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

Digitalisation is increasingly viewed as an instrument for narrowing the VAT gap in the European Union, yet the relative relevance of voluntary business digitalisation and mandatory administrative reporting remains unclear. This study distinguishes cloud accounting from mandatory transaction reporting and analyses an unbalanced EU-27 panel for 2013–2024, with estimations limited to 2013–2023. Sequential pooled OLS, two-way fixed-effects models and robustness checks are applied to European Commission, Eurostat and World Bank data. The initially negative association between cloud accounting and the VAT gap disappears after controlling for income and government effectiveness. Mandatory digital reporting is associated with a VAT gap of about 3–4 percentage points lower, although the small number of adopters and pre-adoption trends preclude causal claims. Theoretically, first, the findings distinguish firm-level digital capability from information directly accessible to tax administrations; second, they show that technology adoption and institutional capacity must be analysed separately. Practically, first, the results support interoperable systems providing timely, structured and verifiable transaction data; second, they indicate that cloud accounting should complement, rather than replace, mandatory reporting infrastructure.