Cross-border transactions are now the fraudsters playground , and Brussels wants to stop it.
The media will certainly focus on the issue of reduced VAT rates, but the European Commission is emphasized: the heart of the project to be unveiled Wednesday has a completely different goal: to end the VAT fraud rampant on internal European borders. This one is estimated to represent, within the European Union, an annual shortfall of 50 billion euros.
The plan Brussels is set to unveil , and which “Les Echos” had access, seeks to recover at least 80% of that amount. “Overnight, more than 100 million additional collection euro tax per day that we are targeting,” suggests a source at the Commission.
The proposal of the EU executive has the merit of consistency. Since 1993, after failing to establish a unified VAT, Europeans established a transitional regime said … which is lasting for twenty-three years now. It operates on the principle that when an Austrian company sells to an Italian company, the first does not apply any VAT on the selling price. It is the one who acquires the goods who will return in its bills, it will pay VAT, therefore, to the Italian tax authorities. This is certainly a loss for Austria, but it was assumed from the start and the system had the advantage of simplicity. Problem: this mechanism allows the Austrian company not to pay VAT. It is tempting to make up a classic selling a delivery in another country of the European Union …
To remedy this problem, Brussels believes it would be more appropriate to ensure that the Austrian company pays for its own tax authorities VAT, but the Italian rate. The Austrian tax authorities then in charge to repay the sum in Italy. Thus, cross-border delivery is not free of VAT, and the temptation to fraud will automatically disappear.
Problem: this system involves great trust between tax administrations, and Europe seems far away. Hence the proposal, before coming here to set up a hybrid system … and transitory again. In this mechanism, the tax authorities would divide companies into two categories: those that are well established and reliable, and others. For the former, the current system would continue. It is only for those who are less well identified and considered less reliable, that would apply the levy of VAT at the seller, followed by compensatory payments between tax administrations.
The Commission approach may seem surprisingly moderate. This caution explains, this very technical dossier promises to raise political difficulties. Like all tax reforms, it can be approved by unanimity of the member states. But Germany, in particular, seems reluctant to touch the current system is its Länder that load of collection of the VAT, and the Brussels project would be to withdraw that power.
Berlin is tempted to propose an alternative solution, both more complex and risky, close to the system prevailing in the United States. “Germany knows that such a system will not be accepted, and the maneuver is not nothing but a reaction of conservatism that aims to block the discussion,” castigates a deputy.