European Commission’s Annual Report on Taxation 2026 Highlights Competitiveness, Tax Simplification and Digitalisation

The European Commission has published its Annual Report on Taxation 2026, providing a detailed assessment of tax revenue developments, tax policy trends and reform priorities across the European Union. The report examines the composition of tax revenues, recent legislative developments and the policy objectives pursued by Member States, while identifying the structural challenges expected to shape EU tax systems in the coming years.

EU Tax Revenues Increase to 39.4% of GDP

According to the report, total tax revenues in the European Union reached 39.4% of GDP in 2024, representing an increase of 0.4 percentage points compared with 2023. Overall, 22 Member States recorded an increase in their tax-to-GDP ratio, reflecting resilient tax receipts despite a challenging macroeconomic environment.

The increase was primarily supported by stronger labour and corporate tax revenues, while environmental tax revenues continued their longer-term decline.

Labour Taxes Remain the Largest Revenue Source

Labour taxation continues to account for the largest share of tax revenues across the European Union, representing 20.3% of GDP.

The report attributes this performance to resilient labour markets and sustained employment levels across Member States. At the same time, it notes that demographic ageing is expected to place increasing pressure on labour tax bases over the medium and long term, reinforcing the importance of productivity growth and sustainable public finances.

Corporate Income Tax Continues to Perform Strongly

Corporate income tax revenues remain above historical averages in many Member States.

The report notes that capital taxation has become an increasingly important component of the EU tax mix following strong corporate profitability in recent years. Looking ahead, the implementation of the OECD/G20 Inclusive Framework’s Pillar Two Global Minimum Tax is expected to strengthen corporate tax bases, reduce opportunities for profit shifting and improve tax certainty for multinational enterprises.

Environmental Tax Revenues Continue Their Structural Decline

Environmental tax revenues accounted for 2.1% of GDP and approximately 5.3% of total tax revenues, continuing their longer-term downward trend.

The Commission attributes the decline to temporary energy support measures introduced during the energy crisis, increased energy efficiency and the gradual transition away from fossil fuel consumption. While these developments contribute to climate policy objectives, they also reduce traditional environmental tax bases.

Competitiveness Becomes the Primary Objective of Tax Reform

The report shows a clear shift in the objectives of national tax reforms.

Among the 399 tax measures reported by Member States during 2026:

• 47% were intended to strengthen competitiveness and economic prosperity.
• 20% focused on fairness and equity.
• 11% supported environmental and health objectives.
• 9% aimed to improve efficiency through tax simplification, digitalisation and enhanced compliance.

According to the Commission, Member States are increasingly using tax policy to encourage investment, improve productivity and support long-term economic growth.

Tax Simplification Gains Momentum

Tax simplification remains one of the principal policy priorities identified in the report.

Member States continue to introduce measures designed to reduce administrative burdens, improve legal certainty and modernise tax administration. These initiatives complement the European Commission’s broader simplification agenda, including the recently proposed Direct Tax Omnibus Package and the recast of the Directive on Administrative Cooperation (DAC).

Digitalisation Continues to Reshape Tax Administration

Digitalisation remains a central pillar of EU tax policy.

The report highlights continued investment in digital tax administration, data-driven compliance, enhanced information exchange and modern reporting obligations. It also identifies the implementation of VAT in the Digital Age (ViDA) as a key initiative expected to modernise VAT collection, expand digital reporting and facilitate cross-border trade within the European Union.

Medium-Term Outlook

The Commission expects tax policy to continue evolving in response to slower economic growth, demographic ageing and increasing demands on public finances.

Future reforms are expected to focus on strengthening competitiveness, protecting tax bases, simplifying tax legislation, accelerating digitalisation, improving voluntary compliance and supporting fiscal sustainability.

Key Takeaways

• EU tax revenues increased to 39.4% of GDP in 2024.
• Labour taxation remains the largest source of tax revenue across the European Union.
• Corporate income tax receipts continue to demonstrate resilience.
• OECD Pillar Two is expected to strengthen the long-term sustainability of corporate tax revenues.
• Environmental tax revenues continue their structural decline.
• 47% of tax reforms reported by Member States focus on competitiveness and economic prosperity.
• Tax simplification and digitalisation remain central priorities for tax administrations across the European Union.
• VAT in the Digital Age (ViDA) will play a key role in the continued digital transformation of EU tax systems.

Frequently Asked Questions (FAQ)

What is the European Commission’s Annual Report on Taxation?

The Annual Report on Taxation is the European Commission’s yearly publication analysing tax revenues, tax policy developments and reform trends across EU Member States. It provides data on the composition of tax revenues, recent legislative changes and emerging policy priorities.

What were total EU tax revenues in 2024?

According to the report, total tax revenues reached 39.4% of GDP in 2024, an increase of 0.4 percentage points compared with 2023.

Which taxes generate the most revenue in the EU?

Labour taxes remain the largest source of tax revenue, accounting for 20.3% of GDP across the European Union.

What does the report say about corporate taxation?

The report notes that corporate income tax revenues remain resilient across many Member States. It also expects the implementation of the OECD Pillar Two Global Minimum Tax to strengthen corporate tax bases and reduce profit shifting.

Why are environmental tax revenues declining?

Environmental tax revenues continue to decrease due to temporary energy support measures, improved energy efficiency and reduced reliance on fossil fuels as part of the green transition.

What are the main tax policy priorities identified by the European Commission?

The report identifies competitiveness, tax simplification, digitalisation, investment promotion, improved tax compliance and fiscal sustainability as the principal priorities shaping future tax reforms across the European Union.

What role does ViDA play in future EU tax policy?

The VAT in the Digital Age (ViDA) initiative is expected to modernise VAT administration through expanded digital reporting, electronic invoicing and updated VAT rules for the platform economy and cross-border transactions.