On 8 December 2022, the European Commission issued a legislative proposal for amendments to the EU VAT Directive, the Council Implementing Regulation and the Council Regulation on Administrative Cooperation as part of the package of legislation on VAT in the Digital Age initiative ("ViDA"). The VAT package offers a series of measures to modernize the current VAT system in order to resist against tax fraud and adapt VAT to the digital age.
The EC’s action plan is based on three pillars: (i) modernising VAT reporting obligations and introducing e-invoicing for cross-border transactions, (ii) addressing the challenges of the VAT treatment applicable to the platform economy, and (iii) avoiding the need for multiple VAT registrations in the EU.
ViDA key features
VAT is an important source of revenue for Member States. However, in recent years, a loss of revenue has been noted, in particular due to VAT fraud linked to intra-EU trade. In order to respond to these issues, the European Commission proposed measures to modernize the current VAT system because international tax rules are no longer adapted to the realities of the modern global economy.
The ViDA package proposed by the European Commission features the following changes to the currently applicable VAT rules :
Modernizing VAT reporting obligations and introducing mandatory e-invoicing
This first pillar introduces a real-time digital reporting system based on e-invoicing for businesses that operate cross-border within the EU.
In practice, an e-invoice will need to be issued for all intra-community B2B supplies of goods and services.
In addition, for these transactions, a real-time digital reporting will be introduced. The purpose of this system is to transmit information from taxpayers to the tax authorities in an electronic format in real time and to ensure that VAT is collected.
Addressing the challenges of the VAT treatment applicable to the platform economy
This second pillar introduces an obligation for platform economy operators providing passenger transport and short term accommodation to collect and pay VAT to the tax authorities when service providers do not, for example because they are a small business or individual provider.
In practice, platforms will be considered as "deemed suppliers", meaning that they will be considered to receive the relevant service from the accommodation or transport supplier and provide this same service to the end-customer. Together with other clarifications, this will ensure a uniform approach across all Member States and contribute to a level playing field between online and traditional short-term accommodation and transport service provisions.
Create a single EU VAT registration
The aim of this measure is to facilitate VAT registration for businesses operating cross-border within the EU.
The European Commission proposes to establish a single VAT registration system, by improving the existing One-Stop Shop ("OSS") and Import One-Stop Shop ("IOSS") systems.
The pillar allows companies operating in the European market to register only once via a one-stop shop and in one language for the entire EU. Fulfilment of VAT obligations is also intended to take place via a single online portal and in one single language. Administrative charges and related costs will be reduced by this measure.
The measures introduced by the European Commission’s legislative proposals are intended to enter into force gradually between 2025 and 2028, once adopted by all EU Member States.