EU estimates Irish Vat gap at €1.7bn

Finance Minister Paschal Donohoe has previously questioned the EU's Vat measuring methodology.

The difference between the amount of business transactions liable for Vat and the actual amount of Vat collected in Ireland annually could be as high as €1.68bn, according to the European Commission.

The latest annual estimate of the Vat gap in EU member states — which measures the effectiveness of Vat enforcement and compliance measures — has calculated that 10.6 per cent of potential Vat revenue in 2018 was not collected by the tax authorities in Ireland.

The Vat gap provides an estimate of revenue losses due to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies as well as miscalculations.

A new report by the European Commission shows that Ireland’s Vat gap has been falling continuously since 2015 when it stood at 12.6 per cent.

The actual value of the Vat gap has been increasing since 2016 due to increased Vat revenues but remains below the 2015 level of €1.71bn.

Ireland’s top Vat rate of 23 per cent is one of the highest among the 27 EU member states.

In response to previous EU estimates on Ireland’s Vat gap, Finance Minister Paschal Donohoe claimed it was estimated on the basis of “limited data and making a number of assumptions.” 

Mr Donohoe said Revenue also had concerns about the robustness of the methodology used to calculate Ireland’s figure and the accuracy of the results.

However, the European Commission said its estimates for Ireland had been revised due to an improved methodology for inputting missing and confidential values.

Overall, it is estimated that EU member states lost an estimated €140bn in Vat revenues in 2018, representing 11 per cent of total revenue loss across the EU.

The Vat gap ranged from 1 per cent in Sweden to 33.8 per cent in Romania.

While the European Commission said the figure was extremely high, it claimed the Vat gap had improved marginally in recent years.

However, it warned that provisional figures for 2020 were forecasting a reversal of this trend with the potential loss of €164bn in Vat revenue due to the effects of the Covid-19 pandemic on European economies.