The European Commission is preparing a communication to help tax administrations share best practices to reduce the VAT gap, which it estimates could grow to over €160 billion EU-wide because of the pandemic.
According to a February 3 commission roadmap, the communication will describe administrative reforms that have been proven to reduce a member state’s national VAT gap based on evidence and statistics from the commission's study of the 2018 VAT gap published in September 2020 and the ninth report under article 12 of Council Regulation No. 1553/89 on the collection of VAT-based own resources.
Because VAT is an essential contributor to the budgets of member states and the EU, administrations' capacity to collect VAT is important to the recovery from the COVID-19 crisis, the commission said.
"In 2018, the VAT uncollected by the tax authorities of the Member States EU wide . . . amounted to around €140 billion," the roadmap says, adding that the COVID-19 recession could increase the VAT gap to €164 billion in 2020, largely because of bankruptcies. "That VAT Gap needs to be reduced significantly to help the Member States recover from the current crisis," the roadmap says.
The commission noted that member states' VAT gaps range from 33 percent of total VAT liability to less than 1 percent.
"There are some Member States that managed to significantly reduce their VAT Gap by implementing administrative reforms. The Communication will describe these measures that, based on empirical observation, have led to concrete positive results to the VAT collection system of the Member States," the roadmap says.
The commission is accepting feedback from member states until March 3, and it expects to issue the communication in the first quarter.
The Portuguese EU Council presidency is working to implement the €750 billion EU coronavirus recovery plan, parts of which must be ratified by all 27 EU member states. To repay the funds that must be borrowed, the EU plans to introduce new own resources.
The council approved a decision in December 2020 that, once approved by member states, will raise the own resources ceiling — the amount of resources member states may be called annually to put toward EU expenditure — from 1.2 percent to 1.4 percent of the EU’s gross national income. It will also simplify the calculation of the VAT-based own resource and introduces a contribution based on non-recycled plastic packaging waste.