Tuesday, 2 December 2025
A recent audit by the Supreme Audit Office has revealed significant weaknesses in the European Union’s VAT system for cross-border e-commerce. According to the findings, flawed data and systemic loopholes have enabled some online sellers to under-declare or evade VAT, particularly when importing low-value goods into the EU. Authorities warn that shortcomings affect not only overseas vendors, but also create enforcement challenges for member states — including the Czech Republic.
The audit highlighted misuse of the EU’s “import regime” (under what is commonly known as the Import One-Stop Shop, or IOSS) — a scheme designed to simplify VAT payment for goods imported into the EU from third countries. Under IOSS, the seller is meant to remit VAT at the point of sale, rather than leaving payment to the end customer at customs. However, the SAO found that a substantial share of shipments declared under IOSS were misreported, often showing values far below what the buyer actually paid. In checks on thousands of consignments, the error rate was alarmingly high.
Officials say the problem is compounded by incomplete and unreliable data provided by Czech authorities to EU-wide anti-fraud tools. Gaps in data exchange undermine the effectiveness of cross-border VAT controls — which rely heavily on transparent and accurate information flows among member states. The Czech Ministry of Finance acknowledged the concerns outlined by the SAO and noted that similar issues have been raised by the European Court of Auditors, stressing the need for a coordinated, EU-wide solution.
In response to the audit, Czech authorities have pledged support for tighter oversight measures. Proposed reforms — part of a broader EU initiative to modernise VAT and customs procedures — would strengthen verification of IOSS registrations, require greater transparency from online sellers importing goods from non-EU countries, and mandate fiscal representation for non-EU vendors selling into the EU market. These changes are expected to begin phasing in between 2026 and 2028.
The IOSS regime was introduced to streamline cross-border trade: sellers can register once in an EU country and declare VAT centrally for all their EU customers. It especially targets imports of low-value goods (typically under €150), a segment that exploded with the rise of online shopping.
Yet the SAO’s audit shows that some importers — especially from outside the EU — exploit loopholes by undervaluing parcels or misclassifying goods. In one documented case, a consignment declared at low value turned out to contain high-value items upon inspection, indicating deliberate undervaluation to avoid VAT.
Because customs authorities in the Czech Republic inspect only a tiny fraction of the millions of incoming parcels every year, most misuse goes undetected. The SAO warned that this not only deprives tax authorities of revenue but also distorts competition, favouring non-compliant sellers over legitimate EU-based retailers.
The Czech government says it supports upcoming EU reforms that aim to tighten control over e-commerce imports. Among the measures under discussion are mandatory registration and fiscal representation for non-EU sellers, more rigorous cross-checking of customs data and VAT returns, and stricter penalties for mismatches and under-reporting. These changes could help close current loopholes and restore fairness between domestic and foreign sellers.
Still, experts warn that effective implementation will require real-time data sharing, digital customs infrastructure and better coordination across member states — changes that may take years to fully deploy. Until then, the risk of evasions will likely remain a challenge.
