Brussels urges EU states to shut down tax fraud ′carousel′ | Business| Economy and finance news from a German perspective | DW | 19.08.2009
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Brussels urges EU states to shut down tax fraud 'carousel'

European Union officials have called on member states to share information about their taxpayers to help combat value added tax (VAT) fraud, which costs governments billions of euros in lost revenues each year.

A man rides a carousel

Criminals riding the VAT carousel exploit a lack of coordination between EU states

The European Commission is proposing the creation of a new structure, referred to as 'Eurofisc', that would allow governments to exchange information directly and devise common tax enforcement strategies.

To boost the impact of the system, the EU executive also outlined a set of rules detailing what kind of information national tax databases should include and how the information should be registered to make it easy for authorities to make cross-border comparisons.

The plan, which requires backing from member states and the European parliament if it is to come into effect, is aimed at preventing so-called "carousel" tax fraud. This occurs when someone acquires tax-free goods in the European Union and then sells them elsewhere within the bloc at a price that includes VAT, only to disappear without paying the tax to the authorities.

Defending revenues

Euro coins on a pile of tax receipts

Value added tax fraud costs European governments billions of euros each year

Laszlo Kovacs, the EU's taxation commissioner, argued that fighting tax fraud is particularly crucial during times of falling tax revenues, such as is the case with the current recession.

"In the current economic situation it is more important than ever to fight tax fraud efficiently, and a fully functioning administrative cooperation between tax administrations is key in that respect," Kovacs said in a statement.

"My objective is to ensure that tax authorities have all technical and legal means to take action against European Union-wide VAT fraud and to ensure that each tax administration is prepared to protect other member states' tax revenue as effectively as their own," Kovacs said.

The Commission gave no estimate for the amount of VAT fraud throughout the bloc but studies suggest that there is a 10 percent gap between theoretical and actual receipts in most nations, with overall tax fraud costing governments 200-250 billion euros ($282 - 353 billion) per year. In 2006, Germany alone estimated its annual losses in VAT receipts totaled 17 billion euros.

Recent years have seen the European Commission intensify efforts to battle tax fraud since 2006, but with little success. All tax-related decisions require unanimity, however, and the Commission's latest proposals are expected to face stiff resistance from some of the bloc's finance ministers.

Editor: Susan Houlton

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