The European Commission has adopted a short term action plan with a list of future legislative measures to enhance the capacity of tax administrations to prevent or detect VAT and to recover taxes.

László Kovács, Commissioner for Taxation and Customs on announcing the action plan, said: “My aim is to tackle VAT fraud effectively, without creating unnecessary administrative burden for legitimate trade.”

Commissioner Kovács comments however are at odds with the next set of measures planned by the Commission to combat fraud which include increasing the frequency of VAT return submissions to a monthly basis where intra-Community acquisitions of goods and purchases of services from a supplier established in another Member State for an amount higher than €200,000 per calendar year and also increasing the submission of VIES returns to monthly basis. The ICAI has lobbied the Irish Revenue and the EU Commission against the introduction of such measures which will certainly lead to added administration costs of businesses.

The announcement from the Commission outlines two measures adopted to amend the VAT Directive. The first aims to prevent the existing abuse by fraudsters of the VAT exemption at importation and the second to give Member States the power to make the supplier of goods liable for the VAT loss created by a missing customer in another Member State, when the supply is not reported to the VAT authority.

In addition the Commission outlined an action plan which proposes to introduce measures in the future to prevent potential fraudsters from abusing the VAT system including:

• common approach to the registration and de-registration process of VAT taxable persons in the EU;
• online confirmation available to traders of the validity of the VAT identification number of their customer;
• simplification, modernisation and harmonisation of the current rules on invoicing
• enhance the tools for the detection of VAT fraud, in particular by the creation of a European network, called Eurofisc, for closer operational cooperation between Member States;
• strengthen the possibilities for tax authorities to recover VAT losses in cross-border cases (including, improvement of the mutual assistance between tax authorities for the recovery of taxes, introduction of shared responsibility for the protection of all VAT revenue independently of the Member State to which it is due).

While the ICAI supports the European Commission's objective to combat VAT fraud connected with intra-Community transactions, we have concerns that the proposed amendments to the increased submission of VAT returns will give rise to substantial additional administrative costs for businesses, particularly for small businesses, without providing greater safeguards for Member States tax revenues.

Full details of the Commission action plan are available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1846&format=HTML&aged=0&language=en&guiLanguage=en.