RICHARD THOMPSON AINSWORTH, Boston University - School of Law
Email: vatprof@bu.edu

On February 1, 2010 Algirdas Šemeta is expected to be confirmed as the next European commissioner for taxation, customs union, audit and anti-fraud. If his nomination passes a confirmation hearing at the European Parliament he will succeed László Kovács. At the top of Mr. Šemeta’s list of things requiring attention should be MTIC fraud in tradable CO2 permits. Political and fiscal realities make CO2 MTIC fraud a top priority.

CO2 MTIC is a technology-driven fraud that takes advantage of the same weaknesses in the EU VAT that have become well known in the cell phone and computer chip trade. The Europol press release from the third day of the 2009 UN Climate Change Conference in Copenhagen indicated that the fraud has reached, “…approximately 5 billion euros [and that] … in some countries, up to 90% of the whole market volume was caused by fraudulent activities.�

This paper assess the unfolding reports of CO2 MTIC fraud, examines the errors in tax policy that allowed MTIC to morph from cell phones and computer chips into CO2 permits, and then diagrams one CO2 MTIC pathway, explaining why CO2 MTIC fraud is far more dangerous than what has come before. Particular attention is placed on the tax policy errors in the VAT Committee’s TAXUD/1625/04 REV 1 recommendation. It concludes with a discussion of the technology-based administrative solution, and indicates several avenues for moving forward.

The remedies considered all require at least one fully harmonized unanimous act at the community level. This most likely means a VAT regulation, not a VAT directive. There are choices. The regulation could impose tax rules, or it could impose an administrative regime.

Tax regulation: This approach essentially would require the community to go back and reconsider the TAXUD/1625/04 REV 1 decision. Administrative regulation. This approach essentially would require the community to adopt a regulation for the certification of tax compliance software. The regulation could be modeled on the American Streamlined Sales Tax, and should include third-party service providers who would guarantee compliance. Two models are possible, voluntary and mandatory.

What does not work: It is also clear that there are some options that will not work at all to prevent CO2 MTIC fraud: TAXUD/1625/04 REV 1 and COM(2009)511.

MARCO GREGGI, University of Ferrara - Department of law, Monash University - Department of Business Law & Taxation
Email: universita.ferrara@gmail.com

30 years have passed since the European VI Directive, which shaped VAT as is it today and still constituting a model (to be followed or not) for many States moving towards a so called "Value added taxation system". It's no surprise that after such a considerable time the European bodies (first of all the Commission) felt the necessity to amend very basic aspects of the tax, and more to the point those provisions which didn't stand the test of time. In this respect it was obvious that in a globalised world, with a globalized economy, the first of these would have been those concerning the territoriality rules: namely, the conditions under wich sale of goods or delivery of services are deemed to be relevant for Europe and for VAT (thus taxable in the Old Continent). This conclusion, taken together with the necessity to attract more operations to European taxation urged the EU Commission to prepare the "VAT Package". The so called "VAT Package" consists of a number of European decisions, including a Directive (Directive 2008/8/EC) recently approved by the Council of Europe implementing significant changes to the recasted VAT rules as per Directive 2006/112/EC. The Package shall come into effect on January 1st 2010 and by that date the member States shall have to introduce in their tax systems acts or regulations consistent with the rules laid out by the EU (Italy did that in July, for instance). The main goals pursued by the Union in 2008 is to update most of the criteria applicable to consider the sale of a good or the delivery of a service taxable in one State or in another, in Europe on not. Basically, the VAT Package concerns the rewriting of the territoriality principle. It could seem, at first glance, a pure European issue, involving EU businesses only: this impression is completely wrong. In the case of delivery of services, in particular, such as advertising and many others, the change of territoriality rules could now make some of these operations taxable in Europe even if delivered by a non EU resident company and, most important of all, even if that service is deemed to be delivered elsewhere (in Australia, for instance) and taxed there accordingly (under the GST system). As a matter of fact, the change of territoriality rules in VAT shall create a significant degree of uncertainty in international relations, eventually giving rise to cases of international double taxation that no DTC can effectively deal with.