Publication 10 pages

How to close the VAT gap: an analysis of approaches by EU Member States

07 June 2016

JULY 2016 | PUBLICATION | 10 pages

VAT gap is the difference between the amount of VAT actually collected and the VAT Total Tax Liability (VTTL). In other words, it is the difference between what could be, and what is actually collected from VAT by countries.

European Union Member States from Central and Eastern Europe have had the highest VAT gap in recent years, costing the state budgets of CEE countries around €27bn annually. However, its a problem right across the EU and states are trying to find solutions to close this gap, by implementing new provisions in their local laws.

Closing VAT gap is an emerging problem not only on country level but also for the entire European Union. Introducing measures to prevent VAT gap is listed as one of the four main areas in the next VAT Action Plan, which shows that in the coming years, this will be one of the priorities in EU Indirect Tax policy. Currently on an EU level, leakage from the VAT system is estimated at around €170bn, which equates to 15.2% revenue loss.

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This briefing paper examines the approaches by EU Member States to decrease their VAT gap, and how new law provisions may potentially impact on business.

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