I apologise to our visitors for the delay. They have seen how the committee operates. Our final item on the agenda is a presentation by officials on EU proposal COM (2003) 797. The committee decided in March it would scrutinise this proposal which concerns administrative co-operation in the field of excise duties. We are joined by Mr. Fred Cooper of the Department of Finance and Mr. Brendan Sheeran and Mr. Murtagh Corrigan of the Revenue Commissioners. They are welcome and we thank them for providing the briefing note which was circulated to members. Deputy Ó Caoláin indicated that he had studied it and was happy with the content. Mr. Cooper will make a short presentation, following which we will have a brief question and answer session.
Scrutiny of EU Proposals.
Mr. Fred Cooper
It is perhaps unfortunate, given what Deputy Bruton said earlier about COM documents, that I am now faced with saying a few words about one of them. I shall try to make it as painless and brief as possible. An information note and a briefing note have already been supplied.
Essentially, this proposal relates to how the excise administrations in member states co-operate with each other with regard to the movement of excisable goods between their territories. In Ireland, the relevant excise administration is the Revenue Commissioners and they have particular interest in this proposal.
The purpose of the proposal put forward by the European Commission is the strengthening of co-operation between member states' excise authorities in the area of excise duties on alcohol, tobacco and energy products, with the main emphasis on alcohol and tobacco. Energy products are included because they are subject to excise and they include items such as petrol and diesel.
The proposal dates back to 1997 when a high level group on excise fraud was formed. Ireland is one of the movers in this group. The group produced a report at the end of 1997 which was endorsed by the Council of Ministers in 1998. It suggested that given the high level of fraud in the EU prior to the formation of the high level group, there should be improvements made in the existing system of co-operation between member states.
One of the key proposals was the introduction of full computerisation of the existing system. This was subsequently acted upon in 2003 when a decision was taken to implement full computerisation of what is known as the excise movement and control system, EMCS. It will take a number of years for this to be fully implemented but it is expected to be fully in place by the end of 2009.
However, computerisation alone is not enough. We must also examine the rules and regulations which govern co-operation at present. It has been decided to complement the computerisation by making improvements in the rules and regulations and consolidating them in one document. We have set out in the briefing note some of the practical consequences of the regulation. For example, more information will be available about excise traders in other member states and this information will be available to both traders and the administrations of member states. There will be a strengthening of the central office control function of the excise liaison offices in member states. There will be provision on a legal basis for the early warning system whereby one member state can send a warning to another about a consignment of excisable products. Standard forms and time limits for exchanges of information will be introduced. Provision will be made for certain general and statistical information to be provided for the European Commission and there will be provision for information exchange with third countries.
To date under the Irish Presidency of the EU we have had approximately four meetings of a working party dealing with this regulation. Progress has been good and there has been much co-operation between the member states. There is a good basis for hoping that by the end of the Irish Presidency the proposal will be agreed, at least in principle.
As well as the regulation, there is also a directive. This is a relatively minor part of the proposal. The directive is necessary in order to tidy up certain aspects which arise as a result of the regulation coming into place. An existing directive which deals with excise provisions will no longer be necessary once the regulation is put in place. The proposal is that certain provisions will be deleted from this directive and included in the regulation.
Ireland's position is clear. We, particularly the Revenue Commissioners, welcome the proposal. This is a high duty country and we have an interest in anything which brings about a strengthening of the procedures which combat fraud. The current paper based system needs to be improved and the computerisation aspect I mentioned should help to achieve that.
This is welcome. Have particular member states, or particular borders, been identified as problem areas in respect of excise fraud? Our land border has posed problems. Legitimate trading is carried on — arbitrage, if one likes. Are there specific areas that have been identified such as VAT? It appears the Government is committed to the adoption of a carbon tax. This will be an additional tax attaching to energy products. I understand it will not be introduced in all member states. Will it pose new problems if different and new tax systems apply in respect of some products which are being policed?
