Changes from report parliamentary committee draft to plenary report

F. whereas in 2023 the VAT revenue-to-GDP ratio amounted to 7.1 % of EU GDP and 18.3 % of total government revenue;

Change 2

ChangedD.G. whereas according to the Commission, in 2022 the EU VAT compliance gap alone amounted to EUR 89.3 billionbillion, inor 2022around 7 % of the total expected VAT revenue; whereas according to estimates, one quarter of the Commission;VAT compliance gap is directly linked to criminal VAT fraud;

H. whereas Member States differ in their reliance on taxation, in the taxes they levy to collect these revenues and how they have changed their tax mix over the past decade;

Change 3

RemovedF. whereas Draghi’s comprehensive report on the European Union’s economic situation warns about the EU’s declining productivity and competitiveness, and that, without decisive action, the EU faces a ‘slow and agonising decline’, also underscoring the necessity for coordinated policies, reducing bureaucratic hurdles to enhance competitiveness and identifying and eliminating unnecessary rules, also in the area of taxation;

AddedI. whereas tax compliance costs impose an additional financial burden on companies, which accumulates on top of the tax liability itself, diverting time and resources from other investment opportunities;

AddedJ. whereas according to estimates, the total tax compliance costs in the 27 EU Member States plus the UK are estimated at EUR 204 billion, equating to 1.3 % of their combined GDP; whereas micro-enterprises bear the overwhelming majority of these costs (87 %), followed by small businesses (10 %), placing a disproportionate administrative burden on smaller companies;

AddedK. whereas the Member States face major challenges that could impact their tax revenues and tax mix such as significant demographic changes, climate change, digitalisation and automation;

AddedL. whereas according to the Treaties, taxation is primarily a national competence of the Member States;

AddedM. whereas growing capital mobility, along with the broader trends of globalisation and digitalisation over recent decades, has had the unintentional impact of progressively diminishing the capacity of individual countries to ensure the effectiveness of their tax policies;

AddedN. whereas the 2022 Commission study estimated that in 2019, businesses within the then 28 Member States of the EU incurred, on average, an annual tax compliance cost equivalent to 1.9 % of their turnover; whereas among the various taxes, businesses regarded VAT and corporate tax as those with the highest compliance burden;

AddedO. whereas Draghi’s comprehensive report on the EU’s economic situation warns about the EU’s declining productivity and competitiveness, and it was stated that, without decisive action, the EU faces a ‘slow and agonising decline’, also underscoring the necessity of coordinated policies – including, for example, eliminating unnecessary barriers and reducing bureaucratic taxation-related hurdles;

AddedP. whereas tax policy fragmentation and overly complicated tax policy design create various obstacles for companies and citizens in the single market, such as legal uncertainty, red tape, risk of double taxation and difficulties claiming tax refunds; whereas such barriers discourage cross-border economic activity in the single market and create risks for tax authorities, such as double non-taxation and opportunities for tax arbitrage; whereas Draghi’s comprehensive report also highlights the need to ‘eliminate any taxation obstacles to cross-border investing in the EU’ to reduce capital market fragmentation and stresses that ‘EU citizens should be able to invest in other Member States without complex taxation procedures, effectively resulting in double taxation’;

AddedQ. whereas the Letta report highlights that tax fragmentation remains a major barrier for EU businesses and small and medium-sized enterprises (SMEs) in particular, and that better alignment through cooperation on an EU tax framework is key to facilitating the free movement of workers, goods and services and in supporting growth and private investment; whereas robust and fair taxation is a key instrument in generating the revenues necessary to invest in and maintain services of general interest across all regions of the EU;

Taxation and the business environment

Change 4

Changed1. Emphasises that simple and predictable tax rules should make it easier for taxpayers to pay their taxes and for governments to administer and collect revenue; highlights the need to create a compliance-friendly and business-supportive European Union,EU, where productive sectors can compete and thrive and workers can earn a goodfair income;wage while supporting the twin transition; stresses that overly complex taxation rules risk deterring investment, while also noting that tax policy design should avoid distorting economic actors’ decision-making;

Change 5

Removed2. Stresses that the EU tax system should uphold the principles of subsidiarity and proportionality, and that Member States retain the right to tailor their tax systems to their specific national needs, while adhering to common standards and ensuring the efficient use of revenues;

