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