The long-awaited ViDA proposal from the European Commission to make VAT rules ready for the digital age has finally been published.
It concerns an extensive package of measures that radically change the VAT regulations on various points; an amendment to the EU VAT Directive (2006/112/EC), the implementing regulation (EU 282/2011) and the Council regulation on administrative cooperation (EU 904/2010).
With these reforms, the European Commission aims to make the VAT system more fraud-proof and business-friendly by (i) modernizing VAT compliance and facilitating e- invoicing/reporting; ii) adapting the VAT rules to the platform economy, and (iii) work towards a single VAT registration in the EU.
Below we list the key highlights:
- E- invoicing will become the rule when issuing invoices. From January 1, 2024, the definition of an electronic invoice will change. From then on, these must be issued in a structured format. The condition that the recipient must accept electronic invoices will be removed.
- Eye-catcher: e- invoicing will become mandatory for cross-border B2B transactions within the EU from 2028. There will be no thresholds or exemptions for small businesses!
- The period for issuing/reporting the electronic invoice will be shortened to only two working days. A (quasi) real-time reporting will be introduced which should replace the existing system of intra-Community sales listings. The new system should enable Member States to exchange information much more quickly.
- For local transactions, Member States have the option to impose electronic invoicing (without prior EU approval), but these must comply with the European standard (EN16931).
- Countries with existing deviating e- invoicing / reporting models have until 1 January 2028 to comply with the EU model.
- VAT invoices will need to contain more information (the supplier’s bank account IBAN to which the payment for the invoice will be made, the due date for payment and, in case of corrective invoices, reference to the initial invoice number). Also, the possibility to issue so-called summary invoices will be abolished (invoices should in principle always be issued on a transactional basis).
- Taxpayers making intra-Community acquisitions will be obliged to transmit data on their purchases.
- The Commission is also looking at the platform economy, targeting in particular short-term (max. 45 days) accommodation rental and passenger transport,the Ubers and the Airbnbs of this world.
- The idea is to make platforms responsible for VAT payments in certain situations (C2C and C2B transactions) as from 2025. The implementing regulation determines that the platform will be liable for VAT in all cases where the underlying provider has not provided a valid VAT number.
- From then on, these platforms must also keep additional records of their other transactions.
- The “deemed supplier” rule should remove the unequal VAT treatment and distortion of competition between traditional players and platforms in these sectors.
- Platforms will have the possibility to settle the VAT through the one stop shop (OSS) scheme.
- Finally, the proposal clarifies the VAT treatment of services provided by platforms. These will be subject to VAT in the country where the underlying facilitated transaction takes place for VAT purposes.
One VAT registration in the EU
From January 1, 2025, a series of new reforms will be introduced:
- The One-Stop Shop (OSS) will be extended to local B2C sales of goods and other B2C transactions carried out by non-residents in the EU.
- There will be a new OSS system for intra-EU transfers of own goods. A major sore point here is that this OSS return will not provide the possibility for VAT deduction. As a result, VAT deduction will still have to be made via a separate refund procedure or a local VAT registration.
- The existing call-off stock arrangement will be removed (a transitional arrangement applies until the end of 2025).
- All B2B deliveries by non-residents to VAT registered customers will be subject to the reverse charge. These transactions must be reported by the supplier in its EU sales listing from 2025, and is subject to the (real-time) intra-EU reporting, from 2028Under the current system, the reverse charge scheme is optional. Most countries have implemented some form of reverse charge, but impose their own country-specific conditions, which makes the VAT rules for non-resident registrations complex.
- The “deemed supplier ” rule, where the platform has a VAT collection liability, will be extended for sales within the EU. Currently, this rule only applies to sales by non-EU suppliers. This rule would be extended to all deliveries within the EU, regardless of where the underlying supplier is located and the status of the buyer. In other words, the platform will always be responsible for paying VAT (which should reduce the administrative burden for sellers). An exception will apply for local platforms that are only established in one Member State and that only facilitate domestic supplies within that Member State.
In addition, the movements of goods before the actual sale (intra-Community transfers) would also be declared via the platform.
- Platforms will be required to apply the IOSS (Import One Stop Shop) scheme for low value imports. The problem of hijacking IOSS numbers will also be tackled (the idea is to link unique references of shipments to the IOSS number).
- Finally, the margin scheme for second-hand goods, works of art, collectors' items and antiques will undergo significant changes. These transactions will become taxable in the country of the customer with the option of declaring the transactions through the OSS regime.
This concerns draft legislation that, of course, still has to be approved unanimously by the member states.
The big question is whether, in what form and when this will happen. The EU Commission is already counting on a good outcome. Reportedly, the proposals have also been discussed with member states and no significant opposition has yet been noted.
The proposed changes will potentially have a drastic impact on companies and their systems and processes. At the same time, they can pave the way towards a more harmonized EU reporting landscape.
After all, the tsunami of announced e- invoicing / reporting systems and the variations in the approach of the member states make it more difficult and costly for companies to comply with VAT reporting rules.