On ECOFIN's agenda: updated EU proposal for VAT reforms in the Digital Age

May 13
On May 8, 2024, the European Commission released a significant update of the VIDA package "VAT in the Digital Age", reflecting the ongoing adjustments and dialogue among the EU member states since the initial proposal on December 8, 2022.

The Economic and Financial Affairs Council (ECOFIN), under the leadership of the Belgian Presidency—which has prioritized this file —is set to review and potentially finalize a political agreement on this proposal on May 14, 2024.

Should it be approved, the proposal will introduce several amendments to the EU VAT regulations. Key highlights of the updated proposal are outlined below.

Digital reporting / e-invoicing

Starting January 1, 2030, e-invoices will need to be issued under EU standard (EN 16931), with mandatory digital reporting applying to various types of cross-border transactions, including:

  • Intra-EU sales and acquisitions of goods, except for transfers of own goods, with an option for member states to opt out for acquisitions/purchases.
  • Taxable sales and purchases of goods and services where the customer is liable under the reverse charge mechanism, with member states having the option to opt out for purchases.

The new digital reporting requirement eliminates the current obligation to file a European Sales listing, but additional data points are imposed to report, including bank details, to enable the tax authorities to track payments.

Compared to the original proposals, there are several noteworthy points, including:

  • E-invoices for transactions under the EU mandate must be issued within 10 days of the taxable event, a change from the previously proposed requirement of two days, but still much shorter than the existing issuance deadline of the 15th day of the month following the month in which the taxable event occurred.
  • For self-billing and purchases under reverse charge in EU (in cases where the recipient is required to report), the reporting deadline for the invoice is even shorter, namely 5 days from the date of issuance (or when the invoice should have been issued).
  • Hybrid invoices, which contain both structured and unstructured formats, will be considered "compliant" if they contain all necessary information in a structured format.
  • The updated proposal explicitly allows member states to implement 'accreditation schemes' to ensure that electronic invoices meet formal criteria. This means that submitting invoice data to a government platform for prior validation (clearance) is not prohibited.
  • Member states with existing domestic systems or systems approved before January 1, 2024, will have a longer period to align with the EU standard. They have until January 1, 2035, to adapt to the new European standard.
  • Member states will retain the flexibility to request additional data beyond the requirements under the new EU framework (e.g., SAF-T).
  • Member states will have the flexibility to mandate the use of a valid electronic invoice as a substantive condition for the exercise of VAT deduction.
  • The use of summary invoices remains possible under specific conditions.

Role of platforms in VAT Collection

From July 1, 2027, platforms facilitating short-term accommodation rentals and (road) passenger transport services will play a greater role in VAT collection. From then on, platforms facilitating short-term accommodation rentals or passenger transport services through electronic interfaces are considered the ones receiving and supplying these services (deemed suppliers). This applies unless the underlying service provider communicates their VAT identification number (VAT ID) and confirms their responsibility for charging the applicable VAT. Additionally, member states may require these platforms to verify the VAT identification numbers of the service providers.

The current compromise text provides member states with flexibility in applying the "deemed supplier" model. Short-term accommodation rental is defined as the uninterrupted rental of accommodation to the same person for up to 30 nights. However, to accommodate the specific characteristics of the sector in different member states, member states have the option to subject short-term accommodation rental to certain criteria, conditions, and limitations according to their national legislation.

Before July 1, 2027, member states must inform the VAT Committee about their national legislation regarding these criteria, conditions, and limitations. Subsequently, the European Commission (EC) will compile and publish a comprehensive list by December 31, 2027, with detailed information about the criteria, conditions, and limitations established by each member state.

In contrast to the initial proposal, the updated version also allows member states to exclude short-term accommodation rentals and road passenger transport services under the special scheme for small enterprises from the "deemed supplier" model. Additionally, the updated proposal no longer mentions further expansion of the "deemed supplier" to all deliveries within the EU, regardless of the location of the underlying supplier.

The updated proposal also confirms the VAT treatment of services provided by platforms. These services will be subject to VAT in the country where the underlying facilitated transaction takes place.

The proposal further clarifies that agents operating under the Tour Operator Margin Scheme (TOMS) are not subject to the "deemed supplier" regulation.

Single VAT registration

From January 1, 2027, the OSS (One Stop Shop) will be further expanded to include reporting of intracommunity transfers of own goods. This measure is intended to alleviate administrative burdens for e-commerce sellers, who currently require separate VAT numbers in each country where they hold inventory.

With the OSS covering these cross-border transfers, call-off stock will cease to exist after June 30, 2027. Existing stocks falling under this scheme before this date must be phased out by June 30, 2028.

The OSS will also be applicable to all domestic B2C sales of goods by non-established suppliers, including installation deliveries and deliveries of goods on board ships, aircraft, or trains, as well as transactions related to gas, electricity, heating, and cooling. It is noteworthy that for energy supplies, the extension already applies from January 1, 2026.

Previous proposals also considered including transactions under the margin scheme (such as second-hand goods and artworks) under the OSS; however, these are no longer part of the compromise text.

Finally, but no less importantly, the VIDA proposal aims to make the application of the reverse charge mechanism mandatory in certain cases. This is the case when suppliers are not established/registered in the member state where VAT is due and the recipient is identified for VAT purposes. These supplies would then need to be reported via the European Sales listing. However, member states will retain flexibility in applying the reverse charge mechanism to supplies by non-established sellers to customers, regardless of their status, under the conditions set by the member state.