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Black market fraud

How Ireland Is Losing Out On €10bn in VAT a Year

Oh how the Irish government would love a simple solution to the country’s economic woes. After a long period of reliance on bailouts overseen by the European Central Bank, it has emerged that the nation’s treasury could make up the budget deficit all on its own, if it were collecting the correct amount of VAT, that is.

Figures provided by the European Commission recently suggest that the State’s VAT office is collecting less than half the amount of tax that it should be, a figure equating to roughly €10bn. The shortfall is down largely to a sizeable amount of fraudulent or black market trade, but also to evasion of VAT by offshore business entities. And then of course there is the age old problem of tax havens and offshore banking arrangements amongst wealthy individuals.

The Commission stated that this kind of activity means the 50% deficit in evidence in Ireland also applies to the EU as a whole. A particularly prevalent problem in Ireland is a kind of VAT fraud called ‘carousel fraud’, whereby companies feign imports and claim back ‘phantom VAT’ from the State.

Another sizeable discrepancy lies at the door of cash-in-hand workers, those who do not raise an invoice and subsequent record of payment and thereby do not incur VAT. Ironically Luxembourg’s VAT office claims 100% of the tax it is supposed to. This is no surprise, given that the country is one of Europe’s most favourable tax environments. Compare this to Ireland, where VAT sits at a whopping 23% and it is easy to see why so much avoidance goes on, not that this excuses it. Accordance VAT have produced a guide to VAT regulations in Ireland especially designed for businesses operating overseas or with offshore entities to ensure cross-border compliance.

The European Commission’s message is that whilst they have proposed an abundance of anti-fraud and avoidance measures, member EU states have been strangely reluctant to pick up on them. The States themselves have also been criticised for poor methods of collecting VAT.

Cross-border trade is certainly a grey area in this respect and the Commission recommends that those buying and selling goods in markets other than their own seek advice from an international VAT specialist.

This was posted in Bdaily's Members' News section by Contributor .