European Court of Auditors annual report for 2004

European Court of Auditors annual report (248 pages, 3.6M PDF) on the EU's finances in 2004, together with the replies of the institutions. The report includes a brief review of the weighted average rate calculations for the VAT own resource, including the following information:

3.31 Member States that apply differing VAT rates are required to calculate a weighted average rate (WAR) to be used in the calculation of the VAT own resource by the Commission. Any error in this calculation would affect the VAT base used for the calculation of own resources and can consequently affect the amount of VAT own resources paid. The Court examined the Commission's inspections of this aspect of the system, audited the calculation of the WAR in five Member States [Germany, Italy, Netherlands, Finland and Sweden] and checked its compliance with Community legislative requirements.

The Commission's response includes the following:

3.33 In the Italian example cited in the Court's footnote, the Commission accepted approximate data to allocate a small number of products to VAT rates. For these products the expenditure is known but there is no specific information available on the allocation to different VAT rates or to exemption. For GFCF, one approximate percentage is used to distinguish between standard and reduced rate. Italy can grant this taxation only for a restricted period of time. During the relevant control, the Commission confirmed the lack of any data to accomplish this calculation. The Commission accepted a split, based on a rough estimate only, exceptionally for a short period of two years, later extended to four. The Commission has already announced in the last control report that this practice will no longer be accepted.

3.34 Within the Commission, the Directorate-General for the Budget (DG Budget) has delegated a substantial part of the checks on the WAR calculation to Eurostat and certain fiscal aspects of the calculation to the Directorate-General for Taxation and Customs Union (DG TAXUD). Their respective roles and responsibilities were not formally documented at the time of the Court's audit.

For further information or advice please contact Franck Latrémolière.

Filed under Tax fraud, VAT.

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