A new report published on 18 December 2024 by the European Commission highlights substantial improvements in value added tax (VAT) collection in most EU Member States between 2018 and 2022.
The annual EU VAT Gap Report, which assesses the difference between expected VAT revenues and actual collections, shows that Member States lost approximately €89 billion in VAT in 2022, compared to €121 billion in 2018. These losses are primarily attributed to VAT fraud, evasion, avoidance, non-fraudulent bankruptcies, calculation errors, and other factors.
Reducing the VAT compliance gap is a positive development, as lost revenues undermine governments’ ability to fund essential services such as education, healthcare, and infrastructure.
The report underscores the effectiveness of targeted policies, particularly measures like digitalising tax systems, real-time transaction reporting, and e-invoicing. However, it also stresses the need for ongoing reforms to further close the gap, improve efficiency, and combat fraud.
In November 2024, the Council approved the VAT in the Digital Age proposal, introducing a cross-border digital reporting system powered by e-invoicing. This initiative aims to enable real-time transaction monitoring, allowing tax authorities to swiftly detect and address VAT fraud.
This edition of the report also examines Missing Trader Intra-Community (MTIC) fraud, a significant issue exploiting VAT-free trade within the EU. Between 2010 and 2023, MTIC fraud is estimated to have caused annual losses of €13–33 billion, depending on the range of products considered.
Additionally, the report highlights the “actionable VAT policy gap,” which pertains to revenues lost due to reduced rates and exemptions that Member States could potentially revise.
Key Findings for 2022
In 2022, the EU VAT compliance gap amounted to €89.3 billion, equivalent to 7% of the theoretically expected revenues. This represents a €13.3 billion increase compared to 2021.
“In 2022, the VAT gap reached nearly €90 billion across the 27 Member States. This is a staggering amount that could have funded vital public services such as schools, hospitals, and infrastructure. It’s a missed opportunity with a high cost.”
— Wopke Hoekstra, Commissioner for Climate, Net Zero, and Clean Growth
Background
The VAT compliance gap is critical for both the EU and individual Member States, as VAT contributes significantly to their budgets. The study uses a top-down approach based on national consumption data to estimate the VAT Total Tax Liability (VTTL) — the revenue that could have been collected if all taxpayers complied fully. The gap is calculated as the difference between the VTTL and actual VAT revenues, expressed as a percentage of the VTTL.
Learn More
- Visit DG TAXUD’s website for insights on the VAT gap in the EU.
- Explore DG TAXUD’s infographic on the VAT Gap.
- Learn about VAT in the Digital Age on the DG TAXUD website.
- Read the full “VAT Gap in the EU: 2024 Report” for detailed information on individual Member States.