Fully digital VAT reports, quicker and better detection of frauds and errors, and a reduction in the number of VAT registrations for businesses with activities in more than one EU member state. It is with these transformative aims in mind that the Council of the European Union has finally approved the ‘VAT in the digital age’ (ViDA) legislation.
It took almost two years of negotiations before the EU Council, on 5 November, announced that all 27 EU member states had agreed on the package, which includes amendments to the EU VAT directive 2006/112/EC, the regulation (EU) 904/2010 and the implementing regulation (EU) 282/2011.
These significant changes will be introduced gradually from 2025
The changes, which will affect three macro areas (or pillars) of the EU VAT system, are expected to be so significant for both businesses and tax authorities across Europe that they will be introduced gradually from 2025 and may only become fully operational from 2035.
To better understand the impact of ViDA on taxpayers and their practitioners, it is worth analysing these changes in detail, by pillar.
Cross-border
The first pillar is to make VAT reporting obligations for cross-border transactions completely digital. The ultimate objective is to establish a real-time digital VAT reporting system through the compulsory use of e-invoices, which EU tax authorities will have access to as soon as the documents are issued.
This is expected to close a current opportunity gap for tax fraudsters to exploit the difficulties in detecting suspicious or fraudulent cross-border related transactions. Tax authorities do not have access at present to the relevant VAT data in real time.
The new digital system must be in place by 2030
The ViDA package stipulates that a new digital system must be in place by 2030 in all member state tax jurisdictions, and harmonised across the EU by 2035 so that in 10 years’ time any specific e-invoicing requirement, for example, will be the same in each member state.
It is important to stress that while the main change does not need to take effect before 2030, taxpayers in general – and, in particular, those operating in more than one EU country – should monitor the e-invoicing and digital reporting obligations in each member state concerned from as early as next year, as some may decide to introduce the new rules before 2030. Broadly speaking , the race to make tax digital is gathering pace all around the world (see the AB article ‘The digital tax evolution’).
Service platforms
The second pillar will require online platforms to pay VAT on short-term accommodation and passenger transport services.
The move is meant to reduce the amount of VAT not being collected and to neutralise unfair competition between traditional service providers and those operating in the accommodation and transport sectors through internet platforms.
Currently, many online rental and transport businesses in the EU do not pay VAT, either because they run very small enterprises with turnovers below the registration threshold (such as part-time drivers or individuals renting out a single taxable property) or are unaware of their obligations in member states where they do not usually reside.
Practitioners should follow the tax news in each country
Between 2028 and 2030, a digital platform operator acting as an intermediary in the supply of short-term accommodation rentals (up to 30 consecutive nights per customer) and/or passenger transport (by road) will be regarded as the ‘deemed supplier’ of those services for VAT purposes in cases where the actual service providers do not charge VAT themselves and/or do not provide their tax identification numbers to the platform. The intermediary will then collect the VAT directly from the customer and remit it to the tax authorities.
As with the changes related to the first pillar, taxpayers and their practitioners should continuously follow the tax news in each country as member states effectively have a two-year window to introduce the new rules; in some exceptional cases, these could go live even before 2028.
One-stop shops
The third pillar expands online VAT one-stop-shop schemes so that businesses moving their own
products do not have to go through costly VAT registrations in every member state in which they operate.
This will in effect be an extension of the scope of the existing one-stop shops to domestic sales of certain items from businesses to consumers where the sales are carried out fully within a member state by non-established traders, which simply move their own stock to an EU country to sell directly to consumers in that country at a later stage.
Currently, the movement of own goods between member states almost always triggers a VAT registration in both the member state of origin and the destination country.
The VAT accounting and liability will be shifted to the business customer
Instead, the expanded one-stop shop will allow more businesses to fulfil their tax obligations under their existing VAT number via a single online portal without registering for VAT in the country the goods are shipped to. Also, for business-to-business transactions the VAT accounting and liability will be shifted to the business customer under the so-called reverse charge mechanism.
These rules will apply by default from 2028. However, energy products, such as gas and power, will fall within the scope of the new regime from the start of 2027, with the VAT simplification bringing a potentially significant easing of the tax admin burden of suppliers of electric vehicle charging solutions in EU countries where they are not established.
