The European Commission has published latest figures (from 2016) on VAT gap in the EU in a new report. The Commission also published a helpful table summarising the VAT gap situation in the EU…
Commission publishes new VAT gap figures – 21 September 2018
The European Commission has published latest figures (from 2016) on VAT gap in the EU in a new report. The Commission also published a helpful table summarising the VAT gap situation in the EU.
According to these latest figures, VAT gap decreased by EUR 10,5 billion to EUR 147.1 billion in 2016, a drop to 12.3% of total VAT revenues compared to 13.2% the year before. The individual performance of member states still varies significantly. The VAT gap decreased in 22 member states. Bulgaria, Latvia, Cyprus, and the Netherlands displayed strong performances, with each seeing a decrease of more than 5 % in VAT losses. However, the VAT gap increased in six member states: Romania, Finland, the UK, Ireland, Estonia, and France.
Plenary adopts position on VAT scheme for SMEs – 11 September 2018
The European Parliament Plenary has adopted its position on the proposed VAT scheme for SMEs, with an astonishing majority of 618 votes in favour, 40 against and 24 abstentions. The file was led by the MEP Tom Vandenkendelaere (EPP/BEL).
In the report, the Parliament recommends that the special scheme be introduced already before a prospective future definitive regime is in place. Moreover, The MEPs are proposing that SMEs may continue to use their exemption for an extra two years rather than one year, as long as the turnover does not exceed the national threshold for SMEs by more than 33% during these two years, as opposed to 50% proposed by the Commission. And finally, the MEPs call for the establishment of an online VAT portal and simplified VAT declaration submissions.
However, as always on VAT the Parliament only submits its non-binding recommendations, with member states making the actual decision by unanimity.
TAX3 holds further hearings on EU-Swiss relations, VAT fraud and the COUNCIL’S CODE OF CONDUCT GROUP – 1/10 October 2018
Hearing on the fight against VAT fraud
The second hearing focused on a study prepared by Professor Marie Lamensch on “VAT fraud: economic impact, challenges and policy issues”.
The debate revolved around the different VAT collection methods, the new e-commerce package, the OSS, the Certified Taxable Person (CTP) system, the impact of new technologies, the cooperation between OLAF and EPPO, as well as administrative cooperation with third countries.
In her presentation, Professor Lamensch doubted the potential effectiveness of the EU’s e-commerce reforms to effectively tackle undervaluation and VAT fraud. She argued that the reforms risk being open to new fraud, and merely introduced changes to VAT collection (such as putting greater responsibility on online platforms) due to customs authorities being overburdened.
On moving to a definitive regime, Professor Lamensch explained that this will effectively eliminate carousel fraud. However, it will open the door for new and simpler forms of VAT fraud. The OSS is a decentralised system of collection which requires member states to outsource their VAT collection, on collect VAT on each other’s behalf – something that will require a lot of mutual trust. She thus called for specific mechanisms to reinforce mutual trust.
However, Professor Lamensch wondered whether the proposal is asking too much from the member states. She also warned that different member states will have different administrative capacities.
Professor Lamensch also highlighted that new technologies should be used more for data collection. With respect to CTP, she explained that it will be still possible for fraudsters to falsify documents.
Ludek Niedermayer (EPP/CZE) asked the Professor whether she agrees with abandoning the VAT system altogether and moving to a comprehensive reverse-charge mechanism instead. She replied that the fraction collection method remains the best option, despite the problems of the VAT system. Under a sales tax regime, there would be even greater risks of fraud.
Jeppe Kofod (S&D/DEN) asked whether the VAT “quick fixes” will still be effective against fraud with the exclusion of the CTP element, which the member states decided to postpone. In her reply, Professor Lamensch underlined that the CTP was designed simply to reduce the amount of transactions flowing through the OSS. Fraudsters will simply do all they can to acquire a CTP status, and will carry on with their fraudulent activities.
European Parliament Plenary adopts final opinion on several VAT files – 3 October 2018
The European Parliament has adopted its opinion on a number of key VAT files – sectoral reverse charge mechanism, VAT rates reform and VAT simplifications.
The adoption of these opinions by the European Parliament means that the member states will proceed to adopt the original proposals on the basis of unanimous agreement. On the substance of the proposals the Parliament has no say.
The first report on the period of application of the optional reverse charge mechanism and of the
Quick Reaction Mechanism against VAT fraud. It was adopted with 615 votes in favour, 9 votes against and 43 abstentions. The file was led by the MEP Sirpa Pietikäinen (EPP/FIN).
The second report on simplifying VAT rules, led by the MEP Jeppe Kofod (S&D/DEN), was adopted with 536 votes in favour, 19 votes against and 110 abstentions. And finally, the third report on VAT rates reform was adopted by a margin of 536 votes in favour, 87 votes against and 41 abstentions. This one was led by the MEP Tibor Szanyi (S&D/HUN).
The votes were preceded by a discussion between the MEPs. Political Groups supporting the reform, as well as the European Commission, noted that the VAT measures introduce necessary flexibility for member states so that they can pursue their own political objectives, provides taxpayers with more legal clarity, closes certain loopholes in the current system, and lay the groundwork for a permanent definitive VAT system.
European Parliament publishes draft report on generalised reverse charge mechanism – 10 October 2018
The European Parliament has taken a first step to developing its position on the proposed generalised reverse charge mechanism (GRCM), with the publication of the draft report prepared by the MEP Gabriel Mato (EPP/ITA).
