European Council Adopts Measures Against Tax Evasion

by Ulrika Lomas, Tax-News.com, Brussels

03 July 2009

The European Council has adopted a directive intended to strengthen measures against the evasion of value-added tax (VAT) on imports.

The new act specifies the conditions under which the importation of goods is exempt from VAT if followed by a supply or transfer of those goods to a taxable person in another member state.

The exemption applies only if the importer has provided to the competent authorities of the member state of importation the following information:

• the VAT identification number of the importer issued in the member state of importation
• the VAT identification number of the customer, to whom the goods are supplied, issued in another member state, or his own VAT identification number issued in the member state in which the dispatch or transport of the goods ends
• evidence that the imported goods are intended to be transported or dispatched from the member state of importation to another member state.

The European Commission has given a high priority to cracking down on VAT fraud, particularly missing trader intra community (MTIC) fraud, also known as carousel fraud.

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, of which MTIC is a large part, accounts for some EUR40 billion a year, equal to 10% of the total receipts, the report concluded.

“Importation of goods is exempt from VAT if followed by a supply or transfer of those goods to a trader in another member state,” says the Commission. “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.”

Last month, the Commission made publicly available a procedure for a taxpayer to get a certificate proving that he checked the validity of the VAT identification number of a client at a given time. This certificate can be used as one of the elements of evidence supporting the non-application of VAT on supplies to business customers in other member states.

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