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Gap in tax estimated at €177bn
The European Commission (EC) has published the document Ideas on How to Ensure a Simpler, More Effective and More Fraud-Proof VAT System, with the aim to create a “definitive” sales tax regime.
The intention of the new paper is to establish a replacement for the European Union’s temporary and VAT system, which is felt to be out-dated, having been in place for more than twenty years.
The future regime should better meet the needs of businesses in the single market and be less susceptible to fraud than the existing system, according to the EC.
The commission believes an origin-based arrangement is not achievable and a definitive regime must be based on the principle of destination.
The document sets out five options for shaping the future VAT set-up:
- Supplier would be responsible for charging and paying VAT, and supplies would be taxed according to where the goods are delivered.
- Supplier would be responsible for charging and paying VAT, and supplies would be taxed according to where the customer is established.
- Customer would be liable for VAT, and taxation would take place where that customer is based (reverse charge).
- Customer would be liable for VAT, and taxation would take place where the goods are delivered.
- Status quo would be maintained, with some modifications.
The EC is assessing the impact of each option on businesses and member states, and it plans to report again next spring.
In related news, an estimated €177bn in VAT revenues was lost due to non-compliance or non-collection in 2012, according to an EC study. The amount equates to 16% of total expected sales tax revenue of 26 member states.
Bankruptcies and insolvencies, statistical errors, delayed payments, legal avoidance, and non-compliance contributed to the overall deficit.
The lowest VAT gaps of individual countries were recorded in the Netherlands (5% of expected revenues), Finland (5%) and Luxembourg (6%), while the largest were in Romania (44%), Slovakia (39%) and Lithuania (36%).
The VAT shortfall decreased in 11 member states between 2011 and 2012, but increased in 15. Greece showed the greatest improvement, from €9.1bn in 2011 down to €6.6bn in 2012, although it maintained one of the highest gaps at 33%. The UK’s was measured at 10% for both years.
