European Commission report says fraud and legal avoidance cost it €140 billion in 2018
Luxembourg continues to leak value-added taxes it should be receiving, a European Commission study said, even if it has improved its collection of money that is due over the past two years.
Luxembourg saw the greatest increase in paper losses in the EU in 2018 compared to the previous year, with 5% of VAT revenues going missing in 2018 compared, amounting to a paper loss of €200 million.
That was higher than the €92 million in VAT revenue the Grand Duchy lost in 2017, though still better than 2016’s €314 million loss, according to the report, which was released on Thursday.
Still, Luxembourg’s losses were far lower than countries in Eastern Europe or Italy. Romania led the bloc in 2018 with a third of its expected VAT revenues disappearing, a loss estimated at €6.6 billion in 2018.
Across the EU, the VAT gap was €140 billion in 2018, equating to an estimated 11% revenue loss, the report said.
Reasons for the so-called “VAT gap” include illegal fraud and tax evasion, but also legitimate causes such as legal tax optimisation or corporate bankruptcy or insolvency, the report said.
“Today’s figures show that efforts to shut down opportunities for VAT fraud and evasion have been making gradual progress – but also that much more work is needed,” European Commissioner for Economy Paolo Gentiloni said in a statement.
Gentiloni urged governments to focus on VAT collection now that the coronavirus pandemic has forced them to increase spending at the same time that economic activity that generates tax revenues cratered.