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EU latest VAT Gap 2021 down by €38bn to €61 billion

2021 estimate of lost EU VAT shows €38bn improvement largely due improved measures

Most EU Member States made progress in the enforcement of Value-Added Tax (VAT) compliance in 2021, according to the new 2023 VAT Gap report released by the European Commission today. The annual study shows that Member States lost around €61 billion in VAT in 2021, compared to €99 billion in 2020.

The biggest cuts were in: Italy, Cyprus, Poland, Belgium and Ireland.  Only Denmark and Sweden showed a slight worsening in their gaps. Much of the reduction may be down to ongoing COVID effects. Positive changes in compliance might have been caused by COVID support measures contingent on paying taxes and reducing the frequency of bankruptcies.  But new anti-fraud and simpler compliance measures are also responsible.

The % of VAT lost is now standing at 5.3% of expected revenues, down from 9.6% in the previous year. It has shown sharp falls over 10 years from its peak 2013. Many of the Eastern European countries have made major strides in bringing their shortfalls down. Strikingly, Romania has shown limited improvement in its high gap. It is one of the few countries in the east not to have fully adopted transactional reporting – but SAF-T reporting and RO e-Factura are now being rolled out.

Italy alone accounts for 24% of the EU’s VAT Gap, but this is down from the higher levels just a few years ago. Italy has already stated that it believes the next numbers, covering 2022, will show a further substantial cut.

In 2020 European Union member states had estimated a loss €93bn billion per annum in Value Added Tax revenues based on the European Commission’s (EC) ‘VAT Gap’ estimate. This was 9.6% of VAT revenues. The comparable 2019 VAT Gap was €124 billion (excluding the UK).

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.

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
2030? Digital Reporting Requirements and e-invoicing harmonisation Likely delay to 2030
Structured e-invoices supercede paper invoices Likely delay to 2030
EC Sales lists replaced by Digital Reporting Requirements Likely delay to 2030
2028 EU Customs reforms Published May 2023
€150 import consignment threshold removed Published May 2023
2026 DAC8 harmonised crypto asset reporting Approved May 2023
2025 VAT registration thresholds equivalence foreign businesses 1 Jan 2025
Virtual events VAT rule changes 1 Jan 2025
Single VAT Registration in the EU - extension of OSS Likely delay to 2026
Marketplace deemed supplier extended to EU sellers Likely delay to 2026
Proposal for VAT treatment of the platform economy Likely delay to 2026
EU IOSS mandated for marketplaces Likely delay to 2026
Call-off stock VAT simplification ends Likely delay to 2026
Harmonisation of B2B Reverse Charge rules Likely delay to 2026
Financial Services VAT exemption reform proposals Consultation complete; proposal awaited
Tour operator margin scheme VAT reforms EC undertaking fresh review
2024 Payment providers' seller transaction reporting and bookkeeping obligations In effect since 1 Jan 2024
2023 DAC 7 - marketplace reporting harmonisation In effect since 1 Jan 2024
2022 IOSS reforms to prevent double taxation On hold
EU reduced VAT rate freedoms Entered 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


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