EC finds most countries fail to implement all best practices; Finland and Sweden top of the class
The European Commission has reviewed the Value Added Tax registration, collection and auditing processes and standards of member states and the UK, and find most tax authorities’ below par.
Later this year, the EC will launch its VAT Gap Initiative, help tax authorities share and learn from best practices. The aim is reduce the EU VAT Gap, which is estimated to add up to over €130 billion in missing VAT revenues.
EC makes several recommendations
The Commission makes some broad suggestions on how member countries can add focus to their audits, including:
Registrations
- Maintain an accurate and complete VAT database
- When registering businesses, Perform legal and ID verifications
- Maintain records of businesses that were refused a registration
- Cross-check the information held in the VAT registration database against third- party information sources.
- focus on the specific economic sectors with a significant number of unregistered businesses.
- Impose risk assessment procedure in the registration process.
Filing
- Monitor late filings as source of indication of fraud and robustness of VAT system
- Systematic and clear deadline warning communications
- Simple and proportional late returns and payments penalty regime
- Restrict cash payments for VAT settlements
- flexible IT subsystem to manage and prioritise VAT arrears.
- Settle legitimate tax credits promptly
- Link the refund process with the registration component (check taxpayers’ identities to prevent fictitious traders from entering the VAT system)
Audit
- Full online VAT registration documentation and database of taxpayers
- Sector-tailored audit workpapers and processes
- Review of audit processes
- Improved data exchange with other authorities to focus on cross-border fraud
- Deploy specific audit technologies
- Invest in IT staff with a view to improving both their number and their skills.
The VAT Gap Initiative will run alongside the EU VAT in the Digital Age with reforms include a channel for harmonised Digital Reporting Requirements (DRR) and Continuous Transaction Controls (CTC) by EU states. This grew from the 2020 EU Tax Action Plan proposals for a fairer and more efficient EU tax regime.
