Brussels pledges to ‘fraud-proof’ VAT

4 Oct 17

The European Commission has proposed new reforms to crack down on VAT fraud and ensure a more robust and simpler system for governments and companies.

Over €150bn in VAT is lost every year, with around €50bn estimated to be a result of cross-border VAT fraud, the commission said today. This lost revenue could be used to fund schools, roads and healthcare, it added.

The changes are being hailed as the biggest reform to EU VAT rules in a quarter of a century and estimate it could reduce the VAT fraud by 80%.

“We need a definitive system that allows us to deal more efficiently with cross-border VAT fraud,” said Valdis Dombrowskis, vice-president of the commission.

The reform package seeks to fraud-proof the VAT system and make it work for single market. It proposes fundamental changes to the system by taxing sales of goods from one EU country to another in the same way as goods are sold within individual member states.

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, said: “Twenty five years after the creation of the single market, companies and consumers still face 28 different VAT regimes when operating cross-border. Criminals and possibly terrorists have been exploiting these loopholes for too long, organising a €50bn fraud per year.

“This anachronistic system based on national borders must end. Member states should consider cross-border VAT transactions as domestic operations in our internal market by 2022.”

Under EU rules, member states are a required to adopt a VAT and it is a major source of revenue. In 2015, VAT raised over €1 trillion, equivalent to 7% of EU GDP. However, EU VAT rules are one of the last areas of EU law not in line with the principles underpinning the single market.

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