Subcommittee on Tax Matters Ordinary meeting
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FISC European Parliament
Ihren Sitzungen folgen
Mafalda Monda
Additionally, business interviews were conducted across selected sectors in eight member states with experience in the implementation of the VAT reverse charge mechanism. The study also offers a recommendation useful for the review of the VAT reverse charge mechanism and its potential extension beyond the current application deadline of 31st December 2026. The study was published this week and has been circulated to FISC members following its publication.
I will now give the floor to Mr. Camilo Giraldo from Ecorys, who will present the main findings of this study. Thank you.
Camilo Giraldo
Thank you very much, Mafalda. Let me start this presentation about this document that as you said has been already published yesterday. And let me start with the three main research questions that were answered in this particular study. So the first research question is related to the implementation and the use of these two articles, 199a which is the RCM or the reverse charge mechanism, and article 199b which is the QRM or the quick reaction mechanism.
The second research question that we answered was related to the effectiveness and the impacts of these two articles. And the third research question that we answered is related to the lessons learned and the future policy design. So having this structure in mind, let me start with the first research question. So the implementation and the use of these two articles again, the RCM and the QRM.
So, the RCM is widely used across the European Union, but the implementation is uneven among Member States. Member States can apply RCM or not, and those who do can design it in their own way, meaning that they can use, for example, reseller checks, licensing requirements, thresholds, etc. Most Member States apply RCM in at least one sector, but some rely on one single category and some other Member States cover much more broader range of categories. So, the reason of this can vary. So, for example, you have different fraud risk perceptions, or you have different economic structures, or just different administrative choices.
The most applied category is emission allowances, where we have 22 different Member States, and at the other end, we have telecom services, which is applied only by four Member States. However, even if two countries can apply the same category, in practice, the scope can change significantly. Just to give you an example, Germany defines mobile phones in a few lines, but for example, the Netherlands uses a detailed list of what is included and what is not in this particular category. Another layer of variation is what I mentioned, the threshold.
So most countries do not apply a threshold, but there are nine different countries that apply thresholds of somewhere around 3,000 to 10,000 euros. Meaning that, conclusion, Article 199a is less of a EU single measure and it's more of a framework within which each member state makes its own choices. Now, let me continue with this effectiveness and impact saying that RCM does not eliminate the administrative burden, but it moves it. And let's see how it shifts in two different perspectives.
So the first perspective is related to the tax administration. So previously, controls focused on whether suppliers were sending VAT to tax authorities, but now under RCM, the focus is on whether the purchasers self-account correctly. So this means that this creates new monitoring tasks for tax administrations. Why? Because administrations now need to match invoices against the VAT returns.
Also, they need to cross-check transaction data and they need to manage a higher volume of refund verifications.
Another layer of challenges is related to the different national rules. So, as I said, different member states, they have different definitions, different thresholds and reporting obligations that makes cross-border enforcement and data exchange between administrations may be less effective. Now, on the business's side, on the right side of your screen, the picture is a little bit mixed. So we know that where rules are clear and stable, with little uncertainty, business can actually manage compliance.
But of course, on the other side, where rules are complex, well, the costs rise. So the message in here is the following: harmonized definitions, common thresholds, and standardized reporting formats would significantly reduce the disputes and lower the cost of compliance.
Redner 4
Yeah, let me continue. Thanks, Camilo. So, I mean, the next question was, okay, where does RCM works best and where not?
I mean what we found if we see for example a typical MTIC chain works best the reverse charge mechanisms in environment where resemble very close this transaction that applies into trade multi missing trader intra-community fraud. For example you have the missing trader then you have a channel where it includes many intermediaries brokers exporters until it reaches the final stage which is the tax authority and of course where the opportunities are also much larger in order to let's say exploit fraud opportunities and so on and so forth.
So these are typically high-good, high-value goods, for example electronics, but also energy-related, which move rapidly through different channels and intermediaries, whether it's companies, legally only existing companies that use for purpose to blur cross-border, let's say, transactions and so on and so forth. However, also we found that the effectiveness depends also on the legal perimeter. So here what we mean is the scope of RCM.
So the services, the categories, the products, the thresholds, the more clear is that the surrounding environment, the more effective is RCM. And also we found that the wider control environment, which means also the ability that we have to monitor transactions, to verify transactions, audit, the ability that tax administrations have, also plays an important role on that. So it's most effective when applied to the right transactions within a strong supervisory framework. Now moving to the next, this is the second essentially question was, okay, is RCM able to reduce VAT fraud? What we found is that yes, but.
I mean, the evidence from tax administrations was quite clear about 75, 79, 80% of them said that it reduced fraud in the category in which was applied. The same also from businesses. We have several examples also from the interviews from businesses that said that it reduced fraud. It also increased competition. It reintroduced the, let's say, feeling of fair competition in the market, as some of them explained.
So yes, it reduces fraud.
But, we should also be careful on, yeah, that's the but. Because the following question that we asked the tax administrations, okay, yes, you said it reduced, but how do you measure that? What is the evidence that you collect to confirm that?
There the answer is a bit unclear. There is no quantitative evidence, most of the evidence was qualitative. Yes, we saw that fraud reduced after the introduction of RCM. We don't have specific tools, measures, indicators to measure a VAT fraud effectiveness and reduction.
So it's more of the qualitative evidence that they provided to us. So it's important also to note that the fraud does not disappear. It rather moves to other products, nearby products, if the classification is not correct, is not legally binding. It moves to other jurisdictions from one country to the other. It can move also to different types of fraud in terms, for example, of refund fraud or invoicing, misclassification, incorrect invoicing and so on and so forth.
So reverse charge is an important anti-fraud tool, but is not by itself a complete solution. Its effectiveness depends a lot on the broader environment.
Now, the picture is much more clear when we go to the QRM, the Quick Reaction Mechanism, which has never been applied. In the discussions that we had with different stakeholders and the Commission, there was only one submission and it was rejected. So here we have a tool, a mechanism that exists legally, it's available, theoretically it's available, but practically is not used.
Usability is very low and there are many reasons for that, mainly about the complexity. The member states should identify and be able, first of all, should identify the area in which fraud appears, be able to measure it, to prove that it's a sudden significant fraud, then do all the procedure required, submit the notification to the Commission and also do all the procedures and all the measures domestically and all this in a very tight time framework. So that's why, I mean, we say later in the recommendations what should be done with regards to QRM. Now, the next question was about ViDA and how RCM interacts with the VAT in the digital age. We ask the question, are substitutes or complements?
I mean, they tackle two different things.
None of them by itself can be a solution, but both of them can be a really good match. So on the one hand, the reverse charge mechanism removes the supplier side fraud opportunity in selecting high-risk sectors. On the other hand, the ViDA introduces the visibility, the digital reporting, transparency and so on and so forth. We have also that ViDA adopted 2025, it's implemented and rollouts over several years. So the two tools, we see them as complementary to each other, at least for a certain period of time.
And we can discuss that later. Now, coming to the conclusions and recommendations with regards to RCM, we found that it's a very effective tool and the extension after 2026 should be there. Now, for how long? At least for the medium, short to medium term, should be there.
However, it should also be linked with a continuous, let's say, monitoring and evaluation on how it's its effectiveness when also ViDA gradually comes into place, how the two things work together and so on and so forth. So there is also a need to improve, as also Camilo explained, the legal, let's say, environment around that, threshold, sector, services, what is covered, what's not. And when it comes to QRM and Article 199b, I mean, the conclusion there is that if it's to be extended, it needs to be recalibrated and redesigned. If it's like that, better abandon it.
So we need a clear, much more clear activation criteria, lower burdens to provide evidence, but also some standardized procedures and templates that Member States can follow realistically over a short timeframe that they have. And to conclude overall, I mean what we found in the study is that it's not a choice between a simple extension and expiry of these two mechanisms, but rather the evidence towards continuity, but with targeted changes and targeted reform and redesign that it needed. And I'll finish here and pass the floor to...
