VAT in the Digital Age (ViDA): no EU approval yet

15/05/24

After extensive consultation and negotiation, the Economic and Financial Affairs Council (ECOFIN) debated the revised VAT in the Digital Age (ViDA) package on 14 May 2024. The latest and updated ViDA package - released on 8 May 2024 - contained several compromises and new start dates, since the original 8 December 2022 proposals: see PwC’s earlier tax news update.

Recap

ViDA applies to all businesses that sell goods or services in the European Union, 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 July 2027 - 2030 (2035).

To recap, the main objectives of ViDA are to:

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);
Update the VAT rules for platform operators who facilitate short-term accommodation rentals and passenger transport services by road (from 1 July 2027); 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).

During the ECOFIN debate of 14 May 2024, one Member State raised a concern in relation to the platform rules and this aspect will be worked through in the coming months. We discuss below the latest detail and the likely way forward.

1. Digital reporting requirements

Electronic invoicing will become the default system for issuing invoices. However, Member States will be allowed to authorise other invoices for domestic supplies.
Invoices that have been issued, transmitted and received in electronic format which allows for automatic electronic processing will be considered to be 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 will however in principle be acceptable as well.
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.
The 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 issued or should have been issued.
Although real time reporting of domestic transactions is not required under the EU VAT Directive, should Member States opt to implement such a system, it will need to align with the digital reporting requirements for cross-border supplies. 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.
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.

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 authorisation, or where such authorisation was not necessary; e.g. Italy, France, Poland), need to converge into the new EU model at the latest by 1 January 2035. In addition, within 20 days following the publication of the ViDA proposal in the official journal of the European Union, Member States will be authorised to mandate e-invoicing for domestic transactions without requiring prior approval from the European Commission.

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 introduce a deemed supplier model. This would impose a VAT liability on the platform in relation to the underlying supply of two main services.

From 1 July 2027, it is proposed that a taxable person who facilitates, through the use of an electronic interface, 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 (or facilitated) service, unless:

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

Furthermore, the initial ViDA package included the proposal of further extending the deemed supplier rules to platform companies facilitating the sale of goods within the EU by underlying suppliers established in the EU. This proposed extension has been removed from the latest updated proposal. Currently, these deemed supplier rules for sales of goods within the EU only apply in case the underlying supplier is established outside of the EU.

The platform package also provided clarification in relation to the VAT treatment of certain goods transactions and facilitation services.

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.

One Member State raised concerns during the ECOFIN meeting in relation to the cost to SME’s and administrative burden of the proposed platform rules for short-term accommodation and passenger transport services. That Member State also suggested an “opt in” model should be considered.

It should be highlighted that a degree of flexibility was already built into the proposed ViDA rules such that platforms could allow underlying sellers to collect VAT, and other rules for special schemes (eg. travel agents) and small businesses could be applied. As part of finding a workable solution, the EU regulators may need to look to other countries such as Canada where a pragmatic approach was chosen.

3. Single VAT registration and reverse charge

The EC 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 leading to VAT payable in a Member State other than that where 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), some measures kicking in as early as 1 January 2026. Also, certain zero-rated supplies will be allowed under OSS. However, intra-EU transactions will not be able to be declared via the OSS procedure, but only locally requiring a local registration.

A new special scheme will be introduced for the cross-border movement of own goods (transfers) that will help reduce multiple VAT registrations. The new scheme is set to encompass the current call-off stock arrangements by 30 June 2028.

The reverse charge mechanism (Article 194 of the EU VAT Directive) will become mandatory from 1 July 2027 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 there. Although the reverse charge mechanism will be mandatory in certain cases, Member States can choose to apply it universally for non-established taxable persons.

The new rules will require careful planning. Businesses should not overlook that any VAT on purchases will, in the absence of a local VAT registration, need to go through the refund procedure instead.

The takeaway

Many had hoped that the ECOFIN meeting (on 14 May 2024) would mark the start of a new VAT era in the digital age. The ViDA proposals are designed to:

help streamline and harmonise the EU’s VAT rules (thus lessening fragmentation and making the VAT more apt for the modern economy);
reduce administrative burdens for businesses operating cross-border;
safeguard significant tax revenues for Member States; and
increase the accuracy of VAT filing positions.

Despite the call by one Member State for a different solution in relation to platforms, the latest ViDA package provided a degree of flexibility and allowed a longer lead in time.

We are hopeful that a final solution will be worked through in the true spirit of compromise (as noted during the ECOFIN meeting). The start dates discussed above are unlikely to change. The next ECOFIN meeting is set for Friday 21 June 2024 and we expect some progress at this stage.

ViDA is highly significant on the global tax policy stage. Other parts of the world will be keenly following how ViDA unfolds over the coming months, particularly in relation to e-invoicing and the platform economy.

What steps can businesses already take?

Although no final agreement has been reached during the ECOFIN meeting of 14 May 2024, businesses operating in the EU should continue to pay close attention to the changes brought by the (updated) ViDA package. While the single VAT registration may offer opportunities for businesses to reduce registrations and streamline their compliance obligations, the platform changes and the digital reporting introduced by ViDA will bring additional obligations for many businesses.

Becoming compliant with the new requirements is time consuming and implementations typically have a significant duration. Despite further delays in the overall timeline, many EU Member States have for example already introduced or announced e-compliance obligations before the expected date for ViDA. Therefore, businesses should already start considering their geographical footprint and where e-compliance implementations are taking place, and reviewing their IT landscape and related invoicing processes. Furthermore, businesses that act as platform companies should also keep the changes proposed by ViDA under close attention and determine the impact on their business model.