The European Commission has launched a consultation on improving administrative cooperation and increasing efforts to tackle cross-border value-added tax (VAT) fraud.
The Commission intends to update rules in these areas. It said its aim is to improve the functioning of the Single Market and to tackle the heavy losses to member states and EU revenues resulting from fraud.
The Commission has measured the VAT gap for 2014 at EUR159.5bn (USD168.2bn), or 14 percent. Member states' estimated VAT gaps ranged from 1.2 percent in Sweden and 3.8 percent in Luxembourg to 36.8 percent in Lithuania and 37.9 percent in Romania.
Under the present rules for combating cross-border VAT fraud, member states must implement additional reporting requirements and checks for cross-border trade. According to the Commission, this can hamper the proper functioning of the Single Market. In addition, the current VAT system for intra-EU supplies requires cross-checking of information between member states, and businesses can be audited on the basis of information or requests from other member states.
The consultation document states: "Fraudsters are thriving by using cross-border schemes to sell goods on the black market without VAT, potentially putting legitimate companies out of business. Fraudsters, including criminal organisations, also establish dedicated structures in different member states to extort money from national budgets. It has been estimated that a loss of EUR50bn a year is due to cross-border fraud."
The consultation forms part of the Commission's broader plan to modernise the European VAT system. It has put forward four proposals, concerning: administrative cooperation and the fight against VAT fraud; VAT rates; a simpler, fraud-proof definitive VAT system; and an SME VAT package.
The consultation will close on May 31.