VAT fraud is a severe problem in the EU, with EU Member States losing important parts of public revenue to VAT frauds and inadequate VAT collection systems. Those losses are expressed by the VAT gap - this is the difference between the VAT paid and the theoretical value of VAT revenues should all taxpayers declare their actions and transactions correctly.
The losses in public revenue are substantial, amounting to EUR 137 billion lost in 2017. Roughly 40% of that money was lost to cross-border VAT frauds. On average the VAT gap amounted to 12% of the theoretical VAT revenue in EU Member States in 2017.
How does this VAT fraud take place? Organised criminal groups extort tax by using weaknesses of the system for collecting VAT fraud from intra-Community transactions.
In recent years, the VAT gap has declined in most of the EU Member States, but it remains high in several countries, such as Romania, Greece, Lithuania, Italy and Slovenia, where it stands at over 20%. There are however lessons to learn from Poland, which managed to reduce its VAT gap from 27% in 2013 to 14% in 2017 and to barely 9% in 2018.
The Polish success in fighting the VAT gap hinges upon a coordinated effort in adopting modern legislation, consolidating tax administration agencies and initiating their cooperation with the IT and banking sectors.