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EU latest VAT Gap 2020 down by €31bn to €93 billion

2020 estimate of lost EU VAT shows €31bn improvement largely due to COVID-19 effect

The European Union member states are estimated to be losing €93bn billion per annum in Value Added Tax revenues based on the European Commission’s (EC) latest ‘VAT Gap’ estimate. This is 9.1% of VAT revenues. The comparable 2019 VAT Gap was €124 billion (excluding the UK). Much of this reduction is due to the economic effects COVID-19 pandemic.

COVID results in €69bn contraction of EU VAT revenues

19 of the 27 member states suffered a drop in VAT revenues due to the COVID-19 pandemic. . The total EU VAT tax was down €69bn to €1,021bn. This, and the VAT cuts introduced by most members states, contributed to the VAT Gap reduction.

The VAT Gap seeks to estimate the difference between tax forecasts and actual receipts. Losses are down to:

  • liquidations of companies owing VAT;
  • tax authorities administrative inefficiencies
  • lawful VAT structure optimisation; and
  • fraud.

Big reductions in Hungary, Germany, Netherlands and Greece

The most significant decreases occurred in Hungary (4.7 pp), Germany (4.2 pp), the Netherlands (4.1 pp), and Greece (3.7 pp). Such positive changes in compliance during the pandemic-induced recession might have been partially caused by the support measures, themselves contingent on paying taxes and reducing the frequency of bankruptcies.

Italy retains the position of largest VAT gap at €26.2bn, which is 28% of all missing EU VAT.

The VAT compliance gap increased year-over-year in only six Member States – Croatia, Cyprus, Ireland, Romania, Austria, and Belgium

 

Whilst a good improvement, this would still take 13 years to wipe out the gap at this rate of improvement. Last year’s VAT Gap report warned of a likely heavy loss due to the economic effects of COVID-19.

The European Commission Taxud launched a EU VAT Gap Initiative in 2022 to help exchange ideas between EU member states’ tax administrations to help close the gap.

ViDA proposals on e-invoicing and digital reporting to close gap further

The EU proposals for VAT in the Digital Age, which will include intra-community digital reporting requirements and e-invoicing to help drive down this gap further.

EU VAT reforms

Reform (click for details) Update
Contact VATCalc to learn how our single VAT determination, reporting and e-invoicing platform can help you manage and thrive with global compliance change
2028 Digital Reporting Requirements and e-invoicing harmonisation Published Dec 2022
Structured e-invoices supercede paper invoices Published Dec 2022
EC Sales lists replaced by Digital Reporting Requirements Published Dec 2022
2025 Single VAT Registration in the EU - extension of OSS Published Dec 2022
Marketplace deemed supplier extended to EU sellers Published Dec 2022
Proposal for VAT treatment of the platform economy Published Dec 2022
EU IOSS mandated for marketplaces Published Dec 2022
Call-off stock VAT simplification ends Published Dec 2022
Harmonisation of B2B Reverse Charge rules Published Dec 2022
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
EU permissions on e-invoicing removed Published Dec 2022
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 IOSS reforms to prevent double taxation Proposals early 2022
EU reduced VAT rate freedoms Enter into force 6 April 2022
VAT in the Digital Age proposals Published Dec 2022
EU DAC8 cryptocurrency tax reporting proposals Published Dec 2022
VAT Gap Initiative Q3 2022
EU Definitive VAT System On hold
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
Contact VATCalc to learn how our single VAT determination, reporting and e-invoicing platform can help you manage and thrive with global compliance change

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