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October 7, 2022

Finance Ministry secretary: Reverse taxation main way to eliminate VAT fraud

Reverse taxation is the best way to eliminate the VAT frauds; a pilot-project to this effect will be implemented in the Czech Republic and might bring changes in the entire European Union in terms of application of the value-added tax, says Gabriel Biris (photo), secretary of state in the Public Finances Ministry (MFP).

‘The reverse taxation was not meant to stimulate the business environment, but to fight against fraud. The fact that, indirectly, it helps the business milieu is also an outcome. The immediate effect would be the complete elimination of the ‘carousel’ fraud, which is based on the different treatment of national and intra-community procurement, and allows an intermediary to collect all the VAT along the chain, to buy without VAT and resell with VAT. This is the main cause of fraud in Europe,’ Biris explained on Thursday at the 10th TaxEU conference.

According to him, such frauds result in more than half of the 170 billion euros not collected from the VAT in the EU. Moreover, all VAT refund frauds are eliminated, because there is no more refund. Also, under reverse taxation, companies don’t have to prefinance the VAT. ‘Moreover, half of the control body of the [Romanian] tax authority is currently working on settling the refund requests,’ Biris added.

The state secretary also said that the reverse taxation pilot project to be implemented in the Cezch Republic – as discussed on January 15 by the finance ministers of the EU countries – could change the whole VAT evolution in the Union: ‘Reverse taxation means shifting the payment obligation to the buyer, the way we have now in the field of the intra-community procurement, and the buyer, if entitled to deduction – if not an exempt company, such as the banks or insurance companies – exercises its right to deduct through settlements, meaning no money circulate among traders,’ he detailed.

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