Regulatory updates - EU

Between 2015 and 2016, the European Union (EU) established agreements with Andorra, Liechtenstein, Monaco, and San Marino. These agreements enable the reciprocal automatic exchange of financial account information between tax authorities in accordance with the latest EU Directive on Administrative Cooperation (DAC) and the OECD's Common Reporting Standard.

On October 13, 2025, the Commission enhanced its tax cooperation frameworks with Andorra, Liechtenstein, Monaco, and San Marino by signing amended protocols. These neighboring countries maintain significant economic ties with EU member states, making effective anti-tax fraud measures essential for ensuring a level playing field.

The recent amendments to the protocols demonstrate the EU's ongoing commitment to transparency and international cooperation. By updating these agreements to align with revised EU and OECD standards, the European Union is working to improve tax compliance and ensure fair competition globally.

A similar amending protocol with Switzerland is expected soon. Once ratified, all four protocols are anticipated to enter into force on 1 January 2026, reinforcing the EU's leadership in ensuring fair and transparent tax practices globally.

More details can be found in the European Commission's daily news.

On September 24, 2025, the European Commission announced the implementation strategy for the VAT in the Digital Age (ViDA) package.

The ViDA package consists of three legislative acts and aims to modernize the EU’s VAT system, address challenges in the platform economy, and make VAT compliance more resilient to fraud.

The implementation strategy provides a roadmap with key milestones and action points, aiming to enhance transparency in digital transactions and simplify cross-border VAT compliance. Alongside other updates, the implementation strategy specifically addresses digital reporting requirements (DRR), platform economy measures, and single VAT registration (SVR).

• Digital reporting requirements (DRR)

Real-time e-invoicing will become the default for cross-border B2B transactions, replacing periodic VAT summary reports. This is expected to reduce VAT fraud and lower compliance costs for businesses.

• Platform economy

Platforms in sectors such as passenger transport and short-term accommodation will be responsible for collecting and remitting VAT when users fail to meet VAT obligations.

• Single VAT registration (SVR)

The One Stop Shop (OSS) model will be extended, reducing the need for multiple VAT registrations across Member States.

Implementation

The Commission will work closely with Member States and businesses to ensure coordinated implementation.

Actions include promoting mutual recognition of certifications for e-invoicing software and supporting the use of a common transmission network among Member States to ensure interoperability.

The Commission will also provide technical guidance, communication campaigns, and regular progress monitoring.

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.