November 30, 2017 / 11:31 AM / a year ago

EU Commission proposes measures to tackle sales tax fraud

BRUSSELS (Reuters) - The European Commission proposed new measures on Thursday to tackle tax fraud on goods traded across countries that are estimated to cost European Union countries over 50 billion euros ($59.1 billion) in lost revenues every year.

European Commissioner for Economic and Financial Affairs Pierre Moscovici presents the EU executive's autumn economic forecasts during a news conference at the EU Commission headquarters in Brussels, Belgium November 9, 2017. REUTERS/Yves Herman

Under the proposal, tax authorities in EU states will step up their cooperation and exchange of information on cross-border sales in a bid to stamp out value-added tax (VAT) fraud.

Corporate trade between EU countries is free of VAT, with the levy being paid only by the company that sells the final good to customers.

This has allowed criminal organizations to carry out complex cross-border operations with ghost companies collecting full VAT on a transaction and then disappearing before paying the states, causing huge holes in public budgets.

“We know that VAT fraud can be a source of financing for criminal acts, including terrorism,” EU tax commissioner Pierre Moscovici said in a statement.

“Combating this requires far more effective information-sharing than currently exists between the competent national authorities – and today’s proposals will make that happen,” he added.

Under the proposal, which still needs to be backed by EU states and lawmakers, national governments would also allow foreign tax authorities to access car registration databases to tackle the illegal cross-border sale of new vehicles as second-hand cars, which are subject to a much lower rate of VAT.

The commission has also proposed to increase the exchange of information among customs authorities in EU states to prevent widespread VAT frauds on goods imported from outside the EU.

One major scheme was unveiled this year in Britain by the EU anti-fraud agency OLAF which said the British customs had for years declared too low a value of textiles and other goods imported from China, causing huge VAT losses to other EU countries where the products were finally sold, while increasing trade revenues in British ports.

OLAF has recommended the EU recover nearly 2 billion euros ($2.4 billion) in lost revenues from the British authorities because of this prolonged scam. The British tax administration has disputed OLAF’s calculations.($1 = 0.8456 euros)

Reporting by Francesco Guarascio; editing by Philip Blenkinsop

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