Value-added tax (VAT) fraud is a persistent problem for the European Union, affecting the public finances of its Member States. In 2022, the European Commission estimated that losses due to this fraud amounted to 89 billion euros.

Among the main sources of this fraud are simplified customs procedures, such as customs regime 42 and the Import One-Stop Shop (IOSS), which, although intended to facilitate trade, are frequently misused.

A recent report by the European Court of Auditors highlights the system’s flaws and proposes necessary reforms to safeguard the EU’s financial interests.

Customs regime 42 allows goods imported into one EU Member State but intended for another to be exempt from VAT. While this procedure simplifies trade, it also carries fraud risks, as it enables certain operators to avoid declaring and paying VAT in the Member State of importation.

Similarly, the IOSS, which streamlines VAT collection for low-value online sales, is often misused through practices such as under-declaring prices or the fraudulent use of VAT identification numbers.

The Court of Auditors’ report points out several regulatory and technical shortcomings:

• Inadequate controls : Member States’ customs authorities do not systematically verify importers’ identities or the accuracy of declarations. Furthermore, cooperation among Member States remains weak, hindering the exchange of crucial information needed to detect fraud.
• Inconsistent sanctions: The enforcement of penalties varies significantly from one country to another, creating loopholes that fraudsters can exploit.
• Lack of post-release verifications: Although credibility checks exist, they are rarely conducted once goods have been released for free circulation, allowing them to avoid VAT undetected.

In response to these challenges, the Court of Auditors recommends several actions:

• Strengthen the harmonization of rules among Member States to ensure uniform application of controls and sanctions.
• Require proof of transport upon importation to prevent abuses of customs regime 42.
• Increase cooperation between customs and tax authorities, and reinforce Eurofisc’s role in combating cross-border fraud.

In conclusion, the report calls for a thorough revision of the regulatory framework and enhanced controls to safeguard the EU’s finances while facilitating trade. In light of increasing fraud risks, the EU must modernize its approach to maintain the integrity of the single market.