Regulatory updates - European Union

The European Parliament's Committee on Economic and Monetary Affairs (ECON)  has released a draft report on February 4, 2026 calling for urgent reform of how the EU taxes its financial sector, with a particular focus on fixing an outdated tax system that has created a fragmented and complex tax landscape across Member States.

The VAT problem

The VAT exemption for financial services dates back to 1977, when technical constraints made taxation impractical. Those constraints have since been resolved, but the rule has not changed.

The report outlines that this outdated rule causes problems as financial firms cannot charge VAT on their services or reclaim the VAT they pay. The exemption is especially harmful for digital and fintech companies, which face different pressures than traditional banks. It also pushes firms to keep services in‑house instead of outsourcing them, not because it is more efficient, but simply to avoid VAT issues.

A fragmented tax system 

Because there are no clear EU‑wide VAT rules for financial services, Member States have made their own fixes. Over time, this has led to a patchwork of 91 different taxes aimed at the financial sector across the EU.

This lack of coordination makes it costly and complicated for financial firms to operate in more than one country.

For businesses and consumers, costs are higher, choices are more limited, and investment is harder. According to the report, around one‑third of EU household savings are invested outside the EU, reflecting shortcomings in the EU’s financial and tax framework.

Proposed tax reforms

ECON is calling on the European Commission to publish a proposal reforming VAT rules for financial services. Specifically, they want to start taxing clearly identifiable charges, for instance, fees and commissions, which are easy to measure and tax.

Beyond VAT, the report also addresses other tax issues. The Parliament regrets the Commission's decision to withdraw its proposal for an EU-wide Financial Transaction Tax (FTT), which could have generated between EUR 3.5 billion and EUR 75 billion annually depending on participation. They're urging the Commission to present a concrete alternative plan.

The report also proposes coordinated temporary "windfall taxes" on exceptional bank profits, such as those seen in recent years due to rising interest rates rather than improved services or innovation. These would be time-limited, transparent, and only apply to profits from extraordinary circumstances.

The draft report now adds pressure on the Commission to bring forward proposals on VAT reform and other measures for taxing the financial sector. Further developments will be closely monitored.

GENA's submission emphasizes harmonizing E-Invoicing standards across member states by offering six key recommendations: making E-Invoicing mandatory for all B2G transactions, implementing payment incentives to accelerate adoption, harmonizing syntaxes and data standards, creating a common EU certification scheme for access points, standardizing "critical data" definitions across Member States, and establishing Peppol/eDelivery as the default document delivery channel for B2G transactions.

Nazar Paradivskyy, Regulatory Affairs Director at Thomson Reuters, contributed to this work, bringing his valuable insights from both technical and compliance perspectives.

The European Commission is expected to review all submissions and publish its findings in early 2026.

For more information, visit the official GENA announcement.

The EU Council has approved a fixed customs duty of €3 on small parcels valued under €150 entering the European Union, primarily through e-commerce channels. This rule takes effect 1 July  2026. 

The measure aims to address challenges created by the current duty-free status of low-value parcels, including: 

• Unfair competition for EU businesses 

• Consumer health and safety risks 

• High fraud levels 

• Environmental concerns 

The €3 duty will apply per item category in a consignment, based on tariff headings. It covers goods sold by non-EU sellers registered in the EU’s Import One-Stop Shop (IOSS) for VAT purposes, which represents about 93% of all e-commerce flows into the EU. 

This change could make shipping small parcels less economical, pushing sellers to encourage larger orders or shift to EU-based warehouses. Consumers should expect higher prices and fewer free imports. 

Future Directions: 

Several Member States are introducing national parcel fees alongside this EU measure. For example, Romania will apply a €5 fee on parcels under €150 starting January 2026, France and others are considering similar charges. These national fees differ from the EU’s €3 duty but may coexist until a harmonized handling fee is agreed. 

Looking ahead, the €3 duty is only the beginning. By 2028, the EU plans a comprehensive customs reform that will: 

• Remove the €150 exemption threshold 

• Apply duties using simplified tariff classifications 

• Require more data from sellers and platforms 

• Introducing a stronger role for the EU Customs Data Hub 

The cross-border EU e-commerce landscape will change gradually, bringing higher costs for consumers and requiring foreign sellers to revise their logistics and strategies. The upcoming phase will reshape data collection, impose stricter regulatory oversight, and ensure more equitable competition between EU-based retailers and global marketplaces.