VAT in the Digital Age proposals published

On 8 December 2022, the EU Commission (‘EC’) published the proposals to amend the VAT directive and Implementing Regulation with respect to the VAT in the Digital Age (‘ViDA’) initiative. According to the EC, the 30 year old VAT rules for cross-border trade are not adapted to doing business in the digital age and should thus be amended using technology to reduce administrative burdens and related costs for business and at the same time combat tax fraud.

In that respect, the ViDA package has three main objectives:

Modernizing VAT reporting obligations, by introducing Digital Reporting Requirements, which will standardize the information that needs to be submitted by taxable persons on each transaction to the tax authorities in an electronic format. At the same time the use of e-invoicing for cross-border transactions becomes mandatory;
Addressing the challenges of the platform economy, by updating the VAT rules applicable to the platform economy in order to address the issue of equal treatment, clarifying the place of supply rules applicable to these transactions and enhancing the role of the platforms in the collection of VAT when they facilitate the supply of short-term accommodation rental or passenger transport services, but also for the supply of goods in almost all cases;
Avoiding the need for multiple VAT registrations in the EU by introducing a Single VAT Registration. This is done by improving and expanding the existing systems of the so-called One-Stop Shops (OSS) and Import One-Stop Shop (IOSS) and reverse charge in order to minimize the instances for which a taxable person is required to register in another Member State.

Most changes are proposed to enter into force as of 1 January 2025. DRR and obligatory e-invoicing for certain transactions should enter into force on 1 January 2028. However, it should be emphasized that these are EC proposals that first require the unanimous approval of all EU member states. It remains to be seen if this is feasible within the tight time frame proposed (or at all). As such, it should be acknowledged that the implementation of all proposed measures is still very much uncertain.

Most relevant changes from the ViDA proposals

The ViDA proposals include changes, extensions and clarifications in the field of VAT reporting and digital reporting requirements, the VAT treatment of platforms and VAT registration requirements in the EU and some other areas. Hereafter, we will describe the most relevant ones.

Please note that the below is not a complete summary of all proposed amendments and changes. The proposals contain many more details that may be of importance to your situation. We therefore recommend to further discuss the proposals with your PwC tax advisor, also to explore the (substantial) impact on your administrative systems and processes.

1. VAT reporting and digital reporting requirements

Part of the proposed rules is the mandatory use of electronic invoicing (e-invoicing) for cross-border transactions and the introduction of digital reporting requirements (DRRs). The DRRs provide for a standardized digital format in which information on each transaction by taxable persons needs to be submitted to the tax authorities within a few days of the actual transaction (near real time).

E-invoicing

In their proposal the EC announced a two phase approach for modernizing the VAT reporting obligations.

As of 1 January 2024, the VAT Directive allows for Member States to impose electronic invoicing (e-invoice) obligations at the sole discretion of those Member States. Such e-invoices, if required by Member States, should mandatorily be based upon an EU wide minimum standard of both the content and syntax based format (the currently already known B2G invoice standard).

Contrary to common practice in various Member States currently applying e-invoicing, as of 1 January 2024 the e-invoice can no longer be subject to prior validation by the local tax authorities in order to be sent to the recipient. Furthermore, it will no longer depend on the acceptance of the recipient to issue an electronic invoice.

As of 1 January 2028, e-invoicing will become the default for issuing invoices. Member States however may deviate and allow paper invoices for certain or most transactions. However, this is not the case for invoices for B2B intra-Union supplies of goods and services (and certain other services). For these supplies, e-invoicing will become mandatory in all circumstances and should be issued within 2 working days after the supply (relating to the near real time reporting obligation for these supplies).

In relation to the standard/preferred e-invoicing format, monthly summary invoices are no longer allowed. Each supply should be separately invoiced. Moreover, some alterations to the invoice requirements are introduced (mentioning IBAN and payment due date(s)).

Digital reporting system for intra-Union transactions

As of 1 January 2028, the current recapitulative statements (EC sales listings) will be replaced with digital reporting requirements (DRRs) for B2B intra-Union transactions.These DRRs will in the basis cover the same transactions that were covered by the recapitulative statements (with the exception of call-off stocks, as this regulation will be abolished).

Furthermore, the reverse charge on supplies made by non-established businesses to VAT identified traders based on article 194 VAT Directive is included in the DRRs. The main takeaways on the new DRRs are as following

The data has to be transmitted on a transaction-by-transaction basis;
The deadline for the data transmission is two working days after the invoice has - or should have - been issued;
The data transmission has to be carried out electronically and Member States will need to provide for a digital framework to enable this transmission;
The data can be submitted directly by the taxable person or by a third party on their behalf;
The data transmission can be done according to a format designated as the ‘European Standard’ (based on the current B2G invoicing standard), reporting standards currently used by Member States should be ‘interoperable’ with the EU standard.

In essence, the reportable data under the DRR is the same data that needs to be submitted in the current recapitulative statements, but is detailed for each transaction instead of aggregated by the customer. In addition to this, several new data points were added to improve the detection of VAT fraud.

