Brussels, 18 December 2024
Most EU Member States made significant progress in Value-Added Tax (VAT) collection between 2018 and 2022, according to a new report released by the European Commission today. The annual VAT Gap in the EU Report, which measures the difference between theoretically expected VAT revenues and the amount actually collected, shows that Member States lost around €89 billion in VAT in 2022, compared to €121 billion in 2018. This figure represents revenues lost primarily to VAT fraud, evasion, avoidance, non-fraudulent bankruptcies, miscalculations, and other factors.
The progress in reducing the VAT compliance gap is welcome since lost VAT revenues can negatively impact governments’ ability to finance essential public goods and services such as schools, hospitals, and infrastructure.
The latest report highlights that targeted policy measures have made a significant difference, particularly those related to the digitalisation of tax systems, real-time transaction reporting, and e-invoicing. Additionally, the report emphasises that ongoing reforms are critical to further reducing the VAT gap, ensuring more efficient collection, and preventing fraud.
In November 2024, the Council endorsed the proposal on VAT in the Digital Age, a decisive move towards a cross-border digital reporting system based on e-invoicing. It aims to ensure that Member States’ tax authorities are informed of transactions in real time, allowing them to detect and react fast to VAT fraud.
Along with this edition, the European Commission also provides a specific analysis of Missing Trader Intra-Community (MTIC) fraud, a prominent form of VAT non-compliance exploiting VAT-free trade of goods and services between EU Member States. In nominal terms, depending on the range of products covered in the analysis, EU Member States lost between €13 and €33 billion per year between 2010 and 2023.
The report also highlights the actionable VAT policy gap, which focuses on VAT revenues not collected due to reduced rates and exemptions that could potentially be lifted by EU Member States.
Main results of 2022
In nominal terms, the overall EU VAT compliance gap amounted to €89.3 billion in 2022, representing 7% of the theoretically expected VAT revenues. Compared to 2021, the gap increased by €13.3 billion.
Background
The VAT compliance gap is relevant for both the EU and Member States since VAT makes an important contribution to both the EU and national budgets. The study applies a top-down consumption-side methodology using national accounts data to produce estimations of the so-called VAT Total Tax Liability (VTTL), which captures the tax revenue that would have been collected if all taxpayers fully complied with their VAT obligations. The VAT compliance gap is calculated as the difference between the VTTL and actual VAT revenues. In relative terms, it represents the ratio of VAT revenues lost as share of the VTTL.
For more information
- Learn more about the VAT gap in the EU on DG TAXUD’s website
- See DG TAXUD’s infographic on the VAT GAP in the EU here.
- Learn more about VAT in the Digital Age on DG TAXUD’s website
- The full “VAT Gap in the EU: 2024 Report” with detailed information per Member State is available here
- The full “VAT compliance gap due to Missing Trader Intra-Community (MTIC) Fraud Report 2024” is available here
Quote
In 2022, the VAT tax gap stood at almost €90 billion for the 27 Member States. This is a huge amount of money, which could have been used for financing essential public good and services such as schools, hospitals, and infrastructure. This is a missed opportunity with a significant price tag.
Source – EU Commission