Can a best-practice VAT generate more revenues whilst fighting the VAT Gap by 2020?

Abstract

Value added tax remains the single most important source of state finance in many European economies. Focusing on consumption, it is also a type of tax that is less detrimental to growth, which is essential for the EU’s strategy to exit the crisis. Despite its’ enormous upside potential – in particular during times of economic hardship – the collection of VAT in the EU is not maximized: only 52 per cent of consumption is taxed. Ine Lejeune, partner in charge of Tax policy, dispute resolution and litigation at Law Square, scrutinizes in Chapter 9 how the Barroso Commission has, with its VAT Strategy, been addressing the three principal causes of the increasing VAT gap: non-compliance due to overly complex VAT legislation, differences in the tax authorities’ and taxpayers’ interpretations of the law and, most importantly, criminal fraud. The Chapter includes analyses of the Barroso Commission’s announced efforts in re-designing the EU VAT System by broadening the base, by reducing the costs of enforcement and compliance as well as by removing ‘the red tape’ for the parties collecting the taxes, the businesses. Have the Commission’s efforts been effective, and have they been hampered or promoted by the economic crisis? The analysis also touches upon the development of EU’s global collaboration on VAT, such as the interactions with the OECD. The Chapter finishes off by highlighting a number of crucial VAT issues, where much could still be achieved by the upcoming Juncker Commission in leading the EU definitively out of the crisis.