On the matter of co-operation regarding VAT, last year's export accounts showed a horrendous VAT fraud, the scale of which ran to €8 billion in the Irish accounts and €30 billion or €40 billion in the case of the United Kingdom. The extent of the fraud dwarfed much of our export earnings. Have lessons been learned through co-operation on VAT which might help avoid that circular trade where goods are never moved anywhere and which generated huge VAT rebates? It was a large and complex fraud. The situation in the excise area is slightly different because it deals with bonded goods in a physical location which can be policed. Is there a similar move to tighten co-operation and control between member states in respect of the VAT area where the recent debacle occurred?
Mr. Cooper
I will make some general comments. The representatives from Revenue will help answer the Deputy's questions. On the question of borders, the problem lies in transfer of products between the low excise tax countries and the higher excise tax countries such as Ireland, the United Kingdom, Sweden and Finland. Quite a number of EU member states have no excise tax on wine whereas Ireland has a very high rate of tax on wine as do certain other member states. As regards wine, the emphasis on fraud would by definition be between those groups of countries. On the question of carbon tax and how it would work in respect of existing excise taxes, there will be no particular difficulty in applying a carbon tax for products already subject to excise tax. It could be done on the same basis. As in the case of products which are not subject to excise tax at present, a similar regime of excise-type tax would be required to cover carbon tax.
It may be fanciful to think of fraud in coal trading as it is so bulky and difficult to move but will the agreement cover the potential new excises that are generated?
Mr. Cooper
This regulation will cover these products. It will be seen as a type of excise tax. It is not VAT, it is excise. Therefore, those products will be covered.
In answer to the Deputy's question on administrative co-operation, a regulation was issued last year on VAT co-operation. This excise regulation mirrors the VAT regulation. The lessons of the regulation and how the VAT regulation was negotiated were examined in arriving at this regulation. There are many parallels between this excise regulation and the VAT regulation to which the Deputy referred. The Revenue representatives may wish to add to what I have said.
Mr. Murtagh Corrigan
No.
Are there any new lessons to be learned from the VAT fraud which was horrendous in scale?
Mr. Cooper
The excise area poses different types of problems in terms of control as is seen in the case of the United Kingdom which is faced with attempts to bring in hundreds of lorry-loads of contraband goods and there are real problems with loss of revenue. Excise fraud is a more physical problem than that of VAT fraud.
This committee has never heard an explanation of how the VAT fraud was put together and appeared to survive for so long. Revenue has now screened all its existing facilities to ensure that no other similar-scale frauds are happening. The concern lingers when the country was ripped off for so much so easily. Can we be sure that all the bugs are out of the system?
Mr. Cooper
My recollection is that it was not us who were ripped off but the UK authorities. I can provide the committee with an up to date note on the position relating to carousel fraud.
The committee has read the briefing note which is straightforward as far as I as Chairman and other members are concerned. Is it agreed that the committee is satisfied? Agreed.
I will distribute a draft report which states the committee has considered this matter, otherwise it will have to be put on the agenda for the next meeting to formally consider the report. I propose that the committee recommend it is satisfied with EU proposal COM (2003) 797; with the progress made to date on the negotiations on the proposal; and makes no recommendations on the proposal following discussion with officials. Is that agreed? Agreed. The draft report as circulated will be a report of the committee.
In accordance with Standing Orders, the report must be laid before both Houses of the Oireachtas. I propose that copies of the report be forwarded to the Sub-committee on European Scrutiny, the Department of Finance and the Chairman of the Revenue Commissioners. Is that agreed? Agreed.
I thank the visitors for their attendance and apologise for the delayed start. Earlier items on the agenda and correspondence took longer than expected. I thank them for their forbearance and for their straightforward presentation which made the committee's job very simple.
The joint committee adjourned at 4.50 p.m. until 9.30 a.m. on Thursday, 20 May 2004.