A VAT study funded by the Commission reveals that approximately €177 billion was lost in VAT revenues in 2012, mainly due to non-compliance or non-collection. The VAT study was carried out by the Commission as part of its work to reform the EU VAT system and to counter tax evasion and fraud.

The VAT gap, referred to in the study, is the difference between the expected VAT revenue and VAT actually collected by national authorities. According to the press release, the main contributors to the VAT gap are non-compliance, bankruptcies/insolvencies, statistical errors, delayed payments and legal avoidance.

The Netherlands (5%), Finland (5%) and Luxembourg (6%) are shown to have the lowest VAT gaps, while Romania (44%), Slovakia (39%) and Lithuania (36%) have the highest VAT gaps. Ireland is considered to be one of the more compliant member states with a VAT gap of 11%, an improvement of 1% from 2011.

According to the press release, a multi-pronged approach is required to reduce the VAT gap. Key suggestions/comments included the following:

• A stronger stance against evasion and stronger enforcement at national level are essential.
• Simpler systems make it easier for taxpayers to comply, such as the 2013 measure introduced to facilitate electronic invoicing. The new One Stop Shop, due to take effect from January 2015, is also designed to enhance compliance by simplifying VAT procedures.
• Member States need to modernise their VAT administration
• Member States need to reform their national tax systems in a way that deters evasion, encourages compliance and improves the efficiency of tax collection.

For further details see the Commission’s press release.