25th June working breakfast: ‘Improving the EU VAT system and cutting the costs for SMEs’

Hosted in the EU Parliament by The SME Union of the EPP

A well attended event moderated by Zsolt Becsey MEP, with speakers Chris Williams (RTvat), Stephen Bill (Head of Cabinet of Commissioner Kovacs), Professor Alain Steichen (University of Luxemburg), and Gerhard Huemer (UEAPME). RTvat presented the RTvat system as a single solution for reducing VAT fraud and VAT-based administrative costs, outlining how small yet powerful changes to the current VAT system can bring highly impactful benefits to SMEs.

Stephen Bill commented “This is a wonderful idea” and said that he saw technology as the ultimate solution to VAT fraud. His concern over the amount of time required to implement the changes required was responded to by Professor Steichen, whose presentation showed how much of the current system will remain the same and how only small changes need to be made to implement the RTvat solution, and by Stephen Coleclough of PWC, who offered the example of legislation in the field of overseas telecoms providers which was agreed and passed within six months.

Concerns expressed about whether banks would agree to be involved were answered by Chris Williams who said that the feedback from banks approached about the RTvat solution was positive and enthusiastic. This comment was supported by Mr. Becsey, who outlined the positive aspects for banks. Other comments about general fraud served to emphasise the specific VAT focus of the RTvat solution. Mr Huemer positively endorsed the focus of the RTvat solution in reducing fraud. Mr Becsey concluded the meeting with a strong endorsement of the transparency of the solution, indicating that the RTvat system will work for SMEs rather than against them and adding his personal support for the RTvat solution.

17th June one-day seminar: ‘Real-Time VAT’

Hosted at Business Europe Brussels by Business Europe VAT Group

A lively and in-depth one day analytical discussion of the RTvat solution by corporate tax experts. Topics ranged from current business VAT registration problems, insider dealing, real-time currency exchange and general fraud to exemptions (such as vouchers and gold bullion), import and export, the black economy, and intra-company cross-border trade. RTvat brought two technology experts from the USA to the meeting to discuss the issues of technical interfacing with corporate accounting procedures.

The attendees were keen to explore every avenue of the RTvat solution, providing insight and information on the corporate-specific concerns and range of VAT scenarios. RTvat was very pleased at the level of enthusiasm behind this analysis, and delighted to see the RTvat solution being developed with stakeholders to provide the best solution for all parties involved. Business representatives also expressed their opinions over the likely response to the solution from governments and tax authorities, which RTvat will be following up for confirmation.

The outcome of the meeting was the conclusion that the RTvat solution would have a positive impact on missing trader fraud, on identification issues and on input VAT fraud, all of which were clearly major concerns for the attendees.

ECOFIN Finance ministers suspend VAT fraud talks until May

CNN is reporting from the ECOFIN meeting held on 4th March that EU finance ministers have suspended their talks on fighting VAT fraud until their May meeting at the earliest.

At a cost of €275 million per day, that will be another € 20 billion lost before they even discuss it again. The RTvat solution could be put in place quickly to stop these losses - all it takes is the political will.

For the full report, see www.cnbc.com/id/23465084

Progress on the RTvat proposals

RTvat are making good progess in pushing forward our proposals for changes in the VAT system, and have had some very productive meetings. We are looking at setting up offices in Brussels, but in the meantime we are using office facilities in Winchester, England.

We are in the process of getting initial cost estimates and technical specifications for the server network we would need to develop in order to create the solution for the tax authorities. While we see these as being significant, when compared with the daily loss to fraudsters of €275 million, they are easily covered very quickly.

We have had considerable assistance in developing the strategy from:

• Members of the EU Commission
• Members of the EU Parliament
• Officers of OECD and IMF
• Tax experts in the major accounting companies
• Members of the banking federations
• Officers of the credit card associations
• Officers of several tax authorities
• Members of Business Europe and the national federations which are part of it
• Tax experts from industry and academia
• Specialists in international trade and electronic transaction processing

All of these areas remain specific points of reference for us as we get into the detail of the plan. There are extra areas we need to address, notably on the political side as to how to encourage a speedy acceptance of our proposal by each of the 27 national governments. To this end, we anticipate building a press relations facility that may bring about greater recognition of the enormity of the ongoing problem.

As a non-profit group, we have no pride of ownership issues; we are solely motivated by a desire to get a resolution as fast as we can. Our lack of experience with the ‘ways things are done’ in Brussels is both a problem and, we hope, part of the solution. We take the view that we can build, with lots of help, our solution in two years, based as it is on existing technology as used by the credit card associations. That is of no value if we cannot get political acceptance in that time frame – which many have told us is impossible. (Indeed, the common estimate is that it would take ten years as a minimum.)

For more information on the RTvat solution, see our website at www.rtvat.eu or contact cwilliams@rtvat.eu.

European Court of Auditors special report on collection of VAT

The European Court of Auditors has recently produced a special report concerning administrative co-operation in the field of Value Added Tax .

The report concentrates on the exchange of information using the existing cross-EU VAT Information Exchange System (VIES) for transmitting information relating to the validity of VAT identification numbers of companies registered in the Member States. It identifies a number of shortcomings in the exchange of information and considers the consequences for budget shortfalls across EU member states.

See http://www.rtvat.net/docs/651518.PDF for the full text.

Among the report’s conclusions are the following:

• Large scale value added tax evasion and fraud distort the functioning of the single market and affect the financial interests of the Member States and the financing of the Community budget.
  
