POLITICS & INSTITUTIONS - EUROPE

VAT Gap

Luxembourg lost €267m in taxes in 2019



The Tax Gap is decreasing in the EU, but still represents €134bn--of which €267m in Luxembourg--of loss of a budget that theoretically would go towards public goods and services.  Photo: Shutterstock

The Tax Gap is decreasing in the EU, but still represents €134bn--of which €267m in Luxembourg--of loss of a budget that theoretically would go towards public goods and services.  Photo: Shutterstock

The VAT gap in the EU decreased by €6.6bn to €134bn in 2019, the European Commission said on 2 December, but in Luxembourg the loss in tax revenue grew.

VAT revenue in the EU usually goes towards funding public goods and services. However, through VAT fraud, tax evasion and avoidance, bankruptcies and financial insolvencies--some of which the commission deems unavoidable--some of that budget gets lost.

While the Eurofisc network and transaction network analysis tool (TNA) financed by the EU has helped some countries reduce their so-called VAT gap, Luxembourg had to count more losses over 2019. The grand duchy had lost €199m (5.1%) of its tax revenue in 2018, which increased to 6.6%, or €267m, in 2019.

The gap--which is calculated by comparing expected VAT and actual VAT received--is, however, on the decrease in the EU as a whole. Countries such as Sweden, which lost €597m (1.4%), Croatia, with a 1% loss of €77m and Cyrpus, which lost €54m (2.7%) over that same year, seemed to handle the issue of tax evasion the best in the European Union.

“Despite the positive trend registered in the last few years, the VAT Gap remains a major concern--particularly in view of the immense investment needs our member states must address in the coming years. This year's figures correspond to a loss of more than €4,000 per second,” said Paolo Gentiloni, commissioner for economy, in a statement. “Ordinary people and businesses” would suffer the loss the most, as they would have to pay other taxes to access necessary public services, he said.

Additional organisations have been set in place to crack down on some of the avoidable bleeds, such as tax evasion. Launched in 2021, the Luxembourg-based European Public Prosecutor’s Office (EPPO) seized €23m in assets in a tax fraud bust in Czechia, Romania and Slovakia. A few days later, it seized €900,000 of misused EU funds in Italy. A later collaboration with the Italian Finance Police had recovered yet another €215,000 of misused EU funds in Italy.

Last month only, the same organisation had uncovered an EU-wide VAT fraud worth up to €107m.

The European Commission hopes to modernise its VAT system over the coming year, as it announced in its 2020 fair and efficient taxation plan.