The European Commission recently launched the process to start negotiations with Russia and Norway on administrative cooperation agreements in the area of Value Added Tax (VAT)…
Tackling tax fraud: Commission proposes stronger cooperation with non-EU countries on VAT
The European Commission recently launched the process to start negotiations with Russia and Norway on administrative cooperation agreements in the area of Value Added Tax (VAT).
These agreements, subject to approval from EU Member States, would be to establish a framework of mutual assistance in combating cross-border VAT fraud and in helping each country recover the VAT it is due. VAT fraud involving third-country operators is particularly a risk in the telecoms and e-services sectors.
Fight against fraud: new study confirms billions lost in VAT Gap
A new report which looked at the VAT collection and control procedures across the Member States has concluded that Member States need to modernise their administrations in order to reduce the “VAT gap”. The VAT gap is the difference between the expected VAT revenue and the VAT actually collected by national authorities. The identified loss that the EU believes exists was said to be around €193 billion in 2011.
The study has suggested the following approach to tacking the levels of fraud:
- a tougher stance against evasion, and stronger enforcement at national level, are essential. For example, the Quick Reaction Mechanism, adopted in June 2013, will allow Member States to react much more swiftly and effectively to sudden, large-scale cases of VAT fraud
- to simplify the system, making it easier for taxpayers to comply with the rules. For example, new measures to facilitate electronic invoicing and special provisions for small businesses came into force at the start of the year and a standard VAT declaration form for the entire EU has been proposed. From 1 January 2015, a One Stop Shop will enter into force for e-services and telecoms businesses, which will promote more compliance by greatly simplifying VAT procedures for these businesses and enabling them to file a single VAT return for their activities across the EU
- Member States need to reform their national tax systems in a way that facilitates compliance, deters evasion and avoidance, and improves the efficiency of tax collection. One comment is that complicated tax systems with multiple rates are contributors to non-compliance. The Commission has repeated its call to Member States to broaden national tax bases and to limit tax exemptions and reductions. The Commission feels this would thus help simplify tax systems, but it may enable Member States to avoid increases in the standard VAT rates.
The study sets out some valid points for Member States to consider. There is in our view a long way to go before some of the proposals such as the single VAT return format can be agreed, because of the variances that exist in the EU between Member States on processes for VAT registration and filing of returns and in some cases there is still a level of bureaucracy in what should be simple administrative tasks. Agreement is in our opinion still a long way off on such measures. The level of the VAT Gap should at least focus the minds of EU Finance Ministers as they seek to ensure their countries recover from the financial recession that hit the European Member States.
New place of supply rules for telecommunications broadcasting and e-services from 1 January 2015
The European Commission has recently reminded businesses via its website that from 1 January 2015, telecommunications, broadcasting and electronic services supplied to non business customers will always be taxed in the country where the customer belongs. This is the case whether the supplier is based within the EU or outside the EU (which is of course the case since 1 July 2003).
These changes will also see the introduction of the single VAT return for reporting the transactions, the mini one stop shop (MOSS) for EU businesses.
Detailed Explanatory Notes are being finalised by the Commission and should be published at the end of March/early April.
Fiscal Solutions Ltd.
