Intra-Community VAT fraud
In 2011/2012 the Netherlands Court of Audit carried out a joint impact assessment with the Rekenhof of Belgium and the Bundesrechnungshof of Germany of a joint audit conducted in 2009 of intracommunity VAT fraud. In 2009 we had made recommendations to improve the prevention, detection and repression of intracommunity VAT fraud. The impact assessment considered what undertakings had been given and what action had been taken in response to the recommendations made in the original report.
We concluded that our 2009 report had spurred on the Dutch Tax and Customs Administration to combat intracommunity VAT fraud more rigorously. It has deployed an additional 38 FTEs to combat this form of fraud, bringing the total to 88 FTEs. The Administration is paying more attention to carousel fraud and has tightened its grip on combating it.
The Tax and Customs Administration has started to clean up inactive VAT numbers. The VAT deferral scheme has been introduced for the CO2 emissions trading system, with VAT being deferred to the next link in the chain. Warning letters have also been introduced to inform entrepreneurs that they are at risk of being involved in carousel fraud.
A problem for the Administration, however, is that no share register is available to track changes in business ownership. This frustrates attempts to combat misuse of existing VAT numbers by the new owners of a business.
For detection purposes, the Administration wants to record verifications of VAT numbers as from 2013. In response to our 2009 report, the Administration investigated the added value of such records and came to a positive conclusion.
The ability to match VAT returns to foreign statements of intracommunity transactions has barely improved since our original report. The frequency of statements has been increased from quarterly to monthly for some traders but this does not solve the existing matching problems. There are many exceptions to monthly statements and matching still takes place on a quarterly basis. The increased frequency of statements offers the fraud units in the EU member states, such as the Fiscal Information and Investigation Service (FIOD) in the Netherlands, more opportunities to detect fraud at an earlier stage.
Some information is exchanged internationally by means of special forms. According to the FIOD, the exchange of information among fraud units is effective but the response to other requests for information is still slow. The percentage of late responses to information requests made by the Dutch Tax and Customs Administration to foreign tax authorities has increased since we published our report from 20% in 2009 to 48% in 2011. Despite our 2009 recommendation, the Administration has still not evaluated the impact of the international exchange of information on the detection of fraud. The establishment of Eurofisc to improve the exchange of information between the member states' fraud units is a positive development, partly because it removes legal hurdles to cooperation that some member states believe exist.
The available figures indicate that the Tax and Customs Administration has reduced the tax loss to the Netherlands caused by intracommunity VAT fraud. Our 2009 report contains figures from the FIOD on the tax loss between 2003 and 2007. In those years the average tax loss was nearly €131 million per annum. The comparable loss for 2008 to 20011 averaged nearly €39 million per annum.
Since our report was published in 2009, the Administration has improved its information on the extent of carousel fraud but further details are still required. It is not clear, for example, whether additional assessments for intracommunity VAT fraud have been raised for missing traders or for the refusal to apply the zero rate or to deduct input tax. The limited details also mean that the information cannot be reconciled with the FIOD's records. The Administration has said that these weaknesses will be addressed as from 2012.
A rigorous approach to carousel fraud remains a key factor to prevent the extent of the fraud increasing again. There is a constant risk of new carousels being set up in the current VAT system.
In the Netherlands, the Tax and Customs Administration itself could carry out an impact assessment and improve the provision of information on carousel fraud. Close cooperation and the exchange of information in the EU will also continue to have high priority in the future. We therefore recommend that the Administration and the State Secretary for Finance call for improvements at European level, especially regarding further harmonisation of administrative procedures to grant and withdraw VAT numbers, statements of intracommunity transactions and VAT returns.
The State Secretary for Finance responded to our report on 29 August 2012. The report, he thought, provided support for a continued rigorous approach to carousel fraud. In our opinion the state secretary's response largely endorses our recommendations. The state secretary should not confine an impact assessment of the international exchange of information to an analysis of feedback from other member states. It should also consider the value of the information the Administration receives from other member states in response to its requests.