Measures to combat VAT fraud

The Members of the European Parliament (MEPs) supported measures on Tuesday, 17th of December, designed to fight e-commerce VAT evasion that would help cut some of the €137 billion lost each year across the EU to VAT fraud.

According to the 2019 Final Report in the context of the “Study and Reports on the VAT Gap in the EU-28 Member States”, prepared for the Commission, the VAT gap, that is to say, the difference between the expected VAT revenue and the amount actually collected, in the Union amounted to EUR 137,5 billion in 2017, representing a loss of 11,2 % of the total expected VAT revenue and EUR 267 of lost revenue per person in the Union. There are, however, big differences between Member States, with VAT gaps ranging from 0,6% up to 35,5%. That highlights the need for more transnational cooperation in order to better combat VAT e-commerce fraud in particular, as well as VAT fraud more generally (including carousel fraud).

As shown in the press release, the measures, contained in two pieces of legislation, require payment service providers to collect cross-border e-commerce payment records. A new central electronic storage system would be created so that anti-fraud authorities in member states can process payment information better. Administrative cooperation among the member states’ tax authorities and payment service providers will also be strengthened.

MEPs proposed various improvements to the texts, in a bid to make information-sharing and prosecution more effective. More specifically, some of these improvements include:

  • Setting up a common system for collecting comparable statistics on intra-Community VAT fraud and requiring national estimates of VAT fraud losses to be published;
  • Creating a mandate for the European Public Prosecutor’s Office, in collaboration with national judicial authorities, to ensure that fraudsters are effectively prosecuted in national courts;
  • Member states investing in technology-led tax collection, notably by automatically linking corporate cash registers and sales systems to VAT returns;
  • Improving communication and interoperability between tax-related databases at European Union level;
  • Requiring that payment service providers retain records of payment transactions for a three-year period to assist member states in fighting e-commerce VAT fraud and detecting fraudsters.

The regulation on measures to strengthen administrative cooperation in order to combat VAT fraud was adopted with 590 votes to 19 and 81 abstentions. The directive on certain requirements for payment service providers was adopted with 591 votes to 18 and 86 abstentions.

According to Commission estimates, online sales in the EU are worth €550 billion a year – €96 billion of which is cross-border. The new rules should raise €7 billion in VAT revenues for member states.

For further information: Measures to strengthen administrative cooperation in order to combat VAT fraud