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26th Sep 2021

Stalling on VAT reform costing billions, says Commission

  • 'I am not going to point the finger at any particular ministers or member states but we know it is largely due to the unanimity rule,' commissioner Pierre Moscovici said (Photo: European Parliament)

The European Commission on Tuesday (7 May) lashed out at member states' stalling on VAT reforms, following media revelations that up to €50bn is lost every year to so-called 'carousel fraud'.

The scam, exposed earlier this week by German-media outlet Correctiv along with dozens of other newsrooms from across Europe, found criminals and terrorists are stealing taxpayer money by exploiting cross-border exemptions from VAT.

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The latest revelations, known as Grand Theft Europe, also found that such losses are made worse because EU states refuse to cooperate.

Germany is cited as among the biggest culprits despite losing billions every year to the scams. In 2009, it lost €800m just on trades involving CO2 emission certificates, Correctiv found.

Economy commissioner Pierre Moscovici told reporters in Brussels that national ministers have been dithering on VAT reforms that could stamp out up to 80 percent of such types of fraud.

"I am not going to point the finger at any particular ministers or member states but we know it is largely due to the unanimity rule," he said.

That rule means EU states must agree without exception when it comes to tax issues. But two years of talks on VAT reform have led to a stalemate at the Council, which represents member states.

The commission has been pressing for changes so that tax issues are instead decided through qualified majority voting. The issue is politically-sensitive to EU heads of government fearful of losing a national grip on taxation.

But in 2017, the commission floated a legislative proposal to overhaul the EU VAT system anyway.

Those reforms included placing a VAT charge on cross-border trade between businesses in an effort to remove loopholes used by criminals to steal money.

"In my view, this offers the only possible response if we are to stop this type of fraud," said Moscovici.

Juncker's tainted legacy

Such proposals follow the November 2014 media revelations known as LuxLeaks.

It revealed how shady and secret tax rulings in Luxembourg allowed hundreds of corporate giants to slash their global tax bills.

The deals were cut while Jean-Claude Juncker, today's European Commission president, was Luxembourg's prime minister.

When the revelations hit, Juncker as Commission president disappeared from the public view for a week. It took almost three years before he agreed to discuss it with MEPs in a public hearing.

On Tuesday, he described it as one of his biggest mistakes.

"I should have responded immediately, that was a major mistake and I took too much time to respond to that," he told reporters.

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