Richard Cornelisse

Archive for July, 2012|Monthly archive page

VAT: Commission proposes new instrument for speedy response to fraud

In EU development, Indirect Tax Strategic Plan, Tax News on 31/07/2012 at 2:03 pm

 

A proposal for a Quick Reaction Mechanism (QRM), that would enable Member States to respond more swiftly and efficiently to VAT fraud, was adopted by the Commission today.

Under the QRM, a Member State faced with a serious case of sudden and massive VAT fraud would be able to implement certain emergency measures, in a way which they are currently not allowed to under VAT legislation.

In this context, the proposal provides that Member States would be able to apply, within the space of a month, a “reverse charge mechanism” which makes the recipient rather than the supplier of the goods or services liable for VAT.

This would significantly improve their chances of effectively tackling complex fraud schemes, such as carrousel fraud, and of reducing otherwise irreparable financial losses.

In order to deal with possible new forms of fraud in the future, it is also foreseen that other anti-fraud measures could be authorised and established under the QRM.

Algirdas Šemeta, Commissioner for Taxation, Customs and Anti-Fraud, said: “When it comes to VAT fraud, time is money. Fraudsters have become quicker and cleverer in developing schemes to rob the public purse. We must strive to be one step ahead of them. The Quick Reaction Mechanism will ensure that our system is sufficiently equipped to tackle VAT fraud effectively. It will help preserve much needed public revenues and create a fair and level-playing field for honest businesses.”

VAT fraud costs the EU and national budgets several billion euro every year. In some serious cases, vast sums are lost within a very short timeframe, due to the speed at which fraud schemes evolve nowadays. For example, between June 2008 and December 2009, an estimated €5 billion was lost as a result of VAT fraud in greenhouse gas emission allowances.

Currently, if a Member State wishes to counteract VAT fraud through measures not provided for under EU VAT legislation, it must formally request a derogation to do so.

The Commission then draws up a proposal to this effect and submits it to Council for unanimous adoption before the measures can be implemented.

This process can be slow and cumbersome, delaying the Member State in question from taking the necessary action to stop the fraud.

With the Quick Reaction Mechanism, Member States would no longer have to wait for this formal process to be completed before applying specific anti-fraud measures. Instead, a much faster procedure would grant them a temporary derogation within a month. The derogation would be valid for up to one year.

This would allow the Member State in question to begin counteracting the fraud nearly immediately, while more permanent measures are being established (and if necessary while the standard derogation procedure is being launched).

Background

The Quick Reaction Mechanism was foreseen in the new VAT Strategy (see IP/11/508), as well as the Communication on fighting tax fraud and evasion (seeIP/12/697), as a means of strengthening the fight against tax fraud in the EU and safeguarding public revenues.

How much is lost every year because of VAT fraud?

Although, due to the very nature of fraud, it is difficult to put a precise figure on VAT losses due to fraud, it is thought to be several billion euro each year. In a study on the EU VAT gap1, the Commission compared what Member States actually got in VAT receipts with what they could have expected.

While this VAT gap covers more than just fraud (also legal avoidance and insolvencies), the study set the gap at €106.7 billion in 2006 within the EU-25.

This represents an average of 12% of the net theoretical liability although several Member States were above 20%.

VAT fraud does not only affect the financial interests of the Member States and the EU.

It also has an impact on honest businesses which find themselves unable to compete on a level playing field in those sectors which are affected by a significant amount of VAT fraud.

What has the Commission done to address the problem of VAT fraud?

In 2006 the Commission presented a Communication to launch an in depth discussion at EU level on the need for a co-ordinated approach in the fight against fiscal fraud in the internal market. In 2008, the Commission set out a coordinated strategy to improve the fight against VAT fraud in the EU.

This Strategy included a series of targeted measures, including plans for legislative proposals (which have now all been put forward), and a longer-term reflection on how to fight the problem.

One key element was to see how administrative cooperation between tax administrations could be improved, and to establish a network of national officials to detect and combat new cases of cross-border VAT fraud.

