The 2025 annual report on taxation highlights a strong shift across EU Member States towards the digitalization of tax administration, the harmonization of VAT reporting, and the adoption of e-invoicing as an indirect tax compliance tool.
One of the highlights in the report is the recently adopted Value Added Tax (VAT) in the Digital Age (ViDA) package. ViDA, a major step toward streamlining tax processes across Europe, introduces mandatory EU B2B e-invoicing and standardized EU Digital Reporting Requirement (DRR). This replaces fragmented national rules and enables real-time reporting of transaction data to the tax authorities.
The VAT gap increased slightly compared to previous assessments. The EU-wide gap in 2022 was 7% of the VAT Total Tax Liability (VTTL), a slight increase compared to the 6.6% reported in 2021.
The smallest VAT gaps were recorded in:
• Portugal (1.3%)
• Hungary (2.3%)
• Austria (3.0%)
The highest VAT gaps occurred in:
• Romania (30.6%)
• Malta (25.9%)
• Slovakia (14.6%)
• Lithuania (14.6%)
Possible factors contributing to the increase are COVID-19 related, but the long-term view is that trends in VAT compliance are positive through the introduction of targeted policy instruments being implemented across the EU.
Member States are adopting policy measures such as mandatory electronic reporting obligations, online cash registers, and reverse charge mechanisms to improve VAT collection and reduce the VAT compliance gap. Traditional audits remain important in closing this compliance gap, but emphasis is now on digital infrastructure in tax administration to prevent issues like missing trader fraud and increase overall compliance.
Many Member States are modernizing their tax systems with the EU’s support. The trend is towards automated validation and cross-matching of taxpayer data, leveraging technology to enhance compliance checks. Several Member States have introduced or are introducing mandatory e-invoicing, real-time reporting, and other digital auditing tools.
Cross-border co-operation continues to strengthen the enforcement of different tax reforms at both the EU and national levels. The EU, using support systems such as the Technical Support Instrument, is helping member states’ projects to enhance their tax administration digitalization.