Fight against VAT fraud

Malta is not alone in its fight against VAT fraud. The European Commission has recently proposed a legislative measure with the sole objective of eradicating VAT fraud across Europe.

EU measures dealing with administrative cooperation between member sates in the field of VAT have been in place since 2003. The Commission has now deemed it necessary to enhance the capacity of the various tax administrations of the member states to prevent and detect VAT fraud and to recover taxes in cases of fraud.

One of the key elements of the proposed law is the creation of Eurofisc, a common operational structure allowing member states to take rapid action in the fight against cross border VAT fraud. Eurofisc should allow for a very fast exchange of targeted information between all member states as well as for the setting up of common risk and strategic analysis.

The Commission is also seeking to endow member states with joint responsibility for the protection of tax receipts. Indeed, the proposal changes the approach to the protection of VAT revenues and wants national tax officers to protect tax revenues of other states as if their own. The proposed law provides that member states are jointly responsible for the protection of VAT revenues in all member states. The proposed regulation also makes provision for direct access by the tax authorities of the different member states to databases found in each other's jurisdictions. Such access is deemed to be essential to detect cross-border fraud schemes.

The proposed law seeks to ensure the quality, comparability and usability of the information contained in national databases. It includes rules on registration, deregistration and rules on initial and regular risk analysis processes. The scope for the introduction of such rules is that of making it impossible for potential fraudsters to obtain or abuse a VAT identification number.

Taxpayers will also benefit from an enhanced and secure system of validation of their counterparts' VAT number and identity. This measure is intended to significantly increase the legal certainty of traders' business environment when making intra-community supplies.

In view of the current economic situation, enhancing cooperation between the tax authorities of member states in order to eradicate tax fraud is indeed a sine qua non for Europe. Estimates made by the Commission show that tax fraud accounts for approximately two to 2.5 per cent of GDP, that is, between €200 and € 250 billion, with VAT fraud seen as contributing heavily to such a figure. It is therefore indispensable that tax authorities have all the technical and legal means at hand to be able to combat EU - wide VAT fraud effectively.

Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a visiting lecturer at the University of Malta.

mariosa@vellacardona.com