Supplementary memorandum submitted by
the National Audit Office
Question 163 (Mr Davidson):
At the hearing on the C&AG's Standard Report
on HM Customs and Excise on 2 February, the Committee asked the
National Audit Office for details of VAT tax gap measurement made
by other EU member states.
This is an issue which is regularly discussed
by European Supreme Audit Institutions including the NAO at meetings
of the European VAT Working Group, which examines VAT fraud issues
common across the EU and looks at measures to target anti-fraud
work effectively.
In the EU, only HM Customs and Excise in the
UK have a sophisticated mechanism to estimate VAT losses due to
error and fraud using statistical data produced by the Office
for National Statistics. Losses reported by other EU members are
limited to actual frauds uncovered, or extrapolations based on
uncovered frauds.
CURRENT EU FRAUD
ESTIMATES/FRAUDS
DISCOVERED
— Austria—Missing trader fraud
estimate
700 million/annum.
— Italy—Guardia di Finanzia—fraud
detected
2.2 billion.
— Belgium—Estimated VAT fraud
losses
2 billion.
— Germany—Estimates VAT losses
as "significant".
— Poland—No firm estimate—under
review by Ministry of Finance.
The NAO chairs the Core Working Group of the
European VAT Working Group, which is looking into the issue of
measuring VAT losses. A meeting will be held in the summer, in
London. In advance, members of the group have been asked to provide
further information about known and estimated VAT losses.
The Committee also asked about the potential
impact of VAT fraud on payments to the European Union. The mechanism
through which countries pay VAT to the EU (traditionally called
Own Resources), is set out in VAT Directives and implemented and
amended through decisions by the Commission and ratified by member
states.
When governments agreed to provide own resources
to the EU, member states were obliged to pay 1% of their VAT base
(as disclosed in National Accounts)—this was later increased
to 1.4% in 1985. When the finances of the EU were reformed in
1988, it provided the EU with a more predictable and stable financial
base making it less dependent on traditional own resources, as
a result more recently there have been reductions in the amounts
of VAT paid over to the EU. The amount due fell to 1% in 1999,
0.75% in 2002 and 0.50% in 2004.
For the purposes of agreeing amounts due to
the EU, the VAT base of each member state was capped at no more
than 55% of gross national product, later reduced to 50% of gross
national product in 1999 (member states eligible for assistance
under the Cohesion Fund were subject to a cap of 50% from 1995).
Under this regime for setting contributions to the EU, it is clear
that the level of fraud per se will have little impact on the
level of payments.
February 2005
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