This article was originally published by Tax Notes
As the European Commission steps up efforts to measure tax gaps and tax expenditures, researchers say clearer definitions and reporting standards are needed to allow meaningful comparisons and scrutiny across member states.
The March 16-17 EU Tax Symposium, co-organized by the commission and the European Parliament, will touch upon tax expenditures and the “need to control [their] growth.”
In December 2025 the commission presented its first “Mind the Gap” report, which looks at the tax gap arising from noncompliance or in relation to policy choices, such as tax relief measures.
The commission hopes that its findings will contribute to the coordination of economic and social policies within the bloc, including in the framework of the EU macroeconomic and budgetary surveillance process known as the European Semester.
Directive 2011/85/EU requires member states to publish “detailed information on the impact of tax expenditures on revenues.” But “what member states actually do is highly heterogeneous,” Agustin Redonda, senior fellow at the nonprofit Council on Economic Policies, told Tax Notes ahead of the symposium. The Council on Economic Policies and the German Institute of Development and Sustainability created the Tax Expenditures Lab in 2023.
Even if Directive 2011/85/EU introduced reporting, “the question is: what exactly does ‘detailed data’ mean? That can be very subjective if there is no clear guidance explaining what should be reported,” Redonda said.
Redonda said that some countries perform relatively well in terms of reporting, especially compared to other regions in the world. “France, Germany, Italy, Portugal, and a few more provide relatively good quality data. Others, such as Romania, Hungary, and Poland perform more poorly,” he said.
Ways to Look at Tax Expenditures
Sofia Berg, fellow at the Council on Economic Policies, explained that the definition of tax expenditures differs across member states. While they are generally defined as deviations from the benchmark tax system, what counts as the benchmark also differs. “One country may classify a reduced VAT rate on food as a tax expenditure — meaning government spending through the tax system — while another country may consider it a standard part of its benchmark tax system,” she said.
Because France and Germany consider reduced VAT rates for food as part of the benchmark tax system, “they do not report the revenue forgone from those exemptions or reduced rates,” Redonda said. Other parts of the world would deem such measures tax expenditures. In low-income countries “this is often a controversial issue,” Redonda said, citing as an example how international organizations can “trigger fierce opposition” when they advise governments to clean up their VAT expenditure system.
While governments usually reduce VAT on food during crises, there “is a large debate in academic and policy circles about whether this is a good or bad policy,” Redonda said.
As of 2024, France decided it would no longer report 100 percent of the tax expenditures in its dedicated report since 50 percent of VAT revenue is transferred to lower-level jurisdictions, particularly municipalities, explained Christian von Haldenwang, senior researcher at the German Institute of Development and Sustainability. “This change has been criticized, as it does not reflect the true distribution of revenues across government levels in France,” he said.
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