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Brussels launches plan to reduce multi-million dollar cross-border VAT fraud

The Member States lose each year 50 billion euros annually for the action of fraudsters

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Brussels launches plan to reduce multi-million dollar cross-border VAT fraud

The European Commission is pulling ambition to improve fight against tax fraud. In document that will be made public this Wednesday, which has had access to country, Brussels poses, almost a quarter of a century after last reform, a change of rules to fight fraud in main tax on consumption (VAT) to try to plug Hole through which are escaping billions of euros a year.

Learn More
  • ' The fuel mafias ' amassed a loot of 280 million euros
  • EU Court of Auditors warns of high VAT fraud

The big change is to limit unfair tax competition within EU: "The VAT system is now too fragmented in Europe and is too prone to fraud." Brussels wants that when a company sells to anor within continent, in so-called cross-border operations, VAT levy applied is that of country where buyer is located, rar than type established in seller's, as it came Happening so far. That means that if a company exports to a dozen EU countries, it may be case that its products are aggravated by ten different types of VAT.

The first consequence of this measure is that exporting companies will lose one of incentives to establish ir headquarters in countries with reduced VAT rates, a practice that has benefited major e-commerce platforms. The reform will thus hamper tax planning of large companies and threaten to increase tax bill of multinationals such as Amazon, which operates from Luxembourg, one of countries, toger with Malta, with a more favorable tax policy.

If proposal receives approval of European partners, VAT will continue to paid to countries where companies are headquartered, but states of destination of those goods and services must return it to it — VAT supported — in a continuous flow of flows in Tax revenues between twenty-eight. In face of complexity of new system, Brussels wants its implementation to be carried out gradually, first with trade in goods, n, if it works, it would apply to services.

Because exports from one state to anor in Union are exempt from VAT on business between companies, it is now possible to assemble tax engineering structures to evade taxes, which is a significant reduction in revenues that Europe wants to stop in Dry. "Member States must not accept se scandalous losses," said Commissioner for Economic Affairs last week, Pierre Moscovici.

One of major frauds, known as carousel, occurs when a criminal plot sells from a fictitious company from one state to anor intermediary company located in anor country. This operation is VAT-free. So this last company not only does not pay tax, but claims national tax authority to return, after selling to anor company screen of group in same country. This operation can be repeated several times with same products in different states.

Many voices have demanded that Commission be more forceful against this type of fraud. The European Parliament has already claimed months ago a new VAT system like one it now lays on table Brussels, based on principle of taxation in country of final destination of goods and services. And last year EU Court of Auditors warned of huge VAT hole in a report calling for Brussels to renew standards that date to 1993 and are considered obsolete.

Criminal plots

The reform will have to be unanimously approved by twenty-eight, but Commission is confident that its forecasts on improvement of levy are sufficient to overcome resistance.

The figures that speak of importance of tax on sustainability of welfare state in Europe are overwhelming. VAT revenues in EU amount to around EUR 1 trillion per year, 7% of Community GDP. Also striking are amounts that stopped entering public coffers for fraud in VAT, a total of 151 billion in 2015. According to a study published last week by European Commission, Spain lost that year more than 2.5 billion for fraud and errors in collection of this tax.

In recent years, criminal gangs linked to drug trafficking or terrorism have used this type of fraud as a means to finance ir activities. In Spain y have used carousel fraud to operate with fuels or computer components.

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