Added2. Is deeply concerned by the threat to EU tax sovereignty expressed in the US President’s statements of 2 April 2025 on VAT in EU Member States, as part of the justification for imposing tariffs on imports to the US from the EU; emphasises that trade wars undermine businesses and urges the Commission and the Member States to limit the corresponding trade turmoil and consult European stakeholders when making decisions in response to such tariffs;

Removed3. Notes that European companies, particularly small and medium-sized enterprises (SMEs), are key drivers of economic growth and job creation across the continent; recalls that SMEs face significant fiscal challenges on account of complex tax regulations and fragmented tax systems, which impose high administrative burdens and compliance costs, hindering their growth and innovation; urges the Commission to explore solutions that simplify tax procedures and reduce compliance costs;

Added3. Stresses, as stated in the Draghi report, that divergent tax rules across the EU are a significant hurdle to achieving a true single market; acknowledges that the EU tax framework must strictly uphold the principles of subsidiarity and proportionality, as well as cooperation, to reduce compliance costs for businesses; emphasises that the Member States have the right to tailor their tax systems to their specific national needs, while adhering to common standards, and coordinating efforts to combat tax fraud and evasion, ensure timely information exchange and promote a level playing field; believes that these outcomes can be achieved, specifically, by striking a balance between respect for national competences and ensuring consistent interpretation;

Added4. Stresses that, aside from harmonisation efforts, substantial progress can be achieved in simplifying tax compliance and eliminating administrative hurdles in the internal market through common implementation tools– for example, standardised templates for data gathering and reporting, guidance from the Commission, and dialogue and exchange of best practices between the Member States;

Added5. Notes that EU companies, particularly SMEs, are key drivers of economic growth and job creation across the continent; recalls that SMEs face significant fiscal challenges on account of complex tax regulations and fragmented tax systems, which impose high administrative burdens and compliance costs, with SME compliance costs estimated at around 30 % of taxes paid compared with about 2 % for large companies, hindering their growth and innovation; urges the Commission to assess the impact on SMEs of current and future proposals, and explore solutions that simplify tax procedures and reduce compliance costs, in strict cooperation with the national tax authorities; calls, furthermore, on the Commission to assess why the proposed directive establishing a Head Office Tax system for SMEs has not gained traction in the Council and asks for concrete progress and feasible solutions to advance on this; calls for the development of a comprehensive, user-friendly toolkit for SMEs and start-ups, including guidelines, templates and automated tax filing options for VAT, corporate tax, payroll and other obligations, freely available and regularly updated;

Added6. Takes note of the Draghi report on sector-specific taxation proposals, specifically the recommendations on lowering the cost of electricity consumption without undermining the EU’s competitiveness, deterring investment, damaging job creation or weakening business confidence; in this respect, acknowledges the EU finance ministers’ informal reflections of January 2025 on high energy prices and their prioritisation; takes into account the ongoing work on the revision of the Energy Taxation Directive, highlighting the importance of climate ambitions, current economic realities, high energy prices and connectivity needs;

Competitiveness and economic growth

Change 6

Removed4. Welcomes the European Council conclusions on the New European Competitiveness Deal; regrets, in this regard, the omission of the field of taxation as a key factor in improving Europe’s competitiveness; calls for better tax cooperation within the EU, reducing fragmentation and complexity while fostering greater cooperation and trust among Member States to enhance the competitiveness of the European economy;

Added7. Highlights that competitiveness is a broad term, which refers to rate of productivity that is able to drive sustainable growth and, consequently, income and welfare for all; stresses that a competitive economy is not merely business-friendly, but rather one that delivers high levels of employment and social welfare, provides innovation capability, adequate educational opportunities and infrastructure, and strong institutions and rule of law standards; acknowledges that efficient and effective taxation – including measures to curb harmful tax competition and a race to the bottom, in terms of tax rates – is critical, in order to generate the public resources needed for sustained public and private investment that will enhance the EU’s competitiveness, social and economic cohesion, and growth;

Removed5. Welcomes the European Council conclusions on tax decluttering and simplification; stresses that future EU initiatives on taxation should focus on administrative simplification, elimination (where relevant) of overlapping tax rules, increasing clarity and streamlining the application of tax rules;

