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Court calls for tighter VAT controls

[ December 15, 2011   //   ]

The EU Court of Auditors (ECA) has called for tighter controls on goods imported into the Union under Customs Procedure 42. The concession allows VAT exemption for goods imported from a third country by an EU state for subsequent delivery to another member state. The regulatory framework absolutely needs to be improved, notes the report, published on 13 December.

The report said that the system was vulnerable to tax evasion.

The court conducted a performance audit in seven member states of import – Belgium, Denmark, Spain, France, Austria, Slovenia and Sweden – and in 21 countries of destination. Procedure 42 resulted in significant losses, it said

Losses in 2009 are estimated at around €2.2 billion, or 29% of the VAT due on all imports under the procedure in the seven states. Losses in the states of import and destination are estimated at €1.8 billion and €400 million, respectively.

The court acknowledged that the mechanism is a useful trade simplification but was not effective enough to ensure that the correct VAT was charged. It added that the Commission has proposed improvements to the regulatory framework but the European Council has so far failed to put them into practice. National authorities do not systematically check that exemption conditions are met and information exchange between countries is weak, and the court called for the customs code to be amended to implement uniform communication of full VAT data. The Sixth VAT Directive should be revised to ensure that importers are held jointly and severally liable for VAT losses in the member state of destination and an EU risk profile created to encourage systematic checks.