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On 21 March, the European Court of Auditors (ECA) published its Special Report 08/2025, focusing on VAT fraud on imports through simplified customs procedures, namely customs procedure 42 (CP42) and the Import One Stop Shop (IOSS). The report concludes that the EU’s financial interests are insufficiently protected under the current framework, revealing systemic weaknesses in legislation, enforcement, and cooperation among Member States and EU institutions.

The ECA found significant loopholes and inconsistencies in the EU regulatory framework, including divergent penalties and the absence of harmonised rules for tax representatives under CP42.

Member States apply varying standards for invalidating VAT identification numbers, which hampers the effectiveness of the VAT Information Exchange System (VIES). Furthermore, controls at national level are inadequate, with many Member States failing to verify whether goods under CP42 are actually moved to another Member State, or to detect IOSS abuse in low-value e-commerce consignments.

The audit revealed a lack of post-release customs checks, minimal use of transport evidence, and poor cross-checking between customs and tax data. Notably, the ECA identified several cases of undeclared or under-declared VAT, indicating potential fraud and significant revenue losses. The report calls for legislative revisions, including harmonised rules for tax representatives, standardised procedures for invalidating VAT numbers, and enhanced powers for Eurofisc. It also urges systematic verification of transport evidence and direct cooperation between Member States’ customs and tax administrations.

In response, the European Commission welcomed the report, recognising its value in shaping future reforms. DG TAXUD underlined the need for consistent application of EU rules and confirmed that the Commission is already acting on several of the ECA’s recommendations, notably through the VAT in the Digital Age (ViDA) package and the proposed reform of the EU Customs Code.

The Commission stated its commitment to improving monitoring mechanisms, strengthening cooperation between Member States, and enhancing the use of digital tools to combat VAT fraud. It acknowledged that fraud undermines both national budgets and the integrity of the Single Market and confirmed its intention to further analyse the IOSS scheme, as proposed in the ECA’s recommendations. With legislative proposals expected to address many of the identified issues by 2028, the Commission’s response signals a clear intent to close the gap between trade facilitation and fraud prevention.