VAT in the Digital Age (ViDA) – A revolution is underway

Introduction

On 8 December, the European Commission adopted a series of measures to bring the EU VAT rules into the Digital Age.

The proposals, which sought to make sure that VAT revenue is efficiently captured by Member States while simplifying administrative processes for businesses, are made around three distinctive pillars. They essentially include (i) move to real-time digital reporting based on e-invoicing , (ii) new obligations for accommodation and transport digital marketplaces and (iii) single VAT registration for businesses carrying out cross-border transactions.

Scope

EU Digital Reporting Requirements

 - E-invoicing from 2028

The new system introduces real-time, transaction-based digital reporting for VAT purposes, based on e-invoicing. Mandatory e-invoicing will be introduced for all intra-community business to business (B2B) supplies of goods and services to guarantee near-real time digital reporting. E-invoicing will remain discretionary for domestic transactions but EU Member States will be free to remove the obligation for suppliers to obtain their customers’ approval before issuing electronic invoices. Also, Member States will no longer be required to obtain EU approval for imposing mandatory domestic e-invoicing.

- Near-real time reporting from 2028

In addition, near-real time digital reporting of transaction data will be introduced for intra-community supplies. Reporting will have to be on a transaction-by-transaction basis within two working days after the issuance of the invoice (or from the date the invoice should have been issued). Only B2B cross-border EU transactions will be subject to near-real time reporting. The reporting will be made through immediate consolidation in a common EU database, via which tax authorities will be able to cross-reference sales and purchases to ensure correct VAT collection. This means, among other things, that Recapitulative Statements will no longer be required.

VAT treatment of Platform Economy from 2025

The “deemed supplier” rule already applicable to digital platforms, marketplaces or portals selling goods will apply regardless of where the underlying supplier is established and the status of the end-customer (eg, B2B or B2C).

The new rules stipulate that intermediary platform operators in the short-term accommodation and passenger transport sectors will be considered “deemed suppliers” as well. This means that operators will be deemed to receive the relevant service from the accommodation or transport supplier and to provide the same service to the end-customer. As a result, platform operators themselves will be deemed responsible for collecting VAT when the service providers do not (because they are, for example, a small business not usually required to register for VAT) and for remitting this VAT to tax authorities.

Single EU VAT Registration from 2025

The One Stop-Shop (OSS) will be extended to all remaining cross-border B2C transactions and later, all cross-border B2B transactions. The aim is to reduce administrative complexities and costs, boost tax revenue, encourage the development of the EU Single Market and minimise the VAT Gap.

Additionally, the definition of distance sales of goods will be broadened so as to include second-hand goods, work of art, collectors’ items and antiques.

The possibility to use the One-Stop-Shop will also be extended to movements of own goods thus rendering call off stock simplification measures obsolete (as from 31 December 2025).

Takeaways

These proposed changes are a major revolution in the way our VAT system currently operates. It will remove the current fragmentation in the e-invoicing and digital reporting regulations, pave the way to harmonised digital reporting and increase interoperability between EU Member States.

The changes are essentially aimed at simplifying VAT collection for businesses carrying out cross-border operations while ensuring that VAT revenue is efficiently captured by Member States. But those changes will have a drastic impact on businesses’ systems and processes.

When the time comes, businesses concerned will therefore have to critically review how their systems and, more generally, their internal VAT governance are impacted, in light of the adopted Directive and Implementing Regulations.