Simona
Yes, good morning, dear members, dear colleagues, and let me just conclude and elaborate on what just my colleagues said as a main takeaway, what is basically based on this study, that we see that a resilient VAT system that is supported by targeted anti-fraud tools, in this case, this is reverse charge mechanism, that is complemented by digital control mechanisms, actually can help to ensure that the money that is intended for the public finances and our citizens does not disappear in the pockets of fraudsters.
So today we give you a research-based and impartial evidence that shows how the reverse charge mechanism can be and work as one of these tools. And we also saw that this responsiveness and engagement from all the member states and stakeholders shows how important is this specific mechanism and also the role of the Parliament debating it.
So we really hope that this study and also the recommendations will help the FISC Secretariat in the work on the implementation report and in the broader debate about the future of the VAT reverse charge mechanism. On behalf of European Parliament's Research Service, I would like to thank FISC Committee Secretariat, they supported us very well through the process of conducting study, to our colleagues from CEPS and Economisti Associati, thank you indeed. We also want to say thank you to the Commission, you supported us as well, and of course to the Member States and their tax administrations. As you saw, 20 Member States were willing and supportive to provide us with data that gave you, gives you full insight what is going on right now at this moment.
We also give a special thanks to the Public Prosecutor's Office. They also shared with us interesting experiences from their enforcement work on the related to the fighting VAT fraud. And of course, we want to say thank you to the peer reviewers and a special thank to our colleague Nadia, who helped us to visualize all the data that we got so you can understand it better. So thank you and we are here to answer your questions.
Pasquale Tridico
Well, thank you very much Simona. Thank you to all of you for this report.
I didn't read it, but I see, I have it in front of me. I see that it's a very comprehensive and both quantitative and qualitative analysis, which would offer, I think, a very, very good insight to policymaking for the report and then for, for the consequent decision. I think that this is really the way to, to proceed, meaning doing very good research, having evidence-based which will help policymaking. So thank you very much for your work. Now we go to our member.
I will start with EPP, Fernando Navarrete.
Fernando Navarrete Rojas
Thank you, Chair, and thank you for all the research, to all the researchers and assistant researchers. Let me, let me speak on behalf of Mr., my colleague, Mr. Dorfmann.
So on behalf of the EPP, let me thank the EPRS for this study, which is the most complete evidence base we have had since 2018, when the Commission performed its last comprehensive assessment and evaluation of the VAT reverse charge mechanism. This study comes just in time before the mechanism expires in December 2026. It is essential to understand the scale of the problem. As you've mentioned, missing trader or carousel frauds cost the Union is estimated between 12 and 33 billion euro a year. Against that, the reverse charge seems to work.
The evidence points to a net positive in the order of 7.5 billion in fraud tackled against an estimate of 5 billion in compliance cost.
First, legal certainty as mentioned is absolutely essential. Business cannot keep planning around repeated short-term extensions. The EPP wants a meaningful extension and a phase-out based on concrete ViDA implementation milestones, not driven automatically by a calendar date. The reverse charge is not a permanent fix, as has been mentioned, but its end must follow the digital transition and not to precede it. Second, the internal market.
The optional and uneven application across Member States can alter the level playing field and fuels the displacement of fraud. We should consider these effects and move towards a greater consistency in evaluating when the RCM can be applied. Third, a very concrete gap. In the energy sector, where wholesale gas and electricity are traded as high-value commodities across borders, energy certificates, including guarantees of origin, remain in the legal gray zone. Clarifying their treatment should be considered in the course of any future extension of the reverse charge mechanism.
And the quick reaction mechanism has never been activated once, as has been mentioned, because its conditions are too strict.
If we keep it, we must redesign it to be fully operational. We therefore call on the Commission to come forward in good time with a proposal that reflects this evidence, and thank you again for all the evidence provided in the research. Thank you.
Pasquale Tridico
Thank you. Well, do you want to react on this comment? Mafalda? No, okay.
I will give the floor now to Bruno Gonçalves, S&D.
Bruno Gonçalves
Thank you, Chair, and thank you to the EPRS for the work that you have been doing and I'll switch to Portuguese, so you might need your headsets.
Antes de começar gostava de agradecer o trabalho que aqui apresentaram e relacionar este trabalho com os dados que nós conhecemos do último ano que nos apontam para um relatório da Comissão Europeia onde falamos de perdas na ordem de 128 mil milhões de euros devido a incumprimentos com o pagamento de IVA. Esta é uma questão de uma quantia substancial que priva o Estado de recursos e transfere a carga fiscal para os cidadãos cumpridores. O meu entendimento é que é o nosso dever encontrar medidas que corrijam as lacunas e de acordo com a informação que recebemos o mecanismo de reverse charge tem sido eficaz nesse sentido. No entanto, esta ferramenta também expôs excessivamente a cadeia do IVA à última transação, ou seja, a venda ao consumidor.
E é por isso que eu gostava de três questões e eu acho que a última foi mais ou menos respondida, mas não gostava de a colocar. A primeira, nos setores em que esta medida é possível, o que podem os Estados-Membros implementar para evitar um aumento da fraude na última etapa da cadeia, ou seja, nas transações diretas ao consumidor?
Em segundo lugar, qual é o benefício, nomeadamente de clareza jurídica e previsibilidade para as empresas, em harmonizar mais os setores abrangidos pelo reverse charge mechanism? E em terceiro, já falamos aqui do próprio mecanismo de reação rápida. Foi-nos dito que o que explicava a sua não utilização era a burocracia excessiva. Se tivesse de apontar para uma medida que fosse eficaz na sua simplificação, qual seria? Muito obrigado.
Redner 4
Yes. Thank you. Just to go also back a bit to the figure that mentioned about MTIC loss, just to put it in the perspective, you mentioned 12 to 33 billion.
I mean, this is comparable to the Erasmus+ funding for the whole seven-year period. This is comparable almost to the planned energy budget for the CEF funding tool. This is also comparable to the GDP of Malta or Cyprus. So it's a big number, just to have that in mind. So yeah, which highlights the importance of the topic.
Now on the how to harmonize and if there is need to harmonize the sectors in which applied, I mean, yes, there should be some harmonization.
There should not be a full harmonization. I mean, the evidence clearly shows that divergence and excessive divergence creates costs, risks and so on for all companies, businesses, but also tax administrations. But also we should not overlook the fact that VAT or the fraud risks are not applied to all countries or appeared in all countries at the same form, let's say. For example, some risks like carbon emissions fraud, we had the 2008-9 case, appeared simultaneously across all member states.
But some other sectors, some other products like electronics and devices and so on and so forth are more targeted specific to few, let's say, Member States. Or other products like metals, for example, we have the Estonian example which more center around metals because of the cross-border fraud opportunities and tax evasion cases that we have in Estonia. So we should also take into account this flexibility that, yeah, we cannot have a common application of RCM to all Member States at the same level.
So there should be some flexibility. Greater harmonization in terms of, yes, definitions on how products are defined, thresholds, for example, different in thresholds, energy, electronics, no, electronics supplies, tablets and so on. Romania has a threshold of four, five thousand euros, Netherlands has a threshold of ten thousand euros. So in Netherlands transactions in electronics above ten thousand euros apply the RCM, while in other countries it's less. So of course there are always these fraud opportunities or cases where someone can exploit that, split invoices and so on and so forth.
So this is something that we should take into account on how to coordinate ourselves or have a common agreement on the definitions, on the thresholds, on the reporting requirements. We have cases, for example, some countries they require a certificate from the reseller. Other countries they require just the invoice to say on top if it's RCM applied or not. So there are many different approaches. A bit of more closer, let's say, harmonization, but not full one, is certainly necessary.
And I think I'll, I don't know, Camilo, if you have anything to add, but for the time being, I think...
Pasquale Tridico
And now, do we have other colleagues? Okay, if we do not have any colleague asking the floor, I would like to give the floor to Madame Raluca Trasca from the Commission.
Raluca Trasca
Thank you, Chair, honorable members. First of all, I will start by thanking the European Parliament Research Service for this study, the work carried out, and of course the presentation this morning.
