Each year, the European Commission assesses the “VAT gap” between the revenue that member states should theoretically collect and that actually collected. This difference is estimated at 8.9 billion euros in 2018 for France, down significantly compared to previous years.

Each year, the European Commission assesses the “VAT gap” of member states.

The European Commission estimated in a recently published report that the shortfall in terms of VAT for France amounted to 5% of its theoretical revenue in 2018, or 8.9 billion euros. This estimate is significantly lower compared to 2017 (12 billion euros) and even more compared to 2016 (15.3 billion euros). This revision is linked to “Taking into account more precise information on the structure of household consumption”, soberly indicated the Commission. Several exchanges took place with the French administration which, in the past, had been very critical of this costing, considered to be overvalued.

Each year, the European Commission assesses the “VAT gap” of member states. It is a macroeconomic approach, broader than fraud in the strict sense, which makes it possible to assess the losses on what constitutes the first public revenue for many European countries. This “VAT difference” is defined as the difference between the VAT receipts that a State should theoretically collect, and those that it actually collects. Beyond fraud, it can be linked to business bankruptcies, administrative errors or tax optimization.

137.5 billion shortfall for the EU

In 2017, this shortfall for the European Union is estimated at 137.5 billion euros, down from the 145.4 billion euros estimated the previous year. The first figures for 2018 show that this downward trend could continue: “the VAT gap” is currently estimated at 130 billion euros.

The 'VAT difference' for France is below the European median.  (Source: European Commission)

The ‘VAT difference’ for France is below the European median. (Source: European Commission)

While the fight against tax fraud occupies a prominent place in the French public debate, France is not the worst placed country at European level. The VAT gap is in tenth position, knowing that the countries considered to be the most virtuous are Luxembourg, Cyprus and Sweden. Bad performers include Romania, Greece, Italy and Lithuania.

Measures in the 2020 budget

VAT fraud will be the subject of a series of measures in the 2020 draft budget. France will transpose a European directive which requires e-commerce companies to collect VAT. To this will be added a blacklist of platforms that do not play the game. Ultimately, Bercy wishes to generalize electronic invoicing to prevent so-called “carousel” frauds, these schemes in which front companies collect VAT and then immediately disappear, before that the tax authorities can intervene.

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