Cross-checking DRR data in the Central VIES database

The information that is provided under the DRR will be published in a new central VIES database which can be used for analytics by the EU member states. The EC proposes a central system for the exchange of VAT information. The system will be developed, hosted, maintained and technically managed by the EC.

Member States will be obliged to develop, maintain, host and technically manage a local database to easily transmit data to the central VIES. The information in the central VIES will consist of:

Information collected through the DRR; and
Information relating to the identification of taxable persons including their VAT identification number.

The data in the central VIES database will be used for cross-checking the data reported by the supplier and the customer. The Member States should ensure that the data is up-to-date. All information in the central VIES database will remain available for five years.

2. VAT treatment of the platform economy

Following the e-commerce package that entered into force on 1 July 2021, most platforms facilitating electronically supplied services and some platforms facilitating the supply of goods from non-EU territories or non-EU established taxable persons are currently ‘deemed suppliers’ of the supplies facilitated. In essence, a deemed supplier is liable for the VAT payable for a supply. The aim of this rule is to make it easier and more secure for the Member States to collect VAT on all platform transactions.

The ViDA proposals include an extension of the deemed supplier regulations to other platform services and for almost all supplies of goods facilitated by a platform. These extensions will be described in more detail below. In addition, the data retention obligations for platforms are extended.

Deemed supply of goods for electronic interfaces - irrespective of the VAT status of the purchaser and location of the supplier and good

In order to level the playing field between EU and Non-EU businesses, the deemed supplier rule for platforms facilitating in the supply of goods will be extended. For all supplies of goods within the EU that are facilitated by the use of an electronic interface (such as marketplaces and platforms) the taxable person facilitating the supply shall be regarded as the deemed supplier, irrespective of the VAT status of the purchaser and irrespective of the place of departure of the good and the place of establishment of the supplier. This is also the case for margin goods. The (deemed) supply from the underlying supplier to the platform will be exempt from VAT without credit.

This means that taxable persons that are facilitating the sale of goods via their electronic interface are almost always obliged to collect VAT on all the EU supplies of goods. The only exception is for electronic platforms that are solely facilitating domestic supplies in their country of establishment.

Moreover, the deemed supplier rule is also extended to platforms facilitating transfers of own goods by underlying suppliers. This may be the case, for example, when platforms have a central call off stock in place for their suppliers.

Deemed supply of accommodation rental and passenger transport services for electronic interfaces - if the supplier is not liable for VAT

A deemed supplier regime will be introduced in the short-term accommodation rental, and passenger transport sectors of the platform economy. Under this measure, only where the underlying supplier does not have to charge VAT because it is, for example, a natural person or makes use of the special scheme for small enterprises, the platform will be deemed the supplier of the facilitated service and charge and account for the VAT on it. The (deemed) supply from the underlying supplier to the platform will be exempt from VAT without credit.

One welcome clarification is that the tour operator margin scheme is not applicable to the deemed suppliers of accommodation rental and passenger transport services, partly to prevent abuse.

Mandatory Import One Stop Shop for deemed supplier platforms of imported consignments sent to consumers

The use of the existing Import One Stop Shop (IOSS) scheme will be mandatory for electronic interfaces facilitating as deemed suppliers and carry out distance sales of imported goods. This means that, whereas currently the platform is not by definition liable for VAT when facilitating the supply of imported goods to consumers, this will always be the case as of 1 January 2025 under the EC proposal.

Other alterations with regard to supplies by platforms

In relation to the above, a few further changes are proposed:

The facilitation service provided by a platform to a non-taxable person should be regarded as an intermediary service. This means that this service will be taxable in the same place as the underlying supply that the platform facilitates.
The supply by the platform to the final customer should not have an impact on the deduction right of the platform for its activities, irrespective of whether this deemed supply is VAT taxable or VAT exempt.
To remedy current fraud-sensitivity of supplies under the IOSS scheme, regulations will be introduced that will oblige to link unique consignment numbers to the IOSS number. Further details should be awaited in this regard.

3. Miscellaneous changes with regard to specific transactions

The proposals contains certain other changes to the VAT treatment of certain supplies of goods (e.g. works of art) and definitions. We list the most important below.

Definition of short term accommodation rental

The provision of short-term accommodation rental shall be regarded as a sector similar in nature to the hotel sector, and therefore not eligible to be exempt from VAT if the rental lasts for a maximum of 45 days. It is currently uncertain if all other longer rentals could by definition not be regarded as VAT taxable short term rental.

Definition of ‘facilitating’

Facilitating is a term which is used in quite some of the regulations and may have a different meaning depending on the context. For the purpose of the proposed article on the Deemed Supplier rules for short term accommodation rental and passenger transport, it will going forward be defined in the Implementing Regulation. Facilitating comprises the use of an electronic interface to allow a customer and a supplier offering supplies of short-term accommodation rental or passenger transport through the electronic interface to enter into contact, which results in a supply of those services through that electronic interface.

