EU Report on VAT Fraud: Simplified Import Procedures & Customs Reform Recommendations

The European Court of Auditors published a special report on VAT fraud on imports, showcasing that the EU policies and strategies are insufficient to protect itself against VAT fraud. Moreover, the report underlines the simplified import customs procedure as one of the leading causes of inefficiency. 

The report highlights loopholes, inconsistencies, and weaknesses in the EU regulatory framework and EU countries' controls against the abuse of simplified import procedures. It also includes several recommendations to the European Commission on overcoming these issues.

Key Conclusions and Recommendations

Some of the main issues contributing to the loss of nearly EUR 89 billion in 2022 due to VAT fraud are disparity in sanctions and penalties proposed among EU countries, and the absence of a harmonized system for criminal sanctions. Additionally, no unified rules exist for appointing a tax representative under customs procedure 42.

One of the leading problems for EU countries is that they cannot assess VAT correctly due to the limited credibility checks and errors in the customs declaration systems. Furthermore, the European Court of Auditors concluded that only one of the five EU countries they visited has developed a risk and control strategy to detect and combat Import One Stop Shop (IOSS) abuse.

One of the key flaws in combating VAT fraud is Eurofisc's inability and lack of authority to suspend or deregister missing traders in the VAT Information Exchange System (VIES).

Based on the elaborate audit of the EU regulatory framework and EU countries' policies and practices, the European Court of Auditors underlined that the European Commission should further strengthen the regulatory framework for simplified import customs procedures, conduct an in-depth analysis of the regulatory framework and its implementation among EU countries, propose to require customs and tax authorities of different EU countries to cooperate directly and strengthen the role of Eurofisc.

Conclusion

The European Commission welcomed the special report on VAT fraud, agreeing with the European Court of Auditors' recommendations to combat fraud and ensure more VAT is collected on imported goods. As stated in the official announcement, the Commission’s Customs Reform proposal aims to create a more efficient customs framework, including establishing an EU Customs Authority, which will operate an EU Customs Data Hub. Companies will provide data only once to the centralized system rather than submitting data to each customs authority.

Nevertheless, until the Customs Reform is completed, EU countries and the EU will remain at risk from VAT fraud, unless national governments undertake necessary measures.

Source: European Court of Auditors, European Commission