European Commission analysis shows EU countries lost almost €150bn (£134bn) in VAT revenues in 2016, with the UK and Ireland among six member states reporting an increase in the ‘VAT gap’ between expected revenue and the amount actually collected.

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs said: ‘Member states have been improving VAT collection throughout the EU. But a loss of €150bn per year for national budgets remains unacceptable, especially when €5bn of this is lining the pockets of criminals, fraudsters and probably even terrorists.

‘A substantial improvement will only come with the adoption of the VAT reform we proposed a year ago. I urge member states to move forward on the definitive VAT system before the European Parliament elections in 2019.’

Last year the Commission proposed what it described as the biggest reform of EU VAT rules in a quarter of a century. The four ‘cornerstones’ of a new definitive single EU VAT area would involve charging VAT on cross-border trade between businesses; having a ‘one stop shop’ in the form of a single online portal for declarations and payments; a move to the principle of ‘destination’ whereby the final amount of VAT is always paid to the member state of the final consumer and charged at the rate of that member state; and a simplification of invoicing rules.

These proposals are still under discussion before being brought before the European Parliament.