VAT fraud costs Europe up to ?100bn a year

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The Independent Online

VAT fraud in the European Union is costing as much as €100bn (£67bn) a year, according to authoritative estimates.

VAT fraud in the European Union is costing as much as €100bn (£67bn) a year, according to authoritative estimates.

A report produced by the European Federation of Accountants (FEE), and backed by estimates from within the European Commission, show that a tenth of all VAT in the EU is not being collected.

The FEE estimates that the total amount of VAT lost each year is between €80bn and €100bn for the 15 countries that made up the EU before expansion at the beginning of this month. This is equivalent to all the VAT collected in France.

The FEE figure is backed by a Commission report, published recently, which says that: "Some member states have estimated such losses as up to 10 per cent of net VAT receipts. VAT fraud has... become a real worry [which] jeopardises legitimate trade... and distorts competition."

In a report to the European Parliament, the Commission says that although the detection rate of fraud is uncertain and the exact sums of money involved difficult to quantify, the amounts are undoubtedly considerable.

The FEE's figures may underestimate the problem. Estimates from the UK's Customs & Excise put the "VAT gap" - the difference between how much it thinks it should collect and how much it does - at £12bn in 2002-03.

Various solutions have been suggested by the FEE, from better, more targeted VAT inspections to a reform of VAT legislation, some of which is nearly 50 years old.

Scams currently active in the EU included "missing trader fraud", sometimes called "carousel fraud". Fraudsters form a ring of companies, make dishonest claims for rebates from the VAT authorities, then disappear. Their lives could become easier now - by taking advantage of the addition of the 10 new member states.

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