Commission identifies actions to reduce tax gaps and support competitiveness in the EU
Today, the European Commission released its first Mind the Gap Report, which builds on the experience so far with Value-Added Tax (VAT) gaps reports and extends now to direct taxation. It offers a comprehensive assessment of tax gaps in the EU and its 27 Member States while providing opportunities to support key policy priorities in the EU and its Member States.
The reports show that the estimates of tax compliance gaps, which amounted to hundreds of billions of euros in 2023.
Tax gaps can emerge due to tax evasion and avoidance. Tax gaps such as tax expenditures, tax reliefs or concessions can be an important policy tool if carefully designed. Tax compliance gaps induced by tax evasion and avoidance weaken public finances and erode trust in tax systems. The VAT compliance gap reached €128 billion in 2023, reversing the progress observed during the pandemic. For Corporate Income Tax (CIT), the estimated average compliance gap using the latest available data stands at 10.9% of collected revenues.
The reports detail practical strategies throughout the EU, highlighting each country’s strengths and areas that need improvement. Addressing tax gaps requires action in various priority areas, including enhancing tax administrations through skill development and data utilization and review past policy choices to ensure that measures remain efficient and well-targeted.
The report is accompanied by two technical reports, which provide evidence of substantial tax revenue losses that occur due to non-compliance across the EU, related to VAT and CIT.
Commissioner for Climate, Net Zero and Clean Growth, Wopke Hoekstra, said: “Every year, billions of public revenues are lost to governments, taxpayers and institutions. In a time when Europe needs to be more competitive, reducing tax gaps is critical and we’re working towards this. In the area of VAT, we recently adopted VIDA, which will allow to exchange information about transactions in real time. With these types of measures, we will boost compliance to ensure we don’t miss out on vital revenue.”
