Trade Union News from Finland
New reverse VAT system in
increases tax revenues
Helsinki (29.11.2012 - Juhani Artto) Finland introduced a reverse charge in
VAT (value added taxation) for the construction sector on 1 April 2011. With
reverse VAT it is the buyer of services that pay the VAT and not the seller
as is common under the normal VAT system. In practice, this means that the
main contractor is obliged to report and pay VAT to the Tax Administration
(Inland Revenue) in respect of the entire work or project.
Preliminary results indicate that this measure has succeeded in reducing tax
fraud, which was the main goal of the reform. According to the study,
published on Tuesday by the Tax Administration, the changes boost
state coffers by at least EUR 75 million more in VAT-revenue annually.
The study also suggests that the criticism and dire warnings of the
construction industry representatives during the preparation stage of the
reform was baseless. The study concludes that the new system has been
adopted satisfactorily and any fears that it might lead to the black economy
(in this sector) changing its modus operandi or becoming more innovative to
meet the challenge have not materialized. Construction industry
representatives repeatedly warned that this kind of reform would inevitably
result in the emergence of fraudulent and dishonest "main contractors" but
so far there has been no sign that this has happened.
As expected the adoption of the reverse VAT system has not succeeded in
eliminating or even led to a reduction in operations with fake receipts but
nevertheless the reform has had a positive impact also on the receipt fraud. For criminal
businessmen the immediate benefit of fake receipts has become smaller as now they are unable to deduct fake VAT-payments.
However, it is well to remember that the findings so far are based on a
limited number of tax control measures and it is advisable to avoid the
temptation of coming to early or premature conclusions at this stage, the
study reminds us. Sweden, Belgium and the Netherlands had already taken the
bold step and introduced reverse VAT systems prior to Finland’s adoption of
the same. And the experience in these countries has been
positive and encouraging.
Reverse charge in value added taxation in the construction sector from 1
April 2011, Tax Administration