This network – Eurofisc – is now operational and working to coordinate data exchange and establish an early warning mechanism against fraud.

What further measures to tackle VAT fraud does the Commission foresee?

In its Communication on the future of VAT, which it presented in December 2011 (IP/11/1508), the Commission set out priority actions needed to create a simpler, more efficient and more robust VAT system in the EU.

One of the overriding objectives for the new VAT system was to tackle VAT fraud more effectively, and a number of ideas were laid out on how to achieve this.

First, the Commission intends to monitor the full implementation of the abovementioned Anti-Fraud Strategy, making sure that all instruments in place against fraud are functioning to full potential.

It will examine ways to extend the automated access to information, and will assess whether anti-fraud mechanisms, such as Eurofisc, need to be strengthened. In 2014, it will report on whether further action is needed to strengthen or complement these measures.

In addition, the Commission will embark on a number of new anti-fraud projects.

The Quick Reaction Mechanism, proposed today, was one such initiative. In addition, the Commission launched the idea of setting up a EU cross border audit team composed of experts from national tax authorities to facilitate and improve multilateral controls.

As the success of any anti-fraud measure depends directly on the administrative capacity of the national tax authorities, the Commission will intensify its monitoring of the efficiency and effectiveness of the tax administrations of the Member States.

In the Commission’s Country Specific Recommendations for 2012, adopted by the Council in June, 10 Member States2 were told to improve tax compliance and collection. The Commission will also encourage the exchange of best practices in combating fraud in high risk sectors.

What is carousel fraud?

Carousel fraud is one of the most common types of large-scale VAT fraud schemes in the EU. Under EU legislation VAT on domestic sales is generally due by the seller while VAT on cross border sales is generally due by the purchasing companies.

In carousel fraud schemes, fraudsters import goods to a Member State VAT-free, and then charge VAT to the buyers. The sellers then disappear without paying the tax to the authorities, while the buyers deduct the VAT they paid from their overall taxable income, thus creating a loss to public finances.

It is called carousel fraud because there are usually a number of companies involved, each liable to VAT which goes unpaid, and the final buyer reclaims the VAT from the tax authorities before disappearing.

What is the “reverse charge mechanism”?

The reverse charge mechanism undermines the whole basis of carousel fraud, by switching the tax liability. Under this mechanism, the customer, rather than the supplier, is liable for VAT.

The customer (if a taxable person) must report and pay the VAT, and can deduct this VAT from their taxable income at the same time.

1 : DG Taxation and Customs Union, Report 21 September 2009, Study to quantify and analyse the VAT gap in the EU-25 Member States, Reckon LLP

2 : Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Italy, Lithuania, Malta, Poland and Slovakia.

Useful Links

  1. The Draft Council Directive
  2. For more information, see MEMO/12/609
  3. Widespread Irregularities In Italian VAT Invoices Found
  4. EUROPA – Press Releases – VAT: Commission proposes new instrument for speedy response to fraud.
  5. Reblog – Exclusive: Hungary Losing 1 Billion Euros A Year From Food VAT Fraud | Reuters
  6. Combat VAT Fraud: Dutch Introduction Of Reverse Charge For E-gadgets
  7. Netherlands Intensifies Efforts To Combat VAT Fraud
  8. Algirdas Šemeta EU Commissioner – Press Conference On European Semester Brussels, 30 May 2012
  9. Algirdas Šemeta EU Commissioner – Press Conference ECOFIN Council Brussels, 15 May 2012
  10. European Commission – Press Release About Future Of VAT
  11. Luxembourg Below Tax Budget
  12. European Parliament Demands Accurate Information On Tax Evasion
  13. European Commission – Taxation Trends In The European Union
  14. Auditors Anticipate Finding Fraud At Clients
  15. US VAT Introduction: Any Lessons To Be Learned From European VAT Fraud?

