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Tax fraud in EU

 'Interestingly, the European Commission is currently considering introducing a harmonised common standard for e-invoicing across the EU as well as exploring the possibility of a gradual introduction of obligatory e-invoicing across EU by 2023. 

'Most European countries have now established legislation that governs e-invoicing and promotes its use due to the tax collection benefits. 

    The latest EU VAT gap figures show that billions of euros a year are lost through VAT fraud due to a widespread failure to clamp down on sales tax evasion.

Romania, Malta and Greece were the worst-performing in the rankings, with Romania failing to collect a third of the VAT it should have been paid. E-invoicing is a much more watertight way of enforcing tax laws and maximising VAT collection from businesses than traditional VAT compliance mechanisms that rely on periodic reporting of aggregated summary data and regular tax audits. The European Commission recognises that the VAT Gap is primarily caused by tax fraud, tax evasion, tax avoidance and optimisation practices, bankruptcies, financial insolvencies, as well as miscalculations and administrative errors by taxpayers. 

Paolo Gentiloni, the commissioner for the economy, said: 'Despite the positive trend registered in the last few years, the VAT gap remains a significant concern – mainly because of the enormous investment needs our member states must address in the coming years. 

'But this means that businesses must upgrade their invoicing infrastructure and accelerate their digital transformation efforts to remain compliant within an ever-evolving tax-tech landscape. 

EU member states lost an estimated €134bn (£114bn) in VAT in 2019, down from €141bn in 2018, according to the latest VAT gap report released by the European Commission. 

Alex Baulf, senior director of indirect tax at Avalara, said: 'The VAT Gap Report does have the headline that the overall VAT gap has been improving between 2015 and 2019. 

'The latest VAT Gap Report exemplifies why mandatory e-invoicing is becoming so widespread not just within the EU, but worldwide. 

This figure represents revenues lost to VAT fraud and evasion, VAT avoidance and optimisation practices, bankruptcies and financial insolvencies, as well as miscalculations and administrative errors. 

While some revenue losses are impossible to avoid, the European Commission admits that 'decisive action and targeted policy responses could make a real difference, particularly when it comes to non-compliance. 

'We need to make a joint effort to crack down on VAT fraud, a serious crime that takes money out of consumers' pockets, undermines our welfare systems and depletes government coffers.' Italy and Hungary have successfully introduced compulsory e-invoicing, with many other countries announcing their intention to impose mandatory e-invoicing within the next few years, including Germany, France and Poland. 

In 2022, the European Commission plans to introduce legislative proposals to modernise further the VAT system, including the reinforcement of Eurofisc, its transborder monitoring system used to exchange information between member states. 

'This year's figures correspond to a loss of more than €4,000 per second.
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