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EU Value-Added Tax Reforms Closing The VAT Gap

by Ulrika Lomas, Tax-News.com, Brussels

27 October 2014


The European Commission has published its latest VAT Gap study, which shows that an estimated EUR177bn (USD223.9bn) in value-added tax (VAT) revenues was lost due to non-collection or non-compliance in 2012 – a figure equal to 16 percent of expected VAT revenues.

Algirdas Šemeta, European 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." The study calculates the VAT that goes uncollected owing to fraud and evasion, legal tax avoidance, bankruptcies, financial insolvencies, miscalculations, and the poor performance of tax administrations.

The findings in the 2012 report show a marked improvement on the 2011 level of EUR193bn, which was equal to 18 percent of expected VAT revenues and a gap worth 1.5 percent of the member states' combined gross domestic product (GDP).

In 2012, the lowest VAT Gaps were recorded in the Netherlands (5 percent of expected revenues), Finland (5 percent) and Luxembourg (6 percent). The largest Gaps were in Romania (44 percent), Slovakia (39 percent) and Lithuania (36 percent). Eleven member states decreased their VAT Gap between 2011 and 2012, while 15 saw theirs increase. Greece showed the greatest improvement between 2011 (EUR9.1bn) and 2012 (EUR6.6bn), although it still has a high VAT Gap of 33 percent.

Šemeta concluded: "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 focused on a fundamental reform of the VAT system, to make it more robust, more effective, and less prone to fraud."

TAGS: compliance | tax | European Commission | value added tax (VAT) | Netherlands | tax avoidance | VAT legislation | gross domestic product (GDP) | Luxembourg | Romania | Slovakia | enforcement | legislation | Finland | Greece | Lithuania | VAT refunds | VAT compliance matters | Europe | Tax

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