European Parliament backs measures against e-commerce VAT fraud

E-commerce leaves empty streets behind. Does this also apply to tax revenue?

EU-Commission estimates, online sales in the EU are worth €550 billion a year – €96 billion of which is cross-border. Nearly no foreign trader is paying required VAT in the country of trade.

In France alone, the annual loss of VAT is estimated at 10-15 billion euros (see the embedded Youtube video). According to EU, new rules should in the future raise €7 billion in VAT revenues for member states.

MEPs supported measures designed to fight e-commerce VAT evasion that would help cut some of the €137 billion lost each year across the EU to VAT fraud. It was adopted with 590 votes to 19 and 81 abstentions. The measures, contained in two pieces of legislation spearheaded through the Parliament by Lídia Perreira (EPP, PT) require payment service providers to collect cross-border e-commerce payment records. A new central electronic storage system would be created so that anti-fraud authorities in member states can process payment information better. Administrative cooperation among the member states’ tax authorities and payment service providers will also be strengthened.

Lidia Perreira noted during the plenary session: “VAT is based on communication by operators in a given value chain and is therefore based on trust. While it is true that the overwhelming majority of these actors are reliable and fulfil their obligations, unfortunately VAT fraud remains a problem. The difference between the VAT that was estimated to be charged and that actually charged in 2017 was €137.5 billion. And this means a loss of 267 euros per European citizen.”

More specifically, some of the improvements, adopted by EU-Parliament include:

Setting up a common system for collecting comparable statistics on intra-Community VAT fraud and requiring national estimates of VAT fraud losses to be published;

Creating a mandate for the European Public Prosecutor’s Office, in collaboration with national judicial authorities, to ensure that fraudsters are effectively prosecuted in national courts;

Member states investing in technology-led tax collection, notably by automatically linking corporate cash registers and sales systems to VAT returns;

Improving communication and interoperability between tax-related databases at European Union level;

Requiring that payment service providers retain records of payment transactions for a three-year period to assist member states in fighting e-commerce VAT fraud and detecting fraudsters.

In the text adopted by EU Parliament it is said: “A central electronic information system ‘CESOP’ where Member States transmit payment information they store at national level, would achieve the objective of fighting e-commerce VAT fraud more effectively. This system should aggregate, in relation to individual payees, all VAT relevant information regarding payment transactions transmitted by Member States and should allow for a full overview of payments received by payees from payers located in the Member States. Furthermore, this information system should recognise multiple records from the same payment transactions, clean the information received from the Member States (e.g. remove duplicates, correct error in data, etc.) and permit Eurofisc liaison officials of Member States to cross-check payment data with the VAT information they dispose of and make enquiries for the purpose of an investigation into suspected VAT fraud or to detect VAT fraud.”

EU member state ministers must now adopt the two pieces of legislation.

Sources: France24, EU-Commission, EU-Parliament