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EU Parliament weighs up closing VAT Gap

Can the definitive VAT system or other reforms close fraud gap?

The European Parliament has reviewed a range of measures to close EU VAT Gap – the difference between forecast VAT revenues versus actuals. This was as a formal European added value (EAV) assessment, to assess how existing legislation can be modified to tackle this problem. This included evaluation the stalled definitive VAT system and reforms including the VAT in the Digital Age and extension of the OSS return. Many other measures were raise in the 2020 EU Tax Package

The EC plans to launch a VAT Gap Initiative in the third quarter of 2022 to share best practises on VAT administration and collections.

VAT raises about €940billion in 2020 for the 27 member states, about 17% of all tax revenues. VAT Gap is estimated at €120 billion for 2018, of which €50 billion is due to cross-border fraud, including missing trader and carousel fraud.

€71 billion in tax savings up for grabs

The report forecasts the EAV of some of the proposal scheduled by the EU based on 2025 baseline and finds a total of €71 billion potentially available savings:

  • €39 billion from increasing cooperation with exchange of information between member states – including DAC 7  – and an extension of the OSS one-stop shop and a single EU VAT registration. This amount would be made-up of two parts: €29 billion reduction of the VAT gap; plus €10 billion in lowered compliance costs for business operating across the Single Market.
  • €6 billion further if combined with the definitive VAT system implementation
  • €26 billion further if a for the most ambitious scenario including establishment of an EU treasury and VAT administered at EU level – although the report writers admit that this last proposal is highly unlikely to materialise given the political uncertainties.

Follow all the European Union’s completed and planned reforms via VAT Calc’s EU VAT reform tracker.

EU VAT reforms

Reform (click for details) Update
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2035 Harmonisation of EU e-invoicing and domestic regimes Jan 2035
2030 Digital Reporting Requirements and e-invoicing harmonisation July 2030
Structured e-invoices supercede paper invoices July 2030
EC Sales lists replaced by Digital Reporting Requirements July 2030
2028 EU Customs reforms Published May 2023
€150 import consignment threshold removed Published May 2023
2027 Single VAT Registration in the EU - extension of OSS July 2027
Call-off stock VAT simplification ends July 2027
Harmonisation of B2B Reverse Charge rules July 2027
Proposal for VAT treatment of the platform economy July 2027
2026 DAC8 harmonised crypto asset reporting Approved May 2023
2025 VAT registration thresholds equivalence foreign businesses 1 Jan 2025
Virtual events VAT rule changes 1 Jan 2025
Financial Services VAT exemption reform proposals Consultation complete; proposal awaited
Tour operator margin scheme VAT reforms EC undertaking fresh review
2024 Payment providers' seller transaction reporting and bookkeeping obligations In effect since 1 Jan 2024
2023 DAC 7 - marketplace reporting harmonisation In effect since 1 Jan 2024
2022 IOSS reforms to prevent double taxation On hold
EU reduced VAT rate freedoms Entered into force 6 April 2022
VAT in the Digital Age proposals Published Dec 2022
EU DAC8 cryptocurrency tax reporting proposals Published Dec 2022
VAT Gap Initiative Q3 2022
EU Definitive VAT System On hold
2021 One-Stop-Shop (OSS) single EU VAT return In effect since 1 July 2021
Ending €22 import VAT exemption; new IOSS return In effect since 1 July 2021
Marketplace deemed supplier EU VAT reforms In effect since 1 July 2021
2020 EU four Quick Fixes for VAT In effect
Tax authorities anti-VAT fraud cooperation In effect
Tax Action Plan - 25 VAT and other tax reforms roadmap See 'VAT in the Digital Age' and others
2019 Simplification of e-services VAT compliance and thresholds In effect
Single and multi-use vouchers In effect
2018 Lower e-book and publications VAT rates In effect, although not all EU states have adopted the option


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