The study has been published recently, so on the Commission's side, in the upcoming period, we will actually look a bit more in depth in the study and its conclusion. But what I can say today is that our preliminary view is that the result, the outcome of this study, goes in the direction that the Commission has considered. And in this context, after the summer, the Commission will put forward a proposal to extend both the optional reverse charge mechanism and the quick reaction mechanism, as both mechanisms provided in Article 199a and b of the VAT Directive.
But of course, this extension should be put forward in the context of the upcoming digital reporting requirements, which is part of the ViDA package. Under the digital reporting requirements, all EU cross-border transactions will by July 2030 require near real-time digital reporting by businesses based on EU structured electronic invoices. And this will be combined with Member States' existing or soon-to-be-introduced domestic digital real-time reporting obligations based on domestic invoicing. Therefore, there will be a wealth of data to which the tax authority will have access once ViDA is in place.
And we consider on the Commission's side that this will offer a different landscape in terms of tools available to the Member States to fight fraud. Therefore, of course, extending the or maintaining the reverse charge mechanism once ViDA is implemented will have to be reassessed in this context after 2030. I will conclude just by saying that thanking again for this study and the work of the of the Parliament on this on this topic. And of course, this work was conducive also for the Commission's work in this field. So thank you very much.
Pasquale Tridico
Thank you very much, Madame Raluca Trasca. Now, I think that we are approaching the end, but let me say again thank you very much for this work. I think that it will be, as it was already stated, it is a very good platform for consultation and for further decision. I hope, I mean, I think that the Secretariat will spread very much this report to the Member of Parliament who are interested in FISC issues and economics issue. Thank you once again.
We have a five minutes break and then we can start our second session of the morning.
Okay colleague, welcome back. Thank you very much. Now we move to the second item of the session of today. We are going to discuss the draft report, the consideration of the draft report on VAT reverse charge mechanism. We just had a very interesting presentation by the EPRS on the same issue.
The VAT reverse charge mechanism is a report whose rapporteur is Lídia Pereira.
We have shadow rapporteurs here present today. Thank you, Mr. Herbert Dorfmann. Mr. Bruno Gonçalves is replaced by Evelyn Regner. We have as well replacement by Madame Kuhlmann-Kuh, who replaced Othmar Ludvig.
Jussi Saramo from Left is here. And I would give the floor first to Mr. Pampy for four minutes presenting the report and then I will give the floor to the shadow. Thank you Pierre, the floor is yours.
Pierre Pimpie
Chers collègues, la fraude à la TVA reste un problème majeur pour les finances publiques, pour le marché intérieur et pour les entreprises honnêtes. Selon l'étude de l'EPRS, les États membres collectent plus de 1000 milliards d'euros de TVA par an, mais le manque à gagner lié à la TVA atteignait donc encore 128 milliards d'euros en 2023.
Les pertes liées aux fraudes de type MTIC sont estimées entre 12,5 et 32,8 milliards d'euros par an sur la période 2010-2023. Face à cela, l'autoliquidation reste un outil utile. Mais ce rapport ne propose pas de la généraliser. Il ne propose pas non plus d'en faire un substitut au système normal de TVA. C'est l'équilibre du texte.
L'autoliquidation doit rester un instrument ciblé, temporaire et proportionné. Elle doit être utilisée là où elle répond à un risque réel, dans des secteurs exposés à la fraude carrousel avec des transactions rapides, de forte valeur, facilement transférables ou difficiles à contrôler.
L'étude de l'EPRS confirme que l'article 199a conserve une utilité dans plusieurs secteurs : l'électronique, les quotas d'émission, les marchés de l'énergie, les métaux et certaines matières premières. Mais l'étude montre aussi une chose importante : l'efficacité du mécanisme dépend de conditions précises : un champ juridique clair, une mise en œuvre praticable, une capacité administrative suffisante, des contrôles solides et un suivi des risques de déplacement de fraude.
C'est pourquoi le rapport recommande de prolonger l'article 199a au-delà du 31 décembre 2026. Une expiration créerait de l'incertitude juridique. Elle exposerait certains secteurs à un retour de la fraude, et cela avant même que ViDA et les nouveaux outils numériques soient pleinement opérationnels. Mais cette prolongation ne doit pas être automatique. Elle doit rester fondée sur les risques secteur par secteur.
Elle doit aussi tenir compte des coûts pour les entreprises et pour les administrations fiscales. Le deuxième axe du rapport concerne la fragmentation. Aujourd'hui, l'article 199 bis est appliqué de manière très différente selon les États membres. Les définitions varient, les seuils varient, comme les conditions pratiques. Cela crée de l'incertitude pour les entreprises transfrontalières.
Cela augmente les coûts de conformité et cela peut ouvrir des brèches aux fraudeurs. Notre réponse n'est pas une harmonisation fiscale générale. La fiscalité reste une compétence sensible des États membres.
Le mécanisme doit rester optionnel. Mais lorsqu'un outil européen existe pour traiter des risques comparables, son application doit être plus claire et plus prévisible. Le troisième axe, c'est la protection des entreprises honnêtes. L'autoliquidation ne supprime pas la charge administrative. Elle la déplace.
Pour les administrations, le contrôle se concentre davantage sur l'acheteur, sur la classification des transactions, sur les remboursements et sur la qualité des données. Pour les entreprises, les coûts restent supportables lorsque les règles sont stables et lisibles. Ils deviennent problématiques lorsque les définitions sont floues, lorsque les seuils sont multiples et lorsque les obligations divergent d'un État membre à l'autre. La lutte contre la fraude ne doit pas pénaliser ceux qui respectent déjà les règles. C'est particulièrement vrai pour les PME.
Le quatrième axe concerne le mécanisme de réaction rapide, l'article 199 bis. Sur le papier, il doit permettre à un État membre de réagir en cas de fraude soudaine et massive. En pratique, il n'a jamais été activé.
Cela ne signifie pas que l'outil est inutile, mais qu'il n'est pas suffisamment utilisable. Le rapport propose donc de revoir son fonctionnement. Une procédure plus simple, un modèle standard de notification, des exigences de preuves plus réalistes et une meilleure articulation avec l'article 395, sans supprimer les garde-fous. Un mécanisme d'urgence doit rester exceptionnel.
Enfin, le rapport traite de l'articulation avec ViDA. La facturation électronique et le reporting numérique amélioreront progressivement la visibilité des transactions, mais ces outils ne seront pas immédiatement opérationnels partout. À court terme, ViDA et l'autoliquidation doivent donc être vus comme complémentaires, pas comme substituables.
Je résume, et j'ai bientôt fini, je vous rassure. Ce rapport propose une ligne claire : prolonger l'article 199 bis, préserver son caractère ciblé et opérationnel, clarifier les secteurs et les définitions, réduire les coûts inutiles pour les entreprises, rendre le QRM réellement opérationnel, accompagner la transition vers VIDA.
Nous devons être fermes contre la fraude à la TVA, mais une bonne politique anti-fraude doit protéger les recettes publiques sans complexifier inutilement la vie des acteurs honnêtes. C'est tout l'esprit de ce rapport. J'attends les contributions des shadows. Et j'arrête là, je pense que j'ai été suffisamment long. Je vous remercie vraiment pour votre patience.
Pasquale Tridico
Thank you very much, Pierre. Thank you. I think that all the work that we are doing in this committee on this issue, including your report and the study before, is very, very useful for the following decision that the Commission and the Parliament is going to take with evidence-based again soon, because as you stated, there is the need to decide by the end of 2026.
And from your report, we see as well there are, at least in my perspective, very reasonable and good indications. Thank you. Now we go to the shadow, starting with Mr. Dorfmann. Please, Herbert.
Herbert Dorfmann
Grazie, Presidente. Thanks to the rapporteur for drafting I think a quite balanced report. There's a lot of common ground for us and it's a good basis for the work. So, for example, the targeted approach, the proportionality, which we see as essential for especially for SMEs, the reform of the quick reaction mechanism, the complementarity with the VAT in the digital age package, the ViDA system, all this we can share and we support. Let me only mention some points.
