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EU COVID-19 €24bn VAT gap

The annual estimate by the European Commission of the amount of missing VAT – the ‘VAT Gap’ – has remained constant at €140 billion for 2018. However, the EC is now forecasting a rise in this to €164bn, 14% of revenues, for 2020 as a result of the coronavirus epidemic.

The EC plans to launch a VAT Gap Initiative in the third quarter of 2022 to share best practises on VAT administration and collections.

Whilst 2018’s VAT GAP is a small drop, is shows continuing progress on reducing missing tax revenues. The European Commission (EC) has proposed an ambitious reform of the EU VAT regime, the definitive vat system, for July 2022 to tackle the estimated €50bn in annual VAT losses due to missing trader fraud. But there is limited political will in many member states due to design worries.

The measure, produced by the EC, compares expected VAT revenues to those actually received. It provides an estimate of revenue loss due to tax fraud, tax evasion and tax avoidance, but also due to bankruptcies, financial insolvencies or miscalculations.

Fast estimates show that the VAT Gap will likely continue to decline in 2019.

Key element from the 2018 numbers include:

  • The largest reductions were in Hungary, Poland, Latvia and Greece
  • The average VAT Gap across the EU28 (UK still included) is 11%, down from 14.3% in just 2014.
  • Poland continues to make excellent progress on closing its VAT Gap, down again to 9.9% of revenues
  • Greece is showing good promise with a 3% of revenues drop in its VAT Gap – although its total at 30% is second only to Romania
  • Only Sweden experienced a slight increase.
  • Italy’s VAT Gap of €35.4bn accounts for 25% on the EU’s total
  • The largest nominal VAT Gaps are in the UK (€23.5bn) and Germany (22.1bn)
  • Romania continues to have the largest % VAT Gap at 34% of revenues

EU VAT reforms

Reform (click for details) Update
2025 VAT registration thresholds equivalence foreign businesses On track
Virtual events VAT rule changes Agreed
2024 Payment providers' seller transaction reporting and bookkeeping obligations On track
Digital Reporting Requirements including EU e-invoicing harmonisation Implementation of VAT in the Digital Age?
2023 DAC 7 - marketplace reporting harmonisation On track
Financial Services VAT exemption reform proposals Consultation complete; proposal 2023
Tour operator margin scheme VAT reforms EC undertaking fresh review
2022 EU definitive VAT system On hold
EU reduced VAT rate freedoms Enter into force 6 April 2022
IOSS reforms to prevent double taxation Proposals early 2022
VAT in the Digital Age proposals On track for 16 Nov 2022 publication
Single VAT Registration in the EU - extension of OSS On track for 16 Nov 2022 publication
Proposal for VAT treatment of the platform economy On track for 16 Nov 2022 publication
VAT Gap Initiative Q3 2022
2021 One-Stop-Shop (OSS) single EU VAT return In effect since 1 July 2021
Ending €22 import VAT exemption; new IOSS return In effect since 1 July 2021
Marketplace deemed supplier EU VAT reforms In effect since 1 July 2021
2020 EU four Quick Fixes for VAT In effect
Tax authorities anti-VAT fraud cooperation In effect
Tax Action Plan - 25 VAT and other tax reforms roadmap See 'VAT in the Digital Age' and others
2019 Simplification of e-services VAT compliance and thresholds In effect
Single and multi-use vouchers In effect
2018 Lower e-book and publications VAT rates In effect, although not all EU states have adopted the option
EU Generalised Domestic Reverse Charge VAT Mechanism In effect, although no country has adopted this voluntary option
2015 B2C electronic services VAT reforms - MOSS return In effect

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