Avril McDowell, VAT Director, PwC Ireland: One of the main criticisms directed towards the EU VAT system is that it is fragmented, making it hard for business - particularly SMEs - to comply with the varying requirements. Efforts are being made to tackle the level of fragmentation within the EU VAT system, and one example of this is the introduction of the EU VAT SME scheme earlier this year. The aim of the scheme is to allow SMEs to trade in other Member States without having an automatic requirement to VAT register in said countries.

The threshold for this scheme is a total annual turnover of €100,000 ("the Union threshold") across the EU. It is difficult to envision a wide range of SMEs trading in multiple Member States who meet the Union threshold. In addition to this, there are domestic thresholds which can vary significantly from State to State.

As a temporary solution, the European Commission has published a table of National SME rules which sets out the domestic thresholds in each state.

In addition to the EU VAT SME scheme, there have been other efforts made to tackle the current fragmentation. VAT in the Digital Age (ViDA) is a proposal to modernise the EU’s VAT system through real time digital reporting, updating VAT rules for the platform economy and expanding upon the current OSS model to allow more businesses to fulfil their VAT obligations across the EU through a single portal in a Member State.

Furthermore, an e-invoicing mandate will come into effect for intra-EU B2B transactions from 1 July 2030 which will introduce a standardised EU-wide e-invoicing format, thereby reducing the administrative burden for businesses who may otherwise be required to deal with several different formats. In addition, from 1 July 2035, all unilaterally introduced domestic e-invoicing regimes will be required to conform with one single, standardised format.

As referenced above, many countries have unilaterally introduced e-invoicing regimes in advance of the EU-wide e-invoicing mandate under ViDA (effective July 2030). In Ireland, it was announced as part of Budget 2026 that there will be a phased implementation of e-invoicing for Irish businesses, beginning with "large corporates" in November 2028 and concluding with all VAT-registered Irish businesses engaged in intra-EU B2B trade by July 2030 (in line with ViDA).

Deirdre Barnicle, Partner, McCann FitzGerald: While VAT is one of the EU’s only common tax systems, its inconsistent implementation and burdensome administrative procedures have created compliance difficulties for both taxpayers and tax authorities across member states.

The EU is seeking to modernise and streamline the EU VAT framework through the Value-Added Tax in the Digital Age (ViDA) legislation, adopted in March of this year. The legislation aims to address the growing misalignment between the EU VAT system and the commercial realities of business today. The introduction of digitised reporting requirements and e-invoicing, as well as the expansion of the One-Stop Shop system, is intended to simplify VAT compliance for taxpayers and reduce fraud risk for the government.

In response to ViDA, the Minister for Finance announced in the Budget that the Revenue Commissioners will begin a phased roll-out of domestic electronic invoicing for business-to-business transactions. A paper setting out further detail on the initiative is to be published in the coming days.

In addition, the EU VAT SME scheme which came into effect in January 2025 works to reduce the administrative burden of cross-border trade for eligible SMEs. The scheme allows qualifying SMEs to take advantage of VAT exemptions outside their member state of establishment, reducing the need for multiple VAT registrations where national exemption thresholds diverge.

Claire Healy , Partner, Transfer Pricing, Forvis Mazars: At an EU level, the approval for implementing the VAT in the Digital (ViDA) Package in November 2024 is seen as a tangible effort by the EU Commission and Member States to modernise and streamline VAT systems across the EU, particularly in the areas of e-invoicing and Continuous Transaction Controls (CTC).

The proposal aims to harmonise diverse VAT frameworks across Member States, reduce administrative burdens, improve VAT compliance and combat fraud. These reforms are expected to deliver substantial benefits to SMEs and public administrations in promoting efficiency and uniformity in practice.

These reforms are intended to take effect from 1 July 2030, so while some years away, this lead-in time is necessary to allow the EU State tax administrations to harmonise and implement the necessary digital reporting framework, together with allowing SMEs to acquire advisory support and to update their reporting systems to align with the new reporting regime.

The cost and investment for SMEs in reacting to these changes are expected to be offset by the long-term benefits, including reduced administrative burdens, enhanced VAT accuracy and related cash flow benefits, as well as reduced fraud exposure risk.

However, its success in improving the operation of the EU VAT landscape and efforts to be better aligned to current global economic activity will depend on effective preparation, adaptation and ongoing review during the various stages of implementation.

This article appeared in the October 2025 edition of the Irish Tax Monitor.