VAT FRAUD a concern for Tax Administrations but also for Taxpayers

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Samson Bishop
5 years ago
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1 VAT FRAUD a concern for Tax Administrations but also for Taxpayers Donato Raponi European Commission 2014 CESI Conference Brussels, 9-10 October

2 Présentation Powerpoint In this world nothing is certain, but death and taxes! And fraud?

3 VAT system A wonderful tax Simplicity: easy to understand, easy to administer, easy to comply, Neutrality: for taxpayer (consumption tax), same burden for goods and services Efficiency: low cost of administration Fractional payment collection: hard to evade

4 VAT SYSTEM BUT in reality: VAT is not fully neutral VAT system is becoming more complex to administer: Variety of business models Complex products and services structure International trade/globalization Technological development

5 VAT System EU VAT System: no more suited to the new economy ( system adopted in 1977) 28 national VAT systems Lack of clarity and legal certainty Intra EU supplies: more complex than third country importation scheme VAT is becoming a tax on business Limited access to relevant information Relationship between business and tax autorities limited to few MS

6 VAT FRAUD VAT Gap: billion Results: Revenue reduction for governments Negative impact on honest business Additional reporting requirements, especially for EU transactions Unfair competition, Increased risks (joint and several liability) Bad reputation for sectors involved in fraudulent schemes Legitimate business and tax authorities = Common interest in tackling VAT fraud

7 Présentation Powerpoint Fraud destroying the the Single market Single Market: its funtionning is the main objective What doest it mean? Free circulation of goods, services, capital and persons Why? To increase intra-community trade, competition From a fiscal point of view : changes introduced in 1992 for VAT and Excise duties leave untouched the basic mechanisms ( de-taxation at departure and taxation at entry for intra EC supplies, border controls being replaced by obligations for traders ( VIES, AAD )

8 Présentation Powerpoint Fraud destroying the Single Market The result : after 20 years : fraud is increasing in the EU Why? Fiscal frontiers untouched + lack of administrative cooperation between member states Fraud has become an issue for MS Responses are mainly national : more obligations and risks are put on business ( legal certainty) ECJ sometimes correcting RESULT : Business is overburdened and complains (different requirements from national administrations : VAT becoming a cost FREE CIRCULATION FOR FRAUDSTERS becoming a reality DISTORSTION OF COMPETITION : VICTIMS = HONEST TAXPAYERS

9 What has been done Reinforce the capacity of Tax Authorities to fight VAT fraud Administrative cooperation: is it a priority for MS? Quick Reaction Mechanism: in sudden and massive case fraud: exceptional measure Reverse Charge Mechanism (less VAT in the chain) Is it really efficient? Higher risk at the final consumption stage

10 FRAUD Role of the taxable person in the VAT system: Collecting VAT on behalf of Tax Administrations Unpaid tax collector Taking huge responsability (risks) Complexity,uncertainty, lack of neutrality: incentive to fraud, avoidance Uncertainty, mistakes (disproportionate penalty regime)

11 What can be done Structural Reform of the EU VAT System Commission Communication: to design a simpler, more robust and efficient VAT system (to address main concerns expressed by business) Intra EU transactions: definitive regime Simplication of the EU VAT rules (taking into account of new business models and new technologies), reducing compliance costs One Stop Shop (MOSS) Standard VAT return as a first step Providing business with accessible and better information Publication of the VAT Committee guidelines EU VAT webportal Explanatory notes Implementing regulations Larger involvement of business: VAT Expert Group, VAT Forum Legal certainty (common criteria for burden of proof for EU transactions, cross-border rulings)

12 What can be done VAT collection method In the VAT system, the tax collector is the taxable person, is he reliable? In order avoid this risk factor, reflection on a system where the buyer will pay the VAT due directly to Tax Authorities: SPLIT PAYMENT Is it feasible, at what conditions? (PWC study)

13 What can be done Enhancing the relationship between Taxpayers and Tax Authorities Effective consultation before introducing new antifraud measures: more input business perspective Business have active interest in knowing their customers (to ensure to get paid, to ensure that their goods enter the genuine supply chain) Tax Authorities could assist by: Employing more effective screening of business when requesting a VAT identification number Tax alert system

14 What can be done System of shared informaton between trusted business and the Tax Authorities (role of consultants: report fraud schemes to Tax administrations, assumption of involvement when they are not reporting fraud schemes, make them joint and several liable when they cooperate with clients in setting up fraud schemes) Conctact point to report dubious transactions Partnership Certified Taxpayers : already exists in Customs Several questions need to be addressed: How would this work in practice? What would it cover? What would be the advantages for reliable traders?» Quicker refunds, less burden At EU level, natonal level?

15 Thank You

Opinion Statement FC 9/2017. European Commission Proposals on the way towards a single European VAT area

Opinion Statement FC 9/2017. European Commission Proposals on the way towards a single European VAT area Opinion Statement FC 9/2017 on European Commission Proposals on the way towards a single European VAT area Prepared by the CFE Fiscal Committee Submitted to the European Institutions on 1 December 2017