EC, VAT Gap study: The total amount of VAT lost across the EU is estimated at €168 billion

VAT revenue collection has failed to show significant improvement across EU Member States according to the latest figures released by the European Commission.

Based on VAT collection figures from 2013, the overall difference between the expected VAT revenue and the amount actually collected (the so-called „VAT Gap”) did not improve on 2012. While 15 Member States including Latvia, Malta and Slovakia saw an improvement in their figures, 11 Member States such as Estonia and Poland saw deterioration.

The total amount of VAT lost across the EU is estimated at €168 billion, according to the report. This equates to 15.2% of revenue loss due to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies and miscalculation in 26 Member States[1].

VAT Gap in the EU-26 countries, 2012-2013

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said: „This important study highlights once again the need for further reform in VAT collection systems across the EU. I urge Member States to take the steps needed to fight tax evasion and tax fraud at all levels. This remains a burning issue and is at the top of this Commission’s agenda.”

As well as setting out detailed data on the difference between the amount of VAT due and the amount actually collected in Member States in 2013, the latest VAT Gap study gives an indication of the effectiveness of VAT enforcement and compliance measures. The main trends in VAT collection are also presented, along with an analysis of the impact of the economic climate and policy decisions on VAT revenues.

In 2013, the estimated VAT gaps of Member States ranged between 4 percent in Finland, the Netherlands and Sweden to 41 percent in Romania.

Background

The VAT Gap study is funded by the Commission as part of its work to reform the VAT system in Europe and to clamp down on tax fraud and evasion. The Commission has already identified key actions and taken a number of measures to assist Member States to this effect.

First, a tougher stance against evasion and stronger enforcement at national level are essential. The VAT reform launched in December 2011 has already delivered important tools to ensure better protection against VAT fraud, while the Quick Reaction Mechanism allows Member States to react much more swiftly and effectively to sudden, large-scale cases of VAT fraud. The Commission also supports the Eurofisc network in order to strengthen Member States’ capacities to fight cross-border fraudulent networks through the exchange of operational information.

Secondly, the Commission has worked to help simplify tax systems, making it easier for taxpayers to comply with the rules. For example, measures to facilitate electronic invoicing and special provisions for small businesses came into force in 2013. Since 1 January 2015, a One Stop Shop enables businesses providing e-services, broadcasting and telecoms services to file a single VAT return for all their activities across the EU.

Thirdly, Member States need to reform their national tax systems and modernise their administrations in order to reduce the VAT Gap. The Commission has set out possible measures to meet these objectives and, where requested, supports Member States by coordinating technical assistance activities.

Useful links

The full report is available here.  / For more information, see the FAQ section.

1. As in previous reports, it was not possible to include estimates for Croatia and Cyprus, due to as-yet-incomplete national account statistics for the two countries.