Brussels, 22/02/2008 (Agence Europe) - On Friday 22 February, the European Commission adopted a communication on the state of progress on the ambitious measures more effectively to combat Missing Trader Intra-Community (MTIC), or “carrousel”, fraud (see EUROPE 9408). It calls on the Ecofin Council, which is to discuss combating tax fraud in March, to provide it with clear policy guidelines on two ambitious measures: taxation of intra-Community deliveries in the member state from which they left and the reverse charge mechanism for VAT. The options on the table are not bad, but the Commission does not, at this point, have the proof that changes are needed, Commission insiders say. To make progress on these two options, the Commission will leave it up to the Council to continue the discussions which could lead to a change in the current VAT system. In March, the Commission will bring forward more conventional measures for combating VAT fraud, which will inter alia increase the frequency of VAT returns and reduce the deadlines for exchanges of information between national tax administrations (see EUROPE 9555).
Taxation of intra-Community deliveries. Intra-Community deliveries are worth €2,400 billion per year. For most member states, these deliveries constitute between 10% and 20% of all deliveries. One of the ways to combat VAT fraud more effectively would be to retain national VAT rates and replace the current exemption of intra-Community deliveries with a 15% tax. A compensation mechanism would also be set up to transfer VAT receipts from the deliveries' member state of origin to their state of destination. Although this system may provide an appropriate solution to carrousel fraud, the Commission wonders about its ability to tackle other types of fraud and about the additional costs on taxable companies, especially SMEs (small ands medium-sized enterprises). In particular, the Commission asks member states if they would be prepared to accept that 10% of their tax revenue depended on transfers from other member states. If they say yes, the Commission will continue its work. If the answer is no, it will consider the possibility of taxing intra-Community deliveries in the member state of destination.
Reverse charge mechanism for VAT. The Commission believes that the introduction of a reverse charge mechanism for VAT would considerably reduce carrousel fraud. It fears, however, that this system could have negative effects on member states revenues as a result of other types of fraud. The additional measures needed to tackle these new forms of fraud would further complicate the system and would create further costs for companies. The Commission believes that such a change to European rules would also have considerable repercussions on the coherence and harmonisation of the VAT system. It is, then, of the opinion that it would be better either to put in place a compulsory reverse charge mechanism throughout the EU or to abandon the idea. It would not be against a member state carrying out a pilot scheme over several years. Although prepared to engage in such an exercise, Austria has not yet officially indicated its willingness to embark on the adventure (see EUROPE 9412). (M.B.)