EC proposes stronger VAT cooperation with Russia, Norway

Tax rules for European firms dealing with Russia and Norway are to be tightened after the European Commission (EC) revealed it is opening talks with authorities in the two countries to improve cooperation on value added tax (VAT) arrangements. By creating a framework of “mutual assistance” the EC hopes to combat cross-border VAT fraud, it said in a release.

In particular the arrangements will target companies in the telecoms and e-services sectors. According to the EC, growth in these industries means there is pressing need for closer scrutiny of VAT.

It is part of broader efforts to tighten tax rules and comes shortly after the EC unveiled plans in November to close off a number of ‘loopholes’ that enable companies to make use of cross-border financing structures to reduce their tax liabilities.

Commenting on the latest plans for VAT, Algirdas Semeta, commissioner for taxation, said: "The supply chain has evolved dramatically since VAT was first implemented in the EU. Globalisation and e-commerce open up new windows of opportunity, but also create new risks.”

He suggested it was possible to play on cross-border differences and information gaps between countries and added: “The EU needs to work hand-in-hand with its international partners if it is to successfully combat VAT fraud.”

Any agreement would be based on the existing regulation on administrative cooperation in the field of VAT among EU member states. This framework, which is based on sharing information, could be extended to certain non-EU countries. Norway and Russia have agreed to begin formal talks, while tentative discussions with Canada, Turkey and China have also been initiated.

According to the EC, in 2011 an estimated €193 billion in VAT revenues - equivalent to 1.5 per cent of GDP - was lost due to non-compliance or non-collection. It said that while VAT fraud was a factor, this loss can be attributed to a range of different reasons.