The Elephant in the Regulatory Enforcement Room: EU VAT and Customs Fraud

The so-far subdued response to a jolting EU VAT fraud data point obscures what promises to be a forceful response from tax policymakers and regulatory enforcers.

The European Public Prosecutor’s Office (EPPO) is responsible for fighting crimes that harm the EU’s financial interests. In 2025 those crimes cost the EU a total of €67.27 billion, according to the EPPO’s recently released annual report. Here’s the eye-opening figure: more than two-thirds of those losses (€45.01 billion) stem from VAT and customs fraud, which directly affects one of the EU’s largest sources of revenue.

The Criminal Element

Organised crime syndicates gravitate to EU VAT and customs fraud because these scams are often low-risk, high-ROI endeavours.

“This explains why conventional criminal activities focusing on illegal goods (counterfeited goods, drugs, weapons, etc.), or on criminal exploitation of vulnerable people (exploitation of labour, prostitution, human trafficking) are increasingly combined with, or even replaced by, criminal activities related to the trading of legal goods, carried out using criminal modalities that cause massive damage to the financial interests of both the EU and its Member States,” according to a press release on the EPPO’s publication of its annual report. “These activities remain difficult to detect from a purely national perspective. The EPPO has recently observed an alarmingly high level of fraud orchestrated by large-scale organised crime groups, related to the import and sale of goods originating outside the EU.”

In addition to the sheer amount of EU revenue loss, the 2025 figure is especially alarming when compared to 2024, when criminal activity damaged the EU budget to the tune of €24.8 billion with more than half of that amount (€13.15 billion) caused by cross-border VAT fraud.

Taxation by Design

The tripling in volume of EU VAT fraud in the past 12 months has major implications for indirect tax leaders and their teams, who should keep in mind the following:

Regulators and enforcers will respond: When European VAT fraud soars, a regulatory tsunami is likely to follow. While the EPPO – which pursued 981 investigations of revenue fraud cases in 2025 (many of which remain active) – and other law enforcement bodies are intensifying their pursuit of criminals, the regulatory net will tighten on all parties, including businesses subject to e-invoicing mandates being deployed as part of the EU’s VAT in the Digital Age (ViDA) programme. The primary objective this massive overhaul is to modernise the VAT system to make it more resilient to fraud. While we remain in early days regarding ViDA rollouts and enforcements, the surge in cross-border VAT frauds means that policymakers are likely to tighten rules as they finalise and continue to recalibrate e-invoicing real-time reporting requirements. Tax groups should also expect enforcers to tighten their grip: adherence will be non-negotiable.

Batch reporting no longer cuts it: While tax and finance groups may be inclined to conduct more reporting in response to stricter e-invoicing enforcement, systems improvements represent a more effective and cost-efficient e-invoicing and real or near real time digital reporting strategy. Historically, tax reporting and related audits have been retrospective. That contrasts with embedding compliance upstream into automation solutions that can validate (and report on) each invoice via real-time or continuous transaction controls (CTC), where each invoice is validated or reported individually at or near the moment of issuance. This automation capability can help transform tax from a function that is looped in after the fact to a core part of the business that provides pre-transaction validation in support of overall business agility.

Increased EU VAT fraud ties to the tax automation business case: Rather than waiting to be subjected to new and stricter e-invoicing mandates and more rigorous regulatory oversight, tax leaders should consider leveraging EPPO data to reframe e-invoicing investments as both revenue protection and a critical business diligence tool. Robust tax validation strengthens internal “sniff tests,” helping protect the supply chain from fraudulent actors as governments respond to the €67 billion in damage to EU and national budgets.

In the meantime, it is now even more important for finance, IT and tax leaders to monitor changing e-invoicing rules and compliance timelines.

If you’d like to learn more about how Vertex can help, check out our global e-invoicing and real time reporting capabilities.