EU Commission slams “unacceptably high” VAT gap

6 Sep 16

The European Union lost a "staggering" €160bn in value added tax revenues in 2014, according to European Commission data released today.


The commission said this “unacceptably high” VAT gap highlighted the need for deep reforms to overhaul the EU’s VAT system to tackle fraud and make it more efficient.

Earlier this year, the European Court of Auditors also found significant weaknesses in the EU’s VAT system, with inconsistent and inadequate data and tools for fighting fraud.

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, agreed that the current regime is “woefully ill-equipped to deal with the problems of VAT fraud and miscalculations”.

“It’s clear that the numbers will not get better by themselves,” he added.  

Alongside some more immediate measures to tackle cross-border VAT fraud, which accounts for around €50bn of the VAT gap annually, in April the commission published an action plan to overhaul the EU’s VAT system.

The plan set out potential actions to tackle to VAT gap, overcome fraud, and improve collection across the bloc in the longer term. These included tightening up the EU’s VAT collection system to make it more fraud-proof, giving greater autonomy and flexibility to member states in setting their own reduced VAT rates on certain items, and modernising and simplifying the system for cross-border e-commerce.

The commission is due to present legislative proposals on its VAT action plan in 2017. However before doing so it has requested input from member states on what should be included. So far, it has received little guidance, despite the fact that estimates show the future VAT system could reduce cross-border fraud by around €40bn, or 80%, per year.

Moscovici stressed that member states must agree on a “definitive, fraud-proof system”, based on the commission’s proposals, quickly.

The commission said that today’s figures show that some member states have managed to improve their own VAT collection, but the performance of individual nations varies widely and many others failed to collect as much VAT revenues as the year before.

The gap between expected revenues and actual collections ranged from a high of 37.9% in Romania to a low of just 1.2% in Sweden.

In absolute terms, Italy had the heighted VAT gap of €36.9bn, while Luxembourg had the lowest, at €147m.

The country that saw the most improvement between 2013 and 2014 was Greece, which saw its VAT gap shrink by 5.52%, followed closely by Estonia, which reduced its gap by 5.09%.

The commission however stressed that real progress in EU VAT collection can only be achieved if member states collectively agree to a simpler, more fraud-proof and business friendly, EU-wide system.

“I urge all of our member states to have a frank and meaningful discussion in order to feed into next year’s proposals, so we can tackle this issue once and for all,” Moscovici said. 

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