2025 ECOFIN Report Insights: EU VAT, IOSS, and Digital Rules

The latest ECOFIN report outlines the key VAT-related developments and highlights the progress made during the Danish Presidency of the Council. The ECOFIN report, based on discussions held in the Working Party on Tax Questions, addresses horizontal and strategically significant tax policy issues in accordance with its mandate. 

Some of the most notable achievements highlighted in the report include progress on revising the Energy Taxation Directive and the Tobacco Taxation Directive, as well as the adoption of the Directive that incentivises the use of the Import One-Stop Shop (IOSS).

Key VAT-Related Measures

According to the ECOFIN report, the adoption of the Directive on the incentivisation of the IOSS  is part of the broader Customs Union reform package. It represents a targeted adjustment to EU VAT rules for distance sales of imported goods. The measure adopted on July 18,  2025, is the result of a two-year legislative process aimed at improving the effectiveness and efficiency of VAT collection in cross-border e-commerce by encouraging online sellers and platforms to make greater use of the IOSS scheme.

Additionally, the EU VAT reform includes the removal of the EUR 150 threshold that has traditionally applied for customs and IOSS purposes. By abolishing the import threshold, the EU seeks to align VAT and customs rules more closely, ensuring that all imported goods, regardless of value, are subject to VAT reporting through the IOSS, thereby reducing opportunities for under-declaration and competitive distortions. 

While the matter was examined in detail during the Belgian and Hungarian Presidencies, the progress during the Danish Presidency was slowed by its close connection with the broader reform of the Union Customs Code. Furthermore, the reform of EU VAT and Customs rules includes extending the concept of distance sales of imported goods to cover supplies made from customs warehouses. This would allow these transactions to fall within the scope of the IOSS and benefit from adjusted customs control procedures. 

Nonetheless, several delegations expressed reservations, questioning whether the IOSS framework could effectively scale to cover these additional transactions and highlighting potential fraud risks, particularly because higher-value goods would increasingly be included under the scheme. 

The report also acknowledges that on March 11, the Council adopted the legislative acts forming the VAT in the Digital Age (ViDA) package, marking a significant step in modernising the EU VAT system. As noted in the report, this three-pillar package updates AT rules to better reflect the realities of digital transactions and strengthens administrative cooperation between tax authorities through enhanced digital enforcement tools and expanded data-sharing mechanisms.

Conclusion

Based on the report and the overall progress in reforming the EU VAT and Customs rules and regulations, 2025 brought many changes, some of which have already taken effect and others of which will be implemented in the coming years. Nevertheless, all these measures together aim to improve VAT compliance, reduce fraud, and ensure more effective taxation in an increasingly digital economy.

Source: Council of the European Union