Analysis of the impact of the split payment mechanism as an alternative VAT collection method : final report

The EU Commission and the Member States are concerned about the levels of VAT fraud and avoidance in the EU. The 2016 study on the EU VAT gap (based on 2014 data) measures the total amount of VAT lost in the EU at 159.5 billion EUR, representing 14% of the total expected VAT revenue. A number of measures to tackle VAT fraud have been considered in recent years, focusing on the VAT collection methods that have hardly been changed since VAT was introduced in the EU. This report builds on earlier analysis and examines a range of options for applying split payment mechanism as an alternative VAT collection method. Taking into account other ongoing VAT policy developments, the options are analysed in both the current VAT system and in a definitive VAT regime for cross border B2B supplies. The findings of the analysis found no strong evidence that the benefits of split payment would outweigh its costs. The main identified effects were that a wider scope of split payment would potentially provide a larger decrease of the VAT gap, but would also significantly increase the related administrative costs. However, the analysis carried out is highly dependent on the specific design of the policy options as well as on the assumptions that had to be made in order to carry out the quantitative analysis, (especially on the volume of transactions). Therefore, a different design of the mechanism for split payment (e.g. different scope or technological choices) may come to considerably different results.