2.1.1. Tax control at European Union’s level

Before considering the question of tax control at the EU level, it should be mentioned that there is no well-developed legal provisions of taxation. Not much rules on taxation but there are lots rules that apply indirectly to taxes.

Chapter 2 «Tax provisions” of title VII «Common rules on competition, taxation and approximation of laws» of the TFEU provides some rules regarding taxation between member states. Important article is 113 of the TFEU which sets that «[t]he Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition» [31].

In this context, articles 28, 30, 34, 110 of the TFEU are applicable for indirect taxes and 39, 64 — for direct. Also there are some references to tax law in article 65.1 (free movement of the capital), 179.2 («… fiscal obstacles …»), 223.3 and so on.

Coming back to tax control I can state that at the EU level there is no single approach to the tax control. Moreover, such an activity is defined only through administrative co-operation and mutual assistance which is one aspect of tax control. Other aspects, such as inspections, are regulated by national law of the member states.

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For the purposes of administrative co-operation and mutual assistance the Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC was adopted.

This directive sets rules and procedures under which the Member States shall cooperate with each other with a view to exchanging information that is foreseeably relevant to the administration and enforcement of the domestic laws of the Member States concerning all taxes of any kind levied by, or on behalf of, a Member State or the Member State’s territorial or administrative subdivisions, including the local authorities (articles 1(1) and 2(1)). This Directive also lays down provisions for the exchange of information by electronic means, as well as rules and procedures under which the Member States and the Commission are to cooperate on matters concerning coordination and evaluation. Exception is criminal cases in which the directive shall not affect the application in the Member States of the rules on mutual assistance. Also this Directive shall not apply to value added tax and customs duties, or to excise duties covered by other Union legislation on administrative cooperation between Member States. This Directive shall also not apply to compulsory social security contributions payable to the Member State or a subdivision of the Member State or to social security institutions established under public law. (articles 1(1,2) and 2(2)) [35].

The procedure of the exchange of information is the following. At the request of the requesting authority, the requested authority shall communicate to the requesting authority any relevant information that it has in its possession or that it obtains as a result of administrative enquiries. The requested authority shall arrange for the carrying out of any administrative enquiries necessary to obtain the information. The requested authority shall provide the information as quickly as possible, and no later than six months from the date of receipt of the request, but where the requested authority is already in possession of that information, the information shall be transmitted within two months of that date. Anyway, in certain special cases, other time limits may be agreed upon between the requested and the requesting authorities. The requested authority shall confirm immediately and in any event no later than seven working days from receipt, if possible by electronic means, receipt of a request to the requesting authority. Within one month of receipt of the request,

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the requested authority shall notify the requesting authority of any deficiencies in the request and of the need for any additional background information. In such a case, the time limits shall start the day after the requested authority has received the additional information needed. Where the requested authority is unable to respond to the request by the relevant time limit, it shall inform the requesting authority immediately and in any event within three months of the receipt of the request, of the reasons for its failure to do so, and the date by which it considers it might be able to respond. Where the requested authority is not in possession of the requested information and is unable to respond to the request for information or refuses to do so, it shall inform the requesting authority of the reasons thereof immediately and in any event within one month of receipt of the request. [35].

Separately the directive sets the procedure of mandatory automatic exchange of information. The competent authority of each Member State shall, by automatic exchange, communicate to the competent authority of any other Member State, information regarding taxable periods as from 1 January 2014 that is available concerning residents in that other Member State, on the following specific categories of income and capital as they are to be understood under the national legislation of the Member State which communicates the information:

(a) income from employment;

(b) director’s fees;

(c) life insurance products not covered by other Union legal instruments on exchange of information and other similar measures;

(d) pensions;

(e) ownership of and income from immovable property.

One more procedure is established for spontaneous exchange («means the non-systematic communication, at any moment and without prior request, of information to another Member State;» — article 3(10)) of information. The competent authority of each Member State shall communicate the relevant information to the competent authority of any other Member State concerned, in any of the following circumstances:

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(a) the competent authority of one Member State has grounds for supposing that there may be a loss of tax in the other Member State;

(b) a person liable to tax obtains a reduction in, or an exemption from, tax in one Member State which would give rise to an increase in tax or to liability to tax in the other Member State;

(c) business dealings between a person liable to tax in one Member State and a person liable to tax in the other Member State are conducted through one or more countries in such a way that a saving in tax may result in one or the other Member State or in both;

(d) the competent authority of a Member State has grounds for supposing that a saving of tax may result from artificial transfers of profits within groups of enterprises;

(e) information forwarded to one Member State by the competent authority of the other Member State has enabled information to be obtained which may be relevant in assessing liability to tax in the latter Member State.

The competent authorities of each Member State may communicate, by spontaneous exchange, to the competent authorities of the other Member States any information of which they are aware and which may be useful to the competent authorities of the other Member States.

The competent authority to which information referred to within the procedure for spontaneous exchange of information, shall forward that information to the competent authority of any other Member State concerned as quickly as possible, and no later than one month after it becomes available.

The directive provides other forms of administrative cooperation, which are (1) presence in administrative offices and participation in administrative enquiries; (2) simultaneous controls; (3) administrative notification; (4) feedback and (5) sharing of best practices and experience [35].

Also administrative co-operation and mutual assistance reveals through other fields:

1) administrative cooperation in the field of VAT which is regulated by the Council Regulation (EU) N° 904/2010 [38];

2) administrative cooperation in the field of Excise which is regulated by Council Regulation 2073/2004 [36] and Council Directive 2004/106 [32]; and

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3) mutual assistance in the field of Recovery of claims which is regulated by Council Directive 2010/24/EU [34] and Commission Implementing Regulation (EU) No 1189/2011 [25].

One important aspect of tax control is risk management which is designed to improve the tax administration’s effectiveness in dealing with risks what may result in measures aimed at avoiding non-compliance by taxpayers and the better targeting of corrective action. For these reasons a Guide on Risk Management for tax administrations was designed by tax officials for tax officials [50].

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