EU’s massive ‘trade surplus’ with itself due to VAT fraud

By:

Calum Rutter

14 Jan 20

The EU runs a trade surplus with itself of more than €300bn, a number that should be zero, and measurement errors alone are not a sufficient explanation, researchers have warned.

Instead, large-scale VAT fraud appears to be responsible, experts at the Kiel Institute for the World Economy and the ifo Institute in Munich found.

This type of fraud, where companies declare sales as exports but do not send anything abroad and thus pay no VAT, causes sales to appear in export statistics but not in import figures.

EU countries lost about €30m in taxes in 2018 alone, according to the researchers, who published their findings as a Kiel working paper.

They looked at trade between all 28 member states going back to 1999. In 2018, the surplus was €307bn. This was equivalent to just under 2% of the entire EU’s GDP and more than the GDP of the eight smallest members combined.

Globally, the world runs a trade surplus of €357bn, so this analysis suggests 86% of global deviation in the figures is because of the EU.

“An error of this magnitude in the balance of payments statistics is not something the EU can simply shrug off as an intriguing outlier, especially given that the size of trade surpluses is fuelling international disputes.

“Policymakers need reliable data,” Kiel Institute president Gabriel Felbermayr and ifo researcher Martin Braml wrote in their paper.

The worst discrepancies are found in the UK’s current account data, but the researchers blamed this partly on the country basing its statistics on small random samples of trade data only.