08 January 2020

Bloomberg: Here’s how the European Union runs a trade surplus with...itself

The European Union has a growing trade surplus with itself, a statistical discrepancy that may indicate value-added tax fraud of more than 60 billion euros a year, according to a study by two leading German research institutes.

Exports to fellow EU countries are exempt from VAT. However, if companies have improperly declared the transactions, and they are in fact domestic, they are not recorded as imports by the partner country and go untaxed, according to the study published Tuesday by Gabriel Felbermayr, president of the IfW Institute in Kiel, and Martin Braml, a researcher at Ifo in Munich.

The EU’s trade balance with itself should be zero if all transactions are properly reported, and measurement errors alone can’t account for the “systematic deviation,” the study said.

“It is highly probable that tax fraud is a major cause of the intra-EU trade surplus and costs the taxpayer billions every year,” the researchers wrote.

“An error of this magnitude in the balance-of-payments statistics is not something the EU can simply shrug off as an intriguing outlier, especially given that the size of trade surpluses is fueling international disputes,” they added.

The researchers say the EU has run a trade surplus with itself since 1993, and the figures have increased since the bloc’s enlargement in 2004. The discrepancy amounted to 307 billion euros last year, costing EU countries as much as 64 billion euros in lost sales tax.

Divergent Rates

The study identified larger differences in countries with sizable financial services industries such as the U.K., Ireland, Luxembourg, the Netherlands and Cyprus, suggesting that the sector is prone to statistical lapses, according to the study. [...]

Full article on Bloomberg

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