• Though investigations into the magnitude of VAT evasion and fraud have not been carried out in all Member States, several estimates have been published. The International VAT Association quotes estimates of VAT losses ranging from 60 billion to 100 billion euro per annum across the European Union. In the United Kingdom alone, HM Revenue and Customs (HMRC) estimate that in the tax year 2005-2006 VAT revenue losses amounted to 18,2 billion euro. In Germany, the Ministry of Finance published the results of a study which estimated, for 2005, VAT losses of 17 billion euro.

• Fraud schemes are often sophisticated extending over several Member States and involving numerous companies. For example, Eurojust reported in March 2007 a case of international VAT carousel fraud estimated at 2,1 billion euro and involving 18 Member States. In the UK alone, according to HMRC, losses of between 3 billion and 4,5 billion euro in the tax year 2005-2006 could be attributable to so-called Missing Trader Intra-Community VAT fraud.
• Whilst goods move freely across internal borders, the action of national tax authorities still remains largely constrained by those same borders. If a trader makes intra-Community supplies, he has the right to obtain a refund of the input VAT. The VAT due is then payable by the trader in the Member State of destination. Cooperation between Member States' authorities is therefore necessary in order to exchange the information needed to assess VAT correctly.
• An audit by the European Court of Auditors showed that information exchanges between Member States can help Member States to assess taxation correctly and to prevent and detect fraud.

However, the Court found that:

(a) insufficient use is made of the new possibilities to enhance and speed up cooperation and not all Member States have set up adequate administrative structures and/or operational procedures for ensuring efficient cooperation;

(b) half of the information exchange upon request does not take place within the timescales required by the legislation and notifications of late replies or interim replies are rarely given;

(c) late replies occur in all Member States but their frequency varies considerably between Member States. There are sometimes significant differences between the number of requests which a Member State claims to have received and the number of requests other Member States claim to have sent it;

• There is a need for more intensive and rapid cooperation, more direct contacts between local tax offices and better monitoring to ensure that Member States provide efficient assistance to each other.

At RTvat, we believe that our proposed solution for linking each member state to a central database for the real-time exchange of all relevant VAT information would eliminate many of the report’s identified problems at a stroke.

Each member state would retain its own national servers, with the necessary security and validity required by their own tax authorities, but instantly and simply exchange all the information necessary to administer the efficient administration and distribution of the appropriate amount of VAT within each country charged at that country’s own applicable rate via RTvat’s central ‘clearing house’ server.

The RTvat solution incorporates two major changes from the current system, the combination of which eliminate carousel fraud entirely and greatly reduce all other VAT fraud: firstly, making all VAT payment on settlement (in real time), rather than on invoice, secondly, to taxing all intra-EU transactions at the seller’s rate.

See our website at www.rtvat.eu for more information, or contact us at enquiries@rtvat.eu

European Parliament workshop on VAT fraud, 23 January 2008

On 23rd January 2008, the European Parliament hosted a workshop on VAT fraud, inviting a number of experts, interested parties and MEPs to attend and give evidence and opinions on the problem of VAT fraud and its possible solutions.

In a wide-ranging discussion, a number of different measures of the losses involved were put forward, and it became clear that while it is difficult to put an absolute figure on EU-wide losses, the numbers involved are extremely large; according to Professor Stephen Smith of University College London, total VAT fraud losses in the UK alone amounted to around £12.7 billion (€17.2 billion) in 2005-06, around a quarter of which was due to carousel fraud.

A number of possible remedies were proposed, including a ‘reverse charging’ system, where the liability for VAT is placed on the buyer rather than the seller in a business-to-business transaction, ending the policy of making intra-EU purchases zero-rated at national borders, either by instituting a flat-rate tax across all EU member states for cross-border transactions or by taxing cross-border trades at the VAT rate applicable in the point of origin, and establishing an international clearing house for dealing with intra-EU trades.

Although many of these ideas can be seen to have some merit, it was widely agreed that none of them would save more than a fraction of the current losses, and in some cases (such as the reverse charging scheme) may even open up the system to new frauds.

At RTvat we believe that our proposed system of real-time VAT settlement with instant international exchange of critical information would make it simple to carry out cross-border transactions with tax at appropriate national rates automatically transferred via our central servers linking national tax authorities in all member states. The opportunities for fraud would be hugely reduced. This isn’t a ‘pie in the sky’ technology solution, it’s based on tried and trusted methods already used on a global scale by the credit card companies.

We believe that this solution could be swiftly adopted and implemented and the huge losses currently incurred could be stemmed, freeing billions of euros of tax revenue to be distributed to more worthwhile causes across the EU.

RTvat, carousel fraud and other EU VAT fraud

You may be aware that the EU member state governments are currently losing an estimated €100 billion per year (€275 million per day) due to carousel fraud and other VAT-related deceptions.

At RTVat, a not-for-profit company formed by members of the electronic commerce and payment processing industries, we are confident there is a simple, effective and cost-efficient solution which could be implemented very quickly to eliminate this fraud and increase the efficiency of the tax collection system throughout the EU.

The solution is based on existing tried and tested technology and methodologies, and could be swiftly deployed to cut the fraud losses at a stroke and re-direct the recovered funds to more worthwhile projects.

The EU Commission talks of changes taking many years to take effect; we believe our proposal, if given the appropriate support, can be operating within a much shorter timeframe. We also believe an important additional benefit for merchants is in the reduction of administrative costs in moving to a settlement-based collection process, rather than the delayed invoice format; this goes a long way to satisfy the Lisbon accord target in this regard.

We are currently gathering support among interested political, organisational and commercial organisations throughout Europe. Contact us at www.rtvat.eu for further information.