 

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

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Taxes In The Boardroom

In Audit Defense, Benchmark, Business Strategy, Indirect Tax Strategic Plan, Processes and Controls, Technology on 29/07/2012 at 2:38 pm

With increased regulation, a heavy state and local tax burden, and election uncertainty, today’s corporate boards are increasingly focused on tax risk management.

Ultimately, it is the board with oversight of the company’s tax policies and actions.

As a result,  boards are adding skilled tax resources to its seats.

Because tax issues have material impacts on earnings and cash flows, today’s board agendas include topics such as:

  • Tax function resources and adequacy of skills, data and software to support the function;
  • Tax risk and corporate governance;
  • Expiring attributes and tax provisions;
  • Cross-jurisdiction taxing authority enforcement and audits;
  • Uncertain tax position management and disclosure;
  • The legislative landscape and tax reform; and
  • Information reporting and withholding

Senior tax executives have regular seats in the audit committee meetings where they should be prepared to address:

  • How is management keeping current on tax issues and the potential for changes in tax policy?
  • How does the company monitor changes in tax legislation and tax policy (domestic and foreign)?
  • Does the company have adequate resources (funding and skills) to address responsibilities and opportunities related to the changing tax policy and legislative landscape?
  • How can legislative changes and tax policy affect the company’s effective tax rate and financial reporting?
  • Are the company’s tax disclosures in its financial reporting accurate, understandable and complete?
  • When is tax consulted by operations — before or after proposed transactions?
  • What are the company’s most significant tax risks related to process and technical issues?
  • What were the results of recent audit activity?
  • What do the results say about the tax function?
  • What assumptions are embedded in transfer pricing, UTP, and establishing reserves?

In addition, organizations with a sound tax risk management structure share some or all of these characteristics:

  • An internal audit function which includes tax audit plans
  • A deep integration of organizational IT resources and risk management policies with tax software
  • Organizational level process optimization which doesn’t stop before it reaches tax
  • Appropriate training and skill redundancy in tax personnel
  • Tax personnel performance measurements that are aligned with tax risk management policies

The tone at the top that a tax savvy board directs to properly address tax risk will maximize stakeholder value in many ways and it critical to sustaining compliant, yet minimized tax expenditures. Does tax have a seat in your boardroom?

To hear what other progressive tax departments are doing, read the entire article “CFOs Warm to More Frequent Tax Talk.”

Taxes In The Boardroom : ONESOURCE Blog

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VAT – European Commission

In EU development, Processes and Controls, Tax News, Training on 26/07/2012 at 9:00 am

VAT: Overview of EU legislation currently in force and eLearning course

The essential piece of EU VAT legislation since 1 January 2007 has been Directive 2006/112/EC. That ‘VAT Directive’ is effectively a recast of the Sixth VAT Directive of 1977 as amended over the years.

The recast brings together various provisions in a single piece of legislation.

Directive 2006/112/EC in turn was amended several times in the last few years and a consolidated version without legally binding value was published in January 2010 in the EU Official Journal.

An eLearning course has been developed by the European Commission to help tax officials and others get a good basic knowledge of the VAT Directive.

The course is freely available for download from our web page.

Table Of Content

Key documents

Traders

Control and Anti-Fraud

New administrative co-operation regulation

Combating tax fraud

Conferences and other events

e-learning

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Informal Commission expert group discussions with Member States / set up of EU VAT forum

In EU development, Macroeconomic effects of VAT on 24/07/2012 at 12:10 pm

Informal Commission expert group discussions with Member States

Informal Commission expert groups composed of representatives of national tax administrations provide the Commission a forum for consulting VAT experts from Member States on pre-legislative initiatives.

Until recently, the Commission’s Directorate General for Taxation and Customs Union managed for this purpose Working Party No 1, a permanent group, and the Group on the Future of VAT, a temporary group established in the context of the Green Paper on the future of VAT.

These groups have now been merged into a single permanent expert group, named “Group on the future of VAT”.

