VAT in the Digital Age: Status of the proposal one year on

On 8 December 2023, the Economic and Financial Affairs Council (ECOFIN) reported on the progress made by the European Commission and the EU member states on the VAT in the Digital Age (ViDA) proposal that was published exactly one year earlier. This proposal contained the European Commission’s ambitious vision for how VAT reporting should embrace digital opportunities, recommended changes to the VAT rules applicable to the platform economy and e-commerce, and presented steps towards a single VAT registration in the EU. Despite an intensive work programme under successive EU presidencies, no agreement has yet been reached on any of the components of the ViDA package. However, this anniversary is an appropriate opportunity to take stock of how the proposed package of measures has evolved over the past year.

Background

The ViDA package contained legislative proposals for:

• A single VAT registration for businesses across the EU;
• VAT rules for the platform economy related to passenger transport and rentals of short-term accommodation; and
• Digital reporting obligations based on e-invoicing for businesses operating within the EU.

To be adopted, the proposal requires the unanimous agreement of all 27 member states. Substantial work has been undertaken over the past year to allow national governments to define an informed position in respect of the broad set of technical measures included in the ViDA package. While most of the technical sessions focused on one of the three components, the three are still presented as a single package. 

ECOFIN has a substantial level of authority to modify or only partially adopt the Commission’s proposal, in order to achieve unanimity by compromise. As a result, there have already been some changes proposed to the initial ViDA package and these appear to have been incorporated into the further efforts in working towards an agreement. The main changes to the different parts of the proposal that have been identified so far, and topics that remain subject to further discussion, are detailed below.

Single VAT registration

The element of the ViDA proposal with the largest support is the one proposing simplification measures, which would allow taxpayers to do business across borders within the EU using a single VAT registration, through the increased use of One Stop Shop (OSS) regimes. This includes firstly the setup of a new special scheme for transfers of stock across EU borders, whereby businesses could report transfers in their member state of identification under an OSS scheme instead of through the multiple VAT registrations currently required. Secondly, the scope of transactions covered by the Union One Stop Shop (UOSS) created as part of the 2021 e-Commerce VAT package would be increased to include all domestic business-to-consumer (B2C) supplies of goods. This would allow, for example, the reporting of sales made from stock held in the customer’s country, or electronic vehicle charging transactions in multiple member states.

While the above rules mainly simplify the VAT obligations for businesses active in B2C transactions, an important step to reduce the need for taxpayers to register outside their country of establishment is the proposed domestic reverse charge for business-to-business (B2B) supplies of goods and services made by nonestablished (or non VAT-registered) taxable persons. This generalised regime would shift the VAT on transactions performed by nonestablished businesses to the recipient of that supply under the reverse charge mechanism if the recipient is already registered for VAT in that member state. Details on whether this would apply when the supplying business already has a VAT registration in the recipient’s member state are still under discussion.

Several other changes that were originally part of the single VAT registration proposal do not seem to have been pursued, such as:

• The inclusion of cross-border sales of second-hand goods, works of art, collectors’ items, and antiques within the scope of the special rules for distance sales;
• The extension of the deemed supplier rules for platform operators to include all supplies of goods (including by EU suppliers and with no distinction between B2B and B2C supplies) facilitated by platforms and marketplaces; or
• The mandatory application of the Import OSS by platform operators (which is incorporated as part of the pending EU customs reform package). 

Platform economy changes for accommodation and passenger transport services

While there is still support for a broader role for platforms in the collection of VAT on short-term accommodation rental and passenger transport services, the original proposal to levy VAT through deemed supplier arrangements across the EU has met significant resistance from individual member states. This part of the proposal seems to be moving towards a more tailored approach, particularly for short-term accommodation. The consensus view appears to prefer a high level of flexibility for national governments to define the services that would fall within the deemed supplier scope, and certain member states are even suggesting that the application of the deemed supplier rule be made optional. At this stage, there is significant uncertainty as to the method by which the platform liability for VAT would be determined in any final proposal. 

