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VAT Gap 2014, again unacceptably high

On the 6th of September 2016, the European Commission announced that nearly €160 billion was lost in uncollected revenues in the EU in 2014. The overall difference between the expected VAT revenue and the amount actually collected, is referred to as the 'VAT Gap'. The VAT Gap rate ranged from a 37.9% of uncollected VAT in Romania to only 1.2% in Sweden.

The findings support recent calls by the Commission to overhaul the EU's VAT system to tackle fraud and make it more efficient. Member States must now follow up on the Commission's Action Plan towards a single VAT area presented last April by agreeing on the way forward towards a definitive VAT regime for cross-border trade in the Union.

Pierre Moscovici, the European Commissioner for Taxation and Customs said: "Our Member States are losing tens of billions of euros in uncollected VAT revenue. This is unacceptable. The current regime is woefully ill-equipped to deal with the problems of VAT fraud and miscalculations, and it's clear that the numbers will not get better by themselves. Member States must now quickly agree on a definitive fraud-proof EU VAT system, as laid out by the Commission earlier this year. I therefore urge all of our Member States to have a frank and meaningful discussion in order to feed into next year's proposals, so we can tackle this issue once and for all.”

EU Member States are called upon to agree to make the current EU VAT system simpler, more fraud-proof and business-friendly. The Action plan towards a single VAT area (published in April 2016) urges for a definite system for cross border trade in the EU. The Action Plan sets out a pathway to modernize the current EU VAT rules, including:

  • key principles for a future single European VAT system;
  • short term measures to tackle VAT fraud;
  • update the framework for VAT rates and set out options to grant Member States greater flexibility in setting them;
  • plans to simplify VAT rules for e-commerce in the context of the Digital Single Market (DSM) Strategy and for a comprehensive VAT package to make life easier for SMEs.

We refer to our earlier news article about the VAT Action plan.

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