EU VAT Obstacles in the Single Market Explained

The European Parliament published a document outlining the key tax obstacles in the EU single market, including the VAT-related issues. Some of the main issues highlighted in the document include tax fragmentation across EU countries and the lack of harmonization, which create legal uncertainty and increased administrative burdens for businesses, particularly for cross-border transactions.

Key EU VAT Obstacles

As stated in the document, regarding the cross-border trade, a tax obstacle should be understood in a broad sense, extending beyond overt discrimination to encompass any fiscal or administrative friction that hinders activity across EU countries. These obstacles include legal uncertainty, complex or fragmented reporting systems, the need to engage with multiple Tax Authorities, and differing interpretations of the same EU rules.

Even where EU law establishes a shared framework, tax-related barriers remain widespread. A clear example of this is the VAT system. Despite harmonization under the EU VAT Directive, VAT was identified as the most frequently reported tax obstacle across the single market in the Commission’s 2025 Single Market and Competitiveness Report.

The most notable challenge for businesses is registering for VAT in other EU countries. Although core VAT principles are largely aligned across the EU, the associated administrative procedures remain fragmented and inconsistent, creating practical difficulties for cross-border businesses.

Moreover, VAT registration procedures differ considerably across EU countries, with varying requirements for documentation, levels of digitalization, and processing times. Although the upcoming expansion of the VAT One-Stop Shop (OSS) under the VAT in the Digital Age package is expected to substantially reduce the need for multiple VAT registrations, businesses conducting activities outside the scope of the OSS may still need to, or opt to, register for VAT in multiple EU countries.

Conclusion

The document highlights the key tax obstacles in the EU, noting that the European Commission plans to present an omnibus tax package in the second quarter of 2026, alongside a recast of the Directive on Administrative Cooperation (DAC), with a focus on reducing costs, fragmentation, and legal uncertainty. However, the European Parliament will not stop exploring these issues and will address these ongoing challenges at the European Parliament’s Subcommittee on Tax Matters (FISC) on January 27.

Source: European Parliamentary Research Service - Tax obstacles in the single market