EU VAT Gap Data Reinforces the Case for E-Invoicing and Digital Reporting
The EU’s VAT compliance gap increased sharply in 2023, signalling a reversal of years of gradual improvement and underscoring the growing importance of digital controls such as e-invoicing, according to the European Commission’s latest VAT gap report.
The study estimates that uncollected VAT across the EU reached EUR 128 billion in 2023, equivalent to 9.5 percent of the VAT total tax liability. This represents an increase of EUR 27.2 billion compared with 2022 and marks the second consecutive year of deterioration following a long period of declining gaps prior to the pandemic.
While the VAT gap in relative terms remains below pre-pandemic levels, the Commission notes that 2021 was a clear turning point. Differences in the growth rates of VAT revenues and theoretical VAT liabilities led to a widening gap between 2021 and 2023, a trend that is now confirmed by more stable post-pandemic data.
The report also highlights substantial variation across Member States. In 2023, VAT compliance gaps ranged from as low as 1 percent in Austria to as high as 30 percent in Romania. Finland and Cyprus also recorded relatively low gaps, while Malta stood out with a gap exceeding 24 percent. In most Member States, however, gaps fell below 10 percent, suggesting that high non-compliance remains concentrated in a smaller number of jurisdictions.
In terms of year-on-year developments, increases in VAT non-compliance outnumbered improvements in 2023. Ireland, Estonia, Hungary and Poland recorded some of the largest deteriorations, while Croatia, Slovenia and Cyprus saw the most notable reductions.
The Commission points to several structural and policy-related factors behind these trends, with digitalisation emerging as a recurring theme.
1. One key determinant is the share of cashless payments within an economy. The research confirms that higher use of digital payments is associated with lower VAT evasion, as electronic transactions leave an auditable trail that supports cross-checking by tax authorities.
However, the report notes that this relationship was disrupted during and after the COVID-19 pandemic. While digital payments surged during lockdowns, some countries experienced a partial return to cash once restrictions were lifted, weakening the compliance gains seen during the crisis years.
2. E-invoicing and e-reporting measures are increasingly highlighted as central tools in narrowing the VAT gap. Several Member States expanded or introduced digital reporting obligations in 2023 and 2024, including extensions of SAF-T, transaction reporting and sector-specific requirements. These measures aim to improve data quality, increase transaction visibility and reduce opportunities for underreporting.
Italy is cited as a prominent example of how mandatory e-invoicing can contribute to improved compliance. The country’s VAT gap declined from nearly 20 percent in 2020 to 14.5 percent in 2022, a reduction attributed in part to the rollout and progressive expansion of mandatory e-invoicing for B2B and B2C transactions. The removal of turnover-based exemptions and the steady rise in digital payments further reinforced these effects.
3. The report also highlights complementary measures, including limits on cash transactions, enhanced penalties and expanded reporting obligations for payment service providers involved in cross-border transactions.
Overall, the findings suggest that while the VAT gap remains sensitive to economic shocks and behavioural shifts, sustained investment in digital controls such as e-invoicing, e-reporting and payment transparency remains one of the most effective levers available to tax authorities seeking to improve compliance and protect public revenues.
European Commission: Directorate-General for Taxation and Customs Union, CASE, Intellera, Syntesia, Poniatowski, G. et al., VAT gap in Europe – Report 2025, Publications Office of the European Union, 2025, https://data.europa.eu/doi/10.2778/7868422