There is no escape - collecting cross border tax

On 16 March 2010 the EU introduced Council Directive 2010/24/EU which deals with the mutual assistance across EU member states for the recovery of tax claims.

The background

The Directive provides that Member States may provide each other with assistance and exchange information in the recovery of tax debts.  Broadly, the requested State must treat the claim as a domestic claim and enforce it accordingly including charging interest for late payment and recovering costs. The Directive replaces existing provisions covering similar matters and takes effect on 1 January 2012.

New regulations

On 19 September 2011 HMRC published, for consultation, draft regulations designed to give effect in the UK to the Directive.  HMRC have also published commentary on the draft regulations.  In HMRC's view the Directive is: "Designed to improve the (previous) provisions further, meaning claims can be dealt with more quickly and efficiently, so ensuring more tax debts can be collected across the EU".  The key changes are to be found in several Articles of the new Directive below.

Article 2 extends the scope of previous EU provisions (Council Directive 2008/55/EC) to all taxes and duties levied by or on behalf of the Member State including local authorities.

Article 6 provides that Member states may spontaneously provide information on refunds to other Member States.

Article 7 provides that, by mutual agreement, officials authorised by the applicant authority may:

(a) be present in the offices where the administrative authorities of the requested Member State carry out their duties;

(b) be present during administrative enquiries carried out in the territory of the requested Member State;

(c) assist the competent officials of the requested Member State during court proceedings in that Member State.

Article 23 includes provisions concerning disclosure and sets out how information exchanged between Member States should be protected and used by other Member States, the Commission, or other agencies within a Member State.

The noose tightens

The new Directive is an indication of Member States' determination to do all they can to maximise tax take in this uncertain economic climate.  The Directive significantly widens the scope of previous provisions to cover a greater variety of taxes, makes provision for officials of a foreign fiscal authority to play a part in domestic investigations and provides for spontaneous exchanges of information in the area of refunds, which can only add to the already vast amounts of information held by States on their citizens.

A further concern to practitioners will be confidentiality i.e. that information exchanged is used only for the purpose of the Directive and is not obtained and used by other UK Government departments or agencies.  In this respect there is little comfort to be gained from the legislation which is drafted very widely.  Article 23 has been enacted in UK legislation under schedule 25 Finance Act 2011 paragraphs 2-5.  Paragraph 3 waives any obligation of confidentiality imposed on a public authority from disclosing information if the disclosure is made for the purposes of giving effect to the Directive.  Although, under paragraph 4, a public authority commits an offence if it discloses relevant information which is not permitted i.e. information it has received from HMRC, a disclosure is permitted, apart for the purposes of the Directive, for a wide variety of reasons including in pursuance of a court order, for civil proceedings and for of a criminal investigation or criminal proceedings or with the consent of the Commissioners.

Taxpayers and their advisers need to be aware of and familiarise themselves with these important new provisions.