VAT in the Digital Age: what is the current state and how will it impact businesses?

01/11/23

VAT in the Digital Age (ViDA) is a legislative proposal introduced by the European Commission to address the challenges posed to traditional VAT by the rise of the digital economy. Furthermore, ViDA seeks to ensure fair and efficient VAT collection within the European Union.

ViDA applies to all businesses that sell goods or services in the European Union, irrespective of whether they are established in an EU Member State or not.

Current state of ViDA

On 8th December 2022, the European Commission published the legislative proposal ViDA with the initial goal of launching it between 2024 - 2028. However, considering that there is no consensus yet, the implementation of ViDA is expected to be delayed. On 24 October 2023 the EU Parliament’s ECON has voted for a one year delay for all three pillars of ViDA. This vote is not binding so a different timeline may still occur but in any case we don’t expect the measures to come into force before 1 January 2025.

October was a month with full focus on ViDA. Besides the ECON meeting on 23 October, the Working Party on Tax Questions met again on 9 and 10 October to discuss further on the ViDA proposal. Furthermore, the EU Tax Symposium took place during 23 and 24 October and included a panel discussion between representatives of both businesses and regulators on the ViDA proposal and its impact. While the general view on the single VAT registration was a positive one, the challenges brought by the digital reporting and the platform economies obligations have raised questions from the business side.

On 20 November 2023 the final vote will take place on the amendments on ViDA between the EU political groups. Until the end of the year more developments surrounding the ViDA proposal are expected, however a delay on the initial planned timeline is anticipated. Based on the current status, platform company and single VAT registration changes should take effect from 2026, while digital reporting is now expected from 2030.

Since our initial article on ViDA ('VAT in the Digital Age proposals published'), the proposal has been discussed by the Committee on Economic and Monetary Affairs from the European Parliament. As part of the parliamentary discussions, a total of 251 amendments were proposed. Most of these amendments are related to the e-invoicing and e-reporting requirements. One example is the flexibility regarding the pre-clearance models that in the initial proposal draft were not allowed. Member States would now be allowed to continue with their own domestic VAT pre-clearance models. Some form of pre-clearance is now expected to be introduced at the EU level as well, but allowing the domestic pre-clearance models shows already that there will not be harmonization within the EU regarding digital reporting.

What are the latest changes on ViDA?

As already known, the ViDA proposal consists of three pillars: 1) digital reporting obligations, 2) deemed supplier rules for platforms and 3) single VAT registration.

Digital reporting as introduced by the ViDA proposal, will require business to report e-invoices within 2 days after issuance. While all new e-invoicing mandates should allow the European Standard for e-invoicing and e-reporting, the latest ViDA proposal makes the use of these standards optional for the Member States. Although the new implementation date is shifted now to 2030 or maybe even later, e-invoicing will become the default for intra-community B2B transactions also since as of 1 January 2024 derogation is no longer necessary.

The deadline to report intra-Community transactions, calculated based on the posting date instead of the issuance date, should be extended from 2 days to 10 days. It will no longer be required to submit periodical EC Sales Listings. Another important amendment brought in the latest proposal is the fact that Member States should be able to continue with their domestic e-reporting regimes, even if they are not in line with the VAT in the Digital Age model.

Furthermore, due to security and confidentiality aspects, the IBAN of the supplier and the time of payment will not be part of the standard e-invoicing content.

Deemed suppliers rules for platforms, these changes are expected to take effect on 1st January 2026. The liability of platforms facilitating supplies of goods in the European Union will include all B2C and B2B supplies irrespective of the location of the supplier. Platforms facilitating B2C distance sales of imported goods will have to report Vat through the Import One Stop Shop (IOSS).

Furthermore, platforms facilitating short-term accommodation and transportation services will have to report VAT, and collect and store information for these services for which the actual supplier is not liable for VAT. Proposed changes will affect the place of supply rule for B2C facilitation services so that the VAT on these services provided by platforms will become due in the Member State where the underlying transaction takes place. The latest changes to the ViDA proposal reduce the 45-days rental threshold or the new deemed supplier obligations to 31 days.

Two years after the implementation of these rules a study should be conducted to assess their effectiveness.

Single VAT registration, this rule’s purpose is to decrease the VAT compliance obligations of businesses by allowing for single VAT registrations in one Member State. From 1st January 2026 call-off stock simplification can no longer be applied. The One Stop Shop (OSS) scheme will be extended to cover movements of own goods. The OSS will also be extended to all types of B2C sales and to cross-border sales of second-hand goods. Applying the local reverse charge should be optional for non-established companies. These should be allowed to register and account for local VAT if they prefer.

What steps can businesses already take?

Businesses should pay close attention to the changes brought by ViDA. While the single VAT registration may offer opportunities for businesses to streamline their compliance obligations, the platform changes and the digital reporting introduced by ViDA will bring additional obligations for many of you.

Becoming compliant with the new requirements is time consuming and implementations typically have a significant duration. While the ViDA timeline is still unsure, many EU Member States have already received EU implementing derogations and announced e-compliance obligations before the expected date for ViDA. Therefore, businesses should already start considering their geographical footprint and where e-compliance implementations are taking place, and reviewing their IT landscape and related invoicing processes. Furthermore, businesses that act as platform companies should also keep the changes proposed by ViDA under close attention and determine the impact on their business model.