The definition will also include cases where there is no facilitation, in case the platform doesn’t set the terms for providing the service, is not involved in accepting the charge and when the platform is not involved in the provision of the respective services.

Place of supply distance sales of margin goods and sales of art and antiquities under the margin scheme

The place of distance sales (with transport) for works of art, collector’s items and antiques for which the margin scheme is applicable, will be adjusted to the place where the customer is established, has their permanent address or usually resides in alignment with the distance selling place of supply rules.

Moreover, in case of supplies of art and antiquities under the margin scheme, the place where the customer is established determines the place of supply, even if transport is not arranged by the supplier.

The supplies leading to a VAT liability in other Member States may in the future be reported in the OSS.

4. VAT registration requirements in the EU

Further to the earlier initiatives on the introduction of the One Stop Shop and Import One Stop Shop system, the European Commission aims to establish a single VAT registration by minimizing the need to register in multiple EU member states. This is achieved through the different items discussed below.

Most pertain to the extension of introduction of so-called One Stop Shop schemes. Such schemes allow for the reporting and paying of VAT due in other countries through a single return in the country of establishment, thus avoiding VAT registrations and periodic reporting obligations in other countries.

Extension of One Stop Shop to additional B2C supplies of goods

The current One Stop Shop scheme for Intra-Union distance sales and B2C services taxable in the place of destination is extended to:

domestic supplies;
the supply of goods with installation or assembly;
the supply of goods on board of ships, aircrafts of trains; and
the supply of gas, electricity, heating and cooling;

When supplied to (in short) non-taxable persons and leading to VAT payable in another country than the country of establishment of the supplier.

Moreover, all supplies under the margin scheme VAT taxable in other EU countries may be reported under the OSS. This means effectively that the OSS could be used for almost all B2C supplies that lead to VAT payable in other EU countries than the place of establishment.

In case the regular One Stop Shop scheme is applied, also zero rated and exempted supplies should be reported.

Introduction of a separate One Stop Shop to the movement of own goods and call-off stock

As of January 1, 2025, a special OSS scheme is introduced to report the cross-border movements of own goods (including call-off stock arrangements) to avoid VAT registrations in other countries due to these movements of goods. In case the One Stop Shop for the movement of own goods is applied, the OSS return should be submitted every month, whether or not a transfer of goods has been carried out. If the scheme is used the (deemed) acquisition of the goods in the country of arrival is exempt from VAT.

The scheme cannot be used for capital goods and if VAT on the acquisition of goods would not be fully recoverable in the country of arrival.

The scheme is optional. However, when registered for the One Stop Shop for movement of own goods, all relevant transfers will be covered by the One Stop Shop. A taxpayer should register for the One Stop Shop through its VAT registration number in the country of establishment.

In accordance with the introduction of this new OSS scheme, the recently introduced call-off stock simplification becomes redundant and is abolished as of 1 January 2025. If goods are transferred under this simplified procedure before that date, the simplification may be applied until 1 January 2026.

Mandatory reverse charge for domestic B2B supplies by non-established taxpayers

At this moment, it is optional for EU member states to implement the reverse charge mechanism for domestic supplies by non-established taxpayers to identified taxable persons as included in article 194 of the VAT Directive. This reverse charge mechanism will become mandatory and will avoid that suppliers performing domestic B2B supplies in a foreign country are required to be registered for VAT purposes in that country. Domestic B2B supplies of margin goods are excluded from this mandatory application of the reverse charge mechanism, but are in scope of the extended One Stop Shop scheme described above.

The supplies of goods and services subject to the reverse charge mechanism will also be included in the EC sales listing and from 2028 onwards, in the cross-border near real time digital reporting (please refer to section 1).

Overview One Stop Shop schemes

The different One Stop Shop schemes can be summarized as follows:

Name	(Proposed) scope	Mandatory / Optional
Union Scheme	Current: Intra-Union B2C services taxed at destination Intra-Union B2C distance sales Deemed supplies of goods by platforms Proposed extension: Domestic B2C sales of goods Supplies of margin scheme goods Installation supplies Supplies of gas, electricity etc. Supplies on board of ships etc.	Optional
Non-Union Scheme	Current (no extension): Intra-Union B2C services	Optional
IOSS	Current (no extension): Distance sales of goods imported from third countries with a value below EUR 150 Please note that extensions are expected in a separate proposal to be issued by the EC in 2023.	Optional Proposed: mandatory for electronic interfaces facilitating as deemed suppliers
Movement of own goods	Proposed: Intra-Union movement of own goods And cross-border call-off stock arrangements	Optional

Next steps

In the coming months, the decision-making process will take place. As a first step, the European Parliament may provide input on the proposal. Finally (after several other mandatory steps), the EU council consisting of representatives from all Member States should unanimously approve the proposal.

From the expected implementation date of the first proposals being December 31, 2023, it could be derived that the EC strives to have a decision on the proposals in the second quarter of 2023. However, in our view, such a time frame seems very challenging - if not impossible. Therefore, it cannot be excluded that the proposal will not be approved fully or is implemented with a delay.