EU wants tough action against tax fraud

The European Commission is considering overhauling its VAT rules, especially those applying to cross-border trade, in order to cut tax fraud as much as possible.

Although no figures exist, the Commission estimates that tax fraud in the EU is equivalent to about 2 - 2.5 per cent of GDP, which translates into about €200 to €250 billion a year.

In a communication adopted yesterday, the Commission said it aims to launch a debate with all parties concerned on a European strategy to combat tax fraud.

It said tax fraud is a growing problem and member states cannot act effectively in isolation. In its communication, the Commission also proposes a new community approach to administrative cooperation with third countries.

On VAT, the Commission said it is prepared to engage in a broad discussion on the need to modify VAT systems. According to the Commission, the best way to defeat the fraudsters is to turn European VAT law upside down by ending the current system where the cross-border supply of goods and services is free from VAT and, instead, have VAT being charged and paid upfront at the beginning of the supply chain. The proposal, which will be discussed for the first time by EU finance ministers next week, is not likely to find the support of all member states.

The Commission said any change to the VAT system must reduce considerably the possibilities of fraud, exclude new risks and, above all, generate no disproportionate administrative burden for companies, especially those with a clean record, or to the authorities, and ensure tax neutrality and non-discriminatory treatment of operators.

The Commission is also suggesting other measures to combat tax fraud, including the introduction of more efficient cooperation mechanisms between member states and the inclusion of specific cooperation clauses under the economic partnership agreements the Union concludes with countries outside the EU.

Laszlo Kovacs, the European Commissioner for Taxation, said he firmly believes it is time to consider new ways of combating tax fraud more effectively.

"I call on all parties concerned to give serious consideration to this problem so that we can develop an effective anti-fraud strategy, without increasing the burden on the taxpayer. This new strategy should propose coordinated measures, including innovative methods adapted to a globalised economy," he said.