BUDGET EXTRA: VAT crackdown on financial groups

The chancellor yesterday said he would close three tax loopholes. One of these relates to business conducted outside the EU.

The financial services industry is generally exempt from VAT, allowing it to avoid some of the tax on its growing sales outside the EU, because companies can claw back the VAT on costs associated with these sales.

But yesterday’s reform will introduce a rule requiring businesses to dispense with the current normal regime ‘in cases where the result does not reflect the use made of the purchases, including cases of deliberate abuse,’ the government said.

However, the move could cause problems as the financial services industry continues to consolidate globally, as a result Europe could suffer VAT leakage as transactions go elsewhere.

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