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New report highlights VAT as a major barrier to the EU single market

Author: Published on: Published in: News and Insights

A new report from the European Parliamentary Research Service (EPRS) has once again drawn attention to a long-standing issue: tax fragmentation remains a significant obstacle to the EU Single Market.

The report, titled “Tax obstacles in the single market”, was published in January 2026 and provides a comprehensive overview of the current state of tax barriers across the EU.

While the Single Market has made substantial progress over the years, the report confirms that tax systems remain fragmented and that these differences continue to create real challenges for businesses operating across borders.

What the new report finds

The central conclusion is straightforward: tax fragmentation undermines the functioning of the Single Market, not only through different tax rates, but through administrative complexity, divergent procedures, and legal uncertainty.

The report notes that “tax obstacles” are not limited to explicit discrimination. Instead, they also include:

  • Legal uncertainty across jurisdictions
  • Duplicative reporting requirements
  • Different interactions with tax authorities
  • Divergent interpretations of EU rules

These factors can increase costs, delay operations, and create uncertainty for businesses seeking to expand across the EU.

VAT remains the most frequently reported barrier

Perhaps the most notable finding in the new report is that VAT is still the most commonly reported tax obstacle in the single market, even though the EU has a harmonised VAT framework.

The reason is not that VAT rules are fundamentally different, it is that administrative procedures vary significantly between member states.

For example:

  • VAT registration processes differ by country
  • Documentation requirements and reporting formats vary
  • Some systems remain manual or fragmented, increasing compliance burden

The report makes clear that these administrative differences create tangible barriers for companies that operate across multiple EU countries.

VAT fragmentation in a digitalising tax environment

The forthcoming expansion of the One-Stop Shop under the VAT in the Digital Age (ViDA) was highlighted as an important step toward simplification within the report.

However, it also notes that these measures do not fully resolve the underlying fragmentation. In many cases, businesses still face the need to comply with national procedures, particularly for VAT refunds and cross-border registrations.

This means that while digitalisation may reduce some burdens, it does not eliminate the structural differences that drive VAT complexity.

What this means for businesses

These findings highlight a key reality for companies operating in Europe:

VAT complexity isn’t just about ticking compliance boxes – it affects how businesses operate and grow.

As VAT rules continue to evolve, businesses increasingly need solutions that can handle VAT determination accurately and consistently across multiple jurisdictions.

This is where automated tax solutions play an important role. Tools such as inFlyte™, which utilises Oracle’s native tax engine, help businesses apply the correct VAT treatment across different countries automatically, based on local legislation and transaction data.

With pre-built tax content for 165+ countries, inFlyte™ can:

  • Reduce reliance on manual VAT decision-making
  • Improve consistency across jurisdictions
  • Lower compliance risk
  • Support scalable cross-border growth

In the context of the issues highlighted by the new EPRS report, this kind of automation directly addresses one of the most persistent VAT pain points: the administrative complexity of operating in multiple EU countries.

You can find out more about inFlyte™ here.

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