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A raft of new measures designed to reduce the VAT gapThe difference between the amount of VAT revenue due to a tax authority and the amount actually collected and clamp down on businesses that avoid collecting and submitting accurate VAT revenues have been proposed.
The European Commission has published a new report in which it states its commitment to helping member states improve their VAT revenue collection, as well as making recommendations on how to ensure non-compliant businesses are identified and punished.
Fair and efficient taxation is an essential component of the European Union’s (EU’s) strategy as it looks to recover from the economic fallout of the Covid-19 pandemic. Indeed, VAT makes up approximately 7% of the EU’s GDP, making any inefficiencies or loopholes extremely costly.
The EU’s VAT gap stood at €139 billion in 2019, the most recent year for which figures have been confirmed.
The commission has now revealed 39 key recommendations that it will make to all EU member states; and we’ve rounded up the 10 we think could have the greatest impact below.
The EU is suggesting tax bodies could soon:
1) Reach taxpayers directly via online platforms to inform them of their VAT-related obligations.
2) Record and monitor applicants that have been refused a VAT registration.
3) Cross-check information held within a VAT registration database against third-party information sources.
4) Run processes that detect taxpayers that have failed to register, with emphasis on those industries in which a significant number of unregistered businesses are known to operate.
5) Complete follow-up checks on VIES registration numbers and suspend or remove VIES numbers of non-compliant businesses.
6) Create a dedicated information channel for MOSS and systematically run registration checks for MOSS purposes.
7) Proactively issue reminders to taxpaying businesses about deadlines and requirements.
8) Adjust the scope and intensity of VAT audits to ensure maximum visibility and reliably identify any potential misdemeanours.
9) Increase efforts to improve the on-time filing rate; and using this rate as an indicator of the robustness of the national VAT system.
10) Design a new penalty system that will punish those businesses that fail to submit returns or make VAT payments on time.
What does this mean?
In short, we see the report as the latest in a series of announcements and measures to be announced in Europe that reaffirm the determination of governments to reduce – and ultimately eliminate – VAT fraud.
It’s a further reminder to businesses that are not correctly registered for VAT in any European country or are failing to collect and pay the required amounts that the risk attached to their actions is greater than ever before.
VAT fraud does not have to be deliberate. In most cases, errors and inaccuracies are caused by outdated or unreliable processes, often involving human inputs.
That’s why we advocate putting your faith in automation when it comes to tax. From accurate determination to real-time reporting, tax technology offers the data processing power and reliability required to ensure your business is compliant across the globe in every single transaction.
