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EU VAT Gap falls to €152bn

  • Sep 27, 2017 | Richard Asquith

EU VAT Gap falls to €152bn

The latest analysis of missing EU VAT (the ‘VAT Gap’) from fraud, bankruptcies and poor administration, has fallen to €151.5 billion in 2015. This compares to €159.5 billion in 2014.

The latest estimate of unaccounted for VAT represents 12% of the anticipated collections based on economic activity and VAT rates across the 28 EU member states.  This is a 2.1% closing on the previous year’s gap.

Italy accounts for almost one quarter of missing EU VAT

Highlights from the latest, 2015 VAT Gap analysis include:

  • Italy accounts for 23% of the €151.5 billion VAT missing in Europe
  • Sweden has the smallest VAT Gap, at 1.4%, despite having the second highest EU VAT rate – 25%.
  • Romania has the largest gap at 37.2% of expected VAT revenues
  • The UK's VAT Gap grew from €18.7 billion to €22.2 billion

The EU has proposed a range of reforms to the EU VAT regime, contained within its VAT Action Plan. This includes more sharing of information across borders, and the move to a destination-based tax system in 2021.  Countries have been active too, introducing the reverse charge in fraud-sensitive sectors, and the split payments in countries such as Italy, Romania and Poland.

The VAT Gap

Each year, the European Commission works with the 28 EU member states to reconcile forecasts of VAT that should be collected versus actual receipts. The VAT receipt forecasts, known as VAT Total Tax Liability (VTTL), are based on national VAT rates applied to recorded sales of taxable supplies.

Reasons for the difference between VTTL and actual VAT receipts include:

  • VAT fraud
  • VAT planning to lower liabilities
  • Poor tax administrative procedures
  • VAT debtors going into liquidation

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He can be contacted at: richard.asquith@avalara.com. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.