Study and Reports on the VAT Gap in the EU-28 Member States
In 2015, the estimated VAT Gaps in EU Member States ranged from the low of zero percent in Sweden to a high of 37 percent in Romania. VAT fraud and evasion, which were major components of the Gap, cost public budgets dozens of billions of euro per annum across the EU.
Tackling VAT non-compliance is one of both the Commission's and the Member States’ top priorities. Therefore, the European Commission proposed a far-reaching reform of the EU VAT system, while Member States have been working to tighten up their VAT collections and recapture significant losses in VAT revenue.
In order to measure if these efforts are effective in reducing loopholes exploited by tax-evaders and criminal enterprises, and to evaluate if these initiatives are effective in increasing VAT compliance, accurate measurement and monitoring of the VAT Gap is necessary. To this end, an analysis of the statistical properties of VAT systems prone to fraud, as well as econometric measures of the effectiveness of implemented policies, would be a valuable tool for tax administrations across the EU to develop well-targeted measures for tackling fraud.
The aim of this project is to build on the earlier studies and continue publishing reports on the latest VAT Gap figures, on an annual basis, in order to identify trends and monitor progress in closing the Gap. Additionally, we will complement the case studies of Member States with an econometric analysis of VAT Gap determinants.
The set of objectives for the two subsequent updates of the VAT Gap study includes 9 components, which are:
- to present the data on the VAT Gap in 2016 for publication in 2018. The presentation shall be realized for the EU as a whole and for each of the 28 Member States (via dedicated individual pages);
- to update the report for the year 2017 to be published in 2019;
- to revise the VAT Gap estimates for 2012-2017, in line with new or updated data available at the moment before publication;
- to present the data on the VAT Policy Gap, with country-by-country analysis on the respective impact that VAT reduced rates and exemptions have on it;
- to analyse the trends that can be interpreted from the numerical estimates;
- to describe in detail the methodologies used to arrive at the findings in the report, including the one used to provide answers for Point (8) questions below;
- to analyse the statistical impact of different factors on the VAT Gap, including the possible impact on the VAT on importation;
- to identify and analyse the statistical determinants available in order to provide answers to additional questions, including offering estimations where possible, such as:
- Is it possible to use data from the importation process (including the use of Customs Procedure 42) to identify better the sources of the VAT gap?
- In what conditions can measures like reverse charge or split payment shown to be efficient in reducing the VAT Gap? Can the reduction of the VAT gap be attributed to the aforementioned measures? Are there any side effects possibly affecting the expected benefits of such measures?
- Is the Actionable Policy Gap related to the VAT Gap?
- Is it possible to analyse the statistical correlation between the different types of data available (ex. the evolution of VAT returns in relation with VAT revenue and VAT Gap) as a possible indication/in relation with VAT intra-community fraud?
- Does a change in statutory rates impact VAT compliance?
- and to provide an external review of the methodological considerations, validity of analysis, data integrity and calculation and conformity with the purpose of the Study from an independent source.
Project funding: Directorate General Taxation and Customs Union (DG TAXUD)
Partners: IHS, IEB