VAT harmonisation in the EU vis-à-vis VAT fraud : a Maltese perspective

Abstract

Purpose: EU VAT harmonisation brings positive outcomes for the European and business community facilitating the effective functioning of a single market. EU institutions are becoming more aware of the importance of adopting a harmonised VAT system. Despite the high degree of harmonisation currently achieved, a cohesive regime is a utopia of VAT directives. The study outlines the evolution of VAT fraud schemes both locally and in the EU. MTIC fraud and carousel fraud are more synonymous with intra-community trade whilst locally, fraud relates to under-declaration of sales and evasion. The study attempts to contribute to the existing prepositions for the suitability of measures to tackle MTIC fraud and carousel fraud through changes in the current VAT legislation both from a local and EU standpoint. Design: Case law and semi-structured interviews provide a practical outlook of the most effective measures of what the European legislation deems as a protective measure against fraud namely through the application of the QRM, Joint and Several Liability and KT. Future initiatives in the field of indirect taxation help to address more sophisticated fraudulent schemes. Findings: Given the importance of VAT as a government revenue generator and the scale of VAT fraud which is one of the major concerns amongst EU institutions, the latter proposed the adoption of a unified approach in the fight against VAT fraud. The RCM shall be adopted as a remedy of the last resort so as to avoid the dispersion of other types of fraud. Conclusions: Consequently, far-reaching measures aimed to combat VAT fraud, need to be complemented by conventional measures emphasising better enforcement and administrative cooperation amongst foreign tax authorities and businesses. Implications: Despite not being the main tool to mitigate fraud, harmonisation hinders fraudulent practices. Albeit efforts to address fraud, anti-fraud mechanisms cannot abolish fraud since it continues to prevail as long as VAT exists.