| EU proposes measures to combat VAT fraud |
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| Monday, 25 February 2008 | |
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Page 2 of 2 Clearing system According to the Commission, the trickiest issue with this option would be to define a clearing system of the VAT revenues between the member states. Member states of origin will have to collect VAT - applied at a rate of 15 per cent - and transfer it to the member states of arrival. As a result, the Commission has calculated that on average, 10 per cent of member states' VAT receipts would depend on transfers made by other member states. Before further analysing how a clearing system could function, the Commission is seeking political guidance from the ECOFIN Council to determine whether taxing intra-Community supplies in the member state of origin is a viable option to be considered. One-stop scheme If member states are unwilling to agree that their VAT receipts could be dependent on other member states, the Commission sees the only alternative to be taxation of intra-Community supplies at destination. This alternative would allow for taxation at the appropriate rate in the member state of arrival, while a common rate of 15 per cent for intra-Community supplies would not be necessary. In addition, there would be lower costs both for taxable persons and for tax administrations. Such an alternative would, however, require setting-up a real one-stop scheme. The “one stop” scheme would enable traders to fulfil their registration and declaration obligations in their home member state, including for services provided in other member states where they are not established. The payment would be made directly by the taxable person to the member state of consumption. Generalised reverse charge system Under a generalised reverse charge system, the VAT system that is currently applicable to intra-Community supplies would also apply to domestic transactions. This means that VAT would not be charged by the seller to the customer if the latter was another taxable person. Instead, the customer (rather than the vendor) would be responsible for paying the VAT to the Treasury. The Commission said it believed that such system would substantially reduce MTIC fraud. It was concerned, however, that this reverse charge system may negatively affect member states’ revenues, due to other new types of fraud such as untaxed consumption and the misuse of VAT identification numbers. General reverse charge In order to combat these new types of fraud, a number of new measures would need to accompany the reverse charge system, and these could complicate the system and create new - but in the eyes of the Commission not insurmountable - burdens for businesses and tax administrations. The Commission took the view that a general reverse charge should either be introduced on a mandatory basis in the whole EU or be entirely disregarded as a concept. It would not be acceptable to have an optional reverse charge system for member states, as this would lead to considerable burdens on companies trading in several member states. In view of all the points outlined above, and the lack of empirical data on the impact of a generalised reverse charge system, the Commission concluded that it was worthwhile to launch a pilot project in one member state in order to test the impact of such as system, on condition that strict criteria were fulfilled. Related articles
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