ViDA Pillars

09/01/24

On 8 December 2022 the Commission submitted the VAT in the Digital Age (ViDA) package, containing three proposals:

A proposal for a Council Directive amending Directive 2006/112/EC as regards VAT rules for the digital age;
A proposal for a Council Regulation amending Regulation (EU) No 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital age; and
A proposal for a Council Implementing Regulation amending Implementing Regulation (EU) No 282/2011 as regards information requirements for certain VAT schemes.

This legislative proposal is meant to address the challenges posed to traditional VAT by the rise of the digital economy and it seeks to ensure fair and efficient VAT collection within the European Union as well as minimizing compliance impact for businesses. While there is still no consensus reached in regard to ViDA, many Member States are implementing legislation on e-reporting and e-invoicing because of the derogation requirement being abolished per 1 January 2024.

Significant developments in this respect have been seen in the last year, and we have included an overview of these in this Tax News Article. Take a moment to explore and we guarantee you'll find it both informative and useful.

ViDA Pillars

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 the implementation date is currently postponed to 2026-2030(2032).

ViDA focuses on the following three pillars:

Digital reporting requirements which are set to generalize e-invoicing and standardize the information needed to be submitted for each transaction by the taxable persons;
Platform economies which are envisaged to receive an enhancing role in the VAT collection and this way reaching a fair level playing field in regards to traditional sectors; and
Single VAT registration which aims at reducing the burden on taxable persons by having to register in multiple Member States and expanding the existing one-stop shop systems and reverse charge mechanisms.

Digital reporting as introduced by the ViDA proposal, will require businesses to report intra-community transactions within 10 days, calculated based on the posting date instead of the issuance date. While all new e-invoicing mandates should allow the European Standard for e-invoicing and e-reporting, the latest ViDA proposal makes the use of these standards optional for the Member States.

Although the new implementation date is shifted now to 2030 or maybe even later, e-invoicing will become the default for intra-community B2B transactions. In addition, as of 1st January 2024 derogation is no longer necessary, which means that in many Member States domestic requirements for digital reporting and e-invoicing will probably be implemented earlier than 2032.

Furthermore, it will no longer be required to submit periodical EC Sales Listings. Another important amendment brought in the latest proposal is the fact that Member States should be able to continue with their domestic e-reporting regimes, even if they are not in line with the VAT in the Digital Age model.

The deemed suppliers’ rules for platforms are expected to take effect on 1st January 2026. The liability of platforms facilitating supplies of goods in the European Union will include all in-scope supplies irrespective of the location of the supplier.

Furthermore, platforms facilitating short-term accommodation and transportation services will have to report VAT and collect and store information for these services for which the actual supplier is not liable for VAT. Proposed changes will affect the place of supply rule for B2C facilitation services so that the VAT on these services provided by platforms will become due in the Member State where the underlying transaction takes place. The latest changes to the ViDA proposal reduce the 45-days rental threshold or the new deemed supplier obligations to 31 days.

Two years after the implementation of these rules, a study should be conducted to assess their effectiveness.

Single VAT registration: this rule’s purpose is to decrease the VAT compliance obligations of businesses by allowing for single VAT registrations in one Member State. From 1st January 2026 call-off stock simplification can no longer be applied. The One Stop Shop (OSS) scheme will be extended to cover movements of own goods instead. Applying the local reverse charge should be possible for all non-established companies throughout the EU. Furthermore, these companies should still be allowed to register and account for local VAT if they prefer.

EU Highlights

From the moment the ViDA package was announced there have been a lot of discussions and unclarities regarding both the content and the timeline of these proposals.

At the meeting of ECOFIN in June 2023, the Finance ministers have welcomed in general the proposals and expressed their support to the work ahead. However, there were different views from the Member States regarding the harmonization level to be achieved.

Since the initial text of the ViDA provisions, two more documents have been published in the period May—June 2023 containing a total of 251 amendments. This confirms the difficulty in reaching a consensus at the EU level. However, it seems that for the third pillar, the single VAT registration, harmonization would be easier to achieve compared with the other two.