First is the extension of the mechanism. We share the case for meaningful and longer extension for those granted so far. Business operators, especially in sectors like energy and finance, cannot keep planning around short horizons. And the logic for any future phase-out should be aligned with the roll-out or the introduction of the ViDA digital reporting requirement in all Member States. Second, the internal market.
An uneven application of the mechanism across borders can lead to distortion in the level playing field and cause fraud due to migration to other Member States. We fully respect, as the rapporteur said, clearly Member States' competence in taxation, but we should also be ambitious on consistency. So for a narrow set of highest-risk sectors, we believe we should at least keep the option of a more harmonised application open rather than rule it out from the start.
And third, we see a concrete gap on energy certificates, including guarantees of origin, remaining in a legal gray zone. Clarifying that VAT treatment should be explicitly considered in any future extension of the mechanism, as also my colleague Navarette said in the study presentation earlier this morning. So I can conclude for us, this all is a good basis on which we can work and we can further improve. Thank you very much again to the rapporteur.
Evelyn Regner
Thank you very much. So I'm speaking on behalf of Bruno Gonçalves, who can't be here today.
The European Union, as already mentioned, is losing up to 128 billion euro per year due to gaps in VAT compliance. And this is a staggering sum which deprives public services from sources and shifts the tax burden to rightful and compliant citizens. So I think here we all agree. S&D firmly believe it is our duty to find actionable policy to fix loopholes while simplifying tax compliance mechanisms.
Past experience points to the reverse charge mechanism being effective at curbing fraud. In that regard, our preliminary view is favorable towards a temporary extension of such tool. But since the mechanism also overexposes the VAT chain to evasion in the last transaction, it should not become the norm nor replace structural solutions, including the VAT in the digital age package. So, the S&D group will table therefore amendments that seek to improve the draft report in a meaningful way, particularly regarding European Union level action.
There is room through harmonization to simultaneously simplify and to improve effectiveness of the VAT systems in Europe, and that is also what is expected from us. And therefore, it is referred to the recent Eurobarometer with responses from more than 12,000 SMEs that pointed to taxation and value added tax as the most prevalent barrier that prevents enterprises from scaling up in the single market, and we should take this seriously. Another survey with more than 25,000 participating citizens showed that a majority, so voted for European Union to have combating tax avoidance and evasion as its main priority in the field of taxation. And with this in mind, our group will be committed to work towards a broad coalition that views more Europe as part of the solution and not the problem.
So, that's the input of our shadow rapporteur so looking forward to to all fruitful cooperation on it.
Pasquale Tridico
Thank you Evelyn and now we move to Renew, Madame Katri Kulmuni, please.
Katri Kulmuni
Thank you Chair. So I will be speaking on behalf of my colleague Ludovit Odor who is as who is working with the report as our shadow rapporteur. So first I would like to thank the rapporteur on the draft report. We broadly agree that the reverse charge mechanism should remain a temporary targeted exception, not a permanent replacement.
We believe that making it permanent could move the EU toward a US-style sales tax, could create new loopholes and may shift fraud to other sectors or smaller merchants and thus undermining EU cohesion. We support extending the mechanism beyond 2026 as a bridge until the ViDA framework is fully operational. However, we would like to point out the slow implementation of ViDA since its digital reporting tools are essential for timely and efficient fraud investigations. Finally, we would like to emphasize the direct link between VAT and corporate income tax. VAT fraud leads to unrecorded revenues which erode the corporate tax base.
Advancing revenue digitalization will help close the VAT gap and ensure corporate income tax revenues reflect actual economic activity. Thank you.
Pasquale Tridico
Thank you very much, Katri. And now we move to left, Jussi Saramo.
Jussi Saramo
Thank you, Mr. Chair. I have to be running from committee to another. I want to thank for the work that has been done. I think it's great that we have more knowledge now.
We have a very important studies that we can make decisions by actually already knowing the things that we don't know. So we need more information, as we heard today. It looks clear that we need to extend but also a bit fix the system. And what was said here before, I agree, so I'm not going to say it again. I think this looks like very unpolitical issue, but in the end everything is political, and I look forward of our common work.
Thank you.
Pasquale Tridico
Thank you, Jussi.
Pierre, if you want to sum up and conclude in one minute? No, thank you, thank you very much. So now, thank you to all of you then for the work starting from Pierre. I think as I said and I will not repeat, it's very, very good and useful. Thank you very much.
We move to now consideration of amendments on the EU approach to corporate tax policy in a changing international environment. The rapporteur now is Kinga Gál from EPP. We have as well shadow rapporteur and I will give the floor to Kinga for four minutes.
Thank you Kinga.
Kinga Kollár
Thank you very much, dear colleagues. I would first of all thank all of you for the amendments that you submitted to this own-initiative report. We received more than 170 amendments and I think they are all extremely valuable. And I'm confident that through our discussions we can arrive at a coherent and balanced final report based on these amendments.
So, we have had our first shadow meeting yesterday, and in preparing the first set of compromise amendments that we discussed there, I sought to incorporate as many proposals as possible so that we can have a very broad consensus at the end. And I actually see that there is a genuine opportunity for such a broad compromise based on our first discussion. I think it's encouraging that we have largely identified the main challenges and concerns, and we are more or less on the same line on that. The differences between us seem to lie less on the diagnosis, but rather on the emphasis we place on certain policy objectives.
For our group, for EPP, strengthening Europe's competitiveness remains a key priority, of course. And for some other groups, a stronger focus is on combating harmful tax practices. In my view, these are actually not contradictory. On the contrary, I think they are reinforcing each other. A competitive European economy benefits from a fair and predictable tax environment, while effective measures against harmful tax practices reinforce that competition is not disturbed by unjust means.
Thus, they both contribute to economic stability and sustainable growth at the end. Now, the report is being drafted in a certain geopolitical environment and realities, and we need to take that into account in this report. I believe that preserving the existing international tax framework remains important. At the same time, we should be open to exploring opportunities for simplification within that framework. This is where meaningful progress can be achieved at the moment.
So, reducing unnecessary complexity can improve compliance, lower administrative burdens, and strengthen the attractiveness of the European economy without undermining the core objectives of tax policy. I would like to also already welcome the tax omnibus that was just released, which actually reflects some of the points that we will be making also in the report. So they somehow come together, and already, I mean, the omnibus goes already into the direction of simplification as a consequence of Pillar Two.
Now, on other issues which the report touches on, and this is mainly the any attempt that taxation should be based more on extraterritorial elements, namely the digital taxation. I think we believe, we seem to find a compromise, a consensus on saying that the most effective solutions would be the broadest ones that would ideally be on a multilateral basis. However, we of course all know that such outcomes require the active participation of the strongest and most influential international partners.
Without their engagement, the effectiveness and the sustainability of global tax arrangements will be limited at the end of the day. And the report actually emphasizes that the fragmentation on Pillar Two is an issue and we of course would like to, I mean, ask our partners to move on that. So finally, we should always keep in mind the fundamental role of taxation. Tax systems are essential for financing public goods, support societal justice and responsibility, but taxation cannot be expected to solve every policy objective and challenge. We should therefore avoid using tax policy as a default response to every economic, social and political issue.
I look forward to continuing our work, our constructive discussions and working on the compromises. We agreed yesterday that comments can be made on the first compromise until tomorrow Friday. Thank you.
Pasquale Tridico
Thank you very much, Kinga, for your report. Thank you. Now we move to S&D for the shadow rapporteurs. Evelyn Regner, S&D, please.
Evelyn Regner
Thank you very much for the work you have done. Before coming to the specific points of the report, I would just refer, and maybe there might be a general different approach concerning our positions, to the press conference of António Guterres, the Secretary-General of the United Nations, yesterday. We are sitting here right now in a room with good air conditioning. Outside it's very hot.
So somehow this is really an emphasis that makes something with our health, that makes something with nature, that makes something with the whole economy. And we shouldn't see what we're doing right now decoupled from this what's happening outside because that's taking place and that's not something falling from the sky and whatever. So somehow that's made by by people. And therefore financing of the adaptation to the climate crisis and really to the to the to the what it costs, leaving out everything else, means adapting economic and tax policy. So somehow that was the conclusion of the United Nations and needs a windfall profit tax.
