The European Commissioner for Economic and Financial Affairs says that €50 billion in Value-Added Tax fraud is “lining the pockets of criminals, fraudsters and probably even terrorists.”
The European Commission called on European Union member states to agree on a reform to reduce VAT fraud, after having learned that EU countries lost almost €150 billion in VAT revenues in 2016.
Based on the VAT collection figures available, the total amount of VAT lost across the EU in 2016 is estimated at EUR 147.1 billion. This represents a loss of 12.3% of the total expected VAT revenue.
A loss of €150 billion per year for national budgets remains unacceptable, especially when €50 billion of this is lining the pockets of criminals, fraudsters and probably even terrorists
While much progress has been achieved to improve VAT collection and administration at the EU level, the European Commission is now saying that member states should move forward and agree as soon as possible on the much broader reform to cut down on VAT fraud in the EU’s system, as proposed last year by the Commission.
The reboot would improve and modernise the system for governments and businesses alike, making the system more robust and simpler to use for companies.
“Member states have been improving VAT collection throughout the EU. This must be recognised and commended. But a loss of €150 billion per year for national budgets remains unacceptable, especially when €50 billion of this is lining the pockets of criminals, fraudsters and probably even terrorists,” said Pierre Moscovici Commissioner for Economic and Financial Affairs, Taxation and Customs, in the EC report.
“A substantial improvement will only come with the adoption of the VAT reform we proposed a year ago. I urge Member States to move forward on the definitive VAT system before the European Parliament elections in 2019,” he added.
The so-called VAT Gap, which is the difference between expected VAT revenues and VAT actually collected, provides an estimate of revenue loss due to tax fraud, tax evasion and tax avoidance, but also due to bankruptcies, financial insolvencies or miscalculations.
VAT Gap by EU Member States
The VAT Gap decreased in 22 member states with Bulgaria, Latvia, Cyprus, and the Netherlands displaying strong performances, with a decrease in each case of more than 5 percentage points in VAT losses.
However, the VAT Gap did increase in six member states: Romania, Finland, the UK, Ireland, Estonia, and France.
In 2016, member states’ estimated VAT Gaps ranged from 0.85% in Luxembourg, to 35.88% in Romania.
While member states have carried out a lot of work to improve VAT collection, Tuesday’s figures show that reform of the current EU VAT system combined with better cooperation at EU level are needed so that member states can make full use of VAT revenues in their budgets.
The variations of VAT Gap estimations between the member states reflect the existing differences in member states in terms of tax compliance, fraud, avoidance, bankruptcies, insolvencies and tax administration. It offers an indication about the performance of national tax administrations, but should not be looked at in an isolated way.