The three pillars

The Commission is proposing a fully digitalized mandatory transaction-by-transaction reporting system for intra-EU transactions supported by e-invoicing. Accordingly, e-invoices will become the default and they would be based on an European standard. Member States also have the option to move to digital (real-time) reporting for domestic transactions and this is already seen in many of the EU Member States including Hungary and Spain.

Through the platform economy pillar, the Commission proposes to move to a deemed supplier model for the platforms that offer passenger transport and short-term accommodation, by obliging the platforms to charge VAT in the name of the suppliers operating through them. This way the Commission plans to achieve a level-playing field for VAT purposes between traditional suppliers of short-term accommodation rental and passenger transport services and platforms.

At the ECOFIN policy debate in June 2023, there was in principle consensus between the Member States on the need for a more significant role of the platforms in the VAT collection, however some ministers expressed concerns on the impact of the proposal on their economies, especially regarding the definition of short-term accommodation rental. Therefore, the Spanish Presidency has proposed a compromising solution by combining a harmonized mandatory deemed supplier with a definition of short-term accommodation rental that would provide sufficient flexibility to accommodate national specificities in the taxation of the accommodation sector through national law. However, this change is still not sufficient to reach an agreement between all EU Member States so it will be interesting to see how the Belgian Presidency proceeds in this first half of the year.

On the last pillar, the single VAT registration, an agreement is closer to being reached. During the meetings on 7th and 14th November 2023 of the Working Party on Trade Questions, it seems that the latest compromise proposed by the Spanish Presidency was acceptable to all Member States, only a few last technical adjustments as compatibility of national platform reporting systems would still need to be tackled. This latest text refers in particular to excluding the extension of the deemed supplier provision, removing the elements in the Commission proposal related to works of art and secondhand goods, and putting on hold the provisions on a mandatory IOSS.

Timeline ViDA

ViDA updates or even a go-ahead was expected at the beginning of December 2023, however it was not included on the agenda of the ECOFIN meeting, which meant that further discussions and work on the proposals would be carried over to the Belgian Presidency. The current expected timeline for the implementation of the platform economy and the single VAT registration pillars is 2026, while digital reporting is now expected to take effect from 2030 or potentially even 2032.

Domestic Highlights

The first time ViDA proposals were presented in 2022, discussions around digital reporting requirements and e-invoicing have grown in intensity. However, there is actually a global trend, which goes beyond the requirements expected through the implementation of ViDA and with a higher impact for businesses.

A series of non-EU territories such as Philippines, Panama, Mexico, and Egypt for example, have implemented or are planning to implement e-invoicing and/or e-reporting requirements. Several other non-EU territories, such as Australia, Japan, New Zealand (also looking at NZ for platform liability!), and Singapore, have actually adopted the EU model, PEPPOL-based BIS Billing 3.0, on electronic invoicing. The UAE has also announced its plans to introduce e-invoice requirements by July 2025, using as well the Peppol specifications.

Furthermore, many EU Member States have already taken steps in implementing local e-reporting and e-invoicing requirements. Some of them are further than others. Therefore, while ViDA focuses on the e-invoicing for the B2B intra-community transactions, domestic legislations tackle the domestic B2B transactions.

In (the course of) 2024 e-invoicing requirements are becoming mandatory in Poland and Romania. Worth to note that both these countries have already implemented SAF-T obligations as well. Denmark has taken a step as well in this direction through the Bookkeeping Act that comes into force in 2024. This new law requires businesses to digitize their accounting records and to store their records ( or a backup of these) on a server with a vendor or third party. Furthermore the digital accounting systems have to be approved by the Danish authority.

France and Germany are expected to implement e-invoicing requirements in 2026 and 2027 respectively, however these are still in proposal stage. Belgium should also be kept in mind as based on the most recent news e-invoicing obligations may come into force in 2026. This list is not exhaustive and information in this respect changes from one week to the other. Discussions on digital reporting and e-invoicing requirements are taking place in more Member States and it is expected that local obligations will be implemented before 2030 when ViDA may come into force.

Harmonized approach?

