Closing the VAT Gap in the EU-27: Business Cloud Accounting Versus Mandatory Digital Reporting

Digitalisation is increasingly viewed as an important instrument for narrowing the VAT gap in the European Union, yet it remains unclear which forms of digitalisation are most closely associated with improved collection. This study distinguishes between two channels: the voluntary adoption of cloud accounting by firms and the mandatory digital reporting of transactions to tax administrations. The analysis uses an unbalanced panel for the EU-27 covering 2013–2024, with the main econometric estimations restricted to 2013–2023. Data from the European Commission, Eurostat and the World Bank are examined through sequential pooled OLS specifications, two-way fixed-effects models and robustness checks. The initially negative association between cloud accounting and the VAT gap disappears after income and government effectiveness are controlled for. Mandatory digital reporting, by contrast, is associated with a VAT gap approximately 3–4 percentage points lower across the main specifications. However, the limited number of adopting countries and the presence of a pre-adoption downward trend restrict causal interpretation. The findings suggest that digitalisation is more closely related to VAT collection when it provides tax administrations with timely, structured and verifiable transaction data. Voluntary business digitalisation may support compliance, but it does not substitute for mandatory administrative reporting.