Subject

Informal Commission expert group discussions with Member States – European commission.

EU VAT forum – call for applications for the selection of members

By decision of 3 July 2012 the Commission has set up the EU VAT forum.

The EU VAT forum is a structured dialogue platform to improve the relationship between the Business and tax authorities in order to create conditions for a smoother functioning of the present VAT system in the EU, reducing costs and administrative burden on both sides.

The forum’s tasks shall be:

  • to create a platform where business and national tax authorities experts can informally discuss tax administration issues in the field of VAT with which both parties are currently confronted in a cross-border environment;
  • to discuss practical insights provided by tax authorities, as well as business experts, and to elaborate on possible ways to manage the current VAT system more efficiently, including by combating fraud, in the interest of both parties with a view to achieving a smoother functioning of the current VAT system;
  • to assist the Commission in promoting good practice including the use of IT, which could culminate in a more efficient, secure, fairer and cost-effective VAT system in the interests of both parties;
  • to work, where necessary, in cooperation with any other appropriate bodies or committees dealing with VAT and administrative cooperation in the tax field.

The forum shall comprise representatives from the Member States and representatives of 15 organisations maximum representing business or tax practitioners.

The Commission is calling for applications with a view to selecting the EU VAT forum members representing business or tax practitioners, as mentioned in Article 4 (2) (b) of the above mentioned decision.

The applicants shall represent either business interests from large, medium or small enterprises in a pan European environment in EU VAT issues.

The representation in the VAT forum should mirror the relative importance of the different size categories of enterprises in the European economy. The members must be actively involved in the practical management of the EU VAT obligations for taxpayers operating in an EU cross border context.

The Commission is looking for businesses’ and tax practitioners’ European or international organisations.

For reasons of consistency and transparency, the members of the EU VAT forum shall be appointed by the Director-General for Taxation and Customs Union from organisations with competence in the areas referred to in Article 2 of the decision above mentioned, and who have responded to the present call for applications.

Read more: Commission Decision of 3 July 2012 setting up the EU VAT forum

Related documents

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

Tax Management Consultancy welcomes your opinion on any of the issues raised, so feel free to join in the discussion on LinkedIn | Twitter | Facebook.

EUROPA – Press Releases – Protecting Intellectual Property Rights: EU customs detain over 100 million fake goods at EU borders

In EU development, Processes and Controls on 24/07/2012 at 11:45 am

In 2011, EU Customs detained almost 115 million products suspected of violating intellectual property rights (IPR) compared to 103 million in 2010.

The number of intercepted cases increased by 15% compared to 2010.

The value of the intercepted goods represented nearly €1.3 billion compared to €1.1 billion in 2010, according to the Commission’s annual report on customs actions to enforce IPR. Today’s report also gives statistics on the type, origin and transport method of IPR infringing products detained at the EU’s external borders.

The top categories of articles stopped by customs were medicines (24%), packaging material (21%) and cigarettes (18%).

Products for daily use and products that could be potentially dangerous to the health and safety of consumers accounted for a total of 28.6% of the total amount of detained articles, compared to 14.5% in 2010.

The increase in number of detained postal packages continued in 2011, with 36% of the detentions concerning medicines.

Algirdas Šemeta, Commissioner for Taxation, Customs, Anti-fraud and Audit said:

“Customs is the EU’s first line of defence against fake products which threaten the safety of our citizens and undermine legal businesses.

Today’s report shows the intensity and importance of the work being done by Customs in this field. I will continue to push for even greater protection of intellectual property rights in Europe, through our work with international partners, the industry and Member States.”

In terms of where the fake goods originated, China continued to be the main source, accounting for 73% of all IPR infringing articles.

For certain product categories other countries remain the main sources such as Turkey for foodstuffs, Panama for alcoholic drinks, Thailand for soft drinks and Hong Kong for mobile phones.

Around 90% of all detained products were either destroyed or a court case was initiated to determine the infringement.

