Value added tax noncompliance in the car market

We examine value added tax (VAT) non-compliance in the European Union (EU) car market. This issue is of paramount importance because of the loss of VAT revenue, the profound distortion of market mechanisms, and the dangerous variety of fraudulent schemes employed. In addition to the usual VAT fraudulent schemes on intra-community trade, the special regimes, and the different regulations for the sale of motor vehicles in the EU member states per se, favour non-compliance in the car market. Non-compliance also takes advantage of the lack of adequate and prompt information exchange among the tax administrations of different countries and, within each country, between the tax administrations and their departments responsible for motor vehicles. We highlight the fact that the current measures are insufficient to fight VAT non-compliance and that the new rules proposed in the ‘definitive VAT system’ are inadequate to control the proliferation of scams in the car market. Accordingly, we suggest more substantial measures: well-targeted and prompt cross-checks through archives and databases, and the monitoring of their effectiveness; electronic invoices; real-time exchanges of information between the different tax and transport authorities; and increased harmonisation of the special VAT schemes that aim to eliminate one of the most exploited opportunities for illicit gain, to the detriment of the EU member states.