Value Added Tax (VAT) fraud means less money for the public finances in the EU. According to the European Commission, the EU member states lost around €89 billion of VAT in 2022. VAT fraud may also distort competition. Our auditors assessed whether specific simplified import procedures were effective in protecting the EU budget and the EU’s single market against VAT fraud. Their report will be published in the spring.

Value Added Tax (VAT) is an important source of revenue for national governments and for the EU budget. In 2023, EU revenue from VAT amounted to €22.5 billion, representing 9.1 % of the EU’s total revenue. If not all the VAT due is actually collected, the missing amounts have to be made up for by other member states’ contributions to the EU budget. Fraudsters may avoid paying any VAT, not pay the full amount, or fraudulently claim VAT refunds from national authorities. They abuse VAT rules at national and international levels through cross-border transactions.

For imported goods, VAT is normally due when the goods enter the EU customs union. The VAT amount is established using the customs declarations for the imported goods. However, in order to facilitate trade, there are two import customs procedures where VAT is not collected at the time of importation. The first one (“customs procedure 42”) is for goods imported from third countries into one EU member state but destined for another. VAT is paid by the purchaser only in the member state of destination under its national VAT rules as part of the purchase price. The second one (“Import One Stop Shop - IOSS”) is a special scheme for e-commerce. VAT is collected upfront by sellers from their customers as part of the final purchase price and paid in the member state where the seller has registered for the IOSS.

The value of goods imported under these schemes is significant, and the risk of abuse from fraudulent practices is quite high. This is why our auditors scrutinised these two simplified VAT procedures in their latest audit. However, it is not the first time they have examined this topic: previous ECA audits had already highlighted weaknesses in the collection of VAT and risks to VAT revenues due to fraud.