2021 estimate of lost EU VAT shows €38bn improvement largely due improved measures
Most EU Member States made progress in the enforcement of Value-Added Tax (VAT) compliance in 2021, according to the new 2023 VAT Gap report released by the European Commission today. The annual study shows that Member States lost around €61 billion in VAT in 2021, compared to €99 billion in 2020.
The biggest cuts were in: Italy, Cyprus, Poland, Belgium and Ireland. Only Denmark and Sweden showed a slight worsening in their gaps. Much of the reduction may be down to ongoing COVID effects. Positive changes in compliance might have been caused by COVID support measures contingent on paying taxes and reducing the frequency of bankruptcies. But new anti-fraud and simpler compliance measures are also responsible.
The % of VAT lost is now standing at 5.3% of expected revenues, down from 9.6% in the previous year. It has shown sharp falls over 10 years from its peak 2013. Many of the Eastern European countries have made major strides in bringing their shortfalls down. Strikingly, Romania has shown limited improvement in its high gap. It is one of the few countries in the east not to have fully adopted transactional reporting – but SAF-T reporting and RO e-Factura are now being rolled out.
Italy alone accounts for 24% of the EU’s VAT Gap, but this is down from the higher levels just a few years ago. Italy has already stated that it believes the next numbers, covering 2022, will show a further substantial cut.
In 2020 European Union member states had estimated a loss €93bn billion per annum in Value Added Tax revenues based on the European Commission’s (EC) ‘VAT Gap’ estimate. This was 9.6% of VAT revenues. The comparable 2019 VAT Gap was €124 billion (excluding the UK).
The VAT Gap seeks to estimate the difference between tax forecasts and actual receipts. Losses are down to:
- liquidations of companies owing VAT;
- tax authorities administrative inefficiencies
- lawful VAT structure optimisation; and
- fraud.
The European Commission Taxud launched a EU VAT Gap Initiative in 2022 to help exchange ideas between EU member states’ tax administrations to help close the gap.
ViDA proposals on e-invoicing and digital reporting to close gap further
The EU proposals for VAT in the Digital Age, which will include intra-community digital reporting requirements and e-invoicing to help drive down this gap further.
