Note: This page contains information specifically about VAT fraud. For information on EU efforts against direct taxation fraud, visit our page Administrative cooperation in (direct) taxation in the EU.
In the EU, tax policy is the responsibility of Member States and their national authorities. However, when it comes to Value Added Tax (VAT), much of the fraud happens in cross-border transactions. Thus, the fight against VAT fraud is a shared responsibility between EU countries and the EU itself.
The 2023 VAT Gap report shows that in 2021, Member States lost around €61 billion in VAT, with conservative estimates attributing one quarter of that to intra-EU VAT carousel fraud, evasion and avoidance. These losses result in smaller budgets both nationally and at EU level.
Avoidance vs evasion vs fraud
- Tax avoidance: acting within the law, sometimes at the edge of legality, to minimise or eliminate tax that would otherwise be legally owed
- Tax evasion: illegal arrangements where tax liability is hidden or ignored, i.e. the taxpayer pays less tax than required by hiding income or information from tax authorities
- Tax fraud: a form of deliberate tax evasion in which deliberately false statements are submitted or fake documents are produced, among other methods
There are various mechanisms which allow for cooperation and information exchange between Member States to fight VAT fraud. These include a range of actions in the area of VAT Administrative Cooperation and modernisation measures under the VAT in the Digital Age proposal.
VAT and Administrative Cooperation
The EU helps Member States cooperate and exchange VAT information to combat VAT fraud. These exchanges are coordinated by the Eurofisc network of representatives from the 27 Member States and Norway.
More about VAT and Administrative Cooperation
Tackling VAT fraud in e-commerce
E-commerce is particularly susceptible to VAT fraud, since Member States often lack information about businesses based outside of but selling into the EU. To help Member States monitor cross-border payments, the EU has introduced new transparency rules for payment service providers (PSPs) through the Central Electronic System of Payment information (CESOP).
More about tackling VAT fraud in e-commerce
VAT in the Digital Age (ViDA)
The VAT in the Digital Age package, proposed by the European Commission on 8 December 2022, aims to make the EU’s VAT system more resilient to fraud, particularly VAT carousel fraud, through a new real-time digital reporting system based on e-invoicing.
More about VAT in the Digital Age
Related links
