Keywords: VAT, tax, fraud, carousel fraud, European Commission, EC, reverse charge mechanism

European Commission launches tool to combat VAT fraud

Anna Bowsher | News | 22 August 2012

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The European Commission has put in place a new tool to combat VAT fraud among EU member states.

The ‘Quick Reaction Mechanism’ is able to implement a reverse charge so that the recipient of the goods is liable for VAT, rather than the supplier. The aim of the initiative is to help countries react quicker to VAT fraud, and in particular carousel fraud, one of the most common and large-scale VAT fraud schemes. In such schemes, fraudsters import goods to a Member State VAT free and then charge VAT to the buyer, failing to pay the tax to authorities before disappearing. This causes financial loss for public finances when the buyers deduct the VAT they have paid from their taxable income.

The reverse charge mechanism therefore undermines the whole basis of carousel fraud by making the customer, rather than the supplier liable for the VAT. The customer must report and pay the VAT and are then able to deduct it from their taxable income at the same time.

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."