Can the definitive VAT system or other reforms close fraud gap?
The European Parliament has reviewed a range of measures to close EU VAT Gap – the difference between forecast VAT revenues versus actuals. This was as a formal European added value (EAV) assessment, to assess how existing legislation can be modified to tackle this problem. This included evaluation the stalled definitive VAT system and reforms including the VAT in the Digital Age and extension of the OSS return. Many other measures were raise in the 2020 EU Tax Package
The EC plans to launch a VAT Gap Initiative in the third quarter of 2022 to share best practises on VAT administration and collections.
VAT raises about €940billion in 2020 for the 27 member states, about 17% of all tax revenues. VAT Gap is estimated at €120 billion for 2018, of which €50 billion is due to cross-border fraud, including missing trader and carousel fraud.
€71 billion in tax savings up for grabs
The report forecasts the EAV of some of the proposal scheduled by the EU based on 2025 baseline and finds a total of €71 billion potentially available savings:
- €39 billion from increasing cooperation with exchange of information between member states – including DAC 7 – and an extension of the OSS one-stop shop and a single EU VAT registration. This amount would be made-up of two parts: €29 billion reduction of the VAT gap; plus €10 billion in lowered compliance costs for business operating across the Single Market.
- €6 billion further if combined with the definitive VAT system implementation
- €26 billion further if a for the most ambitious scenario including establishment of an EU treasury and VAT administered at EU level – although the report writers admit that this last proposal is highly unlikely to materialise given the political uncertainties.
Follow all the European Union’s completed and planned reforms via VAT Calc’s EU VAT reform tracker.
