The latest assessment for the European Commission, carried out by the Polish firm Case during the first semester of 2013 in all 28 EU member states, reveals that the VAT gap in France amounts to €30 billion each year, or almost a quarter of the €137 billion revenue it is expected to bring to the French state this year.
The last assessment dates back to 2009, when the British firm Reckon estimated the VAT-gap in France at €9 billion per year. In 2011, it was estimated at €11 billion.
But according to a source in the European Commission, “the numbers exploded in recent years, and not only in France, it’s a fact”.
EU member states, for their part, disagree. Italy, Germany and Spain have all questioned the figures put forward by the Commission.
“The non-collected VAT comes both from the VAT-carrousel type of fraud and from companies that cannot pay their part due to bankruptcy or financial difficulties. The crisis is to blame, too: since 2008, the VAT recovery rate is lower than before”, explained an EU source specialised in taxation issues.
Rising VAT rates, notably in Southern countries, has encouraged companies to avoid the tax rather than pay it, through tax avoidance or evasion, by relocating the headquarters of a company to Luxemburg for example, where the VAT rate is lower.
Online retailer Amazon was recently revealed as user of this tax avoidance strategy, the victims of which were not only regular bookshops but also the state. Books are being sold, but governments cannot collect any tax from it.
In France, the VAT rate has not changed significantly. Corporate bankruptcies have certainly progressed, but the issue of VAT fraud is a real issue. Delays in collecting VAT led the Court of Auditors to examine fraud allegations last year.
Every year, the Finance Ministry’s forecasts reveal a much lower rate of collected VAT than expected. For 2012, the official forecast was €137.1 billion, but only €132.3 billion was collected, leaving an unexplained €5 billion gap.
The same scenario was repeated in 2013: at the end of July, the VAT had increased by only 0.3%, while the government expected a 2.4% gain. If the gap continues, the shortfall is expected to reach €3 billion this year.
The Finance Ministry however is trying to downplay the impact of these new figures put forward by the Commission.
An advisor to Budget Minister Bernard Cazeneuve says that it is a “difference in the statistical treatment between the French Statistics Institute and Brussels. Whether 30 or 11 billion, it is debatable”.
This point of view is shared by the French permanent representation to the EU in Brussels, which told EurActiv that the figures published by Case were non-binding for the Commission or the member states, since the assessment was carried out by a third party, and that they should not be subject to a formal debate upon publication.
Like Reckon before it, Case included data from all the member states. The study was closely monitored by the Commission. And the EU executive clings to the methodology used by Case, "who had access to a lot of data, much more than in the previous Reckon evaluation, which allows them to come up more credible figures".
For the Commission, previous reports did not reveal the magnitude of fraud, due to a lack of data transmitted to the European Commission.
The hypothesis of a much broader rise in VAT fraud is therefore not ruled out. In 2009, the VAT fraud on CO2 quotas represented a loss for EU member states estimated at between €5 and €10 billion over just a few months. VAT fraud on second-hand cars is a particular problem for France and Germany. The construction sector is under scrutiny too.