The VAT Gap is a measure of VAT compliance and enforcement that provides an estimate of revenue loss due to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies, as well as miscalculations. It is defined as the difference between the amount of VAT collected and the VAT Total Tax Liability (VTTL), which is expressed in the report in both absolute and relative terms. The VTTL is the theoretical tax liability according to tax law, and is estimated using a “top-down” approach.
In nominal terms, in 2014, the VAT Gap in the EU-27 Member States amounted to EUR 159.5 billion. The VTTL accounted for EUR 1,136.3 billion, whereas the revenue was EUR 976.9 billion. Expressed as a percent of VTTL, the VAT Gap reached 14.06 percent.
The smallest Gaps were observed in Sweden (1.24 percent), Luxembourg (3.80 percent), and Finland (6.92 percent). The largest Gaps were registered in Romania (37.89 percent), Lithuania (36.84 percent), and Malta (35.32 percent). Overall, half of the EU-27 Member States recorded a Gap below 10.4 percent.