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The European Commission (EC) released its first Mind the Gap Report on 11 December, building on the experience gained from VAT gap reports and extending it to direct taxation. It offers a comprehensive assessment of tax gaps in the EU and its 27 Member States. The report provides estimates of tax compliance gaps, which amounted to hundreds of billions of euros in 2023.
The Mind the Gap report is built around two technical reports estimating tax gaps for VAT and Corporate Income Tax (CIT). According to the latest available data, estimates of the VAT compliance tax gap alone amount to 128 billion EUR in 2023, while up to 11% of CIT remains under-collected.
The findings provide critical insights into tax compliance challenges and policy choices, which impact fiscal sustainability and competitiveness. They distinguish between tax gaps that emerge due to taxpayer non-compliance, such as tax evasion and avoidance, and policy choices, namely tax expenditures such as tax reliefs or concessions. The EC highlights that efforts to address compliance gaps should focus on minimising these gaps.
Where policy-related gaps are concerned, the reports highlight the need for regular and transparent frameworks to ensure that measures are both proportionate and effective in achieving overarching policy objectives. The reports also detail practical strategies throughout the EU, highlighting each country’s strengths and areas that need improvement.
Addressing tax gaps requires action in various priority areas, including enhancing tax administrations through skill development and data utilisation and review past policy choices to ensure that measures remain efficient and well-targeted.
In its December infringements package, the EC announced the opening of a tax-related infringement procedure against Luxembourg. The EC has sent a letter of formal notice, citing Luxembourg’s failure to abolish a tax regime that discriminates against dividends from public investments made by other EU and EEA Member States, as well as their public entities.
Under the current rules, dividends distributed by Luxembourg-based companies to the State of Luxembourg and its public entities are exempt from a 15% withholding tax. By contrast, dividends distributed to other EU and EEA Member States and their public entities remain subject to this withholding tax. According to the EC, this unequal treatment results in a discrimination of public investments from other EU or EEA Member States in companies of Luxembourg and infringes the principle of free movement of capital laid down in the EU treaties.
Luxembourg now has two months to respond and address the shortcomings raised by the EC. In the absence of a satisfactory response, the EC may decide to issue a reasoned opinion.
The European Parliament (EP) has published a new study that examines how fragmented tax rules in the EU could create economic and administrative costs in taxation. Since tax policy remains largely national, differences in design and enforcement could weaken the single market and limit fair competition.
The study focuses on four key areas: wealth taxation, crypto assets taxation, digitalisation of tax administration, and tax compliance burdens.
It finds that divergent wealth and inheritance taxes could allow arbitrage and legal uncertainty. In the area of crypto assets, Inconsistent tax rules and reporting standards increase the risk of revenue losses and unequal treatment. Uneven progress in the digitalisation of tax administrations also leads to disparities in enforcement capacity. Finally, complex and non-aligned procedures impose disproportionate costs, particularly on SMEs and cross-border firms.
The study shows that targeted EU-level coordination, such as common definitions, interoperable reporting systems and minimum administrative standards, could raise revenue, reduce compliance and enforcement costs, and support a more integrated and equitable internal market.
The EP’s FISC Committee held a hearing on 11 December on the taxation of high net worth individuals (HNWIs). It brought together a panel of policy-makers and experts to discuss solutions and possible ways forward, in dialogue with FISC MEPs.
During the hearing, the EC DG TAXUD’s Director Benjamin Angel warned that national wealth taxes may struggle within the EU’s Single Market due to mobility of people and capital, arguing that only a coordinated global system with stronger automatic information exchange could make wealth taxation feasible and effective.
Mr. Angel also argued that HNWIs rarely have themselves the knowledge for tax optimisation, and pointed that in the US and the UK there are strict rules in place to curtail tax advisors’ aggressive tax planning practices. He noted that EU does not have comparable measures for advisors, but that this would be important in the equation. “If we discipline those who have the capacity and knowledge to devise these structures, we can reduce aggressive practices”, Mr. Angel concluded.
Kurt Van Dender from the OECD highlighted that HNWIs face lower effective tax burdens because capital income is lightly taxed and easily planned around, and stressed the need to strengthen capital gains taxation and tailor policies to national contexts while improving tax progressivity.
EU Tax Observatory’s Director Gabriel Zucman, for his part, argued that Europe’s ultra-rich pay far lower effective tax rates, advocating for an EU-level minimum tax rate of 2% on individuals over EUR 100 million in wealth, supported by anti-avoidance rules and improved transparency to ensure fairness. Dr. Michael Christl, Research Fellow at Tax Foundation Europe, contended that previous European wealth taxes failed due to low revenues, high avoidance, and negative economic effects, therefore urging policymakers to reform income tax systems, reduce exemptions and prioritise simpler, more enforceable tax bases.
EU finance ministers agreed on a temporary measure introducing a customs duty to the influx of small parcels entering the EU. From 1 July 2026, a fixed customs duty of EUR 3 will apply to parcels valued at less than EUR 150 entering the EU.
The duty will be levied per type of item in a consignment, based on the relevant tariff heading. The measure responds to concerns that the current duty-free treatment of such parcels leads to unfair competition for EU sellers, poses health and safety risks to consumers, facilitates fraud and raises environmental concerns. It will stay in place until the permanent arrangement for such parcels, agreed in November 2025, enters into force.
In addition, ministers approved the bi-annual ECOFIN report to the European Council on tax issues, which gives a solid overview of the Council’s progress on EU tax legislation in the last 6 months. The ministers also adopted Conclusions on the progress achieved by the Code of Conduct Group for business taxation.
The OECD’s latest edition of Revenue Statistics provides final data on tax revenues in OECD countries for 2023 and preliminary data for 2024, a year in which short- and long-term spending pressures prompted several OECD countries to introduce measures to increase revenues.
In 2024, the average tax-to-GDP ratio of OECD countries increased by 0.3 percentage points (p.p.) to 34.1%. This was the first annual increase since 2021 and elevated the average tax-to-GDP ratio for the 38 countries included in the report to its highest recorded level.
European Commission
Summary report of stakeholder feedback on VAT for travel and tourism
European Parliament
Mission report of FISC Committee delegation to Washington
European Commission
New delegated regulation outlines list of data on VAT returns for goods exports and imports for national statistical authorities
European Parliament
Briefing document on taxation of “ultra-high-net-worth individuals”
European Commission
Innovation-friendly taxation of multinational enterprises: patents in the context of growth and taxes
Council
Overview of tax elements in ongoing non-tax EU legislation
