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 (seeIP/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.