According to studies carried out, EU countries lose up to €50 billion to cross-border VAT fraud every year. The new rules should raise €7 billion in additional VAT revenue.
Members of the European Parliament have voted to make it mandatory for payment service providers to collect cross-border e-commerce payment to crack down on VAT fraud.
There will be an online database created so anti-fraud authorities across the EU can strengthen administrative cooperation among the member states’ tax authorities and payment service providers. This will also make information-sharing and prosecution more adequate.
Member States in the European Union are losing billions of euros in VAT revenues because of tax fraud and poor tax collection systems. The VAT gap is the difference between expected VAT revenues and VAT actually collected. It provides an estimate of revenue loss due to tax fraud, tax evasion and tax avoidance, but also due to bankruptcies, financial insolvencies or miscalculations. Currently e-commerce VAT evasion is estimated at €137 billion.
European Commission – VAT Gap.
MEPs have proposed improvements to make information sharing and prosecution more effective. There is also a proposal to create a mandate for the European Public Prosecutor’s Office in collaboration with national judicial authorities. This will ensure that those committing VAT fraud are effectively prosecuted in national courts.
It will also require payment service providers to retain records of payment transactions for a three-year period and advises that member states investing in digital tax collection, such as Making Tax Digital in the UK, automatically link corporate cash registers and sales systems to VAT returns.
To address carousel fraud the EU will also set up a common system for collecting comparable statistics on intra-Community VAT fraud and require national estimates of VAT fraud losses to be published.
The rules on requirements for payment service providers are awaiting first reading in the European parliament and will amend the EU VAT Directive 2006/112/EC 2004/0079(CNS).
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