Real-Time Collection of the Value-Added Tax: Some Business and Legal Implications

29 Pages Posted: 24 Oct 2012  

Richard Thompson Ainsworth

NYU - Graduate Tax Program; Boston University - School of Law

Boryana Madzharova

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Date Written: October 24, 2012

Abstract

Recent estimates of the level of VAT fraud in the EU are commensurate with the EU budget. With the Green paper on the future of VAT, the European Commission stressed the urgency and necessity of comprehensive VAT reforms. This paper analyses the business and legal implications of the recently proposed split-payment mechanism, which, if implemented, would move VAT’s method of collection to real-time. The discussion is positioned in the context of two increasingly visible trends in the EU – the general shift towards greater reliance on indirect taxation and the growing popularity of electronic payment instruments. The potential implementation of VAT withholding would be a radical reform, given its shift of the taxation system from voluntary to forced compliance. We argue that, on the one hand, real-time VAT collection would constitute a potent preventive measure against VAT fraud, which could generate synergetic effects within SEPA, and further deepen integration through the harmonisation of VAT policies. On the other hand, real-time audit/refund would require tax authorities’ access to confidential business information that may be incompatible with EU privacy rules. The trade-off between efficient tax collection and privacy concerns mirrors the general debate on data protection in a cashless economy.

Keywords: Value Added Tax, Fraud, real-time collection, tax design, European Union

JEL Classification: H25, H26, K34, K42

Suggested Citation

Ainsworth, Richard Thompson and Madzharova, Boryana, Real-Time Collection of the Value-Added Tax: Some Business and Legal Implications (October 24, 2012). Boston Univ. School of Law, Law and Economics Research Paper No. 12-51. Available at SSRN: https://ssrn.com/abstract=2166316 or http://dx.doi.org/10.2139/ssrn.2166316

Richard Thompson Ainsworth (Contact Author)

NYU - Graduate Tax Program ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Boryana Madzharova

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

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