European measures against VAT fraud

Wed 12th Feb 2014

The European Union is continuing to issue initiatives to help combat the multi-billion VAT fraud problem.  The European Commission estimates a €200bn VAT gap, partially due to VAT fraud.

Most of the problems arise from fraudsters being able to reclaim VAT incurred when they buy goods in one country, but then not declaring the output/sales VAT when they sell them  – often by falsely claiming they exported the goods and so no VAT should have been charged.

New data disclosures with Norway and Russia

Two of the most vulnerable countries outside of the EU that are susceptible to VAT fraud with EU companies are Russia and Norway.  This is because they border EU member states and have similar VAT regimes to the EU.  In particular, the provision of online digital services (downloadable books, videos, games, Aps, telephony etc).  Fraudsters have claimed they are selling such services from Russia and Norway to EU customers – and so charging no VAT.  However, they have actually being selling domestically at reduced prices.

The European Commission hopes to extend the free-exchange of trading activities by companies with these countries.  This would enable joint co-operation on identifying cross border fraud.  However, a number of EU countries (notably Germany) are against the open exchange of information for fear of corporate espionage.

EU VAT fraud on commodities

Other vulnerable sectors include high-value commodities and power trading.  The EU now permits member states to implement the VAT reverse charge on domestic supplies in cases where they suspect fraud.  This requires them to apply under the 2013 VAT Fraud Rapid Response Mechanism, which permits the change to be passed within 30 days.