In response to the ever-increasing digitisation of the economy, on 8 December 2022 the European Commission published its long-awaited proposals to revamp the EU’s VAT system. The proposals have three main objectives:
- Modernising VAT reporting obligations, by introducing Digital Reporting Requirements, which will standardise the information that needs to be submitted by taxable persons on each transaction to the tax authorities in an electronic format. At the same time it will impose the use of e-invoicing for cross-border transactions;
- Addressing the challenges of the platform economy, by updating the VAT rules applicable to the platform economy in order to address the issue of equal treatment, clarifying the place of supply rules applicable to these transactions and enhancing the role of the platforms in the collection of VAT when they facilitate the supply of short-term accommodation rental or passenger transport services, but also for the supply of goods in almost all cases; and
- Avoiding the need for multiple VAT registrations in the EU by introducing Single VAT Registration. That is, improving and expanding the existing OSS and IOSS schemes for certain transactions as well as introducing the mandatory reverse charge mechanism.
If the proposals are adopted, there will be significant change and impact on systems and processes for a large number of businesses in the EU and beyond. The changes pertaining to e-invoicing and e-commerce are detailed below.
E-invoicing and VAT digital reporting requirements
The five most noticeable changes with respect to e-invoicing and digital VAT reporting requirements can be summarised as follows:
- A new definition for e-invoices: As of 1 January 2024 only invoices that have been issued, transmitted and received in a structured electronic format which allows for automatic electronic processing will be considered to be electronic invoices.
- Mandatory e-invoicing will be possible without EU approval: EU Member States will be able to introduce mandatory e-invoicing without needing to obtain a derogation from the EU VAT Directive from 2024. If they wish to do so, Member States need to allow for the issuance of electronic invoices which comply with the European Standard on electronic invoices, which is already being used for B2G e-invoicing. The issuance and transmission of e-invoices cannot be conditional on a prior authorisation or validation by the tax authorities of the Member State. This means that it will no longer be possible to apply clearance models. Member States that have such a system in place (e.g. Italy) will need to align with the new rules by 1 January 2028.
- E-invoicing will become the norm: As of 1 January 2028, structured e-invoices will be the default system for the issuance of invoices. The current process will then be reversed and Member States will need to opt to allow paper invoices for certain transactions. This option will however not be available for invoices related to B2B intra-EU supplies of goods and services. For these transactions an e-invoice will always be required.
- Intra-EU digital reporting requirement: The e-invoicing obligation will facilitate a digital reporting requirement (DRR) that will replace the current EC sales listings for B2B intra-EU transactions as of 1 January 2028. The relevant data will need to be sent electronically on a transaction-by-transaction basis within two working days of the issuance of the invoice (or if no invoice has been issued, within two working days of the date the invoice was due to be issued). The transmission of the data to Member State authorities can be done according to the ‘European Standard’, but Member States can also allow for different formats as long as they also interoperate with the European Standard. Member States will in turn report the data collected to an enhanced version of VIES, the ‘Central VIES’, where the data will be available for analysis for five years.
- Optional digital reporting requirements for other transactions: Member States will be given the option to introduce digital reporting requirements for transactions not covered by the intra-EU digital reporting system (e.g. domestic supplies of goods and services). The features of such reporting systems will need to be similar to the ones designed for intra-EU transactions. To achieve the harmonisation of reporting systems, Member States which already have reporting systems in place for these transactions will have to adapt them to the features of the harmonised reporting system by 2028 at the latest.
We invite you to join us on Tuesday, 20 December 2022 at 16:00 (CET) for a webinar to discover the key takeaways of the EU proposal in relation to e-invoicing and digital VAT reporting obligations.
VAT in the Digital Age and e-commerce
Some of the changes proposed in the framework of the third main objective, also bring changes to the current e-commerce VAT rules:
- Extension of the application of the deemed supplier rule: Currently, in terms of supplies of goods made within the EU, the deemed supplier rule applies to supplies of goods within the EU facilitated by an electronic interface for a taxable person not established within the EU to a non-taxable person.
Under the proposed expanded scope, the deemed supplier rule would apply for all supplies of goods within the EU facilitated by an electronic interface, regardless of the place of establishment of the underlying supplier and the status (B2C / B2B / B2G) of the customer.
- Mandatory use of the Import One-Stop-Shop (IOSS) for electronic interfaces facilitating distance sales of imported goods with an intrinsic value of less than EUR 150: Electronic interfaces currently have the option to choose whether or not to use this scheme. If they fail to comply with the IOSS this may lead to exclusion. However, going forward, the IOSS will become mandatory for them. So if they do not comply, they will incur other sanctions rather than exclusion from the scheme.
- Extension of the One-Stop-Shop (OSS) for any other EU distance sales to (almost) all B2C supplies: The OSS allows taxpayers to report their output VAT on EU sales in one single VAT return to their local tax authority in their local language. In this respect, the OSS will be extended, in a B2C context, to:
- EU distance sales of second-hand goods, works of art, collectors’ items and antiques
- domestic supplies
- the supply of goods with installation or assembly
- the supply of goods on board ships, aircraft or trains
- the supply of gas, electricity, heating and cooling
- New OSS simplification scheme for the cross-border movement of own goods: The transfer of own goods to another Member State to be stored and sold is a transaction which under the current rules still requires VAT registration in the hands of the non-established supplier. These types of transactions (including call-off stock movements) will fall within the scope of the new OSS simplification scheme. The scheme would be optional and would require participants to file a monthly (nil) VAT return The current call-off stock arrangements will cease to exist as of 31 December 2024. Beyond this date, no new stock transfers can be effected under these arrangements. Capital goods, or goods that do not allow for the full right of VAT deduction in the Member State where the intra-Community acquisition takes place are excluded from the special scheme. For the purpose of this scheme, the Intra-Community acquisition of goods is exempt.
In addition to the above, some other minor changes have been proposed and some further clarification has been given on:
- the EUR 10.000 threshold
- the timing of the chargeable event in respect of supplies under the (non-)Union OSS simplification schemes
- the reporting and correction of transactions in (I)OSS returns
- measures to better secure the correct use and verification process of the IOSS VAT identification number of the supplier or of the intermediary acting on their behalf.