Tax & Accounting Blog

Latvia Proposal to Combat VAT Fraud

Blog, Checkpoint Daily Newsstand, Featured, Indirect Tax, ONESOURCE, Reuters Business News, Reuters Tax & Accounting News, Sales and Use Tax December 10, 2015

A common theme of our blog space has been the ways various countries are tackling issues of VAT Collection and VAT fraud (see my colleague Anil Kuruvilla‘s posts on India and Puerto Rico, for example, or this piece on Fiji). With proposals contained in the 2016 budget to be voted on by the Latvian Parliament in the coming days, we can now add Latvia to the list of countries seeking new ways to collect VAT and prevent VAT fraud.

The Latvian proposal is a step in the direction of the rating system proposed in India, but stops short of the outright blacklisting of suppliers. The proposal seeks to identify risky VAT payers at the outset, preemptively prevent fraudulent fraudulent use of VAT registration numbers, by establishing a framework whereby the Latvian State Revenue Service (Valsts Ieņēmumu Dienests) would exclude from the VAT register suppliers who have reported economic activity for three months. This follows from a study, (reported on by Saeima Press Service) earlier this year that identified a number of suppliers that did not report VAT liable transactions for a period of three months and later had an unusually large VAT declaration. There are reportedly 2,700 suppliers considered to be “at risk”, and outstanding VAT amounts in Latvia are nearly 14 million euros.

As recently as November of 2012 the State Revenue Service was taking a different approach: recognizing publicly and by name the 10 Biggest Latvian Tax Payers, a reverse name-and-shame approach. The top 3 tax payers were presented with custom-made awards, described as follows in the press release:

SRS presented to the 3 biggest tax payers glass-made awards designed by artists; the awards were made of four glass circles which are placed on glass-made foundation with the event logo engraved on the glass circles and the award winner’s name on the foundation. The remaining seven award winners received glass-made awards which were smaller in size; awards contained engraved event logo and the winner’s name.

The top ten tax payers/ award recipients in that year were responsible for 18.2% of the total amount collected by the State Revenue Service that year.