In a move that could eventually ease the growing tax burden placed on the channel, European Commission (EC) finance ministers have acknowledged the need to rethink the ageing VAT system.

As reported by CRN, members of the Economic and Financial Council (Ecofin) met last week to debate the growing problem of VAT fraud (CRN, 5 June). The meeting followed calls by European tax commissioner Laszlo Kovacs for the EC to work together to improve the existing VAT system, which has lost more than £60bn to fraud.

Ecofin, which revealed it hopes “to reach a global agreement by the end of the year”, said in a statement: “[The council] will examine all the issues raised by the fraud Communication, including the possible legal changes to the VAT system.”

Another topic high on the agenda was the ‘reverse charge’ procedure, applied for in the UK by HM Revenue and Customs, which would pass responsibility for VAT onto the purchaser, rather than resellers and suppliers of components, chips and mobile phones.

The Ecofin statement continued: “Further analysis of a more generalised reverse charge is therefore necessary.”

Anthony Elliot-Square, chairman of the Federation of Technological Industries (FTI), which represents chip, component and mobile phone resellers in the UK, said changes to the current system would be welcome.

“A major overhaul of the whole system is definitely needed because it isn’t working,” he said. “In principle, it seems an interesting idea. But it is going to be a question of what the reaction is going to be from EC members, because most countries are very possessive of their VAT laws. It is going to take a long time.”

sara_yirrell@vnu.co.uk