Combating VAT fraud remains a critical priority for European Union (EU) Member States and for the Union as a whole. The substantial revenue lost to such fraud, frequently linked to organized crime, underscores the urgency of confronting it. European Commission President Ursula von der Leyen has tasked Commissioner Hoekstra with maintaining the highest level of ambition in the fight against tax fraud.
Achievements over the past decade
The progress achieved over the past decade should reinforce confidence in the effectiveness of current anti-fraud strategies. Strengthened VAT regulations, combined with closer cooperation at EU level, have helped expose international fraud networks responsible for billions of euros in losses and have contributed to a narrowing of the VAT gap. Beyond protecting national budgets, this deeper collaboration among Member States has opened new channels for communication and joint working, laying the groundwork for tackling other forms of fraud and tax avoidance. The cases below illustrate both the scale of the threat and the growing capacity of authorities to respond.
Italy: the Sistema di Interscambio (SDI)
Italy offers a clear example of the value of technology-driven reform. For many years the country recorded one of the highest VAT gaps in the EU, amounting to roughly €35 billion in 2018. To address this, in 2019 Italy introduced the Sistema di Interscambio (SDI), an exchange system for business-to-business transactions. Under this Digital Reporting Requirement, businesses must issue electronic invoices and submit them to the SDI platform so that the tax authorities can examine their content; where no irregularities are found, the invoice is validated and forwarded to the customer, giving the authorities a near real-time view of transactions and the associated VAT trail. As one of the earliest and most stringent e-invoicing frameworks in the EU, the SDI represents a highly advanced “clearance” model with a broad scope. Its introduction coincided with a marked reduction in Italy's VAT gap, which fell from €35 billion to €16 billion between 2018 and 2022. While the precise contribution of the SDI alone is difficult to isolate, the timing strongly suggests that it played a considerable role in this improvement.
The Admiral investigations
The Admiral investigations demonstrate the reach of coordinated cross-border enforcement. In April 2021 the Portuguese tax authorities opened an inquiry into a local company specialising in the sale of electronic devices on suspicion of VAT fraud. Subsequently referred to the European Public Prosecutor's Office (EPPO), this initial inquiry grew into a large-scale EU-wide operation involving more than 200 searches. With support from Europol and national authorities, the operation uncovered the largest VAT carousel fraud network ever identified in the EU, valued at €2.2 billion. A further series of searches and arrests in November 2024, known as Admiral 2.0, spanned sixteen countries and exposed an additional suspected network, raising the estimated damage to €2.9 billion. One month later, a related network worth €38 million was uncovered in Greece under the designation Admiral 3.0.
Moby Dick
The Moby Dick case highlights the links between VAT fraud and organised crime. This investigation, led by the EPPO in 2024, into suspected carousel fraud connected to Italian organized crime resulted in 43 arrest warrants and a freezing order of €520 million. In Italy alone, authorities froze 129 bank accounts and seized 44 luxury cars and boats, together with 192 real estate properties.
Silk Road
The Silk Road operation illustrates the vulnerability of customs procedures to abuse. Acting with Europol's support, authorities carried out searches at several locations in Belgium and arrested four suspects believed to be part of a so-called CP42 fraud ring. Goods were imported through Liège airport free of VAT under the pretence that they were destined for another Member State; the scheme is thought to have resulted in up to €310 million in evaded taxes and duties.
Concerns about coordination and efficiency
The involvement of many stakeholders in the fight against fraud has nonetheless raised important questions about the efficiency and coherence of their combined efforts. Commissioner for Budget, Anti-Fraud and Public Administration Piotr Serafin has been tasked with leading a review of the overall anti-fraud architecture. During his confirmation hearing before the European Parliament, he pointed to ongoing and forthcoming evaluations of various anti-fraud bodies, the outcomes of which may bring changes designed to enhance synergies and streamline operational frameworks. Serafin emphasised the need to strengthen cooperation and complementarity between the European Anti-Fraud Office (OLAF) and the EPPO. A revision of Council Regulation (EU) No 904/2010 on administrative cooperation in the field of VAT, scheduled for the first quarter of 2025, is expected to reinforce Eurofisc's capabilities and improve its cooperation and information exchange with other anti-fraud bodies.
