On 5 November, the Ministers of Finance of the EU27 Member States gathered in Brussels in the ECOFIN Council configuration and discussed several priority topics of high relevance, including the package named “VAT in the Digital Age” (ViDA).
Proposed in December 2022, ViDA aims to address the gaps of the VAT E-commerce Package and introduce simplifications and modernisation in the EU VAT system by looking at three specific angles: the improvements to the One-Stop Shop via a Single VAT Registration (SVR), the Platform economy’s VAT treatment, and the digitalisation of invoices and Digital Reporting Requirements (DRR).
Despite a promising outlook and a certainty that the file will not require extensive negotiations, ViDA discussions resulted in a two-year long bargaining among Member States. Contrary to expectations, which anticipated that the DRR workstream would have encountered many obstacles, this pillar was endorsed relatively easy, after certain amendments. The SVR pillar was, as expected, approved almost in toto, which a few exceptions. The Platform economy pillar, instead, was subject to sensitive discussions in the last months of negotiations.
Ecommerce Europe has been a strong advocate of this VAT reform since the entry into force of the VAT E-commerce Package (July 2021), underlying how the Package has introduced several improvements and changes to VAT in intra-EU and import B2C flows, but a correction to certain gaps evidenced in the aftermath of July 2021 was much needed. The VAT in Digital Age package served this purpose and tabled several improvements.
Almost two years after being proposed, ViDA has been finally agreed by all Member States. Many amendments have been made, but the core of the legislative act, i.e. introducing digitalisation, modernisation and adaptation of the VAT system to current trends, remain valid. With a specific look at the Single VAT Registration pillar, ViDA now introduces the following changes to the One-Stop Shop by January 2028, such as:
- Expanding the OSS to include B2C domestic supplies, as well as to: supply and install; goods sold aboard ships, trains and aircraft, and – voluntarily from July 2027 – energy, natural gas and electricity.
- Introducing a transfer module businesses to report movements of their own goods between EU Member States avoiding the need to report acquisition VAT in the country of arrival. However, this will not be permissible where the owner is not entitled to fully deduct input VAT in respect of those goods. In a change to the original ViDA proposal, the OSS for transfers of own goods may be used for “capital goods” where the owner has a right to full VAT recovery.
- Including further B2B transactions in the VAT reverse charge mechanism, e., supplies of goods and services by businesses neither established nor registered in the country where VAT is due if the customer is VAT registered in that Member State. Member States will have the flexibility to adopt different rules for applying reverse charge in other situations.
- Withdrawing the current call-off stock simplification, as traders will be able to use OSS. No new call off stock arrangements may be used from 1 July 2028. Goods already transferred prior to this date, and still not released, conditions will cease to apply on 30 June 2029.
Notably, what has been dropped out of the original proposal is the following:
- Extended deemed supplier regime for platforms to cover VAT responsibility on B2C sales made by EU sellers irrespective of their value, in addition to the responsibility towards non-EU sellers as already introduced by the VAT e-commerce package.
- Inclusion of goods sold under the margin scheme and arts of work.
- Mandatory IOSS for platforms facilitating the sale of B2C goods with intrinsical value up to €150. This reference has been moved under the umbrella of the Customs reform, which is also proposing to extend the current set-up of the IOSS (removing the eligibility threshold and the customs threshold).
In the agreement of 5 November, the main changes to the Platform economy and the DRR pillar are the following:
- In the Platform economy pillar, platforms facilitating the supply of short-term accommodation rentals (defined as 30 consecutive nights) and/or passenger transport by road will be regarded as the deemed supplier and will therefore be liable to account for VAT. However, the platform will not be liable if the underlying supplier provides its VAT number (effective in the Member State where the VAT is due) to the platform operator and declares to the platform operator that it will charge any VAT due on that supply, and if the underlying supplier qualifies and opts for the SME regime (e., if the business is below the SME threshold in the relevant country and does not elect to apply normal VAT rules). Interestingly, January 2030 will be the deadline for introducing VAT liability in this sector, but member states may decided to apply the deemed supplier model to the sector by July 2028 voluntarily.
- In the Digital Reporting Requirements pillar, EU VAT registered businesses will be obliged to issue structured e-invoices (using EN16931 format) by January 2030 for specific transactions, which include: intra-community supplies, acquisitions, B2B services, reverse charge when the supplier is not established, and supplies of energy to a taxable dealer. E-invoices must be issued within the 10th day after the transaction. Member States will still be allowed to use hybrid structures and paper formats for invoices, provided that they include the requisite data in the structured format and that the electronic version is issued upon customer acceptance. Summer invoices will be maintained if issued no later than 10 days after the month’s end. Businesses will also need to ensure that data from those invoices is transmitted to the national VAT authorities in real time. Member States can maintain their existing domestic reporting tools but need to ensure alignment of their systems by 1 January 2035. EU countries planning to implement new digital reporting requirements for domestic sales must ensure compliance with the new DRR. Finally, Member States will be allowed to make the issuing of e-invoices mandatory for domestic transactions without having to obtain authorisation from the European Commission.
Finally, ViDA implements improvements to the VAT Information Exchange System (VIES) database, which will be centralised and maintained by the EC, including DRR transactions and information on taxable persons such as their VAT identification number. It will also have some integration into the Customs Surveillance system and the upcoming Central Electronic System of Payment CESOP information. Legacy VIES will be phased out by 2032.
The agreement will now need to be formally approved by the European Parliament, given the changes between the original Commission proposal and the text approved by ECOFIN, and then move back to the Council for final endorsement.
Ecommerce Europe has been long supporting the advancement of the negotiations on this important file, which will play a pivotal role in ensuring a tangible simplification in VAT obligations for EU businesses engaged in cross-border B2C sales. In particular, ViDA will bring the EU VAT system closer to achieving a real single VAT registration for businesses.
Ecommerce Europe, in collaboration with EuroCommerce, has also launched a Single VAT ID Campaign in October 2021 with the aim of sharing support for ViDA and raising awareness of its benefits for the EU economy, tax administrations, businesses and consumers alike.