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European Commission

Press release

Brussels, 23 October 2014

Taxation: Study confirms billions lost in VAT Gap

An estimated €177 billion in VAT revenues was lost due to non-compliance or non-collection in 2012, according to the latest VAT Gap study published by the Commission today. This equates to 16% of total expected VAT revenue of 26 Member States1. The VAT Gap study sets out detailed data on the difference between the amount of VAT due and the amount actually collected in 26 Member States in 2012. It also includes updated figures for the period 2009-11, to reflect a refinement of the methodology used. The main trends in the VAT Gap are also presented, along with an analysis of the impact that the economic climate and policy decisions had on VAT revenues.

Algirdas Šemeta, Commissioner for Taxation, said: "The VAT Gap is essentially a marker of how effective – or not - VAT enforcement and compliance measures are across the EU. Today's figures show there is a lot more work to be done. Member States cannot afford revenue losses of this scale. They must up their game and take decisive steps to recapture this public money. The Commission, for its part, remains focussed on a fundamental reform of the VAT system, to make it more robust, more effective and less prone to fraud."

The VAT Gap is the difference between the expected VAT revenue and VAT actually collected by national authorities. While non-compliance is certainly an important contributor to this revenue shortfall, the VAT Gap is not only due to fraud. Unpaid VAT also results from bankruptcies and insolvencies, statistical errors, delayed payments and legal avoidance, amongst other things.

In 2012, the lowest VAT Gaps were recorded in the Netherlands (5% of expected revenues), Finland (5%) and Luxembourg (6%). The largest Gaps were in Romania (44% of expected VAT revenues), Slovakia (39%) and Lithuania (36%). Eleven Member States decreased their VAT Gap between 2011 and 2012, while 15 saw theirs increase. Greece showed the greatest improvement between 2011 (€9.1 billion) and 2012 (€6.6 billion), although it is still one of the Member States with a high VAT Gap (33%).

Background

The VAT Gap study is funded by the Commission as part of its work to reform the VAT system in Europe and clamp down on tax fraud and evasion. Tackling the VAT Gap requires a multi-pronged approach.

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 (see IP/11/1508). For example, the Quick Reaction Mechanism, adopted in June 2013, allows Member States to react much more swiftly and effectively to sudden, large-scale cases of VAT fraud (see IP/12/868).

Secondly, the simpler the system, the easier it is for taxpayers to comply with the rules. Therefore, the Commission has focussed intently on making the VAT system easier for businesses across Europe. For example, new measures to facilitate electronic invoicing and special provisions for small businesses came into force in 2013 (see IP/12/1377), and the proposed standard VAT declaration (see IP/13/988) will significantly reduce the administrative burden for cross-border businesses. From 1 January 2015, a One Stop Shop will enter into force for e-services and telecoms businesses. This will promote more compliance by greatly simplifying VAT procedures for these businesses and enabling them to file a single VAT return for all their activities across the EU (see IP/12/17).

Thirdly, Member States need to modernise their VAT administrations in order to reduce the Vat Gap. For example, potential measures to improve procedures are addressed in the report on VAT collection and control procedures across Member States, within the context of EU own resources, published in February 2014 (see EXME 14/12.02).

Finally, Member States need to reform their national tax systems in a way that facilitates compliance, deters evasion and avoidance, and improves the efficiency of tax collection. The Commission has given clear guidance in this respect through the country specific recommendations.

Useful links

The full report is available here:

http://ec.europa.eu/taxation_customs/common/publications/studies/index_en.htm

For more information, see our FAQ: MEMO/14/602

Homepage of Commissioner Šemeta:

http://ec.europa.eu/commission_2010-2014/semeta/index_en.htm

Follow Commissioner Šemeta on Twitter: @ASemetaEU

Contacts :

Emer Traynor (+32 2 292 15 48)

Franck Arrii (+32 2 297 22 21)

For the public: Europe Direct by phone 00 800 6 7 8 9 10 11 or by e­mail

Annex 1: VAT gap estimates by Member State

Table 3.1 VAT Gap estimates, 2011-2012

2011

2012

Country

Revenues

VTTL

VAT Gap

VAT Gap %

Revenues

VTTL

VAT Gap

VAT Gap %

AT

23,447

27,009

3,563

13%

24,563

27,807

3,244

12%

BE

26,019

29,669

3,650

12%

26,896

29,887

2,991

10%

BG

3,362

4,434

1,073

24%

3,739

4,697

957

20%

CZ

11,246

13,602

2,356

17%

11,377

14,644

3,267

22%

DE

189,920

211,834

21,914

10%

194,040

215,997

21,957

10%

DK

23,870

25,916

2,047

8%

24,422

26,563

2,141

8%

EE

1,363

1,577

214

14%

1,508

1,763

255

14%

ES

56,009

68,913

12,904

19%

56,125

68,537

12,412

18%

FI

17,020

17,913

893

5%

17,640

18,545

905

5%

FR

140,558

163,417

22,859

14%

142,499

168,082

25,583

15%

GR

15,028

24,213

9,185

38%

13,713

20,364

6,651

33%

HU

8,516

11,252

2,736

24%

9,084

12,055

2,971

25%

IE

9,755

11,093

1,338

12%

10,219

11,482

1,263

11%

IT

98,456

143,916

45,460

32%

95,473

141,507

46,034

33%

LT

2,444

3,820

1,377

36%

2,521

3,957

1,436

36%

LU

2,792

2,937

145

5%

3,064

3,268

204

6%

LV

1,374

2,186

812

37%

1,570

2,389

818

34%

MT

520

733

213

29%

536

777

241

31%

NL

41,610

43,255

1,645

4%

41,699

43,699

2,000

5%

PL

29,843

36,798

6,955

19%

27,881

37,198

9,317

25%

PT

14,265

16,083

1,819

11%

13,995

15,223

1,228

8%

RO

11,412

20,382

8,970

44%

11,212

20,053

8,841

44%

SE

36,631

38,043

1,412

4%

37,861

40,748

2,886

7%

SI

2,996

3,277

282

9%

2,889

3,160

270

9%

SK

4,711

7,015

2,304

33%

4,328

7,114

2,787

39%

UK

130,683

145,724

15,041

10%

142,943

159,501

16,557

10%

Total

(EU-26)

903,848

1,075,015

171,167

16%

921,798

1,099,018

177,220

16%

Sources: Eurostat (revenues); Own calculations. Figures in million Euros unless otherwise indicated. National currency figures for countries not using the Euro converted at the average Euro exchange rate (source: Eurostat).

1 :

While it was hoped that the update would cover also Cyprus and Croatia, this has not been possible in view of the as-yet unfinished revision to the national accounts for Cyprus and the compilation of the use tables for Croatia.


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