European Union finance ministers gathered in Luxembourg on Monday for a two-day meeting, where they were once again attempting to find some common ground on VAT reform.
While the ongoing financial market crisis was expected to top the agenda at the latest Ecofin conference, chaired by the French government, ministers also discussed proposals designed to crack down on VAT fraud, as well as the more vexed question of reduced rates of VAT for certain labour intensive industries.
Among the ideas being discussed to limit the scope for criminals to perpetrate carousel VAT fraud was a proposal to speed up procedures for exchange of information between member states on intra-community transactions. Currently it takes between three to six months for information about transactions to be sent to the member states in which the VAT is due, giving fraudsters a wide window to commit carousel frauds and escape detection. The European Commission wants to reduce this time lag to one month.
The French presidency is also attempting to secure agreement among the member states for guidelines that will lead to the creation at European level of a decentralised network for exchanging tax information, to be known as 'EUROFISC.' This network would facilitate the exchange of information between national tax authorities so that information gathered in other member states could be rapidly obtained on certain fraudulent transactions or fraudulent traders.
According to a report adopted recently by the European Parliament, member states are deprived of about EUR200-250 billion a year as a result of fiscal fraud. VAT fraud alone accounts for some EUR40 billion a year, equal to 10% of the total receipts, the report concluded.
Following on from an informal Ecofin meeting in September, the ministers also continued their discussion on the effectiveness of lower VAT rates.
In July, Taxation Commissioner Laszlo Kovacs unveiled a proposal to amend the EU VAT Directive so that member states could reduce VAT on labour-intensive services and locally supplied services on a permanent basis, such as restaurants and hairdressers. Most of the services in question are already eligible for a reduced rate, but only 18 member states have permission to levy VAT rates below the 15% standard EU level on labour-intensive local services, and only for a limited period, running until 2010. The aim of the EU plan is to make these reduced rates permanent and open to all member states.
However, the proposal has divided the member states, with the German government particularly strongly opposed to the plan. Speaking after last month's Ecofin meeting in Nice, German finance minister Peer Steinbrueck said that his government was "downright sceptical" about the merits of the proposal, believing that it would have little positive impact for consumers while putting governments which chose not to lower VAT rates under pressure to cut VAT in order to match lower rates imposed in neighbouring countries.
Denmark and Austria have also expressed their opposition to reduced VAT rates.
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