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.