Tax obstacles in the single market
The European Parliament´s Research Service department issued document outlining still existing tax obstacles in the EU Single Market, despite the Single Market being in place for over 30 years.
Tax fragmentation between EU Member States continues to constrain the smooth functioning of the single market. Persisting legal uncertainties and administrative burdens remain significant barriers to cross‑border economic activity.
Recent analyses underscore that barriers to cross‑border business operations still limit the full potential of the EU single market. Overcoming these tax‑related and administrative obstacles is essential not only for the EU’s integration objectives but also for strengthening economic competitiveness.
Fragmentation, Costs, and Legal Uncertainty
Tax obstacles in a cross‑border context extend beyond explicit discrimination. They include a wide range of fiscal and administrative frictions, such as:
- Legal uncertainty
- Duplicate reporting obligations across multiple tax authorities
- Divergent interpretations of common EU rules
- Lengthy or inconsistent administrative procedures
These obstacles distort competition by giving an advantage to domestic firms or large multinationals that can absorb the complexity. Studies show that uncertainty around final tax treatment can even deter investment.
VAT: The Most Frequently Reported Obstacle
Although VAT rules are harmonised through the EU VAT Directive, practical obstacles remain substantial. According to the Commission’s 2025 Single Market and Competitiveness Report, VAT‑related issues are the most commonly cited tax barriers in the EU.
A major source of difficulty is VAT registration abroad. While core VAT concepts are harmonised, national administrative procedures differ widely, particularly regarding:
- Required documentation
- Accepted languages
- Digitalisation levels
- Processing times
- Ongoing reporting once registered
The upcoming expansion of the VAT One‑Stop Shop (OSS) under the VAT in the Digital Age (ViDA) reforms will greatly reduce the need for multiple registrations. However, businesses will still require foreign VAT numbers when they operate outside the scope of OSS or when input VAT recovery is essential.
To adopt in a more flexible way any changes in the VAT legislation, the EU Member States have to agree in unanimity. This unanimity requirement is also the reason why the EU wide, harmonized, VAT return did not transpire into reality as the EU Member States were unable to reach agreement on the content of the VAT return form itself.
The VAT rules rely on a strict distinction between goods and services, each with different place‑of‑taxation rules. Therefore, any non-harmonization of VAT creates uncertainty and limits the full potential of the single market. While we are seeing a long term approach towards more harmonized and to some extent seemingly simplistic changes as part of VIDA, the true impact on businesses and the Single Market remains to be seen.
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