VAT fraud: The European Commission presents possible far-reaching measures on VAT to better combat fraud

The European Commission adopted on 22 February, 2008, a Communication on possible far-reaching measures to combat VAT fraud. The measures in question are the introduction of taxation for intra-Community supplies and the introduction of a generalised reverse charge. Both systems have the potential to considerably reduce the phenomenon of 'missing trader' (MTIC)[1] fraud. However, both also pose potential problems that would need to be examined further before either system could be agreed. The taxation of intra-Community supplies of goods could create competitive cash flow disadvantages for businesses trading in the internal market and would require the re-allocation of VAT revenues between Member States. As regards the possible introduction of a generalised reverse charge system for domestic transactions, the Commission insisted that this could only work effectively if it was applied uniformly across all Member States and it should not be made available as an optional system. However, given the dearth of experience with such a generalised system, the Commission was not opposed to a pilot project being launched by a willing Member State, provided that certain conditions are met.