Member States lost EUR 137 billion in VAT revenues in 2017, according to the VAT Gap study by the European Commission (EC) on 5 September 2019.
The VAT Gap measures the effectiveness of VAT enforcement and compliance measures in each Member State. Most importantly, it provides an estimate of revenue loss as a result of:
- Fraud and evasion
- Tax avoidance
- Financial insolvencies
For this reason, the EC is making comprehensive changes to the EU VAT rules, as proposed in 2017. These new rules would help clamp down on VAT fraud, for the purpose of improving the rules for legitimate businesses and traders.
The Gap has reduced from EUR 145 billion in 2018. This could be attributed to:
- Better compliance in Member States
- Changes in VAT laws
- The move to technological reporting requirements
Romania recorded the largest national Gap with 36% of VAT revenues missing in 2017. This was followed by Greece (34%) and Lithuania (25%). The smallest gaps were in Cyprus (0.6%), Luxembourg (0.7%) and Sweden (1.5), whilst the UK’s Gap was around 10%. Balanced against and in monetary terms, the highest VAT Gap of around EUR 33.5 billion was in Italy.