EU proposes major overhaul of cross-border VAT regime

The EU is to publish proposals on reform of its cross-border VAT regime on Wednesday in what it hopes will spell the end for the “carousel fraud” that costs the union an estimated €50 billion a year.

It is the first overhaul of the regime in 25 years. Cross-border VAT fraud could be reduced by 80 per cent for businesses under the proposed system which, the European Commission claims, should also shrink the “VAT gap”, the difference between VAT revenues expected by government and those actually collected – in 2013 some €168 billion.

Almost €1 trillion in VAT was collected in the EU in 2014 – equivalent to 7 per cent of the EU’s total GDP. But, despite the internal market, the system and rates remain fragmented and very far from borderless.

The carousel fraudsters exploit the fact that within the EU, goods being moved cross-border between member-states are free from VAT, with the tax only due when the goods reach purchasers.