Sunday 25 September 2016

Ireland to gain flexibility on VAT rates as EC tackles fraud

Published 08/04/2016 | 02:30

EU commissioner Pierre Moscovici. Photo: Damien Eagers
EU commissioner Pierre Moscovici. Photo: Damien Eagers

Ireland could benefit from increased flexibility and discretion around the VAT rates it can apply as the European Commission bids to crack down on VAT fraud.

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As part of a new action plan for VAT reform the Commission is looking to reboot the existing system, which was implemented as a transitional measure in 1993.

The Commission said the current system needs to be modernised to deal with today's global mobile economy. Economic affairs commissioner Pierre Moscovici said it is time to close the "VAT Gap".

That's a reference to the difference between the amount of VAT actually collected and the amount that is supposed to be raised.

"VAT is a major source of tax revenue for EU member states, yet we face a staggering fiscal gap," he said.

"The VAT revenues collected are €170bn short of what they should be. This is a huge waste of money that could be invested on growth and jobs." The increased power that could be granted to the State could be used to reduce the VAT rate on housebuilding, according to Grant Thornton tax partner Jarlath O'Keefe.

"Currently the rate of VAT on building houses is charged at 13.5pc and the Construction Industry Federation (CIF) would look for the lower 9pc rate that is being charged in the hospitality sector.

"The real reason that hasn't been introduced is that it would be difficult to get over the hurdle of EU legislation," However, Mr O'Keefe said that if the VAT action plan is brought in the newly acquired discretionary power could be used to bring the rate down.

It is estimated that around €50bn is lost each year to VAT fraud across the EU. The Commission says €40bn of this can be cut out by the plan, with all proposals on reform due to be presented to the European Parliament by the end of 2017.

Carousel fraud, which involves regaining VAT from newly imported goods within the EU, is one of the most prominent forms of VAT fraud in the EU.

Another element of the new plan will look to reduce the amount of paperwork that small and medium enterprises (SMEs) will have to complete on their tax returns.

The Commission is looking to simplify VAT rules for e-commerce in order to make life easier for SMEs.

"The administrative burden for small businesses is high and technical innovation poses new challenges for VAT collection," said the Commission's vice president for Euro dialogue, Valdis Dombrovskis.

Support being offered to SMEs in terms of reform is being used to level the playing field with non-EU firms.

The Commission said EU companies are at a "competitive disadvantage" because non-EU traders can import VAT-free goods to the Union.

Jarlath O'Keefe believes the new plan will be met with little to no opposition as it is granting extra autonomy to governments as VAT is gradually moved to a model of charging in the region of consumption, as opposed to country of origin.

"The ultimate aim is that if you were buying products or services that the same VAT rules would apply, I guess you might have differences in terms of rates," Mr O'Keefe said.

The new plan was created after prompting from both the European Council and the Parliament. It has been touted for introduction in 2017, however previous plans around financial services have tended to suffer delays.

Irish Independent

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