Click on a country to see the national VAT gaps in 2014
What is the VAT Gap?
Member States in the European Union are losing billions of euros in value-added tax (VAT) revenues because of tax fraud and inadequate tax collection systems. The 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.
How important is it?
The VAT Gap shows how much VAT EU Member States are losing. Based on the VAT collection figures available, the total amount of VAT lost across the EU-27 in 2014 is estimated at EUR 159.5 billion. This represents a loss of 14% of the total expected VAT revenue (see the full study).
How is the VAT Gap measured?
The VAT Gap estimation is based on a so-called "top-down" approach. It relies on national accounts data and Own Resource Submissions (i.e. VAT statements) provided by the Member States to the European Commission. These figures are used to estimate the VAT liability generated by different sub aggregates of the total economy. Due to a mandatory methodological change in the underlying national accounts data (i.e. the ESA 10 transmission), the procedure for estimating the VAT Gap was adjusted in accordance with the new definition of national accounts.
Why measure the tax gap?
In the fight against VAT fraud and evasion it is important to gather comparable data and indicators on the scale of VAT revenue losses. As the VAT Gap can be seen as an indicator of the effectiveness of VAT enforcement and compliance, it shows that more needs to be done to lower the VAT Gap. Therefore, the Commission is proposing an Action Plan on VAT – Towards a single EU VAT area.
In addition and as a first step a Tax Gap Project Group was established under the Fiscalis 2020 Programme. This group published a report on the most important aspects of VAT gap calculation in order to provide a better understanding of the estimation methodologies and to share information with a broader public. On request and with the participation of Member States, the Commission will continue the work in this field, focusing on two main directions: the estimation of the direct tax gap and the VAT fraud gap.
Immediate action is needed to fight a moving target such as VAT fraud. The collective effort should concentrate on better cooperation, increased compliance and improved performance of European tax administrations.
See the list of 20 measures proposed by the Commission.
In the medium term, the current VAT system based on the realities of the '90s should move towards a robust single European VAT area.