Digital Mandates and AI Reshape VAT Compliance Landscape in 2026

Accelerating digitalization and supernova-like change will dominate the value-added tax landscape in 2026. The EU’s VAT in the Digital Age, or ViDA, reform, along with similar digital reporting obligations outside the EU, are transforming VAT and business processes.

Tax administrations are increasingly relying on technology and deploying advanced analytics and AI-driven tools.

Transfer pricing adjustments are attracting VAT attention following the Court of Justice of the European Union’s 2025 ruling in Arcomet.

Regulatory Context

Developed and developing countries rely on VAT as a key source of revenue. Consumption taxes, mostly represented by VAT, are about 30% of total tax revenues in OECD countries.

There is a desire to increase the tax to GDP ratio of developing countries: VAT is seen as key to the tax policy and domestic tax strengthening agenda. The Platform for Collaboration on Tax—a joint initiative of the International Monetary Fund, Organization for Economic and Community Development, United Nations, and World Bank—has observed that VAT could potentially be used to generate more tax revenue.

The PCT’s report also covers a wide range of tax strengthening options including extending digitalization beyond e-invoicing such as automatic verification of VAT returns and the matching of large datasets.

The OECD has observed that digitalization, and the resulting increased availability of data, allow tax authorities to have greater access to VAT relevant information.

E-Invoicing, Real-Time Reporting

Although ViDA won’t be fully implemented until 2030, several EU member countries such as Belgium, Croatia, Poland and Romania, have introduced, or will introduce, domestic mandates before then.

ViDA aims to create a structured e-invoicing framework and real-time data transmission for intra-EU business-to-business transactions. It also aims for interoperability and standardization on e-invoicing standards, such as EN 16931. As digital reporting mandates expand globally, regulators will provide more practical guidance in 2026.

Businesses will need to modernize and streamline processes and invoicing, enhance data quality, automate data flows, standardize VAT data fields, and align commercial processes such as procurement, credit notes, intercompany transactions, with the new rules.

Structured e-invoicing will replace manual invoicing and other manual processes, delivering commercial benefits and greater efficiencies. As tax authorities gain access to granular, near real-time data, there will more scrutiny of all tax positions, not just VAT—this is a game-changer that will require the attention of tax functions, cross business, and C-suite.

Businesses have been transforming processes to comply with new mandates starting in January 2026, such as in Belgium and Croatia, and will use 2026 to prepare gap analyses, test automation tools, and redesign processes.

Integrating digital reporting with the rest of tax and finance is vital. There will be multiple digital touchpoints with customers, suppliers, internal functions, payment processes, and tax authorities in the future. Relying on manual processes won’t be sustainable—automation and data quality will be the new currencies.

Growing AI Role

The digitalization of tax is transforming compliance and business processes. Tax administrations are enhancing technology infrastructures, integrating third-party data sources, and using advanced analytics to identify noncompliance.

AI is playing a significant role, as AI-enabled tools can extract, validate, and categorize invoice information; reconcile VAT postings across multiple jurisdictions; and identify unusual transactions.

More businesses are using machine learning models to crunch down repetitive processes, extract data, predict audit risk, improve VAT recovery accuracy, and run simulations on VAT regulatory changes. Other AI tools can automate review of contracts, tax precedents, large datasets, and enterprise resource planning data.

AI’s role isn’t limited to helping businesses—tax administrations are using models to detect fraud, unreported transactions, and inconsistencies between purchasing and sales ledgers. The AI models gain access to richer datasets, improve case selections, and enable greater accuracy and faster intervention. Businesses will continue transitioning from manual tasks to intelligent, tech-driven VAT management supported by predictive analytics and automation.

Transfer Pricing Adjustments

The relationship between transfer pricing and VAT is in the spotlight following the CJEU’s Arcomet ruling in which the court examined whether an intra-group profit margin adjustment—determined under a transactional net margin method—constituted consideration for a taxable supply.

The Belgian parent company provided various services (strategy and planning, negotiating contracts with third parties, engineering, finance) to its Romanian subsidiary, and the annual profitability adjustment incorporated the remuneration for these services.

The court found that the adjustments were subject to VAT, emphasizing the existence of a reciprocal legal relationship; and that considering all the circumstances, clearly identified services were provided, and the adjustment functioned as payment for those services.

For international businesses, the ruling reinforces several aspects:

• Transfer pricing and VAT can’t be siloed, and some transfer pricing adjustments will have VAT implications.
• Companies must carefully review intercompany arrangements to ensure that contracts, services and goods descriptions, and documentation, align with tax requirements and the commercial reality.
• VAT functions, including new digital reporting requirements, need to factor in year-end transfer pricing adjustments and whether they are consideration for a supply, or merely profit (or other) adjustments unrelated to any supplies.
• VAT consequences of post-import adjustments for imported goods also need to be considered—many countries have special disclosure rules for goods.

Future Trends

Scrutiny over VAT and other taxes is expected to increase in 2026 with a dynamic tax landscape covering:

• International e-commerce changes following the EU’s announcement on low-value (150-euro) consignments
• More clarity on the VAT treatment of digital assets and greater reporting of information
• More complexity with M&A deals and the need to assess the impact on stakeholders, and deal value, if targets aren’t ready for digital reporting
• Transition to new VAT regimes such as Brazil’s comprehensive VAT reform.

The changes are affecting regulators, businesses, and consumers. Businesses need to plan strategically, adapt to data-driven and automated processes, and integrate VAT into broader finance and tax processes.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Eugen Trombitas is a global indirect tax expert who supports businesses and international organizations with strategic projects.

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