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EU non-resident businesses to be wary of compliance crackdown

  • Feb 12, 2015 | Richard Asquith

EU non-resident businesses to be wary of compliance crackdown

The austerity pressures on countries to review their tax revenue streams has increased the focus on European VAT rates. We have seen, for instance, increases take place over 2010 and 2014 in Portugal, Italy, Spain, and Greece. With continuing announcements of failure to meet target percentages on borrowing costs, together with direction from the IMF, ECB and EC, the recent announcements of plans for further VAT increases in Italy and Luxembourg come as no surprise.

EU VAT rises impact

VAT hits the man-in-the-street’s pocket. He does not simply pay the fractional amount, but the whole lot. Naturally, VAT increases are not a vote winner for the local government concerned. A diminution of standards of living is always a choker.

Second, who also suffers? It is the penultimate business in the chain such as the retailer, the café, bar or restaurant owner who has to implement the increase in their pricing to their customers. Retail sales have already dropped significantly as a result of rising unemployment, taxes and VAT rates. Against this background, one can fully understand the retailer’s attitude to the possibility of yet further VAT increases.

Such as been the discomfort of affected front-end businesses, fully supported by their customers, that reactive comments from their associations and group representatives have been documented in the press. They state that their members will simply not collect and pay the VAT demand imposed.

The instant response from Governments to the “we-will-not-pay” statements has been to underline that tax evaders will be pursued with heavy fines and penalties payable. With cash-strapped government Treasuries requiring to maximise every revenue source, it is a certainty there will be increased vigilance in tax collection.

Naturally there will be a crackdown on local resident enterprise, but non-resident foreign businesses will also fall under the spotlight. They may even be seen by local tax offices as far less sensitive targets for their scrutiny.

Thus non-resident businesses should ensure their EU VAT compliance is shipshape; VAT returns should be completed on time and VAT payments should be made by the deadlines. There may be increased attention on certain business types e.g. those in Distance Selling or E-commerce. Many tax offices have traditionally taken a relaxed position in respect of these cross-border B2C businesses, but it would not be unexpected if we were to see things tightening up in the immediate future.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara