VAT in the Digital Age (‘ViDA’) adopted by the Council

05/11/24

After two years of negotiations, the ViDA-package was adopted by the European Council on 5 November 2024. This means that significant changes will be made to the EU VAT system starting from 2027. In this article we will discuss the main changes and the consequences for your business.

Recap

ViDA applies to all businesses that sell goods or services in the EU, irrespective of whether they are established in an EU Member State or not. The initial goal was to launch the proposals between 2024 and 2028. However, based on the latest proposals, the implementation date is currently postponed to January 2027 - 2030 (or even 2035).

To recap, the three main pillars of ViDA are:

Introduce Digital Reporting Requirements (DRR), modernise the process of invoicing and move to mandatory e-invoicing on intra-EU business-to-business (B2B) transactions (from 1 July 2030);
Introduce a deemed-supplier rule for platforms that facilitate short-term accommodation rentals and passenger transport services by road (from 1 July 2028 or 2030); and
Reduce the need for multiple VAT registrations through an expansion of the One-Stop Shop (OSS), the introduction of a specific scheme for the transfer of own goods and a mandatory application of the reverse charge mechanism (from 1 July 2027 for the supply of electricity and 1 July 2028 further extension of the OSS schemes and mandatory reversed charge mechanism).

Hereafter, we discuss these separate pillars in more detail.

1. Digital reporting requirements

Electronic invoicing will become the default system for issuing and receiving invoices. Invoices that have been issued, transmitted and received in an electronic format which allows for automatic electronic processing will be considered electronic invoices and they should in principle comply with the European Standard (EN16931). This means that unstructured formats, like pdf invoices, will not be allowed. Hybrid invoices (combination of PDF and structured XML) will however in principle be acceptable as well. Member States will be allowed to authorize other invoice formats for domestic transactions.

The electronic invoices for cross border transactions must be issued 10 days after the chargeable event. Summary invoices will (in principle) still be permitted for sales made within the same calendar month and should also be issued within 10 days after the end of the calendar month to which the summary invoice refers to.

Reporting of the invoice data by the supplier needs to happen in real time (i.e. at the time the invoice is issued or should have been issued). However, in situations of self-billing or reporting by the buyer, the buyer needs to transmit the information no later than 5 days after the invoice is or should have been issued.

In addition, within 20 days following the publication of the ViDA proposal in the official journal of the European Union, Member States will be authorized to mandate e-invoicing for domestic transactions without requiring prior approval from the European Commission. In addition, the usage of electronic invoices that comply with the European Standard is not subject to acceptance by the recipient as of January 2030.

Impact on the existing e-invoicing and e-reporting requirements

Although real time reporting of domestic transactions is not required under the EU VAT Directive, should a Member State opt to implement such a system, it will need to align with the digital reporting requirements for cross-border supplies. Member States will not be allowed to impose any additional general transaction-based reporting requirements but may keep e.g. SAF-T requirements as well as cash registers in place.

In addition, Member States can decide that holding an electronic invoice issued in compliance with the required standard becomes a substantive condition to be entitled to deduct or reclaim the VAT due or paid.

The requirements above will apply as from 1 July 2030. Member States with domestic digital real time transaction-based reporting obligation already in place on 1 January 2024 (or having been granted an authorization, or where such authorization was not necessary; e.g. Italy, France, Poland), need to converge into the new EU model at the latest by 1 January 2035. This deadline will be postponed in case of any shortcomings related to the new EU model, which will be evaluated shortly after the implementation date.

2. Deemed supplier rules for platform companies

In order to address the VAT challenges of the gig and sharing economy - where there is a lack of consensus on the ideal approach globally - ViDA is proposing to extend the scope of the so-called deemed supplier rules for platform companies.

From 1 July 2028 (at the earliest) or from 1 January 2030 (at the latest), it is proposed that a taxable person who facilitates, through the use of an electronic interface (e.g. a platform company), the supply of short-term accommodation rental (maximum 30 nights) and/or passenger transport by road, will be deemed to be the supplier of the underlying service, unless:

the underlying service provider communicates to the platform their local VAT ID; and
declares that they will charge themselves any VAT due on that supply.

The introduction of the deemed supplier rules for these types of services is intended to capture cases whereby the underlying supplier would normally not charge VAT because they are, for example, non-taxable persons. Additionally, an explicit opt-out provision has also been included in the latest package, which allows Members States to exclude services from underlying suppliers who make qualified use of the SME-scheme from the deemed supplier rules.

In this respect, the initial ViDA-package included the proposal of extending the deemed supplier rules to platform companies facilitating the sale of goods within the EU even further by including underlying suppliers established in the EU. This proposed extension has not made the latest updated proposal.

The platform package also clarifies the place of supply rules for platform facilitation services.

Finally, the mandatory application of the Import One Stop Shop (IOSS) regime has been removed from the final ViDA-package and will now form part of the 2028 Customs reform proposals.

3. Single VAT registration and reverse charge

ViDA aims to alleviate the administrative challenges faced by businesses operating within different EU Member States by expanding the OSS, introducing a special scheme for transfers of own goods and applying a mandatory reverse charge mechanism.

The OSS will be extended to additional B2C supplies of goods subject to VAT in a Member State other than the country in which the supplier is established (e.g. domestic sales, the supply of goods with installation or assembly, the supply of goods on board of ships, aircrafts or trains and the supply of gas, electricity, heating and cooling). The OSS scheme for the supply of gas, electricity, heating and cooling will enter into force on 1 January 2027. Further extension of the OSS schemes and the mandatory reverse charge mechanism will be implemented on 1 July 2028.

A new special OSS scheme will be introduced for the cross-border transfers of own goods that aims to prevent multiple VAT registrations in various EU member states. The new scheme is set to replace the current call-off stock arrangements by 30 June 2029.

The domestic reverse charge mechanism (Article 194 of the EU VAT Directive) will become mandatory in all Member States from 1 July 2028, with some modifications. It will apply to all B2B supplies of goods and services by suppliers who are not established or registered through an individual VAT number in the Member State where VAT is due. This will apply as long as the customer is VAT registered in the Member State where VAT is due. Although the reverse charge mechanism will be mandatory in certain cases, Member States can choose to apply it universally for non-established taxable persons. Furthermore, Margin scheme supplies and works of art are excluded.

The new rules will require careful planning. Businesses should not overlook that the OSS return does not provide for the possibility to recover any local input VAT. As a result, any VAT on purchases will, in the absence of a local VAT registration, need to go through the more burdensome refund procedure instead.

The takeaway

The ViDA reform marks a new era for VAT in the digital economy, coinciding with the rapid global growth of VAT and digital reporting. This reform will result in significant process changes for businesses, necessitating a careful assessment of the rules, strategic planning, and additional resources. Embracing the substantial increase in data and technology use will be a key feature of this transition. Tax authorities will also need to adapt their systems to manage the new digital and data landscape effectively while providing robust support to businesses to ensure a smooth and mutually beneficial transition.

After the ECOFIN meeting, a decision to reconsult the European Parliament on the compromise text will have to be taken through a simplified written procedure in view of the substantial differences between the EC proposal and the latest compromise text. This approval should be forthcoming because the start dates are well into the future and the compromise text reflects a balance of factors.

What steps can businesses already take?

The ViDA-package contains miscellaneous changes to the EU VAT Directive. It is important to start preparing on time for these changes as implementations in order to be compliant when changes enter into force. Especially the changes with respect to e-invoicing and digital reporting requirements will be challenging for many businesses. Many Member States have for example already introduced or announced e-compliance obligations before the expected date for ViDA. Therefore, businesses should start considering their geographical footprint and where e-compliance implementations are taking place, as well as reviewing their IT landscape and related invoicing processes. Furthermore, businesses that act as platform companies should determine the impact on their business model.