Background

As the EU’s 2020 Strategy underlines, the protection of IPR is a cornerstone of the EU economy and a key driver for its further growth in areas such as research, innovation and employment.

Effective IPR enforcement is also essential for health and safety, as certain counterfeited products (such as foodstuffs, body-care articles and children’s toys) which are produced in an unregulated environment can pose a serious threat to citizens.

EU Customs play a crucial role in stopping products which violate intellectual property rights from entering the EU. A number of actions are being carried out by the Commission to strengthen Customs’ ability to combat such trade.

On 24 May 2011, the Commission adopted a proposal for a new regulation on customs enforcement of IPR, as part of a comprehensive package of IPR measures (see IP/11/ 630, MEMO/11/327).

Good cooperation with trading partners can also significantly help in preventing the export of IPR infringing goods to the EU. In 2009, the EU signed an Action Plan with China which specifically focuses on enhancing cooperation in IPR customs enforcement (IP/09/193).

In 2010, this Action Plan was extended until the end of 2012 (IP/10/1079). Cooperation with industry is also very important to ensure that goods which violate IPR can be properly identified.

Businesses can request customs action where they suspect that their intellectual property rights are being violated, and the information provided by industry helps customs to better target their controls.

The Commission has established a manual for right holders, to help them to lodge such requests.

Customs controls

Tax Management Consultancy welcomes your opinion on any of the issues raised, so feel free to join in the discussion on LinkedIn | Twitter | Facebook.

 

Belgium – New Decree on administrative VAT penalties

In Tax News on 24/07/2012 at 10:38 am

In the Official Gazette of July 17, 2012 amendments to Royal Decree No. 44 on the administrative VAT penalties were published.

These amendments result from the fact that the program law of June 22, 2012 provides that the fixed penalty for non-compliance with various VAT obligations imposed by the VAT law varying from EUR 250 to EUR 2,500 will be increased to EUR 500 and EUR 5,000.

The most important penalties are set as follows:

  • non-filing: EUR 1,000 per return
  • late filing: EUR 100 per return and per month of delay with a maximum of EUR 1,000;
  • mistakes in the data reported in the VAT return: EUR 80 if the mistakes are considered incidental or EUR 500 in other cases;
  • not respecting the filing periods: EUR 250 per return;
  • not respecting the filing procedure: EUR 400 per return;
  • non-filing of the annual Belgian or European sales listing: EUR 3,000;
  • mistakes in the annual Belgian or European sales listing: from EUR 150 to EUR 1,350;
  • non-compliance with the invoicing requirements: EUR 50 to EUR 500 per invoice for the first offence, EUR 125 to EUR 1,250 for the second offence and EUR 250 to EUR 5,000 for each subsequent offence;
  • not keeping books: EUR 1,500 for the first offence, EUR 3,000 for the second offence and EUR 5,000 for each subsequent offence; and
  • not keeping books for 7 years: EUR 1,000 for the first offence, EUR 3,000 for the second offence and EUR 5,000 for each subsequent offence.

Belgium – New Decree on administrative VAT penalties – VAT Resource

Tax Management Consultancy welcomes your opinion on any of the issues raised, so feel free to join in the discussion on LinkedIn | Twitter | Facebook.

Tax havens: Super-rich ‘hiding’ at least $21tn

In Tax News on 22/07/2012 at 8:27 pm

A global super-rich elite had at least $21 trillion (£13tn) hidden in secret tax havens by the end of 2010, according to a major study.

The figure is equivalent to the size of the US and Japanese economies combined.

The Price of Offshore Revisited was written by James Henry, a former chief economist at the consultancy McKinsey, for by the Tax Justice Network.

Read more: Tax havens: Super-rich ‘hiding’ at least $21tn | Nieuwszender voor Directe Belastingen.

Tax Management Consultancy welcomes your opinion on any of the issues raised, so feel free to join in the discussion on LinkedIn | Twitter | Facebook.

