Member states in Central and Eastern Europe (CEE) have some of the highest VAT gaps in the EU - from 14% in Hungary to 37% in Romania. Slovakia has the 2nd biggest VAT gap of 29% (EUR 2.3 billion) in the EU.
VAT gap as a percentage of the total tax liability
The Financial Policy Institute of the Slovak Ministry of Finance has stated that increasing tax evasion is one of the major reasons for the large VAT Gap in Slovakia.
The fight against tax fraud has become the top priority for tax audits in Slovakia. In recent years, Slovakia has greatly strengthened legislation aimed at preventing tax evasion.
The following measures have been introduced:
Financial guarantee upon VAT registration (required from businesses with poor tax history);
Joint liability of a customer for the tax when supplier fails to pay his VAT obligations to the national budget;
Full transfer of the obligation to pay VAT from supplier to customer (reverse-charge) for supplies of goods vulnerable to VAT fraud;
Introduction of the control statement; and
Creation of specialized agency teams to address serious fiscal crimes.
In recent years, VAT frauds are becoming one of the major priorities for tax audits in Slovakia. Tax offices are becoming more sophisticated in data mining and complex analysis of collected information, and cooperation with tax authorities in different states is growing.
Tax offices are paying increased attention to chain transactions among several companies to detect tax fraud. Even legitimate businesses may inadvertently be part of such fraudulent schemes and, if accused of participating in a tax fraud, they may become liable for the VAT which their suppliers have not paid to the national budget.
As VAT frauds are now at the top of the Tax Office’s agenda and given the ECJ’s position, businesses should consider whether they have an effective tax risk monitoring system and whether their internal controls would allow the company to prove to the Tax Office that they were sufficiently cautious and prudent in its business transactions if accused of VAT fraud.
How can PwC work with you?
We will assess the structure and operating effectiveness of your existing tax controls;
We will perform an extensive analysis of your tax affairs with vendors and customers using risk alerts which are triggered if you are potentially doing business with a fraudster;
We will draw up proposals for implementing new controls, or improving existing ones, to protect your business from possible accusations of being involved in VAT fraud;
We will provide complex support during a tax audit, which includes work with the Tax Office’s requests, attendance at interviews with the Tax Office and witnesses, drafting responses to tax authority requests, and assistance during the tax assessment procedure, etc.
