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A
Missing trader fraud is where a taxable person, having
made an intra-Community acquisition on which VAT has not
been charged makes a subsequent domestic supply on which
he charges VAT and then disappears without having paid
that VAT to the Treasury.
Taxation
of intra-Community supplies of goods
Under
this concept, intra-Community supplies would be taxed in
the Member State of origin at the rate of 15%. Where the
Member State of arrival applies a rate of more than 15%,
the purchaser in the latter Member State would have to pay
that additional VAT directly to that Member State.
Likewise, where the Member State of arrival applies a rate
lower than 15% (due to the application of certain reduced
VAT rates or the zero rate in certain Member States), the
Member State of arrival will allow credit to the taxable
person who is making the intra-Community acquisition.
Taxation
of intra-Community supplies appears to provide an adequate
solution to the problem of Missing Trader Intra-Community
(MTIC) fraud. However, it by no means solves other types
of fraud. Furthermore, it would potentially cause
cash-flow difficulties for traders, in particular for SMEs,
which would have to pre-finance the VAT in transactions
where they currently do not pay VAT.
According
to the Commission, the trickiest issue with this option
would be to define a clearing system of the VAT revenues
between the Member States. Member States of origin will
have to collect VAT (applied at a rate of 15%) and
transfer it to the Member States of arrival. As a result,
the Commission has calculated that on average, 10% of
Member States' VAT receipts would depend on transfers made
by other Member States.
Before
further analysing how a clearing system could function,
the Commission is seeking political guidance from the
ECOFIN Council to determine whether taxing Intra-Community
supplies in the Member State of origin is a viable option
to be considered.
If
Member States are unwilling to agree that their VAT
receipts could be dependent on other Member States, the
Commission sees the only alternative to be taxation of
intra-Community supplies at destination. This alternative
would allow for taxation at the appropriate rate in the
Member State of arrival - a common rate of 15% for
intra-Community supplies would not be necessary. In
addition, there would be lower costs both for taxable
persons and for tax administrations. However, such an
alternative would require setting-up a real One-Stop
Scheme[2].
Generalised
reverse charge system
Under
a generalised reverse charge system, the VAT system that
is currently applicable to Intra-Community supplies would
also apply to domestic transactions. This means that VAT
would not be charged by the seller to the customer if the
latter was another taxable person. Instead, the customer
(rather than the vendor) would be responsible for paying
the VAT to the Treasury .
The
Commission is of the opinion that such system would
substantially reduce MTIC fraud. However, it is concerned
that this reverse charge system may negatively affect
Member States’ revenues, due to other new types of fraud
such as untaxed consumption and the misuse of VAT
identification numbers. In order to combat these new types
of fraud, a number of new measures would need to accompany
the reverse charge system, and these could complicate the
system and create new, but not insurmountable, burdens for
businesses and tax administrations.
The
Commission takes the view that a general reverse charge
should either be introduced on a mandatory basis in the
whole EU or be entirely disregarded as a concept. It would
not be acceptable to have an optional reverse charge
system for Member States , as this would lead to
considerable burdens on companies trading in several
Member States.
In
view of all the points outlined above, and the lack of
empirical data on the impact of a generalised reverse
charge system, the Commission considers it worthwhile to
launch a pilot project in one Member State in order to
test the impact of such as system, on condition that
strict criteria are fulfilled.
Further
information on the Communication can be found at:
http://ec.europa.eu/taxation_customs/taxation/vat/key_documents/communications/index_en.htm
[1]
Missing Trader Intra-Community Fraud (MTIC) also commonly
called carrousel fraud.
[2]
The “one stop” scheme would enable traders to fulfil
their registration and declaration obligations in their
home Member State, including for services provided in
other Member States where they are not established. The
payment would be made directly by the taxable person to
the Member State of consumption.
Source
: Europe Press Release, dated 22/02/2008
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