EC Presents Action Plan On VAT Fraud

by Ulrika Lomas, Tax-News.com, Brussels

04 December 2008

The European Commission has adopted a short term action plan with a list of future legislative measures to enhance the capacity of tax administrations to prevent or detect value-added tax fraud, in particular 'missing trader fraud,' and to recover taxes.

The Commission has also adopted two measures to amend the VAT directive. The first aims to prevent the existing abuse by fraudsters of the VAT exemption at importation and the second to give member states the possibility to make the supplier of goods liable for the VAT loss created by his missing customer in another member state, when he did not report his supply to his VAT authority.

Laszlo Kovacs, Commissioner for Taxation and Customs, said: "My aim is to tackle VAT fraud effectively, without creating unnecessary administrative burden for legitimate trade. Each individual measure should bring added value, but it is only the implementation as a whole which will provide the tax authorities with an adequate framework for combating VAT fraud. The success of the strategy will finally depend on what will be adopted by the Council. I therefore call upon the member states to take up their responsibility and adopt the measures as soon as possible."

Missing trader fraud is where a taxable person, having made an intra-Community acquisition on which VAT has not been charged, makes a subsequent domestic supply on which he charges VAT and then disappears without having paid that VAT to the Treasury.

The new proposals aim to provide a global approach to enhance the tools for tax administrations to tackle VAT fraud at different stages in the process. The action plan proposes to introduce measures to:

• prevent potential fraudsters from abusing the VAT system including: common approach to the registration and de-registration process of VAT taxable persons in the EU; on line confirmation available to traders of the validity of the VAT identification number of their customer; simplification, modernisation and harmonisation of the current rules on invoicing;
• enhance the tools for the detection of VAT fraud, in particular by the creation of a European network, called Eurofisc, for closer operational cooperation between member states;
• strengthen the possibilities for tax authorities to recover VAT losses in cross-border cases (including, improvement of the mutual assistance framework between tax authorities for the recovery of taxes, and introduction of shared responsibility for the protection of all VAT revenue independently of the member state to which it is due).

The Commission has also adopted a proposal to amend the VAT Directive in two specific areas:

• The importation of goods is exempt from VAT if followed by a supply or transfer of those goods to a trader in another member state. Inadequate implementation of this exemption in national law has led to difficulty in following-up the physical movement of the imported goods. Experience shows the increasing use of this particular exemption in missing trader fraud schemes. Therefore, the Commission proposes to tighten the conditions under which the importer can benefit from the exemption: at the time of importation, he shall clearly indicate to the member state of import his VAT identification number, the VAT identification number of his customer and he shall prove that the imported goods will be transported to another member state.
• Fraud investigators have reported that traders in intra-community supplies intentionally do not report their supply to the tax authorities (or report incomplete/false data or report late). As a consequence, the member state of destination gets no information about the arrival of goods on its territory, which impedes the detection of potential VAT losses. The Commission therefore proposes that the supplier in intra-community transactions be liable for the VAT loss created by his missing customer in another member state, when the supplier contributed to the loss by not reporting his supply to his VAT authority (or by reporting false or incomplete information or by reporting late). The proposal will provide tax administrations with a tool for recovering VAT from non-established traders. In order to respect the principle of proportionality, the measure introduces the liability of the supplier only if the acquirer has not submitted his VAT return related to the acquisition to his tax authority. Furthermore, it is foreseen that the supplier can refute the presumption of liability by duly justifying his shortcoming to the competent tax authority.

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