The 2019 VAT Gap Report reveals €137 billion in lost VAT revenues within EU countries.

The VAT GAP update for 2020 can be seen here

What is the VAT Gap?

The VAT Gap is the difference between expected VAT revenues and VAT actually collected. This figure provides an estimate of revenue loss due to tax fraud, tax evasion and tax avoidance, but also due to bankruptcies, financial insolvencies or miscalculations.

What are the main findings of the 2019 Report on the VAT Gap?

The new EU Commission report reveals EU countries lost €137 billion in Value-Added Tax (VAT) revenues in 2017.

The ‘VAT Gap’  has reduced somewhat compared to previous years, but it still remains very high. Based on the VAT collection figures available, the current figure is down by almost €10 billion on last year’s reported loss of an estimated €147.1 billion.

Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici said: “The favourable economic climate and some short-term policy solutions put in place by the EU helped to lower the VAT Gap in 2017. However, to achieve more meaningful progress we will need to see a thorough reform of the VAT system to make it more fraud-proof. Our proposals to introduce a definitive and business-friendly VAT system remain on the table. Member States cannot afford to stand by while billions are lost to illegal VAT carousel fraud and inconsistencies in the system.”

Conclusion

The VAT Gap report published this week concentrates on 2017, as this is the most recent period for which comprehensive national accounts data and other data sources are available. This year’s study introduces a new element: a forecasting exercise which provides so-called “fast estimates” for the year preceding the publication year, i.e. 2018. These fast estimates indicate that the VAT Gap will likely continue its downward trend and fall below €130 billion and 10% of the VAT Total Tax Liability (VTTL) in 2018