Added8. Welcomes the European Council conclusions on the New European Competitiveness Deal; regrets, in this regard, the omission of the field of taxation in improving Europe’s competitiveness; calls for better tax cooperation within the EU, reducing fragmentation and complexity while fostering greater cooperation and trust among Member States as this is essential to enhance the competitiveness of the European economy;

Added9. Calls on the Commission and the Member States to agree on a coordinated approach to enhance the transparency of government tax expenditure, to ensure that it is producing the desired policy goals in line with EU common objectives and priorities in a cost-effective way, has no unexpected or negative impacts on the internal market, and does not offer opportunities for tax evasion and aggressive tax planning;

Added10. Welcomes the European Council conclusions on tax decluttering and simplification; stresses that future EU initiatives on taxation should focus with priority on administrative simplification, elimination (where relevant) of overlapping tax rules, increasing clarity and streamlining the application of tax rules, and addressing identified divergences or inefficiencies that may affect the functioning of the single market; stresses that the Commission should facilitate and encourage more robust cooperation between the Member States and national tax administrations to enable more consistent interpretation of direct and indirect tax legislation;

Added11. Takes note of the research done by the Commission’s Joint Research Centre in 2022, which finds that revenues to local budgets from taxes on local economic activities can work as an incentive for municipalities to act locally and boost local economic activities; calls on the Commission, in this regard, to intensify this research and engage in mutual learning exercises with the Member States to encourage municipalities to take care of their businesses, thereby unleashing untapped potential for more economic growth across the EU;

Added12. Stresses that well designed and justified tax incentives with economic substance and socio-economic benefits can support economic activities that advance public goals, including peripheral and otherwise geographically disadvantaged areas in the EU; notes that tax incentives should not only comply with the Treaties and constraints relating to fiscal space, but should also not lead to internal market fragmentation, and calls for a set of tools to ensure dialogue, transparency and coordination between the Member States on tax incentives; welcomes the Commission’s intention to issue non-binding guidelines on tax incentives and calls for a further study on the effect of the implementation of the OECD’s Pillar Two rules on tax incentives and issue recommendations to ensure their effectiveness within the Pillar Two framework; underlines the importance of ensuring that tax incentives remain consistent with the EU State aid framework; recalls the EU’s climate change commitments and Parliament’s continued support for these targets, and urges the Commission and the Member States to coordinate efforts and consider the potential benefits of tax incentives for green investments;

Added13. Recalls that several legislative initiatives in the field of taxation are not moving forward; underlines, in this regard, the need to provide legal certainty and predictability to EU businesses; takes note of the Commission’s clarifications on which initiatives are to be withdrawn in the field of taxation;

Tax simplification and digitalisation

Change 7

Changed6.14. Recalls the Commission’s priority to ensure business simplification across all policies, including taxation,taxation within its competences, with the goal of reducing reporting requirements by at least 25 % (and for SMEs by at least 35 %); calls, in this respect, on the CommissionCommission, in close and continuous dialogue with the Member States, to systematically conduct ex ante impact assessments of all new tax-related legislative proposals, as well as a competitiveness check on current measuresmeasures, to quantify the expected reduction in administrative burdens and ensure that new rules align with the EU’s economic growthgrowth, and green and digital transition objectives;

Change 8

Removed7. Recalls that simple, stable and predictable tax rules are essential for a competitive economy; calls on the Commission to guide all the Member States towards a simplified tax system to reduce the administrative burden for companies; acknowledges that tax certainty, simplifying refund procedures and deductions are key solutions to reduce the administrative burden, especially for SMEs;

Added15. Urges the Commission to identify and eliminate all instances of duplicate reporting and establish a system for efficient data-sharing between tax administrations, thereby relieving taxpayers of double reporting obligations; notes that, in this context, simple gains could be made, such as amending Directive (EU) 2021/2101 on public country-by-country reporting to grant equivalence of the EU rules with the Global Reporting Initiative’s 207 reporting standard for tax; calls on the Commission to assess the merits of such equivalence;

