Wednesday 29th October, 2014

According to the latest VAT Gap study by the European Commission, an estimated €177 billion in VAT revenues was lost due to non-compliance or non-collection in 2012. This equates to 16% of total expected VAT revenue by the 26 EU Member States.

The study sets out detailed data on the difference between the amount of VAT due and the amount actually collected by the Member States in 2012.

It plays a key part in the Commission’s work to reform the VAT system in Europe and clamp down on tax fraud and evasion. To tackle the VAT Gap the Commission requires a multi-pronged looking at different ways to make improvements.

The Commission has focussed intently on making it easier for businesses across Europe, with new electronic invoicing measures to help with compliance and special provisions for small businesses that came into force in 2013.

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."

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.

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%).