VAT system 'must be updated to cater for expanded EU'

The Value Added Tax (VAT) system needs a radical overhaul if business in the newly expanded European Union is to prosper, it was claimed today.

An overly complex current VAT system facilitates fraud, loses European Union member states revenue and adds to the cost burden for business, the European Federation of Accountants (FEE) said.

The cost of fraud is about €80-€100bn (10%) of net VAT revenues annually - effectively the VAT take for France - the European Commission has found.

Yves Bernaerts, Director Ernst and Young Tax Consultants said: "Huge efficiencies could be achieved, as the European Commission has noted, if administrations were to adapt control systems to the realities of electronic commerce and introduce widespread use of computerised procedures in auditing.

"Member states should avoid the introduction of blanket penalties applicable to all businesses. Where necessary, carefully targeted legislation could be adopted," he added.

FEE has also considered developments which signal a move towards harmonisation of VAT and has undertaken to develop proposals to make the VAT system more efficient.

The resulting position paper will be submitted to the European Commission, European Parliament and the EU member states.