VAT in the Digital Age proposals agreed

The EU Council has announced that agreement has been reached on a package of measures to modernise the EU VAT system, known collectively as “VAT in the Digital Age” or “ViDA”. The rules include three main elements including new e-invoicing rules, expansion of the one-stop shop model and application of the platform rules to additional services including transport and accommodation.

Background

The 2020 Tax Action Plan committed the Commission to bringing forward measures to address issues of VAT fraud on cross-border transactions and modernise the VAT reporting obligations for businesses. As a result, in December 2022, the EU Commission put forward proposals to modernise the EU VAT system, including:

• A move towards real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU and a harmonised invoicing framework for domestic transactions
• Updated VAT rules for passenger transport and short-term accommodation provided via platforms
• Expanding the one-stop-shop approach to enable a single VAT registration across the EU for movements of own goods and additional supplies to consumers.

Following two years of negotiation, the Councial has now reached agreement on these measures by including a number of compromises compared to the original proposals and with a longer time line for implementation.

Digital reporting requirements

Under the current rules, businesses selling across EU Member States need to submit quarterly EC Sales Lists (a ‘recapitulative statement') to their national tax authority which provides an overview of the goods and services they have sold to businesses in other EU Member States. That information is then shared with other Member States, which helps tax authorities to ensure that VAT is being accounted for and remitted correctly. However, there is a considerable delay between the provision of this information and the transactions taking place such that these reporting requirements do not allow authorities to rapidly detect suspicious or fraudulent transactions.

The new system will introduce real-time, transaction-based digital reporting for VAT purposes, based on e-invoicing generally with effect from 2030 (delayed from the original proposal of 2030). Businesses will issue e-invoices for cross-border business-to-business transactions and automatically report the data to their tax administration. This will be based on the existing European standard for e-invoicing in the area of public procurement. National tax administrations will then share the data through a new IT system that will be capable of providing analyses of suspicious activities.

A framework at national level will ensure the quality of the data included in electronic invoices, with flexibility for member states in the operationalisation of that framework, recognising that some Member States have already introduced digital real-time reporting solutions for domestic transactions. The Council has agreed that the EU system should be in place in 2030 and that all existing national systems should become interoperable with the EU system by 2035. From a business perspective, it is very much to be hoped that having harmonised rules across the EU will be beneficial.

VAT for the platform economy

The current VAT rules require the operator of a platform to charge and account for VAT on sales made via that platform in a number of scenarios, even where contractually they merely operate as an intermediary between the supplier and customer. Rules were introduced in 2015 to treat intermediary platforms taking part in a supply of electronic services as the supplier and these were expanded in 2021 to cover taxable persons facilitating B2C supplies of goods in the EU through the use of a platform where they were either distance sales of imported goods with a value of €150 or greater or sales of goods by non-EU taxable persons.

The Council has now agreed that these rules will be expanded to include supplies of short-term accommodation and supplies of passenger transport. These are areas where the use of online platforms has grown extensively in recent years. Under the new rules, where the underlying supplier of passenger transport or short-term accommodation does not charge VAT, the platform will charge VAT on their behalf. The platform will collect the VAT from the customer and remit it to the tax authorities. As with other businesses dealing with cross-border supplies, where the supply is in a Member State in which the platform is not established, they will be able to declare the VAT via the existing simplification measures, such as the One-Stop Shop (OSS) and the reverse charge.

This proposal proved difficult to agree with, most recently, Estonia objecting to its scope. As a result, the Council has provided some flexibility in the application of the rules, including the possibility to exempt small and medium sized enterprises from the deemed supplier rules. In addition, the application of the regime will now come into effect from 1 July 2028 (optionally) and 1 January 2030 (mandatorily), allowing a short transitional period (this compares with the original proposal to bring in the changes from 2025).

The Council did not take forward the Commission’s proposal to extend the existing deemed supplier rules to all goods supplied by online platforms.

Single EU VAT registration

From 1 July 2021, the Mini One Stop Shop (MOSS) became the One-Stop Shop (OSS). The OSS simplifies VAT obligations for cross-border supplies to final consumers in the EU. Within the OSS, there are two schemes, the Union scheme and the non-Union scheme. Under the Union scheme, a taxable person can declare and pay EU VAT due on supplies made under the scheme in a single electronic quarterly return, communicating only with the tax authority where they are registered, even where the sales are taxable in another Member State. The Union scheme can cover all cross-border supplies of services to non-taxable persons within the EU and all intra-Community distance sales of goods (removing the need to register in each Member State where the supply takes place). However, it does not extend to supplies which are not cross-border, therefore requiring companies selling goods to consumers within a different Member State to register for VAT twice.

The Commission had originally proposed a significant extension of the OSS, but the final ViDA changes will extend the scope of the OSS to:

• B2C sales of certain items including electricity and gas which are conducted in a Member State other than where the supplier is established (not just cross-border supplies) and
• Movements of own stock to another Member State.

Affected businesses will be able to fulfil their VAT reporting obligations via a single online portal with their home jurisdiction. These changes will be introduced with effect from 2027 and 2028.

The Council decided to discuss the proposal to make the one-stop-shop for imports mandatory within the framework of the VAT aspects of the proposal to reform the Union Customs Code, which is currently under discussion in the Council.

Next steps

Although the EU Parliament was consulted on the proposals in 2023, it will need to be consulted again given the significant changes agreed to the scope of the rules in this latest version. The text will then need to be formally adopted by the Council before being published in the Official Journal and becoming law.

It is worth noting that the proposed changes to the VAT rules, which are set out in a draft Directive and two draft Regulations, are extremely detailed and complex.

Further details can be found in the following Commission documents:

• Draft Council Directive as regards VAT rules for the digital age - General approach
• Draft Council Regulation as regards the VAT administrative cooperation arrangements needed for the digital age - Political agreement
• Draft Council Implementing Regulation as regards information requirements for certain VAT schemes - Political agreement