EU Finance Ministers Sign Off on Anti-VAT-Fraud Plan

European Union finance ministers agreed on a proposal to combat fraud related to value-added taxes, in a meeting in Luxembourg today.

The plan spells out how and when to allow reverse charges on VAT, a consumption tax usually paid by purchasers. Fraud is a particular concern for mobile phones, tablet computers, gas, electricity and cereals and other industrial crops.

EU leaders had called on finance ministers to adopt the anti-VAT-fraud measures “by the end of June 2013 at the latest” as part of a 10-point plan to crack down on tax avoidance.

“VAT fraud in Europe costs literally billions if not trillions and action has been awaited for quite a long time now, and we have got that particular one over the line,” Irish Finance Minister Michael Noonan told reporters in Luxembourg today as the meeting began.

Ten European power and gas groups, including Eurelectric, Eurogas and London Energy Brokers’ Association, welcomed the decision, which they say will help prevent further abuse of the markets for criminal purposes.

“It is now important that all EU member states make appropriate use of the possibility of applying the reverse-charge mechanism to qualifying electricity and gas transactions in their national markets in order to actively eradicate VAT fraud and to prevent significant losses,” they said in a joint statement.

Tax Fraud

The package approved today includes the possibility of introducing the reverse-charge mechanism to certain goods at a national level. The EU already took some regulatory steps to fight tax fraud in the region’s carbon market in 2010, after reports that some sellers of emission allowances pocketed VAT collected from buyers and disappeared before submitting the money to the treasury.

The agreement today will also create a quick reaction mechanism that will allow immediate measures for a maximum of one year in case of major fraud attack. That mechanism will apply until the end of 2018 and any renewal will require further regulatory approvals.

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