The lack of consensus between Member States when it comes to the ViDA provisions can also be seen in the unharmonized approach they are taking when implementing local digital reporting and e-invoicing requirements for the domestic B2B transactions. Therefore, it is interesting to notice which are the differences between the approaches of the Member States.

The first relevant one is the integration model adopted. Five different integration models can be distinguished:

Real-time reporting
Centralized reporting
Clearance model
Interoperability model
Decentralized CTC model

Member States are choosing different e-compliance integration models. For example Hungary adopted a real-time reporting model, while Poland and Romania are going with a clearance model. In France and Belgium a decentralized CTC model is expected. The initial ViDA package was considering a decentralized CTC model, however now discussions are focusing on a centralized model, but it is still unclear what that will entail. It is difficult to envisage now, how these different integration models will in the end lead to a harmonized approach under ViDA.

In principle domestic e-invoicing obligations implemented by the EU Member States affect the B2B local transactions, however there are countries such as Italy that include cross-border transactions as well. Furthermore, some EU Member States also include an e-invoicing obligation for exempt supplies.

When it comes to the entities in scope for e-invoicing, different approaches can be seen here as well. Generally, the obligations apply to locally established businesses, but there are EU Member States that extend the scope to foreign entities with a local VAT registration. An example here is Romania where also non-resident companies will come in scope eventually.

Digital reporting comes with its own differences from one EU Member State to the other. These differences relate mainly to the reporting deadlines that can range from real-time to a number of calendar days from the time of supply, and the number of data points that need to be reported. Furthermore, relevant to mention is that e-reporting will usually go beyond the scope of e-invoicing and therefore cover a broader range of transactions and affect a broader category of entities.

Buyer impact?

Very often discussions on the impact of e-invoicing are focusing on the sellers, but these requirements impact the buyer and procurement departments as well.

Firstly, buyers need to be able to receive e-invoices and process them in their own accounting software. Furthermore, some Member States actually include additional obligations including e.g. sustainability requirements on the buyer’s side. In France for example, a payment confirmation is required. Depending on the country, other types of responses from the buyers may be needed.

Other domestic developments

The digital reporting requirements and e-invoicing obligations seem to be a step in the direction of pre-filled VAT/GST returns or even an abolishment of VAT/GST returns altogether as was proposed in Poland some time ago. Thanks to e-invoicing, control statements, SAF-T, real-time reporting etc., tax authorities are able to have a first trial at draft returns without conducting an explicit audit. This in combination with the use of AI together with trend analyses would lower the costs for the taxpayers to comply with VAT obligations, reduce disturbing audits, but it would also help tax authorities automate fraud detection by cross-checking transactions between suppliers and buyers and to increase VAT revenue in general as we have seen in Italy.

A number of territories have introduced pre-filled VAT returns. Italy offers since 2023 the option of pre-filled VAT returns for certain taxpayers, while Hungary is enabling taxpayers to freely access pre-filled VAT returns from 2024. Greece, Spain and Portugal also offer pre-filled VAT returns to a certain extent.

This trend is seen globally, as pre-filled returns can be found in Chile, Mexico, Brazil and Kenya, and this list is not meant to be exhaustive.

Next steps

The changes brought by ViDA will have a big impact on taxpayers, and this grows in intensity depending on the business type. Each of the three pillars proposed by ViDA require special attention and an individual assessment to determine the actual effect on your business.

Furthermore, while certain aspects of ViDA are still unclear and the expected timeline seems still far away, the global trend of e-reporting and e-invoicing is more than present. In many of the European countries, steps in this direction are being taken and it is expected that domestic requirements will go live before the implementation date of ViDA. Due to the unharmonized approach, it is important to understand country specifics and the degree they will impact your business. Therefore, a personalized e-compliance readiness assessment and accompanying road map are highly recommended to prepare yourself for the upcoming obligations.

Our specialized teams can help on each of the three pillars and provide personalized advice and support. PwC offers end-to-end support, from legal advice to technical and technological implementations, by assisting you in bringing the relevant people together and working together with our numerous alliance partners in this field.