Luxembourg, 24 March 2025
- EU auditors identify significant risks of abuse.
- Weak oversight prevents member states from ensuring that the correct amount of VAT due is collected
- The EU regulatory framework shows gaps and inconsistencies, and there are weaknesses in cooperation to combat abuse.
The EU’s financial interests and single market are not protected firmly enough against Value Added Tax (VAT) fraud on imports when simplified import customs procedures are used. This is the conclusion of a new report by the European Court of Auditors (ECA). There are serious weaknesses in the checks carried out by member states. There also are shortcomings in cooperation at EU level and across member states to combat the abuse of these procedures.
For imported goods, VAT is due when the goods enter the EU customs union, with the amount owed being established on the basis of customs declarations. VAT fraud on imports distorts competition in the single market, and has a negative impact on both the EU’s and the member states’ finances. The auditors found that simplified import customs procedures (for details, see “background information”) are particularly vulnerable to such fraud.
Existing measures are not sufficient to prevent and detect VAT import fraud when simplified import customs procedures are used. The value of goods imported under these procedures is significant, and the risk of abuse due to fraudulent practices is high. The right balance should be kept between trade facilitation and the need to protect the EU’s financial interests.
François-Roger Cazala, the ECA Member responsible for the audit
The auditors found loopholes and inconsistencies in the EU regulatory framework for simplified import customs procedures, and in the way the European Commission monitors that framework. They recommend that standardised rules should be introduced and enforced. For instance, there are no harmonised rules for regulating the functions of tax representatives, and – in the EU countries they visited – the auditors observed diverging approaches towards the invalidation of VAT identification numbers, and inconsistencies between the status of VAT numbers and that of Economic Operators Registration and Identification (EORI) numbers. This means that traders who infringe VAT rules may continue to conduct customs operations. In addition, sanctions and penalties differ significantly between member states.
Furthermore, the auditors found serious weaknesses in member states’ checks of simplified VAT procedures for imports. For example, the auditors found significant losses in VAT collection in the sample of imports they scrutinised, and found no assurance that goods are moved from the member state of import to another member state for sale, which is a condition for granting the VAT exemption upon import into the EU. The auditors conclude that transport evidence for those goods should be collected upon import. Also, the auditors detected several cases of undervaluation of products – and thus also of VAT – by importers, mainly for smartphones, textiles, shoes, and jewellery. Constraints on data access mean that it is extremely difficult to compare the taxable amount of imported goods (customs declarations) and the value of taxable sales in the various member states, even though significant – and therefore suspicious – deviations between those taxable amounts should be investigated. Although some of the weaknesses the auditors identify are due to be addressed by a number of legislative proposals, they warn that the risk of abuse remains.
The auditors also found shortcomings in cooperation between member states and at EU level: arrangements can be time-consuming and ineffective at combatting abuse. Despite recommendations made in previous audits, data-sharing remains an issue, particularly between tax and customs administrations in the various member states.
Background information
According to the auditors, there are two simplified VAT import procedures which entail a significant risk of abuse (the Commission estimates the corresponding value of the imported goods at around €260 billion between 2021 and 2023): one procedure is known as “Release for free circulation – CP42” and exempts VAT collection on goods imported from third countries into one EU member state when they are meant to be traded in another. The other procedure is called “IOSS – import one-stop shop”, and is a VAT exemption under a special scheme for e-commerce for goods imported into the EU from third countries.
Read the ECA report
Read the replies of the EU Commission
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