European Commission presents Annual Report on Taxation

Report has been published on June 24, 2025

Decline in Tax Revenues: The European Commission’s Annual Report on Taxation reveals that tax revenues in the EU-27 have decreased to 39% of GDP, the lowest level since 2011, largely due to falling revenues from environmental and property taxes, while the tax mix remains stable with shifts in labor, consumption, and capital tax revenues.
Compliance Challenges and Audit Effectiveness: The report highlights significant compliance gaps, estimating VAT revenue losses at €89 billion for 2022 and corporate income tax losses at €40 billion for 2018. It underscores the effectiveness of tax audits, which generated €105 billion in additional revenue in 2022, and emphasizes the importance of digital tax administration for improving compliance.
EU Initiatives for Tax System Improvement: The Commission is implementing various strategies to address tax challenges, including recommendations to diversify tax revenue sources away from labor taxation and initiatives like the VAT in the Digital Age (ViDA) to modernize VAT processes, enhance transparency, and combat tax evasion through collaboration among Member States.

The European Commission publishes the 2025 annual report on taxation

Digitalization of Tax Administration: The 2025 annual report on taxation indicates a significant trend among EU Member States towards digitalizing tax administration, harmonizing VAT reporting, and adopting e-invoicing as an essential compliance tool.
Introduction of the ViDA Package: The recently adopted VAT in the Digital Age (ViDA) package mandates EU B2B e-invoicing and establishes standardized EU Digital Reporting Requirements (DRR), facilitating real-time reporting of transaction data and replacing fragmented national regulations.
Strategies to Improve VAT Collection: Despite a slight increase in the VAT gap, member states are implementing measures such as mandatory electronic reporting, online cash registers, and reverse charge mechanisms, supported by the EU, to enhance VAT compliance and reduce fraud through improved digital infrastructure and automated data validation.