The European Commission yesterday proposed the largest reform of VAT rules in a bid to clamp down on fraud estimated to cost the bloc some €50 billion annually.
The new measures, which are in line with worldwide efforts to combat tax avoidance and evasion, are designed to target scams in which fraudsters pocket VAT revenues from cross-border sales as opposed to paying the money to local governments.
Announcing the proposed reforms yesterday, Brussels said the profits made from these types of scams are often used to finance other forms of crime, including terrorism.
If the suggested new regime were imposed, VAT fraud could be reduced by as much as 80%, the commission said.
The proposed new rules would also put an end to the practice of businesses basing themselves in countries with low VAT rates in a bid to avoid paying tax, and would require firms to pay VAT in the countries in which they trade.
Brussels is hoping to capitalise on a greater willingness among members states to unify tax laws and take measures to reduce fraud in the wake of the late-2000s financial crisis.
Pierre Moscovici, EU commissioner for tax, said: “Twenty-five years after the creation of the Single Market, companies and consumers still face 28 different VAT regimes when operating cross-border.
“Criminals and possibly terrorists have been exploiting these loopholes for too long, organising a €50 billion fraud per year.
“This anachronistic system based on national borders must end. Member states should consider cross-border VAT transactions as domestic operations in our internal market by 2022.
“Today’s proposal is expected to reduce cross-border VAT fraud by around 80%. At the same time, it will make life easier for EU companies trading across borders, slashing red tape and simplifying VAT-related procedures.”
The new rules are also intended to hit supplier companies such as online retail giant Amazon, which saves millions of euros a year on its EU trade by basing itself in low-tax Luxembourg.
Moscovici outlined the commission’s proposals just days after Amazon was ordered to pay the EU €250 million in taxes that the European Competition Commissioner said it had saved as a result of unfair breaks the company was given by Luxembourg in 2003.
“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon’s profits were not taxed,” Margrethe Vestager said in a statement.
“In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules. This is illegal under EU state aid rules. Member states cannot give selective tax benefits to multinational groups that are not available to others.”