In September, the European Commission released a report regarding uncollected VAT throughout the E.U., and the results underscore why we’re seeing such a tidal wave of tax compliance legislation across the globe. In 2014 alone, E.U. countries lost €159.5 billion in value added tax (VAT) revenue. This infographic outlines the VAT gap by country, with Italy, France, Germany and the United Kingdom leading the way in total VAT lost.
Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs for the Commission, called these rates “unacceptable,” noting that countries are “woefully ill-equipped to deal with the problems of VAT fraud and miscalculations, and it's clear that the numbers will not get better by themselves.” Of particular concern, cross-border VAT fraud contributed to €50 billion, or almost one-third, of the VAT gap. The report also showed that countries in the E.U. are ineffectively adapting to today’s digital economy.
Between the Commission’s “Action Plan” to create a single VAT area and the upcoming execution of the Common Reporting Standard, European countries are making headway in combatting cross-border tax fraud. However, progress has been much slower than that of Latin America, where 10 countries in the last decade have moved toward mandated e-invoicing and e-accounting measures to combat VAT fraud. Taking advantage of today’s technologies, these countries have standardized reporting processes to gain increased visibility into corporate transactions, dramatically increasing tax revenues as a result.
As European countries move to more proactively combat VAT fraud via new SAF-T reporting requirements, companies can expect increased legislation that inserts the government directly into their business processes. Mandates in Latin America have changed the way companies report payroll and T&E, the way they process invoices, the way they manage inbound receiving and much more. This offers an indication that the complexity of VAT reporting will only increase and that organizations are required to adapt their VAT processes for real-time reporting in Europe.
For companies operating in Europe wondering how to prepare for the crackdown on VAT fraud, look no further than your counterparts in Latin America. Those that have proactively approached compliance, that have used standardization as a means of efficiency and innovation, and that have taken a holistic view of the tax landscape are thriving. To learn more about SAF-T requirements in Europe and what we can learn from Latin America, Listen to webinar replay "Overview of SAF-T Reporting Requirements in Europe".