The European Commission adopted on Tuesday (18 August) proposals to combat the ever-expanding value-added tax (VAT) fraud schemes by accessing taxpayers databases across the EU and exchanging information between authorities of the member countries.
“In the current economic situation it is more important than ever to fight tax fraud efficiently and a fully functioning administrative cooperation between tax administrations is key in that respect,” said László Kovács, Commissioner for Taxation and Customs.
The new measures are particularly aimed at combating missing trader inter-community (MTIC) or ‘carousel’ VAT fraud, and include the significant step towards the creation of a legal base to establish Eurofisc – a “common operational structure” which would allow member states to coordinate “rapid action in the fight against cross border VAT fraud.”
This type of fraud takes a number of different forms. A simpler version is ‘acquisition fraud’ in which goods or services are imported into a country VAT-free and sold on in that country with VAT charged. Afterwards the importer disappears instead of paying VAT to the governent.
Carousel fraud occurs when those goods and services are then sold on within an EU country and eventually re-exported, possibly back to the original supplier, allowing fraudsters who use false VAT identification numbers or simply disappear after the sale to pocket the difference and depriving governments of billions of euros each year.
The government is usually cheated twice in this case, once by the original importer, who dissappears without accounting for the VAT, and once by the re-exporter, who reclaims the VAT they paid to the government.
Coordination is crucial
In a response to such schemes, the new operational structure Eurofisc is intended to create a European network of officials from national tax administrations, which the Commission claims should allow “a very fast exchange of targeted information” between member states, as well as the “setting up of common risk and strategic analysis.”
There are further changes, which the latest proposals bring in, including joint responsibility for the protection of tax receipts between states throughout the Union and direct access to national databases for other member states, in order to rapidly detect “cross-border fraud schemes”.
The proposals include also the setting up of common minimum standards for registration of taxable persons in member states. According to the Commission, abuse of ‘inactive’ VAT identification numbers is a well-known phenomenon in VAT fraud.
Still a hard sell
It remains to be seen however if all national governments will accept to share their VAT databases with their counterparts across the EU, despite both Council and Parliament have reiterated the need for better coordination, experts said.
EU leaders have repeatedly stressed in the last two years the need for a common approach to combating tax fraud to supplement and support national efforts.
The European Parliament also issued a resolution last year on a coordinated strategy to improve the fight against fiscal fraud and even proposed “automated access by all member States to certain non-sensistive data (…) concerning their own taxable persons (business sector, certain data concerning turnover) and on the harmonisation of the procedures for the registration and de-registration of persons liable for VAT.”
The Commission argued that a common framework would be far more effective than bilateral arrangements, which may leave some countries without full and rapid access to some information.