Taxand The CFO: Understanding Tax Changes As Economies Worldwide Drive Efficiency

In Audit Defense, Benchmark, Business Strategy, Tax News, Taxand, VAT planning on 16/07/2012 at 12:39 pm

By Henk Hop, Partner at Taxand

Taxand is pleased to announce the launch of the second annual Taxand Global Survey, designed to examine the latest global tax issues affecting multinationals today.

Access the full report to discover the key issues we reveal are impacting your business and Taxand’s Take on what to action as a result.

The report uncovered a number of significant stats, including:

  1. 76% of multinationals say that economic turmoil cannot be resolved through tax policy
  2. 76% multinationals agree rising tax transparency & reporting have increased compliance costs
  3. 72% of multinationals feel public exposure to tax planning could be detrimental to a company’s reputation
  4. 84% of respondents see an improvement in their relationships with tax authorities
  5. 75% multinationals think global tax harmonisation is desirable
  6. 20% of CFOs named transfer pricing as the most challenging area of tax

Taxand welcomes your opinion on any of the issues raised, so feel free to join in the discussion on LinkedIn | Twitter | Facebook.

EUROPA – Press Releases – Algirdas Šemeta European Commissioner /Brussels 11 July 2012

In Tax News on 11/07/2012 at 3:13 pm

Statement Following Commission Proposal To Protect Financial Interests Of The EU

Today’s proposal ties in to the overriding theme in the EU today.

Just as we are united in our shared economic interests, so we must be united in safeguarding them. Greater coordination of national policies is not an option – it is a requirement for our common well-being.

This is as true for the protection of EU funds as it is for re-building national economies.

We cannot share a common pot to invest in infrastructure, create jobs, support our farmers and promote research, and yet take 27 different approaches to protecting the money.

This is becomes all the more evident when we see that the more lapse approach in some Member States is undermining the more diligent work of others.

The statistics tell it all. Conviction rates for fraud range from 80% to as low as 14%, depending on the Member State in question.

And penalties for the same crime range from many years in jail to a mere fine, depending where you are in the EU.

If ever there was an incentive for fraudsters to exploit European borders to their advantage, this is it.

We therefore need a more unified, harmonised stance in criminal law when it comes to protecting the EU’s financial interests and tackling fraud.

OLAF

At EU level, we have a robust framework in place to protect the EU budget. And it is one that the Commission is constantly working to reinforce.

In addition to multi-level rules, controls and audits for EU funds, we have the European Anti-Fraud Office. Since 1999, OLAF has investigated around 5000 cases of suspected fraud involving EU money.

It has become a cornerstone in protecting our common budget and in fighting fraud. Moreover, work is underway to make OLAF even stronger and more efficient, through the reforms that I proposed last year.

However, OLAF is only one cog in the machine – albeit a very important one.

If the Member States don’t follow up on OLAF’s findings;

If they don’t actively pursue suspicions of fraud involving EU funds;

If they don’t adequately penalise such offences;

Then the fraudsters win.

And when fraudsters win, the honest tax-payers lose.

Limitation Periods And Confiscation

The proposal that we are presenting today therefore seeks to close national loopholes.

It seeks to create a more harmonised and more effective approach to deterring and punishing fraud.

And it seeks to send a clear message that fraud will not be tolerated, regardless of where it takes place in the EU.

In addition to the sanctions and common definitions that Viviane has just outlined, today’s proposal sets down minimum statutes of limitation.

At the moment, national statutes of limitation are adapted to the needs of fighting national fraud cases. However, they are often insufficient for cross-border investigations, given the extra time and complexity these involve.

So our proposal will greatly facilitate investigators and prosecutors, by providing them with adequate time to do their work.

We have also included provisions for the confiscation of goods linked to the offences in question. This links up with Commissioner Malmstrom’s proposal earlier this year on the confiscation and freezing of criminal assets.

Confiscation will increase the chances of recovering illegally used funds, which is essential in protecting the EU budget.

Conclusion

To conclude, let’s remember what we are ultimately talking about today.

