Speech by State Secretary De Vries at the VAT Gap Colloquium in Brussels

Speech by State Secretary for Benefits and Customs De Vries at the VAT Gap Colloquium in Brussels, Belgium.

Minister Van Peteghem, Director Heinen,

Good afternoon everyone,

Thank you very much for your invitation to speak at this colloquium on the VAT gap in the EU. It is good to see so many people here today.

The VAT Gap Report shows that EU member states’ VAT gaps are shrinking steadily. We can be proud of the progress we have all made. We should continue on this path. By taking strict measures against fraud, but first and foremost by supporting entrepreneurs.

Today I want to explain what steps we are taking in the Netherlands to keep the VAT gap as narrow as possible. According to the 2023 VAT Gap Report, the Netherlands has a negative VAT gap of 0.2 per cent. In practice, this means that our tax authorities are collecting more VAT revenue than we are demanding from society.

The cause of this negative gap most likely lies in the Covid pandemic, when companies were allowed to temporarily defer their VAT payments.

Our VAT gap in 2020 was 4 per cent, and for 2022 it is estimated at 4.9 per cent. Looking at the longer term, we see a downward trend. Between 2017 and 2019, the VAT gap was around 7 per cent.

The Dutch tax authorities are thus increasingly successful in collecting the full amount of VAT they are owed. Today I would like to share with you the lessons we have learnt in recent times.

To reduce the VAT gap, first of all it has to be clear why we are missing out on revenue. In the Netherlands, the two biggest causes of the VAT gap – now and in previous years – appear to be careless mistakes and lack of knowledge on the part of taxpayers. The vast majority of taxpayers do not make these mistakes intentionally. In those cases, the tax authorities should not label entrepreneurs as fraudsters but instead support them as much as possible with their returns.

This goes beyond merely checking returns retrospectively. We also need to simplify procedures and reduce the administration burden for taxpayers.

Here are just a few of things we are doing to support businesses with their tax returns. First, we provide them with accurate information and dedicated software. We also give them targeted advice. In addition, for a number of years now it has been possible for entrepreneurs to settle their tax bills using the iDEAL payments system.

On top of that, we offer special assistance to businesses that have to pay VAT to other European member states. And we are applying cooperative compliance on an ever wider scale. For example, our Tax and Customs Administration now provides entrepreneurs with an overview of good practices that indicate when their tax control framework is good enough. In general, we are trying to make the relationship between the tax authorities and businesses as equitable as possible by putting mutual co-operation first.

This means, for example, that businesses have a single point of contact within the Tax Administration – someone they can reach quickly and easily. That ensures that they receive prompt answers to questions about their tax affairs. The Tax Administration also tailors audits and written queries to their specific situation. As a result, we are able to identify errors earlier and reduce the administrative burden for businesses. This approach is proving successful and is improving trust between taxpayers and the tax collectors.

We also try to make the legislation as clear and simple as possible and limit the number of fiscal exemptions and special arrangements.

All these measures help reduce the VAT gap and make it easier for businesses to operate across borders. Which, of course, is a big plus for our economies.

Unfortunately, we also lose VAT revenue to people who commit fraud. The Tax Administration and the Fiscal Information and Investigation Service therefore work closely together to prevent, detect and combat fraudulent activity. After all, crime should not pay.

Fraudsters are becoming increasingly clever and are always looking for new ways to evade tax. If they do not succeed within national borders, they seek out opportunities across them. Moreover, trade is becoming more and more global and that also benefits criminals. This requires a European approach.

We can see this with so-called carousel fraud, where criminals are setting up ever more complex chains to evade tax. In so doing, they regularly use countries outside the EU. They first send their goods to one of those countries, then have them re-enter the EU through another member state. In this way they circumvent the administrative checks carried out by tax authorities within the Union. That allows them to keep their fraud under the radar for extended periods.

In the Netherlands, the Tax Administration is paying a lot of attention to these types of fraud. Amongst other things, it issues information and sends out warning letters. Such measures help prevent fraud, but also ensure that we can punish it: the people involved cannot claim later – in court, for instance – that they were unaware of the rules.

Since my portfolio includes Customs, I should emphasise here that we can only successfully tackle criminals who commit VAT fraud with imported goods in the EU if our Tax Authorities and Customs Authorities join forces. Not only nationally, but internationally as well.

Within the Benelux, we are already co-operating in various ways to fight VAT fraudsters. For instance, by sharing knowledge. This colloquium is a good example of that. In addition, our tax authorities work closely together and have set up specific joint working groups to combat fraud. By, for example, sharing best practices and developments in such areas as e-invoicing and digital reporting.

On several occasions in the past, we have shown that successes within the Benelux can also be applied effectively at the European level. One case in point is the development of transaction network analysis, or TNA. This new tool allows us to analyse data from the VAT Information Exchange System – better known as VIES [phonetic: “vies”] – more quickly. Which in turn helps us identify members of carousel fraud networks faster. All the EU member states work with TNA, and we also make use of information from Customs. So that we can we fight VAT fraud even better.

Finally, in addition to the examples I have just mentioned of successful co-operation between EU member states, I would like to share our views on the ‘VAT in the Digital Age’ proposal. Mister De Winter stressed its importance earlier today, and I and my colleague Marnix van Rij, our State Secretary of Fiscal Affairs and Tax Administration, wholeheartedly agree about that. This VIDA proposal will create a real win-win situation for businesses and tax authorities.

VIDA offers opportunities to fight fraud more effectively through faster, more complete and more secure exchanges of information.

In addition, the proposal should help reduce the administrative burden on businesses and tax authorities. To achieve that, member states need to harmonise their systems as much as possible. This applies to all three pillars of the proposal, but especially to the digital reporting obligations and the deemed supplier regime for platforms. With proper harmonisation, international entrepreneurs will know what to expect and will make fewer mistakes.

Harmonisation will also make cross-border trade easier and more accessible, and increase the EU’s competitiveness. As I said, a win-win situation.

The VIDA proposal also reiterates my earlier assertion that tax authorities and customs authorities need to collaborate closely. This applies particularly to the single VAT registration component.

The reduced administrative burden and improved controls envisaged in the proposal apply in part to the importation of goods into the EU, which is what our Customs colleagues are responsible for. It is therefore important that we involve them as well.

We are pleased that the Belgian presidency has brought together VAT specialists from Customs and other VAT experts to jointly find a suitable solution, and that you are taking up the VIDA proposal so energetically. We are keen to play our part just as energetically, to help finalise the last points.

I am therefore confident that we will reach a good agreement soon.

Together, we are taking great strides to reduce the VAT gap. We have to crack down on fraud, but at the same time we need to realise that we have the most to gain by helping entrepreneurs.

Through simple legislation, clear procedures and good co-operation. Co-operation not just between our tax authorities, but most definitely with entrepreneurs as well.

Thank you.