And I just put it right now in the context of this what we are doing, because of course we're talking about corporate taxation and putting the all the proposals, but we really should also look of the whole picture and what can we do within this picture. And with this I come to my major points. Fairness must sit alongside competitiveness. So our amendments consistently challenge the narrative that competitiveness is the overriding priority. We reframe it as one of several goals, yes, of course, alongside the green and digital transition.
Fair and effective corporate taxation is essential to secure public revenues. And that corresponds what I said initially, so somehow not only see it in such a narrow way, but see it in a broader way because we're all part of this society.
So simplification cannot become a Trojan horse for deregulation. Second point is dealing with the side-by-side agreement, so the SBS deal is our central concern. So of course nobody is happy with that, but of course we also have to look what's happening outside. The substance-based safe harbor introduced through the United States deal risks undermining the very goals of Pillar 2 was designed to achieve. It may harm the level playing field and generate significant revenue losses for Member States.
So we demand therefore that the Commission release impact assessments and revenue loss estimates before the situation becomes irreversible. So I think we should have a focus on that. Next point on simplification. So simplification yes, of course, who likes the world to be complicated, that's clear. Harmonization too, but never deregulation.
We support simplifying overlapping rules and reducing administrative burdens, but stress that this must not lower existing anti-avoidance standards. And we go further than the original text by calling for genuine harmonization of corporate tax bases, procedures, and definitions through a BEFIT-like step-by-step approach, which would reduce compliance costs, create legal certainty, and strengthen the single market. Tax transparency measures like public country-by-country reporting, and all the things we introduced, are part of this picture and not an obstacle. Then, I mean, again, the whole looking at the whole picture. Digital taxation needs a European answer.
With Pillar One negotiations stalled, the European Union cannot leave the fair taxation of the digital economy to chance or to bilateral trade deals with the United States. We call for renewed consideration of a uniform European Union digital levy that creates a common approach, establishes legal certainty, and ensures a level playing field for digital businesses operating within the Union. Fair and effective taxation of the digital economy must not be traded away. And I also say that somehow because, I mean, all those finance ministers scratching their heads and right now thinking how we finance our future European budget with the MFF, I mean, maybe we're doing them also a favor when creating more or less good proposals for them.
And then, stronger international cooperation, more European Union ambition. We call for qualified majority voting on corporate tax matters, specifically related to evasion and avoidance, ending the veto-driven paralysis, paralysis on tax reform. We want a reformed European Union tax haven list, stronger sanctions and against non-cooperative jurisdictions, enhanced country-by-country reporting requirements and full engagement with the United Nations Framework Convention alongside, not instead of, the OECD process.
I think we would do a favor to the European Union if we're also going in there in these UN negotiations and be more ambitious. So monitoring new forms of harmful tax competition emerging from Pillar Two carve-outs is also essential as implementation unfolds. So I'm very much aware that I put right now really a huge picture, but simply to give also the full, let me say, potential what we could do. And of course, I'm very much aware of the situation, the political situation as it is, but I think we really should go in for doing something for the whole picture, because with tax policy, we really can also shape not only enterprises, but the society. Thank you.
Pierre Pimpie
Alors donc alors en ce qui concerne ce rapport, je salue vraiment les efforts du rapporteur donc afin de prendre en compte les avis, les conseils et je trouve que c'est vraiment très je trouve que c'est très appréciable. C'est un rapport qui essaie vraiment de trouver le juste ton, ce qui n'est pas chose simple avec les affaires avec les affaires fiscales et donc il donc le rapport prend en compte tout ce qui concerne les prérequis de les prérequis de de compétitivité, donc le fait aussi de rendre les procédures plus simples, donc de faire des de faire des compromis donc entre autres sur le sujet du
Donc le fait aussi de rendre les procédures plus simples. Donc de faire des compromis, donc entre autres sur le sujet du second pilier où l'on voit bien que les règles qui s'imposent à nos propres entreprises, ben en fin de compte sont plus sévères que celles qui concernent les autres entreprises. Donc c'est un rapport aussi qui est très prudent sur le BEPS.
Et donc je pense qu'enfin, fin de compte, le rapport essaie de limiter les abus fiscaux, ce que l'on souhaite, hein, mais sans que cela pèse trop sur les entreprises qui investissent, créent de la valeur chez nous. Donc en fait, moi c'est un rapport qui me convient très bien parce qu'il vise le juste équilibre, ce qui une fois de plus n'est vraiment pas évident.
Katri Kulmuni
Thank you, Chair and dear colleagues.
Firstly, I would like to obviously and of course thank the rapporteur for her work. We had yesterday, as mentioned here already, a very fruitful first shadows meeting on the first draft compromises and it is a very good basis to negotiate forward. So the topic is greatly important as the global context is changing rapidly and thus international tax cooperation is also affected.
More generally, I'm of the view that when it comes to international cooperation, a global solution is always needed and preferred, but also to be realistic, not necessarily reached when it comes to taxation. But anyhow, if we doesn't look at it in a broad picture, we will create distorted, siloed and potentially doubling outcomes, which is, which in turn harm our companies and competitiveness and then what it goes with it is of course the effect to the economic growth that isn't going to be on the rise. In our amendments, we try to focus on a few key issues. First of all, simplification. European businesses need stability, predictability and legal certainty.
In a period of geopolitical and economic uncertainty, companies should be able to focus on investments, innovation and growth rather than navigating in increasingly complex tax compliance obligations. Tax simplification is not about weakening standards, it is about making rules more effective, more understandable and easier to administer also. We underline that the tax policy must respond to the evolving characteristics of the digital economy, while at the same time remain predictable and workable for the businesses.
We believe it is important to reinforce international cooperation through the OECD framework, rather than pursue fragmented unilateral approaches, but at the same time related to the digital taxation, EU is in my opinion big enough player to play on this field. What it comes to the SMEs, we strongly support the exemptions for them, while it is the place where the growth really is created. And I'd stop on that. I'm looking forward to continue together with you the broad and balanced compromises, hopefully to be reached.
Jussi Saramo
Thank you, Mr. Chair, and thanks for the rapporteur for her very constructive work.
I think we already agreed on large part of the ideas across the group boundaries. But at the same time, of course, we have to admit that we are talking about very sensitive and highly political issue. And I think the main point is that over the past decades, the corporate taxes, they have collapsed both nominal and real effective levels.
And this has led to a growing public debt and the weakening of democracy and welfare states. In recent years, there has been finally important work done in both EU, OECD and the United Nations, but the current US administration in particular is trying to prevent us from defending the society against the harmful tax competition. I think we have long since passed the point where tax competition could be considered useful or healthy.
Simplification, of course, that can be good when it doesn't harm the tax revenue. Sometimes it could even bring bigger tax revenue. But all the tax competition in this situation is harmful when we talk about levels of taxation. And the solution to these irresponsible actions made by the government of United States at the moment, they cannot push us to be part of the problem, but we still should be part of the solution and to find solutions in Europe and globally. It was already said by the Socialist and Democrats important points where we need the money.
We need to fund the green transition. When we watch outside, we need to fund digital transition. We need to fund the debts. We need to fund education, the future of Europe.
And we can only do this by defending the tax base we already have. But at the same time, we have to start to tax the digital giants. We need actions in the member states, but also in UN and OECD. So we should not just pick one level we are going to work, but we need work in all levels. And we cannot just wait global solutions, but we need solutions every day here and now.
And I think it's a bit sad that the biggest problems inside the European Union in taxation, they were fixed by the OECD and not the European Union, to be honest.
And this is something that we have to take account. Well, we have very different views on these things so far, finding a common line, it will not be easy. But however, I appreciate the work done by the rapporteur and her efforts to find a common tone and find all the things that we can agree. So I look forward working with this file and thanks everyone of the work done so far.
Pasquale Tridico
Thank you, Jussi.
And now I would give the final words to Kinga. Please, Kinga.
Kinga Kollár
Thank you. Well, of course, I mean, some questions, some topics are very sensitive and very political. I agree on with you. And the way I would like to construct the consensus is of course based on realities.
