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Commission proposes measures to combat VAT fraud in the digital age
The European Commission proposed today new rules that will boost efforts to tackle VAT (Value Added Tax) fraud, by allowing member states to exchange relevant information more quickly online and to share information between tax authorities and law enforcement services. The most cautious estimates show that VAT fraud can lead to lost revenues of over €50 billion a year for EU Member States – money that should be invested in hospitals, schools and roads.
Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, said: "Cross-border VAT fraud is a major cause of revenue loss for member states and EU budgets. Today's proposal will help to strengthen the cooperation between institutions working nationally and at EU level in order to effectively tackle this problem and improve tax collection."
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "The Paradise Papers have again shown how some are taking advantage of lax application of EU VAT rules to get away with paying less VAT than others. And we know that VAT fraud can be a source of financing for criminal acts, including terrorism. Combating this requires far more effective information-sharing than currently exists between the competent national authorities – and today's proposals will make that happen..."
The proposals will put in place an online system for information sharing within 'Eurofisc', the EU's existing network of anti-fraud experts. The system will enable member states to process, analyse and audit data on cross-border activity more quickly and accurately. Joint audits will allow officials from two or more national tax authorities to form a single audit team – this is especially important to combat fraud in e-commerce. Eurofisc will get new powers to coordinate cross-border investigations.
The new measures will make possible data exchange between tax authorities and European law enforcement bodies on cross-border activities suspected of leading to VAT fraud. This will help national authorities to cross-check their information and identify the real perpetrators of VAT fraud and their networks.
The proposal also suggests improvements to customs procedures for goods from third countries which cross the EU external border in one state but then continue to a final destination in another. Currently, dishonest companies can use this to avoid paying VAT altogether. The proposal will make it possible for authorities at the point of entry and in the destination member state to exchange and cross-check the information provided by the importer and by the recipient.
Finally, the new measures envisage sharing information on car registration. This will help prevent fraud mechanisms whereby new cars (to which VAT applies in full) are sold or quickly resold as used cars (for which VAT is either not due or applies only to a proportion of the price).
All the proposed new measures will rely on electronically submitted information and on functionalities that allow information sharing between electronic databases. This will significantly speed the enforcement process which currently lags VAT fraud practices that thanks to technology can happen within seconds.
These legislative proposals will now be submitted to the European Parliament and the Council of Ministers. They will enter into force as soon as they are agreed by the member states and the parliament. However, there will be an implementation period until 1 January 2020 to allow member states to introduce the new technologies which are necessary for the automated exchange of customs information and for car registrations.