Data discrepancies explain France’s huge VAT gap

VAT receipt.jpg

The European commission published a report last week unveiling a €193 billion loss in VAT every year among EU member states. In France, the €32 billions VAT gap might be explained by the use of different data sources, euractiv.fr reports.

The European Commission published a report last week (19 September) highlighting the enormous difficulties that EU countries are facing in collecting VAT.

According to the study, French tax authorities are missing up to €32 billion in lost VAT revenue every year, the study said, confirming revelations published by euractiv.fr a few days earlier.

Uncollected VAT receipts totalled €193 billion across the European Union during 2011, or 1.5% of the bloc's GDP, according to the survey and carousel fraud is largely responsible for this situation, the Commission confirmed.

>> Read: Widening VAT hole fuelled by fraud, EU confirms

The study was carried out ??by the Polish Institute Centre for Social and Economic research (Case) together with the Netherlands Bureau for Economic Policy Analysis (CPB). Several European countries were reluctant to have it published, including France, which openly challenged the methodology used by the Polish institute.

But the authors of the study have re-launched the debate by refuting those claims. Contacted by EURACTIV, one of the researchers, Leon Bettendorf from the Dutch Bureau for Economic Analysis (CPB), insisted that the methodology used was the same as in the previous assessment, made by the British Institute Reckon.

In France, the study is creating growing unease. The CEPII, a research centre which is part of the consortium usually contacted by the European Commission's taxation directorate on VAT issues, distanced itself from the study that irked the French authorities, although it is credited as having taken part in it. “The CEPII is indeed part of the consortium, but did not take part in this study, which reflects only the views of its authors and which we neither approve nor disapprove," according to a statement published on its website.

The Case report specifies that in the case of France, the steep rise in VAT fraud or evasion was due to the revision of the public accounts, but also to "direct exchanges with the French authorities".

The method consists in assessing the VAT actually collected and to identify the real economic activity that should have been subject to the tax. The difference between the two is the "VAT gap" – the €193 billion for 27 countries out of a total of €800 billion VAT collected on the European level.

Rather than the methodology, one should take a look at the data being used. VAT collection figures are usually provided by Eurostat, the statistical agency of the European Union. But in the case of France, the data did not only come from Eurostat, which could explain the divergent results.

CASE and CPB have used data from the WIOD, The World Input-Output Database, a research centre that offers different data from those of the EU member countries. Funded by the European Commission and hosted by the University of Groningen, the most prestigious university in the Netherlands, the WIOD collaborates with selected universities, including the Ecole Centrale in France. The data they provide on France reports a much larger underground economy than what the French national statistics institute, INSEE, estimates. The WIOD and Eurostat data compared to the INSEE data are very different regarding France, while they are very similar for other countries.

In addition to the huge amounts, the most disturbing fact in the study lies in the strong upward trend in VAT losses. Between 2004 and 2007, European states were able to collect 85% of the VAT due to them. But between 2008 and 2011, this rate dropped to 81%, which means than one in five euros in tax collection vanishes.

Some countries have significantly higher rates of VAT evasion, like Romania, where the VAT gap accounts for 30% of the VAT collected.

In France the gap in the non-collected VAT rate rose from €26 to €33 billion between 2008 and 2009.           

A massive VAT fraud on the carbon market in 2009 left the state resources €2 billion short. In 2009, the shortfall reached €33.4 billion according to the Case study, but in 2010 and 2011, the tax evasion only slightly weakened, reaching €32.2 billion in 2011.

During the presentation of its report, the European Commission insisted that fighting tax fraud is essential but reminded that the VAT gap is not necessarily due to fraud. The cessation of payments, the bankruptices, the statistical errors and legal avoidance also widen the gap. According to an expert interviewed by EURACTIV, fraud still represents more than half of the total. In France, it would therefore account for more than €16 billion each year.

Nicolas Dupont-Aignan, president of the right-wing party “Debout la Republique” and Alain Bocquet, member of the French Communist party talked about the alleged 32 billion fraud in France.

“This amount is huge but it does not surprise us at all. For nearly 10 months we conducted a survey of tax havens and the multiplicity of fraud. We will give our report to Elisabeth Guigou, President of the Foreign Affairs Committee on 25 September.

In it, a large part is devoted to the scandal of VAT fraud, which is still unknown to the public and underestimated by Finance Ministry.

Today the scandal continues. Thanks to the "carousel" method - which is a mechanism for hiding European VAT behind front companies - thieves extort money from the state without running any risk. When the fiscal authorities verify the existence of the company it’s 15 months too late. In other words, the thieves are long gone with the money they often deposited in tax havens. There are very practical solutions which we will discuss in our report and have already been implemented successfully in other countries such as Belgium and the United Kingdom.”

VAT is the first source of income in European states, representing more than €700 billion each year in revenue. It is collected on trade in goods and services and in the sale of goods.

To facilitate trade between countries, companies benefit from VAT exemptions under certain conditions, when operating outside their borders.

But VAT fraud has tended to proliferate and is now believed to affect new sectors such as electronics, metals, CO2 allowances or cars, which is a source of concern for the European Commission.

  • 18 Nov : Fiscal forum on VAT, in Brussels

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