Because I think this is, you know, I mean we need to understand and also in terms of what's the EU's interest at the end of the day. Because especially in the digital taxation, I think we need to understand that realistically it would mean either a trade war, which means that companies would actually pay double times because you would collect taxes but at the same time they would need to pay tariffs, which is not I think ideal. So we shouldn't get into that situation definitely.
On the other hand as well, if if you are constructing a digital taxation on a larger basis then I'm not sure that the EU companies would actually or or taxation system would benefit from that but rather the benefit would come elsewhere. So I think we really need to base that on factual information as well, this discussion and on geo-economic realities unfortunately. I agree with you. I mean, of course it's hot and we all want to solve it and I think we need to solve it but is it taxation? Because I mean if you tax windfall profits it doesn't change the consumer behavior and I think we should really focus on, you know, using the right tools for the right the problems that we face.
But I mean, many things, I believe really the core of this report will remain simplification. And I think there we have really a broad consensus, so we will try to focus on that and make the improvement on that where we can. Thank you.
Pasquale Tridico
Thank you. Thank you very much, Kinga, for your work and all the colleagues.
We are working on this issue, in fact, well, I think for all the 26, we were very much engaged during our missions, during our exchange of view. I'm sure that the work that will be out of this committee after all this work done in analysis, in reflection, in exchange of view, will be a reasonable work based, as usual, on evidence and on research. Thank you very much. I think we have a couple of minutes of break to give space and time to the colleague of CONT to join our next joint FISC-CONT session. Thank you.
Andreas Schwab
Very good. Colleagues, we continue now with our common hearing of the Committee on Budgetary Control and on the FISC Committee.
I'm very happy to sit here together with my colleague Pasquale Tridico. We are also both in CONT, so we know about what we are speaking here. We are grateful that you all take the time. And we are therefore continuing now with the exchange of views with the European Public Prosecutor's Office, EPPO, Laura Kövesi is sitting next to me here, and with the European Fraud Office, OLAF, and Eurofisc on cooperation in the fight against VAT and fraud in the European Union.
The European Union is for sure about very positive things as well. It's a very strong success on working together. But unfortunately, in everything which is working well, there are also some black spots. And therefore we have to discuss about that today. And on behalf of the members of the FISC subcommittee, I warmly welcome our distinguished speakers and members of the CONT committee who are co-organizing this exchange with us.
Cross-border VAT fraud continues to generate substantial losses to the European Union and its Member States, with losses from carousel fraud alone estimated at 12.5 billion euros and 30.8 billion annually. Today's discussion will focus on how to reinforce administrative and judicial cooperation between EPPO, OLAF and Eurofisc to better prevent, detect and prosecute VAT fraud in the EU and to safeguard a fair and well-functioning single market. Before outlining the practical rules of this exchange, I would like to mention some key issues from the CONT perspective. I appreciate the way this cooperation here has been rapidly organized and I would like to thank again Pasquale for his availability.
As much as VAT is a FISC matter to check and to look at, it's also one of the major resources for our European budget and the fraud that affects its integrity, that put at risk the integrity of the Union's financial interests, is an increasing source of concern for my colleagues and myself in CONT and also for Pasquale.
The criminal misconducts that are more and more being detected by the national and the Union's components of the anti-fraud architecture, the AFA, are becoming more complex and more difficult to tackle, both because of their volume and intense occurrence, and because of the still existing suboptimal situations in the countering systems, both at national and at Union's level. I'm glad therefore to join Pasquale Tridico in welcoming our guest, the European Chief Prosecutor, I mentioned already, Ms. Marina Marinelić, the chair of Eurofisc, I haven't managed so far, apologies, and last but not least, Mr. Clement, director of OLAF. I will now hand over to Pasquale. Thank you very much, colleagues, for you being here.
Pasquale Tridico
Thank you, thank you Andreas. This cooperation is strengthening the work that all of us, the European Parliament, is doing with the same objective: to recover, to have a sustainable budget and as well to make sure that rules are followed, in particular as far as VAT is concerned, since this is one of the major source of budget for Europe. Thank you.
Now, let's move directly to the, to our speaker, distinguished speaker, starting with Madame Laura Kövesi. The floor is yours, Laura, for seven minutes.
Laura Kövesi
Thank you very much. Honorable members of the European Parliament, dear colleagues, ladies and gentlemen. Thank you for this opportunity to exchange views on the fight against VAT fraud in the EU. The European Public Prosecutor's Office would highly welcome this to become a regular exercise. Last year, I came to ring the alarm bell.
VAT fraud in the EU is huge.
It is huge because organized crime groups have been allowed to turn it into one of their most profitable industries. This can no longer be ignored and we need to react. By the end of last year, we had almost 1,000 VAT fraud cases. The total damage under investigation in these cases amounted to more than 45 billion euro. This included VAT fraud linked to customs fraud, which should be of maximum concern for the EU budgetary authority.
To me, this is the most pressing question when it comes to protecting the EU budget today. How big is the customs gap in the EU? How come nobody knows? How much customs fraud has been going on for decades undetected? How much EU revenue was due but has not been collected and then had to be paid by taxpayers?
What kind of system is it in which if you detect and report customs fraud, you are not helped to find those who caused it, but hammered with administrative recovery measures?
It is neither reasonable nor efficient. Since the establishment of the EPPO, it can no longer be justified. We need to change it. There is too much talk about VAT and customs fraud in way too abstract terms. We need to get concrete, practical.
I am confident that with the new Director General of OLAF, my friend Peter, this will become the new way in Brussels too. I would like to remind everyone that fraud, like any crime, is a human activity. There are concrete people behind each euro stolen from the EU budget.
They have names and addresses. So we can get to them. You can talk prevention and precautionary measures all you like. Once hands-on, extremely powerful criminals groups get into the mix, your main tool is criminal justice. Have national tax authorities started to change their mindset?
Here and there a little, too little and way too slow. Has the Commission made the fight against VAT fraud its priority?
As far as I can tell you, not yet. Is customs fraud considered a fundamental issue when it comes to protecting the EU budget? The fact that I can even ask this question is an answer in itself. Still, there's been progress. We are impatiently waiting for the revision of the Eurofisc regulation to enter into force, and I would like to thank the Commission, the Parliament, and the Member States for making our life easier when accessing data that is crucial for our investigations.
In the meantime, with our colleagues from Eurofisc and from OLAF, we will continue to do our job the best we can. Thank you for your attention.
Pasquale Tridico
Thank you, Laura, for your work. Now, as it was just mentioned, we move to Mr. Peter Clement. Please, Peter, the floor is yours for seven minutes.
Petr Klement
Thank you. Thank you for the floor, esteemed Chairman and honorable members. Thank you for the invitation to this hearing. As a former European prosecutor, I fully agree with Laura that the main tool to make out the persons behind large-scale VAT fraud is criminal law.
And we now have the EPPO as independent, efficient and central institution in that regard. We also have to focus on the money, on the system. And the money is also the reason why the criminals are also in this business.
As the Director General of OLAF, my main task is the protection of the EU budget and within the topic of this hearing, the EU revenues from customs fraud and related unpaid VAT. I have committed to protect the EU budget. Last year, OLAF recommended measures addressed to Member States to protect the EU budget from customs fraud in the amount of approximately 750 million euro. To have an order of magnitude, in order to generate a similar impact to EU budget through the VAT-based own resource alone, there would have to be losses on VAT of more than 200 billion euros. This is because only about 0.3% from the VAT income goes to EU budget.
Let me now outline the systemic role of OLAF in the fight against VAT fraud. Our focus is customs-related VAT fraud. When a product enters the EU market, VAT is calculated based on the declared value plus customs duties plus anti-dumping duties, if appropriate. So when a lower value is declared, or goods are not declared, or when a false origin is declared, then there are also losses on VAT.
One false customs declaration can therefore generate losses both in customs duties and in import VAT. In many cases, this is also, this is, this also becomes the starting point for wider VAT fraud schemes. Detection as early as possible is essential and OLAF is a key player here. We have access to more trade and customs data than individual member states and have specialized experts and tools to analyze all of this.
