The Netherlands Explores Real-Time VAT Calculations and Split Payments to Combat Tax Fraud

The Dutch tax authorities are considering real-time VAT calculations and split payments to combat VAT fraud, especially in the B2C sector. This system would ensure automatic VAT collection at the point of sale, replacing traditional tax returns. While similar models exist in Poland, Italy, and South America, challenges such as payment provider readiness and non-resident seller compliance must be addressed before implementation in the Netherlands.

The Dutch tax authorities are considering implementing real-time VAT calculations and split payments as a strategy to reduce VAT fraud, particularly in the B2C sector. This initiative aims to modernize the tax system by ensuring VAT is automatically collected at the point of sale, rather than through traditional monthly or quarterly tax returns. To assess feasibility, authorities plan to consult with retailers, e-commerce businesses, and payment service providers.

The main challenge in implementing split payments is the current capability of payment providers, as their systems are not yet designed to handle the level of data required for accurate VAT determination. Additionally, the government must address how to include non-resident sellers in the system to prevent fraudsters from shifting to unregulated channels.

Split payments would work by directing the VAT portion of a transaction directly to the tax authorities at the time of purchase. This approach has already been used in specific sectors in Poland, where businesses in high-risk industries, like construction, must hold VAT funds in restricted-use bank accounts. Italy has a similar system for payments to public sector-controlled companies, while several South American countries have implemented split payments extensively for e-commerce transactions involving foreign sellers.

While the UK has been piloting a split payments system for several years, technical and regulatory hurdles have slowed its full adoption. The Netherlands will now explore whether such a system can be successfully implemented and whether it offers a viable solution for improving VAT compliance.