A legislative proposal by the European Commission (EC) to drastically change the VAT system has been in the works for some time now. The ‘VAT in the Digital Age’ (ViDA) action plan aims to make the levy of VAT more fraud-proof and efficient. On 14 May 2024, Ecofin (Economic and Financial Affairs Council) discussed and rejected the most recent proposal. This means it is back to the drawing board.
In this article, our experts discuss the VAT in the Digital Age proposal, Ecofin’s decision and the practical consequences.
Key points of the original ViDA proposal
The original proposal for ViDA is from December 2022. The key points are as follows:
‘Deemed supplier regime’ for the platform economy: The EC wanted to obligate online platforms such as AirBnB and Uber to charge VAT to end consumers if the provider of the services (overnight stay, transportation) does not.
E-Invoicing and Real-Time Digital Reporting: To make the VAT system more fraud resistant, the EC proposed to introduce new reporting and invoicing obligations. The intention was to switch to electronic invoicing as the standard method of invoicing in the future.
Single VAT Registration: In order to simplify the VAT system, the EC proposed measures to reduce the number of VAT registrations for entrepreneurs required in different EU member states. For instance, it was proposed to expand the One Stop Shop (OSS) to other types of transactions.
For a more in-depth overview of the original proposal, we refer to our previous article on the matter.
(Political) opposition: a revised ViDA proposal
After the publication of the proposal, the EC encountered resistance. Many thought the plans were too ambitions and far-reaching. Entrepreneurs, in particular, were expected to be disproportionately affected by the changes and the associated implementation costs. In response to the feedback from the European Parliament and Ecofin, the EC published a revised proposal om 8 May 2024. Several noteworthy matters were included:
Platform scheme: The implementation of the ‘deemed supplier regime’, as described above, is postponed from 2025 to 1 July 2027. This offers platform businesses more time to prepare for the new rules.
Anti-fraud measures e-commerce: The EC is given the possibility of taking operational measures to combat tax evasion and avoidance in relation to the so-called ‘import One Stop Shop’ (iOSS). This scheme concerns distance sales of goods from non-EU countries.
Extension of One Stop Shop: As of 1 July 2027, the One Stop Shop is to be extended, to include i.a. supplies of goods with installation and the intra-Community transfer of own goods. In the original proposal, this extension was set to take place in 2025.
Reverse charge mechanism: As of 1 July 2027, a mandatory reverse charge mechanism applies to internal B2B supplies by suppliers that are not established or registered de EU member state of delivery, to customers that are registered there for VAT purposes. This measure was already included in the original EC proposal.
Electronic invoicing: As of 1 July 2030, electronic invoicing will be the general rule in the EU. Member states may however opt to allow paper invoices, bar several exceptions. Additionally, the term for the (electronic) invoicing is reduced significantly for certain types of transactions.
Digital reporting: Arguably the most important change concerns the new digital reporting obligations, that are to be implemented as of 1 July 2030. In a nutshell, entrepreneurs will have to send transaction data to the tax authorities for i.a. intra-Community supplies of goods, intra-Community acquisitions, and transactions that are subject to certain reverse charge mechanisms (e.g. intra-Community B2B supplies of services). This data covers matters such as the invoice number, the VAT identification numbers of the supplier and the purchaser, and the nature and size of the goods or services.
In addition to the key points mentioned above, the revised proposal contains a number of other adjustments. Please contact your advisor if you would like to know more about the changes and the possible consequences for your business.
Practical consequences of the rejection by ECOFIN
On 14 May 2024, ECOFIN decided not to adopt the revised proposal. It is clear that there is insufficient support for the new rules as proposed by the EC. This means that the proposal is back to the drawing board. It is possible that the EC will eventually draft a proposal with less extensive rules. But what these rules will be, is unclear at the moment. However, our expectation is that the EC will continue to push for a tightening of the invoicing rules and reporting obligations.
We will of course monitor these developments. If you have any questions about the current state of affairs, or if you would like to discuss the possible consequences for your business, please do not hesitate to contact VAT experts Marisa Hut or Stevie Mols.
The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.
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