We are talking about upholding two fundamental principles that must underlie all policies in a democratic society: Justice and Fairness.

Justice in the form of an even-handed approach to fraud, wherever it occurs in Europe.

We need punishments that fit the crime and a clear deterrent to those considering de-frauding the EU budget.

And fairness for the honest citizens, who are left out of pocket when EU money is lost to fraud.

Because the EU budget is not for “Brussels”. It is for villages, towns and regions; workers, students and pensioners across Europe.

It is a key contributor to our growth agenda. And we must take every measure we can to protect it.

EUROPA – Press Releases – Algirdas Šemeta European Commissioner for taxation, Customs Union, Anti-Fraud, Audit and Statistics Statement following Commission proposal to protect financial interests of the EU PRESS CONFERENCE ON PIF DIRECTIVE /Brussels 11 July 2012.

Why needed?

Here are a couple of 2012 examples:

  • “Nasir Khan had a successful accessories business, a jet-set lifestyle and reputation as a pillar of the community. But all that vanished in December when he was jailed for his part in a £250m VAT fraud. Jasper Jackson discovers how a 10-year investigation by HMRC led to his downfall. By Jasper Jackson – Mobile News March, 2012
  • “Two men have been jailed for their role in a plot to smuggle nearly 24 million counterfeit cigarettes into the Midlands, following an investigation by HM Revenue & Customs (HMRC). The conspiracy would have seen nearly £4 million drained from the UK economy through duty evasion.” HM Revenue & Customs, March, 2012
  • “A 34-YEAR-OLD man was yesterday convicted of a €680,000 VAT fraud after a 10-day trial that heard he produced 141 bogus invoices on non-existent transactions with imaginary sub-contractors.” By Gordon Deegan – Irish Times.com, March 2012
  • “A 64-year-old man has been arrested in a dawn raid into a £1 million suspected VAT fraud involving a Workington business.” News & Star, January 2012
  • “Yacht broker jailed over VAT fraud – A Dorset yacht broker who charged £210,000 VAT on the sale of six luxury yachts and then pocketed the cash has been jailed. James Williams, 51 was found guilty on six counts of cheating the public revenue and one count of false accounting. He was sent to prison for three years. John Cooper, HMRC Assistant Director Criminal Investigation said: Williams used his position as director of a yacht brokers to commit VAT fraud. He sold boats which had previously been supplied VAT-free for export to the Channel Islands, but failed to account for the VAT on their subsequent sale in the UK. This blatant attack on the tax system not only robbed the Exchequer of public funds, but is also unfair to those businesses that diligently abide by the rules. Tackling VAT fraud is a priority for us and we will not hesitate to pursue those who commit this type of offence. Anyone who has information about suspected VAT fraud can call the Customs’ Hotline on 0800 59 5000 or email customs.hotline@hmrc.gsi.gov.uk.” By Dick Durham of Yachting Monthly, March 23, 2012
  • “An antique jewellery trader who fraudulently claimed over £1.6 million in VAT repayments by creating fake invoices for expensive Rolex and Cartier watches has been jailed. Jonathan Uri Shohet (45) of Baldock, Herts, used stolen invoice books and fake invoices to claim back VAT from HM Revenue & Customs (HMRC) but had never purchased many of the watches he claimed repayments for.” HM Revenue & Customs, April 25, 2012
  • “A 15-STRONG GANG has been found guilty of an attempted £176m VAT fraud by engaging in complex mobile trading scams.Ring leader Dilawar Ravjani received a 17-year stretch in prison for his part in the scheme, the longest sentence handed down in the UK for this type of fraud.  The gang claimed it sold four million mobile phones worth £1.7bn, despite failing to prove the existence of many of these, while about 250,000 were not yet launched in the UK. In order to give the operation a veneer of legitimacy, more than 5,700 false business transactions were created in order to claim large amounts of VAT. Confiscation proceedings are now underway to recover any assets the gang members received as a result of this crime. The actual tax loss totalled £107m.” Read more: Carousel fraud gang jailed – Accountancy Age, July 12, 2012

Related Topics

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

Tax Management Consultancy welcomes your opinion on any of the issues raised, so feel free to join in the discussion on LinkedIn | Twitter | Facebook.

