The European Commission wants to ease tax information exchange with countries such as Norway and Russia which provide e-commerce and telecom services, but some big member states are still reluctant to share.
After it issued two new directives last July, the EU executive wants to cooperate with third countries in the fight against VAT fraud. The EU started to negotiate with Norway and Russia for information exchange in the most sensitive sectors: online services, downloads, e-commerce. The aim is to limit this type of fraud causing considerable damage in Europe.
According to the Commission, the revenues from this tax are too often defrauded and evaded. The 28 member states are missing €193 billion in total each year, as revealed by a Commission study last year.
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In order to sign accords that will allow tax amdinistrations to cooperate, the Commission needs to get a mandate from the Council of the EU. Small countries are on board but Germany is thought to be reluctant to share its tax data with third countries as foreseen by this type of cooperation. The collection of VAT by Länders in Germany complicates the attempts of the federal government. And for now the Greek presidency of the EU has not put the issue on the Council’s agenda.
A group of experts consulted by the Commission stressed the urgent need to cooperate with Norway and Russia, in particular because of e-services and telecommunications, which are provided from abroad. Music and video downloads, as well as telecom services are typically concerned by VAT fraud: the dematerialisation of the transactions casts doubt on whether the VAT was paid or not.
“Neighbouring countries are also more likely to take part in carousel fraud and we know this is the case with Russia,” a source in the Commission said.
Talks with Switzerland have been postponed. The Commission's taxation directorate (DG Tax) has opened several fronts to negotiate with the countries on savings and companies taxation.
Focus on e-commerce
“Globalisation and e-commerce have created new opportunities but also new risks," said Algirdas Šemeta, the Commissioner in charge of tax.
"Scammers use the difference between the countries and the lack of information between them. The Union needs to work hand in hand with its international partners to effectively fight VAT fraud. That’s what the Commission proposed today, asking for a negotiating mandate to formalise this cooperation,” he said.
Despite the Commissioner's determination, the latest measures adopted by the EU Commission last July had modest success in Europe.
It was about introducing reverse charge of VAT for products that can potentially be subject to fraud on the one hand and a legal framework for urgent regime change on the other. The collection of VAT when buying rather than selling can help avoiding most of the VAT fraud.
These products are gas and electricity, telecom services, gaming consoles, laptops, raw and precious metals as well as cereals, oilseeds and sugar beets. For these products countries are free to change the VAT collection system.
The main change happened in Germany, who followed France’s and The Netherlands’ example by modifying the VAT collection on gas and electricity on 30 August 2013. Several cases of fraud between Austria and Germany are now under investigation.
In other sectors, industrial companies complained about the directive, among them the sugar industry, which regrets the inclusion of sugar beet in the mechanism rather than sugar itself. The VAT fraud indeed occurs on refined sugar and not on the beets, they claim. With the margin on VAT, intermediates then sell sugar at a very low cost which has a negative effect on the whole industry.
VAT is the first source of income in European states, representing more than €700 billion each year in revenue. It is collected on trade in goods and services and in the sale of goods.
To facilitate trade between countries, companies benefit from VAT exemptions under certain conditions, when operating outside their borders.
But VAT fraud has tended to proliferate and is now believed to affect new sectors such as electronics, metals, CO2allowances or cars, which is a source of concern for the European Commission.