It would be a cost-efficient investment for the EU budget and revenues to invest more in OLAF. We then have to see whether it is an irregularity or a fraud in the sense of criminal law. To do that, we take some further steps. We need to prove that there is an undervaluation, so we developed with the JRC a system of fair prices. We have administrative cooperation with third countries to identify the correct origin of products.
When the importer declares that the member state of destination of a product is different than a member state of entry, we need to verify that VAT has actually been declared at that destination. We must also identify when importers falsely declare that the goods are in transit to a customs office of another member state. In order to do all of that, timely access to reliable information is essential.
We welcome the Parliament's support for the revision of regulation 904/2010 on OLAF and EPPO access to Eurofisc VAT customs-related data. OLAF can identify fraud patterns across jurisdictions, connecting intelligence and data that may appear limited when viewed only from a narrow national perspective. We do this very well with Eurofisc, and I thank Mrs. Marinelli for the excellent cooperation. Thank you.
Depending on the circumstances, we can recommend to national customs and tax authorities administrative measures and/or report to the European Public Prosecutor's Office. Let me give an example on a topical issue: imported parcels sold through the internet to consumers with a declared value of less than 150 euro. No customs duties due, and VAT to be paid in one single EU country.
OLAF cooperation with national authorities revealed that a network of economic operators both declared a lower value of the goods and sent them to businesses, not to final consumers. OLAF was able to establish about 66 million of import duties evaded and 133 million of VAT evaded. We requested member states to take precautionary measures and to recover these amounts by administrative means. And we reported the case to EPPO and are discussing how to support the criminal investigation with our expertise.
As soon as I started at OLAF, I highlighted the importance of cooperating with EPPO. We are now working together to find and to improve appropriate mechanisms so that the relevant information reaches EPPO as early as possible and, in turn, OLAF investigative works informs and enables OLAF to target its further support activities. OLAF then also has to go after the money with customs and tax authorities in order to prevent losses and recovery to the EU budget.
At national level, tax administration and customs authorities frequently work with prosecution to ensure preventive administrative measures are taken in time. There is a reason, there is no reason why it cannot work at EU level. Thank you and I look forward to your comments.
Pasquale Tridico
Thank you, Mr. Clement, and now we move to Madame Marina Marinelić, the network of Eurofisc.
Marina Marinelić
Thank you. Distinguished members of European Parliament, ladies and gentlemen, it is a great honor to address you today.
I would like to begin with a brief overview of Eurofisc and its role. So Eurofisc is a cooperation network established in 2010 specifically designed to combat cross-border VAT fraud. It acts as a dedicated early warning mechanism for the swift multilateral exchange, joint processing and analyzing of targeted information among 27 member states.
Currently, Eurofisc operates through three operational working fields managed by coordinators focusing on specific fraudulent activities. Therefore, we have working field 1 focusing on missing trader intra-community fraud, so MTIC fraud, and the abuse of custom procedure specifically CP42. Working field 2 targets VAT fraud related to means of transports, that means cars, boats and planes. And working field 5, e-commerce, dedicated to monitor B2C e-commerce transactions and related fraud.
This field is significantly supported by the CESOP, so Central Electronic System of Payment Information database, which stores cross-border payments data to detect abuse of the VAT system in the context of e-commerce, so B2C transactions. Eurofisc remains an administrative entity and its effectiveness relies on the active participation of its Eurofisc liaison officials, who are experts in fighting VAT fraud. Also, Eurofisc is supported by tools like TNA, Transaction Network Analysis, and CESOP.
The TNA tool has significantly modernized the operations of Eurofisc and has become indispensable for anti-fraud experts. TNA automates the collection of targeted information from the VIES system and visualizes suspicious networks without manual intervention.
This functionality drastically accelerates the identification of fraud chains and the swiftness of information exchange. In 2025, within TNA, 15.1 billion euros in identified fraudulent transactions were detected, with more than 4.5 thousand traders deregistered in TNA having a fraudulent qualification, so were identified by member states to be somehow involved in fraudulent activities. CESOP, which went live in early 2025 to provide anti-fraud experts with detailed data on cross-border payments. In the coming period, CESOP will play a key role in the effective fight against VAT fraud in the e-commerce sector by serving as a central database for payment data analysis to identify risk payment flows and determine how the collected data can be utilized to its fullest potential. Of course, we are facing some challenges in this fight against VAT fraud.
Globalization of fraud. VAT fraud is no longer limited to a single Member State or even the EU. It is a globalized phenomenon where fraudulent chains travel out of the EU and back in, frequently involving third countries. Speed and volume. The ongoing digitalization of transactions has significantly increased the speed at which fraud can occur.
Services play an increasingly dominant role in fraud networks, which are particularly challenging. Furthermore, the massive volume traded, particularly regarding imports, CP42 and the drop shipping, create a significant burden on enforcement authorities. Institutional and procedural limits. Eurofisc is an administrative entity which can limit its effectiveness against sophisticated criminal groups that use VAT fraud to maximize profits and launder funds. Enforcement is further slowed by lengthy procedures both within and between countries.
Multi-tax and recovery barriers. So authorities often face multi-tax fraud scenarios where they lack the specific competence or awareness for all involved taxes, making national level cooperation difficult. A significant challenge with recovery issues is the lack of information from third countries, which limits the ability of anti-fraud experts to follow risky transactions past the point where an intra-community delivery is declared. Proactive prevention upon suspicion of a fraud.
The need for quick VAT suspension to stop fraudulent activities before significant revenue is lost. VAT de-registration or invalidation differs between member states based on legal frameworks. To overcome these barriers, a more targeted and international approach is required. Cross-agency cooperation. There is a need for enhanced cooperation between fiscal authorities and law enforcement bodies, including fiscal police, EPPO and OLAF.
Global standards beyond the EU. Further cooperation is needed.
The exchange of best practices and information should be considered as a measure to make it more difficult to carry out fraudulent activities. Quick VAT number suspension followed by swift blocking of financial funds and/or confiscation measures. Any delay in suspending a fraudulent VAT number allows the fraud to continue. Nowadays, even after a trader is deregistered from VAT, it can still send out invoices by applying margin scheme or fictitious domestic invoices.
Its remaining infrastructure, such as an active bank account, storage facilities, or transportation vehicles, continue to be used as long as possible. Only complete measures can stop the fraud and prevent new ones. Investing in IT tools. Continuous and substantial investment in advanced IT tools, such as TNA and CESOP and AI technologies, as well as their ongoing improvement, is essential to support Member States in preventing, detecting, and combating fraud at the earliest possible stage.
Eurofisc plays a pivotal role as an early warning mechanism, providing quick and targeted information at the earliest stage of detecting potential fraud. Combining Eurofisc administrative data with OLAF's data and with EPPO's judicial actions creates a stronger deterrent against organized crime.
The implementation of recent changes in VIES will provide more information on registration data and all information will be stored in the central VIES database, providing the possibility to analyze traders and intra-community transactions through advanced analytical tools at EU level. I would like to conclude by stating that the establishment of Eurofisc network has been a significant milestone in strengthening administrative cooperation and combating organized VAT fraud across the European Union. Over the past 15 years, our network has evolved substantially, allowing us to gain a profound understanding of several modus operandi used by the fraudsters. We now have access to more data than ever before, which is crucial for detecting fraud at the earliest possible stage.
Our specialized tools, which have been designed for this continuous fight, improve regularly, and our dedicated operational teams do a great job every day by working on further updates in order to increase detection ratio. Last but not least, the recent legal changes and cross-agency cooperation will allow us to further gain in efficiency and loss prevention. Nevertheless, despite this progress, we must remain committed to innovation and broadening our views. Now we will redouble our efforts to further close the gap on fraud. Thank you for your attention.
Pasquale Tridico
Thank you very much, Madame Marinelič. And now we move to our colleague for the question, comments for two minutes, and then you will have up to three minutes to answer the comments and the question. Starting from EPP, from FISC, Luděk Niedermayer. Please, Luděk.
