EU outlines plans to combat VAT fraud

The European Commission has outlined plans to extend and reinforce the legal framework for the exchange of information between tax authorities, in an attempt to combat cross-border VAT fraud.

The Commission unveiled a proposal last week that would grant member states quicker access to data through the EU-wide Eurofisc tax database.

Eurofisc, in practice, allows for the fast exchange of information between member states as well as establishing a common risk and strategic analysis that would allow tax authorities to stop fraud at the earliest opportunity.

Tax authorities in the 27 member states will be granted access to information contained in the taxpayers' database of other member states. This is something Laszlo Kovacs, EU commissioner for taxation and customs union, believes is necessary to combat fraud at a time when tax revenue collections have fallen.

"In the current economic situation it is more important than ever to fight tax fraud efficiently and a fully functioning administrative cooperation between tax administrations is key in that respect," said Kovacs.

However, it was reported earlier this year that only 13 of the 27 states are actively cooperating in Eurofisc

The proposal also changes the approach of the protection of VAT revenues. It says that member states are jointly responsible for the protection of VAT revenues in all states.

This proposal is the latest in a line of attempts made by the Commission to tackle VAT abuse.

In May 2006, the Commission adopted a communication concerning the need to develop a coordinated strategy to improve the fight against fiscal fraud.

Then, in its communication of December 2008, the Commission presented a short-term action programme where the key objective was to make cooperation between tax administrations more effective. Part of the programme included giving member states the ability to make the supplier of goods liable for the VAT loss created by taxpayers in other states.

One campaigner has welcomed the latest proposal but feels that more needs to be done to tackle tax fraud and improve transparency.

"This is great news. It is so obviously the right direction of travel," said Richard Murphy, of the Tax Justice Network, on his blog. "Why isn't the OECD taking this approach across the world instead of promoting tax information exchange agreements? The EU is, as has often been the case, three steps ahead of the OECD here. I just hope the OECD catches up very, very soon. They need to."

The proposal is a revision of existing EU rules and will need the backing of member states and the European Parliament. A decision is expected later this year.

Source: International Tax Review Week
25 August 2009