What happened?
On 14 May 2024, after extensive consultation and negotiation, the EU Finance Ministers at ECOFIN debated the revised VAT in the Digital Age (ViDA) package released by the European Commission (EC) on 8 May 2024. During the ECOFIN debate, one Member State raised a concern in relation to the platform rules and this aspect now needs to be worked through in the coming months.
Positively, two of the three core ViDA proposals were accepted. As unanimous consent is required on all parts of the ViDA package, none of the proposals can proceed until a compromise solution is found.
Why is it relevant?
ViDA is highly significant in the EU and on the global tax policy stage. The ViDA proposals are designed to:
- help streamline and harmonise the EU’s VAT rules (thus lessening fragmentation and making the VAT more apt for the modern economy);
- reduce administrative burdens for businesses operating cross-border;
- safeguard significant tax revenues for Member States; and
- increase the accuracy of VAT filing positions.
To recap, the main pillars of ViDA are:
- Digital Reporting Requirements (DRR), modernising invoicing and a move to mandatory e-invoicing on intra-EU business-to-business (B2B) transactions (from 1 July 2030);
- Updating the VAT rules for platform operators who facilitate short-term accommodation rentals and passenger transport services by road (from 1 July 2027); and
- Simplifying the current VAT rules by reducing the need for multiple VAT registrations in the EU, in addition to several other harmonisation measures (from 1 July 2027).
Actions to consider
Many had hoped that the ECOFIN meeting (on 14 May 2024) would mark the start of a new VAT era in the digital age.
The Belgian presidency will try to seek a compromise solution at the next ECOFIN meeting on 21 June 2024. It’s possible more time may be needed beyond that meeting to work on some detail. The overall preference is for the three pillars of ViDA to pass as one package and not be split up.
If a workable solution is found, businesses will need to start preparing for the ViDA changes. It’s likely that most, if not all, of the start dates will remain the same.
It is to be hoped that a final solution will be worked through in the true spirit of compromise (as noted during the ECOFIN meeting).
In detail
VAT and digital reporting
The following changes have been proposed with respect to invoicing and digital reporting requirements:
- Electronic invoicing will become the default system for issuing invoices. However, Member States will be allowed to authorise other invoices for domestic supplies.
- Invoices that have been issued, transmitted and received in electronic format which allows for automatic electronic processing will be considered to be electronic invoices and they should in principle comply with the European Standard (EN16931). This means that unstructured formats, like pdf invoices, will not be allowed. Hybrid invoices will however in principle be acceptable as well.
- The electronic invoices for cross border transactions must be issued 10 days after the chargeable event. Summary invoices will (in principle) still be permitted for sales made within the same calendar month.
- The current recapitulative statements (EC sales listings) will be replaced with DRR for cross-border supplies of goods and services. This will include next to real time and detailed information on the transactions performed, as well as additional data including bank details, so that Member States can follow the goods and also the linked financial flows. Member States have the option to opt out from the implementation of a reporting requirement for the buyer.
- The reporting of the invoice data by the supplier needs to happen in real time (i.e. at the time the invoice is issued or should have been issued). However, in situations of self-billing or reporting by the buyer, the buyer needs to transmit the information no later than 5 days after the invoice is issued or should have been issued.
- Although real time reporting of domestic transactions is not required under the EU VAT Directive, should Member States opt to implement such a system, it will need to align with the digital reporting requirements for cross-border supplies. Member States can decide that holding an electronic invoice issued in compliance with the required standard becomes a substantive condition to be entitled to deduct or reclaim the VAT due or paid.
- Member States will not be allowed to impose any additional general transaction based reporting requirements but may keep e.g. SAF-T requirements as well as cash registers in place.
The requirements above will apply as from 1 July 2030. Member States with domestic digital real time transaction based reporting obligation already in place on 1 January 2024 (or having been granted an authorisation, or where such authorisation was not necessary; e.g. Italy, France, Poland), need to converge into the new EU model by 1 January 2035. In addition, within 20 days following the publication of the ViDA proposal in the official journal of the European Union, Member States will be authorised to mandate e-invoicing for domestic transactions without requiring prior approval from the European Commission.
VAT treatment of the platform economy
In order to address the VAT challenges of the gig and sharing economy – where there is a lack of consensus on the ideal approach globally – ViDA is proposing to introduce a deemed supplier model. This would impose a VAT liability on the platform in relation to the underlying supply of two main services.
From 1 July 2027, it is proposed that a taxable person who facilitates, through the use of an electronic interface, the supply of short-term accommodation rental (maximum 30 nights) and/or passenger transport by road, will be deemed to be the supplier of the underlying (or facilitated) service, unless:
- the underlying service provider communicates to the platform their local VAT ID; and
- declares that they will themselves charge any VAT due on that supply.
The platform package also provided clarification in relation to the VAT treatment of certain goods transactions and facilitation services.
The mandatory application of the Import One Stop Shop (IOSS) regime has been removed from the final ViDA package and will now form part of the 2028 Customs reform proposals.
One Member State raised concerns during the ECOFIN meeting in relation to the cost to SMEs and the administrative burden of the proposed platform rules for short-term accommodation and passenger transport services. That Member State also suggested an “opt in” model should be considered.
It should be highlighted that a degree of flexibility was already built into the proposed ViDA rules such that platforms could allow underlying sellers to collect VAT, and other rules for special schemes (eg. travel agents) and small businesses could be applied. As part of finding a workable solution, the EU regulators may need to look to other countries. The Canadian GST platform rules are an example of a pragmatic model as they allow the platform and the underlying seller to decide who collects the GST. For completeness, the New Zealand GST model (of full liability with a flat rate credit) has proven to be too burdensome and the Australian model is based on information reporting by platforms.
Single VAT registration and reverse charge
The EC aims to alleviate the administrative challenges faced by businesses operating within different EU Member States by expanding the OSS, introducing a special scheme for transfers of own goods and applying a mandatory reverse charge mechanism.
The OSS will be extended to additional B2C supplies of goods leading to VAT payable in a Member State other than that where the supplier is established (e.g. domestic sales, the supply of goods with installation or assembly, the supply of goods on board of ships, aircrafts or trains and the supply of gas, electricity, heating and cooling). Also, certain zero-rated supplies will be allowed under OSS. However, intra-EU transactions will not be able to be declared via the OSS procedure, but only locally requiring a local registration.
A new special scheme will be introduced for the cross-border movement of own goods (transfers) that will help reduce multiple VAT registrations. The new scheme is set to encompass the current call-off stock arrangements by 30 June 2028.
The reverse charge mechanism (Article 194 of the EU VAT Directive) will become mandatory from 1 July 2027 with some modifications. It will apply to all B2B supplies of goods and services by suppliers who are not established or registered through an individual VAT number in the Member State where VAT is due. This will apply as long as the customer is VAT registered there. Although the reverse charge mechanism will be mandatory in certain cases, Member States can choose to apply it universally for non-established taxable persons.
The new rules will require careful planning. Businesses should not overlook that any VAT on purchases will, in the absence of a local VAT registration, need to go through the refund procedure instead.
For a deeper discussion of how these proposals might affect your business, please contact:
Ellen Cortvriend, PwC Belgium
+32 472 60 30 94
Claire De Lepeleire, PwC Belgium
+32 475 91 08 68
