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 European Commission. This equals to a massive 16% of total expected VAT revenue of 26 Member States!

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:
“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: explaination and country statistics

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.

Some VAT Gaps statistics (as percentage of expected revenues):

• 5% of expected revenues: the Netherlands, Finland
• 6%: Luxembourg
• 33%: Greece (Greece showed the greatest improvement between 2011 (€9.1 billion) and 2012 (€6.6 billion)
• 38%: Lithuania
• 39%: Slovakia
• 44%: Romania

Tackling the VAT Gap

The EU believes that tackling the VAT Gap requies a multi-facetted approach. And it is believe that e-invoicing should somehow be one of these measures:

“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).”
However if, e-invoicing in Europe remains as liberalised as it is today, the VAT gap will surely not decrease. Perhaps the EU could take a look at the Latin American approach, and its stunning results….

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