Tackling the EU VAT gap: How authorities are uncovering more fraudulent transactions than ever before

The statistics also disclose a remarkable rise in the cases of VAT fraud being picked up on by authorities.

In 2023, a total of 12.7 billion fraudulent or suspicious transactions were uncovered in the EU; up from 10.8 billion a year earlier, 8.1 billion in 2021 and just 3.3 billion in 2020.

The rise of digitalisation

As we wrote about last year, the way businesses must manage tax has been transformed by increased digitalisation in recent years; whether it’s e-invoicingElectronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing., SAF-TSAF-T (Standard Audit File for Tax) is a file type based on the XML standard. It is created in a standard readable format from data exports taken from accounting records. SAF-T is used internationally to ensure the fast and secure digital transfer of tax information. It is known for its high level of security, ability to simplify the collection of tax data and simple readability due to its standardised format., real-time reporting or any other electronic mandate.

But it’s not only companies for which the era of tax digitalisation offers new opportunities to manage and scrutinise data in real time.

Tax authorities are increasingly harnessing digital methods to access taxpayer data, analyse records more closely and act quickly in cases where fraud is suspected. By mandating the sharing of tax data via digital platforms, authorities can clamp down on suspicious activities and ultimately ensure a far greater proportion of VAT fraud is identified and punished.

All of this is done with the objective of closing the VAT gapThe difference between the amount of VAT revenue due to a tax authority and the amount actually collected, which in 2021 stood at €61 billion in the EU alone.

What does this mean for businesses seeking to comply with VAT laws?

Business owners and tax professionals must be aware that any instances of non-compliance are now highly likely to be brought to the attention of tax authorities.

Gone are the days of authorities manually checking paper invoices and VAT returns; instead, complex data systems can run processes around the clock to seize upon any data that potentially contains inaccuracies, gaps or deliberate fraud.

What’s more, those systems are able to scrutinise not only real-time data and the most recent submissions, they can also be leveraged to process historic documents.

As a tax professional, you might think that data has a relatively limited lifespan. In fact, many people don’t know what to do with most of their legacy data and often view it as an inconvenience.

But in the era of digitalisation, these dead, unused data from years gone by have the potential to transform into data zombies; causing all manner of problems as they are dug up from the grave by emboldened tax authorities utilising the latest technology.

The only way to protect a business now and in the future is to ensure the data filed in tax returns and other documentation is wholly accurate and contains a digital link from the final report back to the source.