EU loses EUR 200 bn in sales tax fraud, error

(BRUSSELS) - EU countries lose nearly 200 billion euros in sales-tax revenue every year due to fraud and errors, the European Commission said on Thursday.

"The amount of VAT that is slipping through the net is unacceptable; particularly given the impact such sums could have in bolstering public finances," EU Taxation Commissioner Algirdas Semeta said.

According to a commission study which covered 26 of the EU's current 28 members, a staggering 193 billion euros was missed by tax authorities in 2011.

The losses in pure money terms were worst among the biggest and richer economies -- 36.1 billion euros for Italy, 32 billion euros for France and 27 billion euros for Germany.

But as a percentage of total national income, the gap between expected VAT revenue and actual receipts was biggest in the poorer countries to the east, with a sum equal to 8.0 percent of national economic output lost in Romania and 4.5 percent in Greece.

In comparison, the German total is about one percent of gross domestic product.

"These countries are not doing well," an EU source said. "There are still a lot of cash transactions that make tax avoidance possible."

The topic is sensitive one for individual countries and the EU in particular. Plagued by debt problems, strapped governments have latched on to boosting VAT as a way to bolster their strained public finances.

The European Union bureaucracy itself is financed in part by a sizeable share of VAT collected on the national level. Missing revenue in member countries means less cash for Brussels as well.

The report said the biggest cause for the shortfall is fraud, which the EU source said accounted for about a third or quarter of the lost revenue.

Late payments, bankruptcies and administrative errors also play an important role, the report said, and economic context can also weigh.

"There is a noted correlation between a rise in unemployment and a widening gap between expected and actual VAT revenue," the source said, with matters turning worse once the 2008 financial crisis hit.

The findings, which were first leaked to French newspaper Le Monde on Wednesday, have been bitterly contested in some European capitals with an unnamed official in Paris telling the newspaper the work was "not serious".

But European Commission spokeswoman Emer Traynor stood by the report -- whose methodology was approved by member states -- calling it "reliable" and based on national and Eurostat data.

Billions lost in VAT Gap - study