EUR 152 bn VAT gap points way to EU reform
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(BRUSSELS) - The EU Commission published a report Thursday showing that EU Member States lost an estimated total of EUR 152 billion in VAT revenues in 2015, as it readies for an overhaul of the VAT system.
The EU executive says the 'VAT Gap' - that is the overall difference between the expected VAT revenue and the amount actually collected - demonstrates yet again the need for 'serious reform' so that EU Member States can make full use of VAT revenues for their budgets.
While the report shows that the collection of VAT revenues shows signs of improvement, the missing amounts remain unacceptably high, according to Financial Affairs Commissioner Pierre Moscovici: "Member States should not accept such shocking losses of VAT revenues. While the Commission is supporting efforts to improve collection throughout the EU, current VAT rules date from 1993 and are outdated. We will soon propose to revamp the rules governing VAT on cross-border sales." Mooted reforms would help cut cross-border VAT fraud by 80 per cent, he said.
While average EU figures are improving, individual VAT collection performances vary significantly amongst Member States. The largest VAT Gaps were reported in Romania (37.2%), Slovakia (29.4%) and Greece (28.3 %).
The smallest gaps were observed in Spain (3.5%) and Croatia (3.9 %). In absolute terms, the highest VAT Gap of €35 billion was in Italy.
The VAT Gap decreased in most Member States, with the strongest improvements in Malta, Romania and Spain. Seven Member States saw small increases: Belgium, Denmark, Ireland, Greece, Luxembourg, Finland and the UK.
The Commission's proposals for reform centre on a future VAT system where VAT is charged under the rules of the originating country on sales that are made across borders to another country in the EU, at the rate applicable in the country of consumption. The VAT on a cross-border sale (goods or services) would be collected by the tax authority of the originating country and transferred to the country where the goods or services are ultimately consumed.
VAT Gap background guide