Change 9

Changed8.16. UnderlinesCalls theon potentialthe ofCommission digitalisation,and especiallythe artificialMember intelligence,States to reduce administrative burdens andstreamline compliancetax costsobligations for companies, particularlythe SMEs;defence urgesindustry, theby Commissionexpanding and thesimplifying MemberVAT Statesexemptions tofor promoteprocurement in the digitalisationcontext andof simplificationjoint ofEU taxdefence administration;initiatives;

Change 10

Removed9. Calls on the Commission to assess and simplify the current VAT framework, to reduce administrative burdens, enhance competitiveness and reduce the gap between expected revenue and the amount actually collected (VAT gap);

Added17. Calls for the establishment of an EU Tax Data Hub to improve the automatic exchange of tax information and reduce administrative burdens; encourages the Commission and the Member States to build on existing tools, such as the VAT Information Exchange System (VIES) and the Excise Movement and Control System (EMCS), and explore extending their application to areas such as direct taxation; emphasises that such a hub should enable joint analysis of information relevant to the control process of taxation with a cross-border component, prevent duplication and serve as a single access point for tax administrations across the EU;

Removed10. Reiterates Parliament’s position on HOT, DEBRA and FASTER; takes note of the ongoing discussions on the BEFIT proposal;

Added18. Highlights the key role electronic invoicing can play in enhancing transparency, reducing administrative burdens, and enabling the practical and efficient use of reported data;

RemovedOECD Pillars 1 and 2 and international taxation

Added19. Recalls that in the absence of robust reporting, tax administrations would lack the basic information necessary to detect, investigate and prevent abusive tax practices; underlines that access to timely and comprehensive tax data is essential for safeguarding the fairness of tax systems and protecting public revenues;

Removed11. Reiterates the EU’s commitment to the implementation of the OECD Pillar II agreement, while taking into account the current situation regarding Pillar II rules, including the recent Executive Order issued by the US President on 20 January 2025 declaring that the OECD Global Tax Deal has no force and effect in the United States; urges the Commission to inform Parliament of contingency plans and take prompt, targeted action to protect EU interests and prevent retaliatory measures;

Added20. Recognises that to justify the costs of compliance with reporting requirements, there is a need for well-resourced and efficient tax administrations, equipped with adequately trained personnel and modern digital infrastructure; stresses the need to invest in the capacity of tax authorities to ensure that existing reporting obligations are used to their full potential;

Removed12. Stresses that Pillar 2 should ensure a global minimum level of taxation for multinational and large-scale domestic groups in the Union; welcomes its implementation into national law; calls for legal clarity in its implementation and expects the process of negotiating and publishing the administrative guidance to come to an end soon and provide companies falling under the scope of Pillar 2 with the necessary certainty; expects further developments with regard to the OECD permanent safe harbour;

Added21. Recalls that simple, stable and predictable tax rules are essential for a competitive economy and will contribute to the creation of jobs and economic growth; calls on the Commission to issue recommendations towards a simplified, competitive tax system to reduce the administrative burden for companies and citizens, where deemed appropriate, for example by streamlining the use of the Tax Identification Number across the Member States, and in the area of tax incentives; acknowledges that tax certainty, simplifying refund procedures and deductions are key solutions to reduce the administrative burden, especially for SMEs;

Removed13. Notes that over the past few years, the European Union has pursued an ambitious agenda to combat tax evasion and tax avoidance and has introduced a number of new provisions and reporting requirements (e.g. via ATAD); takes note of the Commission’s announcement that it will evaluate the Anti-Tax Avoidance Directive (ATAD) in light of Pillar II and present a comprehensive report on the measures in Q3 2025;

Added22. Notes the importance of tax simplification across the board; stresses the need to increase retail participation in capital markets by simplifying tax declaration procedures for savings and investment accounts, particularly when these accounts are accompanied by tax incentives; further notes the Commission’s pilot projects on cooperative compliance for businesses, which aim to reduce audits and improve dispute resolution for companies meeting high compliance standards;

Removed14. Acknowledges the publication by the OECD of the Multilateral Convention in October 2023, laying down the technical rules to implement Amount A of Pillar 1 and the ongoing negotiations;

