European Commission takes aim at VAT fraud with CESOP
The European Commission (EC) has clamped down on VAT-based fraud by introducing a new set of rules for EU member states, effective 1 January.
The rules seek to harness the power of aggregated payment information from the e-commerce sector specifically as a means to patch up the holes created in tax revenues as a result of VAT fraud.
In Europe, the difference between the amount of VAT that could be collected and the amount that is actually collected is referred to as the ‘VAT gap’. This gap can grow for any number of reasons, such as malpractice and fraudulent behaviour, less than optimal systems, administrative errors, bankruptcies and financial insolvencies.
According to the EC’s latest EU VAT Gap report, which was published in October 2023 and is based on figures from 2021, €61 billion in VAT was lost by EU member states in 2021, 5.3% of the expected VAT Total Tax Liability (VTTL).
However, data both from 2020, which recorded a €99 billion loss, and the preceding years, which experienced highs of €140 billion in losses, indicates that this gap is slowly showing signs of convergence, aided by the evolution of digital tax and invoicing systems.
The biggest movers in closing this gap, as highlighted by 2021’s figures, were Italy with a year-on-year decrease of -10.7% and Poland with a decrease of -7.8%. Meanwhile, Finland, Spain, Estonia and the Netherlands were all among the countries with the narrowest gaps.
Despite the positive movement, VAT fraud still remains a prevalent and costly issue for the continent’s regulators. Latest efforts to tackle the problem include Operation Admiral which, led by the European Public Prosecutor’s Office (EPPO), filed charges against 12 individuals and 15 companies in December.
Read the article on fintechfutures.com
The article features Ramzi Dziri, Head of Product at LUXHUB, who shares his knowledge and highlights the challenges for PSPs to generate and transmit their CESOP reports to the relevant NTAs.