Brussels, 17/04/2007 (Agence Europe) - After the political agreement reached last month (see EUROPE 9393), a decision was unanimously adopted by the Council on Monday 16 April, authorising the United Kingdom to apply the reverse charge mechanism for value added tax (VAT) on certain electronic products. With this mechanism, the customer is liable to VAT rather than the supplier. The measure will apply until 31 March 2009 to mobile phones, integrated computer circuits and the delivery of goods whose taxable amount is above £5,000.
This Council decision must be placed in the broader context of VAT tax fraud, an item on the agenda of the informal meeting of European finance ministers on 19-20 April in Berlin. “Current estimates on the level of overall tax losses due to fiscal fraud of all kinds range from around €20 -250 bn a year, which is about two times the budget of the European Union”, said László Kovács, Taxation Commissioner, during the European conference on tax fraud organised at the end of March in Brussels. He went on to say: “Problems arise in all areas of taxation but fraud in the VAT area is the type of fraud which member states are particularly concerned about, as it has reached in some countries levels of up to 10% of the tax receipts”. In his view, “member states' primary concern is the so-called VAT 'carousel' fraud or Missing Trader (MTIC) fraud. It has reached the scope of an industry where groups of criminals abuse the system in an organised and sophisticated way” and it is evaluated in the EU at €50 billion (€8 billion in the United Kingdom). In this specific case, the fraudsters - after acquiring a Community VAT registration number - make duty-free imports of goods from other member states. Through a network of fictitious companies, they sell off the same goods in series - hence the name of “carousel” fraud - and call for reimbursement of VAT from the state concerned for each cross-border transaction. Big earnings can be made from such a system, four British nationals already having been found guilty of misappropriation of £40 million in this way!
Although all European ministers agree there is a need to fight the scourge of VAT fraud, there is a problem when it comes to the weapons that should be used to do so. Germany and Austria have long been calling for the reverse charge mechanism to be extended throughout the territory (see EUROPE 9316). They face opposition, however, from at least 20 member states. Some, such as France, expressed the fear that fraud would be transferred to countries that do not apply the system. The resolve of the German presidency to put this subject on the agenda of the informal Ecofin Council therefore looks like a last ditch struggle. The Commission will repeat in Berlin that the time is not yet ripe for the system to be generalised throughout the EU. “There is not support from member states within the Council working group” and, during the European conference at the end of March, “all interested parties voiced opposition”, was the explanation given within the institution. The Commission also stresses that the other two options envisaged for combating tax fraud - improved administrative cooperation between member states and recasting of the common VAT system - are also being discussed (see EUROPE 9202). At the informal Ecofin Council, discussion will be on possible extension of the VAT reverse charge mechanism and, at the meeting of EU finance ministers in June, on the two other options. It will then be up to the Commission to present an overall European strategy at the end of June on combating tax fraud. (mb)