UPDATE: EU Commission Propose Single VAT Area To Beat Fraud

- Updates With Moscovici Comments, Detail Throughout

By Tara Oakes

     BRUSSELS (MNI) - The European Commission Wednesday proposed the creation of

a single VAT area to try and revolutionise a system where cross-border fraud

currently costs the bloc E50 billion per year.

     Under plans unveiled by Commissioner Pierre Moscovici, suppliers selling

their goods cross-border B2B would apply the sale price and the VAT of the

country of their destination at the moment of sale.

     The supplier's country, having collected the tax, would then transfer the

VAT collected to the treasury of the retailer's country. A 'One Stop Shop'

single online portal would facilitate the application of the VAT of the

destination member state when selling across borders.

     A similar scheme has already been in place in the EU since 2015 on

telecommunications, broadcasting and electronically supplied services.

     The roll-out to cover all goods eligible is an attempt to modernise a

system described by Moscovici as "anachronistic". The Union's soft borders where

no VAT is charged have led to the lucrative crimes of carousel and missing

trader fraud, where goods can be bounced between countries numerous times with

no-one collecting the VAT before traders eventually disappear.

     "Today's proposal is expected to reduce cross-border VAT fraud by around

80%," Moscovici said.

     Member states are prickly with tax meddling -- and this, like other tax

proposals, will require unanimity to come into force.

     One EU official hoped that the success of the smaller-scale electronic

supplies VAT destination tax and portal would ease member states' worries.

     But the new scheme also throws up the issue of inter-community trust, given

the dependence of member states on each other to hand over the VAT collected

upon sale. Large-scale fraud losses should nudge sceptical states into agreement

but it is far from a given: a situation the source described as "masochistic".

     A transition to the new system is envisaged to sweeten the deal, with

countries allowed to keep the old system for a select group of companies they

deem trustworthy. Those companies would then be allowed, as is the case now, to

continue purchasing goods free of VAT in another EU country and then pay VAT in

their own country -- as long as they remained on the trusted list.

     Quick fixes will also be put in place to "cut at the roots" the carousel

fraud before the single area proposal is up and running.

     But the idea would still be to shift wholesale to the new single VAT area

once its benefits had been shown - including, for one official, more

competition.

     "You are not pushed to establish in any member state to avail yourself of

the lowest VAT rate," they said. Wednesday's proposal does not address VAT rates

themselves, which the official said would be subject to a proposal by the end of

the year.

     Cutting red tape would reduce cost for businesses, the EC claim, which they

estimate makes it 11% more expensive at present to deal with a business another

member state rather than one established in their home country.

     "We want companies to be able to extend their network without having to pay

additional burdens," she added.

     Technical proposals are hoped for spring 2019, with the EC hoping the new

system would enter into force in 2022.

--MNI Brussels Bureau; +44 203-865-3851; email: tara.oakes@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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