In his draft report, Mr. Mato expands on the conditions that member states need to fulfil if they want to apply the GRCM. For example, he calls on such member states to ensure that the expected tax compliance and collection from a GRCM outweigh additional burdens on businesses and tax administrations, and that businesses and tax administrations will not incur costs that are higher than those incurred as a result of the application of other measures. Moreover, he argues that member states applying the GRCM should exchange relevant information with other member states in order to ensure that the VAT fraud is not simply being pushed elsewhere.
The Council has already approved its position on the GRCM proposal (see article in section below), and will have to wait for the European Parliament to adopt its final opinion before the proposal can become EU law.
ECOFIN sees major progress on several VAT files, changes to EU blacklist on tax – 2 October 2018
The October ECOFIN saw major progress in the area of VAT, with political agreements reached on the generalised reverse charge mechanism (GRCM), the e-publications proposal as well as the VAT quick fixes. Moreover, the member states also adopted new rules to enhance VAT administrative cooperation, and to expand the optional sectoral reverse charge mechanism and the so-called Quick Reaction Mechanism (QRM).
Two years old Franco-Czech stand-off resolved
In a major breakthrough that the Austrian Presidency can be proud of, France and Czechia resolved their disagreement on the GRCM versus e-publications stand-off. As a reminder, Czechia was upholding a veto on the non-controversial e-publications proposal in retaliation against the French vetoing the GRCM proposal. Both files were finally adopted at the October ECOFIN.
Whilst the e-publications file saw no major amendments from earlier compromise versions, the GRCM proposal has gone through some more recent amendments. Thus the final version of the proposal establishes that member states may use GRCM only for domestic supplies of goods and services above a threshold of 17,500 EUR per transaction, only up until 30 June 2022, and under very strict technical conditions. For example, member states wishing to apply the GRCM must have 25% of their VAT gap resulting from carousel fraud. Moreover, these member states will have to establish appropriate and effective electronic reporting obligations on all taxable persons.
Four quick fixes approved
Moreover, the member states adopted the four VAT quick fixes, vetoed by France earlier this year.
In spring, France insisted that it will only accept the four quick fixes if a fifth quick fix consisting of a VAT exemption for independent groups of persons pooling services and sharing costs. France was supported notably by Latvia, Luxembourg, Italy, Austria and Ireland. However, the Commission vehemently opposed the fifth solution, insisting that it retains the monopoly over proposing new measures. It threatened to withdraw its proposal if a fifth solution would be introduced by the Council. This threat seems to have worked, as the opposing member states backed down. As a compromise, the Commission made a commitment to study the question of independent groups of persons and to legislate on it if deemed necessary.
It is also worth reminding that whilst the Commission linked the four quick fixes to the concept of a Certified Taxable Person (CTP), the member states decided to detach the two from each other.
Other VAT measures that went through
Whilst most of the attention rightfully went to the adoption of the three above-mentioned VAT proposals, it was easy for observers to miss the fact that two additional VAT measures were also adopted by the member states.
Indeed, the member states also approved unanimously and without discussion the proposal to prolong the application of the optional sectoral reverse charge mechanism and the QRM.
The second adopted but less hyped VAT proposal, despite its importance, is the proposal to strengthen administrative cooperation in order to better prevent VAT fraud. The Regulation aims to improve the exchange and analysis of information shared by the member states’ tax administrations and with law enforcement bodies. It will also strengthen Eurofisc, a network of national tax officials for the exchange of information on VAT fraud, jointly processing and analysing all relevant data.
Court of Justice of the EU – Rulings
C-69: Refusal to a VAT deduction – 12 September 2018
The Seventh Chamber of the CJEU has ruled that Articles 213, 214 and 273 of the VAT Directive preclude national legislation under which it is permissible for the tax authorities to refuse, on account of a failure to submit tax returns, a taxable person which has made acquisitions in the period during which its VAT identification number was revoked the right to deduct VAT on those acquisitions using VAT returns filed – or invoices issued – after the reactivation of its identification number, on the sole ground that those acquisitions took place in the period during which its VAT identification number was de-activated and where the substantive requirements have been satisfied and the right of deduction is not being invoked fraudulently or abusively.
MEP Questions & Answers
Eurofisc – 14 September 2018
The European Commission has replied to a question asked by the MEP Tom Vandenkendelaere (EPP/BEL) with regard to Eurofisc.
In his question, Mr. Vanderkendelaere laments that member states’ active participation in Eurofisc is purely voluntary, despite Eurofisc being an important anti-fraud tool. He asks the Commission whether it would be possible to provide data on which member states contribute the most and least, whether compulsory cooperation would contribute to a better functioning of Eurofisc, whether OLAF and other authorities should be allowed to participate in Eurofisc, and whether all of this would lead to better communication and information exchange between the organisations.
In his reply, Commissioner Moscovici refers to its June 2018 proposals to improve Eurofisc, and reminds that these proposals do not provide for data exchanges between Eurofisc, OLAF and others despite the Commission believing that issues such as VAT fraud requires a multidisciplinary approach. However, the measures did grant to give Eurofisc working field coordinators the power to exchange processed and analysed information with OLAF and Europol. This will result in Europol and OLAF receiving targeted and pre-analysed data and hopefully, will further promote this cooperation, Moscovici concludes.