Added23. Underlines the potential of digitalisation, especially artificial intelligence (AI), as a tool for reducing administrative burdens and compliance costs for companies, particularly SMEs, and for supporting VAT fraud detection, while still maintaining a human element for quality checks and to ensure safeguards against risks of discrimination; notes that digitalisation can also enhance public tax administration, provided that transparency and sufficient oversight of automated tax-related decision-making are guaranteed; urges the Commission and the Member States to advance digitalisation and simplification of tax administration, while enhancing cooperation, coordination and the exchange of best practices and know-how among national authorities, with the Commission acting as a facilitator;

Added24. Stresses that the Member States should allocate adequate human and financial resources for the implementation of any new tax legislation and the modernisation of tax administrations, particularly through investing in staffing, training, and integrated, interoperable IT systems and consultations with the private sector; calls on the Commission to enhance its support through the Fiscalis programme and to explore a dedicated EU funding programme to further support such investments;

Added25. Calls on the Commission to assess and simplify, within the limits of its competence and in close and continuous dialogue with the Member States, the current VAT framework, to reduce administrative burdens, including for businesses and community organisations, enhance competitiveness and reduce the gap between expected revenue and the amount actually collected (VAT gap); reiterates its call for a simplified and modernised VAT system with limits on exemptions and non-standard rates, aimed at promoting fair competition, reducing compliance costs and improving voluntary compliance; takes note of the VAT in the Digital Age (ViDA) package and calls on the Commission to issue clear and consistent guidelines to support the smooth implementation of Directive (EU) 2025/516, specifically regarding the EU Digital Reporting Requirement; highlights that the VAT compliance gap varies significantly between the Member States and welcomes the ViDA package as a tool to enhance transparency and reduce fraud; urges coordinated implementation at national level to ensure coherence and that the VAT One Stop Shop model is efficient and user-friendly, particularly for SMEs; calls for further reforms to facilitate electronic VAT registration for small businesses and to increase the digitalisation of VAT collection; calls on the Commission to build on and expand the VAT One Stop Shop for cross-border business-to-consumer e-commerce, with the aim of reducing administrative burden and compliance costs;

Added26. Notes the marked shift in purchasing behaviour in the past decade, with a surge in e-commerce during the COVID-19 pandemic that persists today; acknowledges that online purchases should contribute to greater VAT compliance due to the electronic audit trail, yet the Commission’s report on the 2024 VAT gap underlines that the correlation is not as clear due to the complexities arising from online sales; urges the Commission to assess whether the VAT acquis is fit for purpose, given the increasing popularity of e-commerce;

Added27. Calls for the improvement of Council Directive 2008/9/EC; underlines the importance of exploring the integration of cross-border VAT refunds into the One Stop Shop model, in order to further simplify VAT compliance for businesses engaged in cross-border trade, while ensuring alignment with existing VAT obligations across the Member States;

Added28. Calls for a consistent application of key concepts and the streamlining of definitions for a more effective VAT system, including, for example, the application of common interpretations for ‘goods installed and assembled’, as outlined in Article 36 of the VAT Directive, and the consistent application of definitions of permanent establishment and fixed or other establishments;

Added29. Highlights the need for a more sustainable and equitable VAT system with further consideration on how VAT rates can be utilised to achieve sustainability goals; suggests that the Commission assess whether VAT charges can be eliminated on goods supplied free of charge for social and environmental benefit;

Added30. Notes that while reduced VAT rates have a legitimate purpose in supporting the broad social and economic goals of the Member States, including support for the vulnerable members of society and for children, their broader application increases legal uncertainty and the complexity of the tax system; highlights that while reduced VAT rates can lead to a decrease in prices for the consumer, this is also dependent on other factors; considers, therefore, that a periodic review and assessment of which reduced VAT rates remain necessary and effective in achieving Member States’ intended policy goals will be useful in undertaking the simplification task;

Added31. Reiterates Parliament’s position on the proposed Head Office Tax system for SMEs, the proposed ‘Unshell’ directive and the proposed debt-equity bias reduction allowance (DEBRA);

Added32. Stresses that the complexity of, and discrepancies in, the interactions between different national tax systems can create an uneven playing field, and can have an adverse effect on the functioning of the internal market; emphasises that this can discourage cross-border investments, which can be particularly disadvantageous to SMEs and purely domestic businesses, who lack the resources to engage in complex tax planning schemes, and therefore face an unfair competitive environment that is not conducive to scaling-up;