Member states split over tax-fraud fight

The European Commission is meeting stiff resistance from member states in its drive to form a coherent EU strategy on tax fraud, with the reform of rules on value added tax (VAT) proving particularly problematic.

Ideas presented last week to member state officials on reform of intra-community sales rules met with a stony response. The rules cover the application of VAT to cross-border sales.

A debate on tackling tax fraud was launched in a Commission communication last June. Tax fraud is estimated at 2-2.5% of EU gross domestic product or €200-250 billion annually. Among other measures, Taxation Commissioner László Kovács last year proposed strengthening co-operation mechan-isms and modifying the common VAT and excise duty system.

In a practice known as ‘carousel fraud’, criminals take advantage of exemptions by selling VAT-free goods at VAT inclusive prices, then disappearing without paying a refund to national tax authorities. Losses are multiplied if the goods are then re-exported.

"They [the Commission] were thinking that rules should be changed somehow," said an EU diplomat. "But, some countries said that if the country of taxation or the taxpayer could be changed, the fraudster would change too."

Germany and the UK have proposed introducing a system known as ‘reverse charging’ whereby VAT is only levied once on the final customer at the end of the supply chain

"Most member states want to keep the intra-community sales rules as they are," said the diplomat. "They want to add some more co-operation between administrations for exchanging information."

VAT is to be discussed at an informal meeting of finance ministers in April.

Discussions on a series of measures on VAT known as the ‘VAT package’ are to continue next month. Observers are doubtful that progress will be made while Germany continues to stand its ground on the ‘reverse charge’ proposals.

The European Commission is meeting stiff resistance from member states in its drive to form a coherent EU strategy on tax fraud, with the reform of rules on value added tax (VAT) proving particularly problematic.