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Λογότυπος της Ευρωπαϊκής Επιτροπής
Taxation and Customs Union

VAT Administration in the European Union: Screening, diagnostics and recommendations

Value added tax (VAT) is an essential and often primary contributor to the budget of Member States. Having an effective VAT administration with efficient processes and procedures is in everybody’s interest – in the interest of national administrations, of EU institutions, but also in the interest of every taxpayer and citizen. However, VAT due but uncollected by the tax authorities was estimated at EUR 134 billion in nominal terms and 10.3% expressed as a share of the VAT Total Tax Liability in 2019. This is what is referred to as the ‘VAT compliance gap’: the difference between the VAT total tax liability (VTTL) and what is actually collected by the Member States’ tax authorities. Member States administrative capacity to ease compliance and fight against VAT fraud is a factor of the utmost importance in this regard.

Council Regulation 1553/89 establishes arrangements for the collection of, so-called, EU own resources due to the EU budget from value added tax – this includes harmonised arrangements for VAT collection and control procedures in Member States. Article 12 of that Regulation requires the European Commission to assess, every three years, the national procedures for registering taxable persons, for determining and collecting VAT, as well as the operations of national VAT control systems. Based on this assessment, the Commission reports to the European Parliament and the European Council and may make proposals for improving the effectiveness of national procedures.

Between 1989 and 2017, eight assessment reports of this kind were issued (references to the reports can be found below). The latest report published in 2022 identifies possible causes for revenue loss and makes recommendations to tackle it by strengthening VAT administration. This is especially important in the context of the changes that digitalisation and new technologies are bringing to EU economies. As a source of inspiration for Member States, the report also presents positive experiences and good practices that have been successful in certain national VAT administrations to reduce revenue loss and improve VAT administration procedures.

The recommendations presented can help tax administrations to improve their internal processes covering all the main functions of VAT administration. Upgrading the interaction with taxpayers and other stakeholders, such as tax administrations in other Member States, is crucial to improve the overall performance of tax administration in the Union.

Among the key recommendations presented in the report are the following:

  • Facilitate voluntary compliance of taxpayers through simplifications, and through open and digital contacts with the tax administration.
  • Develop a risk management driven tax administration.
  • Invest in technology and keep updated tax databases, explore the use of several data sets and third-party data, and invest in in-depth data analysis.
  • Enhance cooperation between the tax administration and other public authorities
  • Put in place an adequate sanction system

The Commission calls on EU Member States to take up current recommendations. This not only to help generate the tax revenue needed to respond to the major challenges of the current crisis. Moreover, follow up to the recommendations would also level the playing field in the internal market and pave the way towards a faster and more durable recovery after the COVID 19 pandemic.

Links:

Reports from the Commission to the European Parliament and the Council on VAT registration, collection and control procedures following Article 12 of Council Regulation (EEC, EURATOM) No 1553/89:

  • Report 2022: Report from the Commission to the European Parliament and the Council – Ninth report from the Commission on VAT registration, collection and control procedures following Article 12 of Council Regulation (EEC, EURATOM) No 1553/89, COM(2022)137 final

  • Report 2017: Report from the Commission to the Council and the European Parliament – Eighth report under Article 12 of Regulation (EEC, Euratom) n° 1553/89 on VAT collection and control procedures, COM(2017) 780 final;

  • Report 2014: Report from the Commission to the Council and the European Parliament – Seventh report under Article 12 of Regulation (EEC, Euratom) n° 1553/89 on VAT collection and control procedures Seventh report, COM(2014) 69 final + Annex SWD(2014) 38 final;
  • Report 2008: Report from the Commission to the Council and the European Parliament - Sixth Report under Article 12 of Regulation (EEC, Euratom) n° 1553/89 on VAT collection and control procedures, COM(2008) 719 final + Annex SEC(2008) 2759;
  • Report 2004: Report from the Commission to the Council and the European Parliament - Fifth report under article 12 of Regulation (EEC, Euratom) No 1553/89 on VAT collection and control procedures, COM(2004) 0855 final + Annex SEC(2004) 1721;
  • Report 2000: Report from the Commission to the Council and the European Parliament - Third article 14 report on the application of Council Regulation (EEC) No 218/92 of 27 January 1992 on administrative cooperation in the field of indirect taxation (VAT) and Fourth report under article 12 of Regulation (EEC, Euratom) No 1553/89 on VAT collection and control procedures, COM/00/0028 final;
  • Report 1998: Report from the Commission to the Council and the European Parliament - VAT collection and control procedures applied in the Member States - Third Commission report [Article 12 of Regulation (EEC, Euratom) No 1553/89], COM/98/0490 final;
  • Report 1995: VAT Collection and Control Procedures Applied in Member States - 2nd Article 12 Report, COM/95/354 final;
  • Report 1992: VAT Collection and Control Procedures Applied in Member States - First report, SEC(92) 280 final

Council Regulation (EEC, EURATOM) No 1553/89 of 29 May 1989 in the definitive uniform arrangements for the collection of own resources accruing from value added tax

Own resources

Value added tax-based own resource

Council Decision (EU, Euratom) 2020/2053 of 14 December 2020 on the system of own resources of the European Union and repealing Decision 2014/335/EU, Euratom