The European Union Introduces New Mechanisms to Prevent VAT Fraud
The European Commission has announced new measures to improve the protection of the EU’s Value Added Tax system against fraud. The EU plans to close all the loopholes in the existing legislation for large-scale frauds.
According to the EU Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici, VAT fraud may be a source of funding of criminal activities, including terrorism. “Combating this phenomenon requires much more effective information exchange between competent state bodies, and the mechanisms proposed by us will help this,” the official said at the presentation of introductions. “For example, the experts from the Eurofisk anti-fraud office will be given the access to information on registration of cars from Member States, that will help eliminate one of the main sources of VAT fraud associated with the sale of new and used cars.”
Although the tax services of the EU states are still exchanging data on cross-border sales today, manual processing of information plays a significant role in this process. In addition, the data from national union law enforcement authorities regarding criminal groups in VAT frauds are not received systematically.
Introductions involve the exchange of important information on imports. According to the current legislation, the goods may enter the European Union from the country not included into the EU where it is not subject to VAT so the tax is paid in the country of final destination. Unfortunately, such loyalty to honest companies is a loophole for fraudsters at the same time. The new mechanisms imply the mandatory exchange of information on goods imported into the EU between the tax and customs authorities of all Member States.
The single VAT system is an important component of the single market of the EU. Tax is the main and growing source of budget replenishment, in 2015 the amount of fees exceeded 1 trillion euros, which is 7% of the EU’s GDP.