Brussels has launched proposals to crack down on VAT fraud in EU member states.

The practice is estimated to cost the EU more than €100 billion a year, according to a 2009 report.

The European Commission suggested setting up a Quick Reaction Mechanism (QRM) to enable all member states to respond more swiftly to cases of VAT fraud.

An EU cross-border audit team composed of experts from national tax authorities was another idea from the EU executive.

According to Taxation Commissioner Algirdas Semeta, time is money when dealing with VAT fraud and the EU needs to have the right mechanism to act quickly.

Under the QRM, a member state faced with a serious case of sudden and massive VAT fraud would be able to implement certain emergency measures, in a way which they are currently not allowed to under VAT legislation.

The proposal provides that member states would be able to apply, within the space of a month, a “reverse charge mechanism” that makes the recipient – rather than the supplier – of the goods or services liable for VAT.

According to the Commission, this would significantly improve the chances of member states of effectively tackling complex fraud schemes, such as carrousel fraud, and of reducing otherwise irreparable financial losses.

To deal with possible new forms of fraud in the future, it is foreseen that other anti-fraud measures could be authorised and established under the QRM.

€300m lost in seven years

Malta lost a potential €305 million in VAT proceeds between 2000 and 2006, the EU report found.

Although it is difficult to put a precise figure on VAT losses, it is thought to be several billion euro each year across the bloc.

In a study, the Commission compared what member states actually received in VAT receipts with what they could have expected to collect.

It set the gap at €106.7 billion in 2006, which includes fraud, legal avoidance and insolvencies.

This is an average of 12 per cent of the net theoretical liability, although several member states were above 20 per cent.

Malta’s VAT gap in 2006 was estimated at 14 per cent.