Luděk Niedermayer
Thank you, Mr. President, and thanks for very good presentation. I guess there was quite a lot of urgency in that, and it was not so much different compared to when we start to deal with this issue. And I am here already ten years and I am somehow associated with EP tax agenda.
So one concern is that it seems that urgency is still very high. But to be concrete, what was interesting that in the morning we were discussing EPRS study on use of reverse charge. And it was interesting comparison with what you say, because basically the study says, you know, this is good tool, member states are very happy about it, this is significantly reducing the tax fraud. But at the same time they were not able to provide the data.
So one can have a hypothesis while in the case when VAT is fully applied we know that fraud has happened, in the case of reverse charge that is closer to sales tax we don't know that fraud has happened and it makes the tax administrations pretty pretty happy or more happier I would say. So my question basically is because conclusion of the study is that okay so why don't we combine reverse charge and the VIDA digitalization and all together it will work pretty well. But it sounds a little bit a little bit unclear to me. So I wonder to which extent you believe that digitalization is the way how to how to deal with the situation.
So for example, obligatory e-invoicing for all the VAT transactions across the across the EU. Digitalization of customs, for example in the customs area matching between the orders and the the packages that will actually that could to some extent reduce the understatement of the costs. If this is the main sale of the direction of the sale or if we need to combine much more different measures how to reduce the the frauds. But then I would like to see what are the three or five most important because for me it seems to me that digitalization combined with much quicker use of the data, much stronger cooperation between the the member states is something that can deliver. But I was really I must say a bit confused after hearing the presentation in the morning.
Laura Kövesi
Okay, if I have to. It's okay. Thank you very much for your question. I think digitalization is very good and the new ViDA package and e-invoice is very good, but still is not the safest way to protect the budget. We have few member states who already implemented this package with e-invoice and still we have a lot of cases ongoing.
Because one of the main part of the VAT fraud is not only when you declare a lower amount of goods of the money. The most often is non-declaration. If it's non-declaration, this cannot be identified in the system. So if you don't put your invoice in the system, no one will know about this. So there one of the typology that is very often is non-declaration and in this case the digitalization and the package is not helpful.
Why?
But anyway, it's a step further and it's a good way in order to cross-check the informations from different member states when it's about this. And I like that everyone speaks about digitalization and using artificial intelligence in our activity. This is very welcome.
First, we need the legislation. We need a strong legal framework in order to protect the personal data and operational data to be sure that we don't put there information that cannot be used. And second, without proper tools, you cannot work. Just to give you an examples, we see in our cases that the criminals are using artificial intelligence in order to make thousand of transactions in the banking system in order to avoid the obligations for reporting, okay?
But we as law enforcement, we don't have the legal framework, we don't have the tools, and most important, we don't have the budget. I like very much and I will welcome any initiative for digitalization, but with less budget that EPPO had in the last years, we never received anything more in order to develop such tools.
Petr Klement
Yes, thank you. Reverse charge can be, can be effective in reducing fraud in specific sectors. However, fraudsters, the criminals, those who commit crime and cause irregularities, they adapt and shift to, to other sectors.
That's also for sure. They shift to other jurisdictions, they invent new fraud schemes. It can also reduce some some of the indicators used to detect fraud. The ViDA package implementation, it will be of added value. I'm sure about that.
It will be it will be good for e-invoicing through e-invoicing, real-time reporting, advanced analysis, and improved anti-fraud data sharing.
I think that we can all speak about two things, that there should be trust and exchange of information, and timely exchange of information. This is becoming a cliché.
To what Laura Kövesi has said, I would add that it is not only data protection, but it's also obligatory contributing to certain databases, obligatory using them, because we can have databases and we do have, in my view, we have too many, but some of them lack from adequate volume of data. As for Eurofisc, we are concentrated on providing Eurofisc with risk information that it derives from its work on customs matters of OLAF. The risk information is precious for tax authorities. We have other joint efforts. We actively contribute to multiple Eurofisc working fields like MTIC fraud and customs procedure 42, VAT fraud in vehicles and e-commerce, but I think that our colleague from Eurofisc could comment on that as well.
Thank you.
Marina Marinelić
Well, we live in a digital era. We really need to adapt and I think invoicing innovations and investment in IT tools can support this. Of course, fraudsters will always find a way how to find a new fraud scheme, a new way of doing this fraud, but we have to be proactive. And when especially when we are speaking about VAT fraud, they occur very fast.
Marina Marinelić
They we also need to be very fast. So in that way, ViDA package, so having information already on time can help us.
Of course, it's now up to us to find the right and appropriate analytical tools to already, let's say, try to anticipate probable fraudster activities and try to stop them on time. So I think as again Eurofisc being at this first stage of potential risk analysis and potential risk fraud prevention can play a great role. And yes, having this information from e-invoicing on time will be a significant added value. But still, of course, we are aware that fraudsters will find a way how to avoid the system, and that means that we need to be also one step ahead and try to prevent it by using all tools available. Thank you.
Pasquale Tridico
Thank you, Marina. Now we move to Patches, both FISC and CONT. I would ask Pierre, please, and then Sanchez, please.
Pierre Pimpie
Donc je précise que c'est en français, voilà. Alors, alors en fait, je voudrais savoir si vous rencontrez des freins dans vos actions.
Donc si les échanges que vous avez avec les services des différents États sont suffisamment fiables, si ça se fait vite, là. Et puis je voudrais savoir comment se chevauchent vos actions donc avec celles des services de ces États. Parce que le système en gros n'est pas si simple, donc je voudrais savoir si ça fonctionne de façon fluide. Voilà.
Julien Sanchez
Bien merci, bonjour à tous. Je souhaiterais commencer par un constat simple.
La fraude à la TVA n'est plus un simple problème fiscal elle est devenue l'une des principales sources du financement du crime organisé en Europe. Cette question m'a mobilisé lorsque j'étais rapporteur du rapport sur la protection des intérêts financiers de l'Union. Les auditions que nous avons menées ont montré que les réseaux criminels considèrent aujourd'hui la fraude à la TVA comme une activité à haut rendement à faible risque et extrêmement lucrative. Face à de tels montants il n'est plus possible de parler de fraude résiduelle ou marginale nous sommes confrontés à une menace systémique pour les finances publiques européennes. Je crois que vous l'avez rappelé ce chiffre dépasse aujourd'hui 45 milliards d'euros et continue d'augmenter madame Kövesi.
Par ailleurs Eurofisc a identifié plus de 6000 fraudeurs et détecté 14 milliards d'euros de transactions frauduleuses ou suspectes en une seule année.
Donc il faut être lucide. Lorsque des organisations criminelles sont capables de détourner des dizaines de milliards d'euros, nous ne sommes plus face à quelques fraudeurs isolés. On est confronté à de véritables entreprises criminelles transnationales qui exploitent méthodiquement les failles de notre système fiscal. Et on pourrait parler d'ailleurs de plusieurs problèmes spécifiques comme ceux des ports et des contrôles dans les ports qui sont un vrai sujet, mais il y en a beaucoup d'autres.
Et pendant que nos administrations échangent des formulaires, les fraudeurs déplacent leurs activités d'un État membre à l'autre, blanchissent leurs profits et disparaissent avant même que les autorités aient accès aux données nécessaires pour intervenir. Donc moi j'aurais deux questions. La première c'est, je pense que vous vous battez avec beaucoup d'énergie et je vous en félicite, mais aujourd'hui les moyens actuellement mis à disposition, à votre disposition, ne sont pas proportionnés. Donc que vous faudrait-il et que réclamez-vous précisément ? Et deuxième question, vous avez dû suivre je pense aujourd'hui dans le cadre du cadre financier pluriannuel le débat sur les ressources propres.
On parle beaucoup de créer de nouvelles taxes, de nouvelles recettes financières pour le budget de l'Union européenne. Ne pensez-vous pas qu'en allant chercher l'argent de la fraude on réglerait déjà une partie du problème et que cet argent-là il permettrait d'éviter de créer de nouvelles ressources propres ? Merci.
Laura Kövesi
What we would need to be more efficient. I will, and I will try to reply to both questions in the same time.
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