EUROPA – Press Releases – Commission Questions France And Luxembourg About Reduced VAT Rate On Digital Books

In Business Strategy, Macroeconomic effects of VAT, Tax News, VAT planning on 04/07/2012 at 6:08 pm

Reduced VAT Rate On Digital Books

Brussels, 3rd July 2012 – The European Commission has launched an infringement procedure against France and Luxembourg because the VAT rates they are applying to digital books are potentially incompatible with EU law.

EU legislation allows Member States to apply reduced VAT rates to a limited list of goods and services set out in Annex III to the VAT Directive. Downloading of digital books is regarded as a service supplied electronically, which is not included in this list and cannot therefore be taxed at the reduced rate.

In its Communication of December 2011 on the future of VAT, the Commission launched a debate on the possibility of moving towards convergence of the VAT rates applicable, on the one hand, to traditional books and, on the other, to digital books.

The Commission will put forward proposals by the end of 2013. It is not possible, however, to ensure convergence towards the reduced rate currently applicable to traditional books without amending the VAT Directive.

France and Luxembourg nevertheless decided to apply reduced rates to digital books as of 1 January 2012, thereby infringing EU law. The rates are 7% for France and 3% for Luxembourg.

This situation is creating serious distortions of competition that are damaging to economic operators in the other 25 Member States since digital books can easily be purchased in a State other than the one where the consumer resides and, under the current rules, the VAT rate applies is that of the provider’s, not the customer’s, Member State.

Local actors in the electronic book market have complained that some of the dominant players in this market have reorganised their distribution channels to benefit from these reduced rates, which has apparently had a serious effect on the sale of books (both digital and traditional) in the other Member States in the first quarter of 2012.

The Commission considers that these reductions might not be in line with European law and has decided to send letters of formal notice to both Member States.

This first stage allows the two countries to explain their positions. France and Luxembourg have one month to submit their comments.

If the information provided is not regarded as sufficient, the Commission could formally state that there has been an infringement and send a reasoned opinion to the two countries asking them to change their laws, which is the second stage of the infringement procedure.

EUROPA – Press Releases – Commission questions France and Luxembourg about reduced VAT rate on digital books.

How Dominant Players Reorganised Their Distribution Channels To Benefit From These Reduced Rates

If a private individual with residence in European Union buys e-commerce services from Apple via the iTunes store in Luxembourg no local VAT is due unless you are a resident of Luxembourg. The supply is subject to Luxembourg VAT

Assume that a Hungarian individual has a choice to purchase and download via a Luxembourg or Hungarian supplier. It is much cheaper from a VAT perspective to purchase a digital book from Luxembourg company than locally.

Distortion Of Competition

In Hungary the standard VAT rate is 27%. The standard VAT rate in Luxembourg is still 15%. That means at least a VAT saving of 12% per transaction.

The saving is 24%  if a reduced Luxembourg VAT rate of 3% is applicable and in Hungary – if purchased locally – the standard rate applies.

Luxembourg and France (already) allow a reduced VAT rates on digital books (similar as traditional hard copy books) and that makes the distortion even worse.

Read more about the possibilities and conditions in the blogs “VAT Rate Increase Results In Extra Saving“, “Luxembourg Below Tax Budget” and “The Reputation Of A Tax Professional“.

Richard Cornelisse is CEO of the KEY Group and worked previously as Big4 Partner in the Tax Performance Advisory and Indirect Tax Practice and blogs on Tax Function Effectiveness and Tax Control Framework developments.

Tax Management Consultancy welcomes your opinion on any of the issues raised, so feel free to join in the discussion on LinkedIn | Twitter | Facebook.

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