economic activity as one of the main priorities of the European Commission – Taxation within the EU:  no overall harmonisation of the national tax systems of Member States  but considerable harmonisation of specific taxes (Value Added Tax, structure of excise duties)  high level of cooperation, exchange of information and computerisation  exchange of best practices  high degree of involvement of both industry and business representatives (public consultations, expert groups)

5 European Commission Taxation and Customs Union 2. A new approach: an enhanced dialogue How to increase voluntary compliance? – Three main pillars  prevention  deterrence  enforcement – «Prevention» seeks to fundamentally change the relationship between taxpayers and tax administration  aims to reduce the tax gap by increasing voluntary compliance  based on trust, transparency, voluntary disclosure and legal certainty in order to get it right from the beginning (ex-ante)  increase the efficiency and improve the tax system parts of the «traditional» approach

6 European Commission Taxation and Customs Union 2. The ingredients of increased voluntary compliance (I) Prevention: Building trust – (Non-)compliance behaviour of taxpayers is driven by the level of trust and cooperation – Ways to build trust between taxpayers and the tax administration  increased and ongoing dialogue (involvement) and disclosure  mutual understanding (commercial awareness)  respect and fairness (impartial approach) trusttransparencylegal certainty

7 European Commission Taxation and Customs Union 2. The ingredients of increased voluntary compliance (II) Prevention: Transparency and legal certainty – Foster transparency and disclosure of information on the side of the tax administration and of the taxpayer  tax administration expects tax payer to be fully transparent.  tax payer should make a self risk assessment and report risks  improved taxpayers’ services and continuous cooperation  other measures: early explanation of new laws, guidelines, open and constructive stakeholders consultations is case of changes in law or administrative practices – Legal certainty must complement both trust and transparency measures in order to fully establish the partnership idea trust Transparency legal certainty

8 European Commission Taxation and Customs Union 2. The outcome of increased voluntary compliance Prevention: Efficiency benefits for both sides – Increased efficiency for the tax administration  better/proportionate allocation of resources and more efficient audit approaches  avoid time-consuming ex-post corrections and disputes – Increased efficiency for the taxpayer  reduced compliance costs  simplified procedures – Improved tax system with minimised administrative burden for voluntary compliant taxpayers efficiency trusttransparencylegal certainty

9 European Commission Taxation and Customs Union 3. Towards an enhanced tax administration –tax payers dialogue A forum for dialogue on VAT compliance at EU level – Business Expert Group on the smooth functioning of the VAT in the EU (BEGV) – business representatives of large companies, SME and tax intermediaries and the Commission – set up in 2010, part of a long-term approach to increase compliance particularly in the area of VAT – discussion at EU level on about how the relationship between taxpayers and the tax administration with regard to compliance obligations can result in a smoother functioning of the VAT system – working fields: - new business models - the VAT life circle in business

10 European Commission Taxation and Customs Union 3. The «traditional way» of doing business Local-to-local supplies Country ACountry BCountry C factory sales organisation customer goods invoice factory sales organisation customer goods invoice factory sales organisation customer goods invoice border

11 European Commission Taxation and Customs Union 3. «New» business models within the EU Outsourcing / Cross-border stocks Member State A border company A company B comp A customer Member State B Member State CMember State D goods comp A sales organisation comp A customer comp A customer comp A sales agent invoice goods invoice goods RDC* goods *RDC = legal entity established in MS B, with stock points in country C and D outsourcing of production to company B (3 rd party) required to have stocks in C and D Member State E 3rd party accounting center requires all invoices to be send for processing/ payment

12 European Commission Taxation and Customs Union Provisional outcome of the business consultation Trust - need for an open and trustful environment - commercial understanding is essential - need for appropriate risk management and an impartial approach Transparency and voluntary disclosure of information - easy access to relevant rules and administrative practices - timely audits - voluntary disclosure to reduce administrative burden Legal certainty - settle risks in advance - advanced rulings - appropriate time to implement new rules Simplification - More consistent and standardized compliance practices - New technology can play an important role

13 European Commission Taxation and Customs Union Next steps: - Continue consultation on the VAT life circle in business - Widen platform to the tax administrations of the EU Member States ***********

14 European Commission Taxation and Customs Union Thank you for your attention