In 2014 the EU Member States lost approximately €160 billion in VAT revenues due to non-compliance, according to a recent study conducted by CASE for the European Commission. The report: “Study to Quantify and Analyse the VAT Gap in the EU Member States” examines the reasons for and reality of the VAT underperformance across twenty seven Member States.
Compared to 2013, EU27 saw ca. €2.5 billion decrease in VAT-GAP in absolute numbers. Overall, 18 Member States decreased their VAT Gaps, with the largest improvements noted in Greece, Estonia, and Hungary. However, at the same time eight Member States saw an increase in the VAT Gap, with the largest deteriorations in Romania and France.
Emphasizing the diversity of the EU’s tax administrations, the study estimated that the VAT non-compliance in 2014 ranged from 1% in Sweden, to as much as 38% in Romania.
“Better performance was due to favorable economic tailwinds, stable VAT regimes, and measures introduced against tax non-compliance,” said Grzegorz Poniatowski, leader of the study – “The VAT Gap refers to more than just fraud and evasion. It also covers the VAT lost due to insolvencies, bankruptcies, administrative errors, and legal tax optimisation. There is an on-going EU reform process to make the VAT system simpler, more efficient, and more robust. Meanwhile, Member States are called upon to broaden their tax bases and improve their administrations for better tax compliance, as part of their national structural reforms and it seems that the efforts were successful”.
The report also provides new and expanded evidence on the Policy Gap for the EU-26. The Policy Gap is an indicator of the additional VAT revenue that a Member State could theoretically collect if it applied standard rate to all consumption of goods and services supplied for consideration. The study shows that several Member States, including Belgium, Finland, France, Greece, Ireland, Luxembourg, Netherlands, Portugal, Spain, and the United Kingdom, could collect up to 50% more revenue if they applied a unified tax on all consumption.