Innovations in technology
The development and adoption of new digital tools have substantially transformed the fight against VAT fraud. Advanced technologies now support the analysis of VAT data, the visualisation of supply chains and real-time fraud detection, and their effectiveness is likely to grow in the coming years. Following the Council's endorsement of the VAT in the Digital Age package, the introduction of an EU-wide Detailed Reporting Requirement (DRR) by 2030 marks a pivotal step in addressing Missing Trader Intra-Community (MTIC) fraud. Several Member States are already operating, or preparing to introduce, national equivalents for domestic transactions, which should further curb a range of fraud types.
Challenges ahead
These advances are not without cost. The extensive data reported and collected under the DRR will demand significant time and resources from both tax administrations and businesses. The VAT Expert Group, a stakeholder body advising the European Commission, has cautioned that the requirement could generate excessive data-clarification requests for compliant businesses and has urged the Commission to develop a set of guiding principles for Member States on the use, collection, and security of DRR data.
The dynamic and complex nature of the VAT system poses a further challenge. As new goods and services emerge in an increasingly digital and globalised economy, fresh opportunities for fraudsters are likely to arise. Policymakers and authorities must therefore remain vigilant in addressing these evolving risks if they are to sustain their progress against VAT fraud.
Conclusion
Significant strides have been made in the fight against VAT fraud, but the road ahead remains demanding and calls for sustained commitment and innovation. By deepening cooperation, embracing technological advances and staying alert to the evolving tactics of fraudsters, the EU and its Member States can strengthen their defences and continue to protect public finances from VAT fraud.
Frequently asked questions
Why is VAT fraud a priority for the European Union?
VAT fraud causes substantial losses of public revenue and is frequently linked to organised crime, which makes it a top revenue-protection priority for EU Member States and the European Commission.
How did Italy reduce its VAT gap?
In 2019 Italy introduced the Sistema di Interscambio (SDI), a mandatory business-to-business e-invoicing and clearance system that gives tax authorities a near real-time view of transactions. Italy's VAT gap fell from about €35 billion in 2018 to €16 billion in 2022, a reduction widely associated with the SDI's introduction.
What was the Admiral investigation?
Admiral is an EU-wide investigation led by the European Public Prosecutor's Office (EPPO) that uncovered the largest VAT carousel fraud network ever identified in the EU. The initial case was valued at €2.2 billion; later phases raised the estimated damage to roughly €2.9 billion.
What is Missing Trader Intra-Community (MTIC) or carousel fraud?
MTIC, or carousel, fraud exploits cross-border EU trade: a trader imports goods VAT-free from another Member State, sells them domestically while charging VAT, then disappears without remitting that VAT to the tax authority. The goods may be re-traded in a loop, multiplying the loss.
What is the EU Detailed Reporting Requirement (DRR) and when does it apply?
The Detailed Reporting Requirement is an EU-wide digital reporting and e-invoicing obligation for intra-EU transactions, agreed under the VAT in the Digital Age package and due by 2030. It is designed mainly to combat MTIC fraud.
What challenges remain in the fight against VAT fraud?
Key challenges include the compliance burden and cost of DRR data for tax administrations and businesses, the need for clear rules on the use and security of that data, better coordination between EU anti-fraud bodies, and the constant emergence of new fraud tactics in a digital, globalised economy.
Key terms
- VAT gap
- The difference between the VAT revenue expected in theory and the amount actually collected; a common proxy for the scale of fraud, evasion and non-compliance.
- Carousel / MTIC fraud
- A scheme exploiting VAT-free intra-EU trade in which a trader charges VAT, then vanishes without paying it to the authorities.
- Detailed Reporting Requirement (DRR)
- An EU-wide digital reporting and e-invoicing obligation for intra-EU transactions, due by 2030 under the VAT in the Digital Age package.
- EPPO
- The European Public Prosecutor's Office, which investigates and prosecutes crimes against the EU budget, including major VAT fraud.
- OLAF
- The European Anti-Fraud Office, the Commission body that investigates fraud against the EU budget.
- Eurofisc
- A network for the swift exchange of targeted VAT information between Member States.
- CP42
- A customs procedure allowing VAT-free import of goods intended for another Member State, which can be abused to evade VAT.
Disclaimer: This article is for general information only and is not tax, legal or financial advice. Tax rules differ by jurisdiction and change frequently. Consult a qualified professional about your organisation’s specific circumstances.