Another measure that is part of the platform economy changes concerns the taxation of B2C facilitation services. These would no longer be considered as electronically supplied services (taxed in the customer’s location) but would be taxed where the underlying transaction takes place. Businesses have recommended limiting this rule to the fees charged in relation to accommodation rental and passenger transport services, to avoid the complexities of having to determine the location of the underlying transactions in certain situations, such as supplies of goods sold by private individuals through platforms.

Digital reporting requirements

The most ambitious part of the ViDA reform is the digital reporting requirements (DRR) initiative. In the initial proposal, the Commission combined a “quick fix” modification, creating a framework through which member states could require taxpayers to use e-invoicing and e-reporting for domestic transactions, with a flagship reform intended to be in place by 1 January 2028, implementing digital reporting by mandating e-invoicing for almost all cross-border supplies of goods and services in the EU. Negotiations over the past year have demonstrated the difficulties in achieving a harmonised approach, due in part to the choices already made by those member states that were early adopters of mandatory e-invoicing.

Several member states have requested a lower level of harmonisation on domestic DRR regimes introduced after the entry into force of ViDA. Validation of data content by authorities or certified data providers has been considered, as well as the possibility of using pre-clearance, in which e-invoicing is conducted and validated through tax authority portals. The requirement that the e-invoicing mandate should allow the use of the EN 16391 invoicing standard has been questioned, with some suggestion that e-invoicing mandates could allow a wide variety of electronic invoice types. This diversity would likely also apply to the pan-EU regime, which would be based on national-level submissions of transactional data for further integration into the central VAT Information Exchange System (VIES) reporting at the EU level. 

These developments have increasingly moved the proposal away from the original objective of e-invoicing and DRR harmonisation, to the growing concern of business stakeholders. In this context, GENA (formerly the European E-Invoicing Service Providers Association (EESPA)) on 7 November 2023 called on the European Commission and member states to come together to find agreement around the fundamental principles of the DRR proposal and implement a comprehensive, EU-wide real-time tax data reporting framework. Hopefully, the further technical discussions will progress towards a compromise that includes a significant level of harmonisation and ideally also regulates the key variables in e-invoicing regimes such as e-invoice schema, security standards, e-invoice validations, and transmission through an interoperable network.

Regarding certain of the other components of the DRR proposals, it is becoming clear that the stricter invoicing requirements will not be pursued, the proposed abolition of summary invoices has apparently become obsolete, and the permitted timeframe to issue and communicate structured electronic invoices to national tax portals for intra-EU trade (originally two days plus two days) will be extended significantly. The additional invoice content requirements also appear to be under scrutiny.

Impact on implementation timings

When the ViDA proposal was initially launched, it contained staged implementation dates between 2024 and 2028. It is clear that the delays in adopting the proposal will have an impact on these dates, although no new timelines have been put forward.

While implementation dates are typically a feature that is only decided at the time of effective agreement or adoption, the expectation is that the single VAT registration and platform economy changes could enter into force as from 1 January 2026 at the earliest. As both proposals require the setup or extension of new reporting modules by national tax authorities, a timeline of at least 18 months from the time of formal adoption could be expected. Such a delay would also allow businesses the necessary time to prepare.

The commencement date for the common framework under which member states can impose new domestic DRR is uncertain, as it will depend on the direction of the discussions. Until such date, member states can still implement domestic e-invoicing mandates through a derogation request, as is currently the case in Belgium, France, Germany, Poland, Romania, and Spain.

Although still some years ahead, the initial implementation date of 1 January 2028 for intra-EU DRR is largely viewed as unrealistic, and a shift towards 1 January 2030 has been rumoured. The convergence of various EU member states’ existing domestic DRR to any harmonised requirements was originally anticipated to go live on the same date, but discussions have now considered allowing more time for this process.