Fair and simpler taxation supporting the recovery strategy – Ways to improve exchange of information and compliance to reduce the VAT gap

Member States have agreed that the definitive VAT reform in the EU should proceed only if it can be demonstrated that its impact on reducing the VAT gap is substantial and if the burden on businesses is also reduced. This study analyses these issues in detail, with a view to identifying possible challenges for the EU and on evaluating the European Added Value (EAV) of potential policy options to address these challenges. The study also includes a thorough comparative economic analysis of the EAV of a series of scenarios based upon the policy options identified. The results confirm that complexity remains the main factor behind both the VAT gap and the high level of compliance costs for businesses in all scenarios. Regarding the impact of each scenario compared to the baseline in 2025, the study finds an EAV of around €39 billion for the scenario of extended cooperation with exchange of information and a one-stop shop. This can be broken down into a reduction of the VAT gap of around €29 billion, and a reduction of the compliance costs for businesses of almost €10 billion. A slightly higher EAV of around €45 billion is found for the scenario of extended cooperation with a definitive VAT regime and a one-stop shop. Finally, a higher EAV of €71 billion is found for the most ambitious scenario, including establishment of an EU treasury and VAT administered at EU level. This most ambitious scenario is, however, rather unlikely to gather sufficient support at the current juncture and would also require substantial Treaty change. As the definitive VAT regime continues to be delayed, this evaluation also emphasises the potential for a scenario of extended cooperation through reinforced exchange of information and a one-stop shop. However, the extent to which Member States are likely to coordinate a concerted move, as assumed by some commentators, remains to be demonstrated at this stage.