The European Commission has recently released the revised proposals for the ‘VAT in the Digital Age’ (ViDA) reform, which are slated to be discussed by the Economic and Financial Affairs Council (ECOFIN) on May 14, 2024. Should there be a consensus among member states, these reforms will be formally endorsed and implemented between 2024 and 2030.
The ViDA package was initially proposed on December 8, 2022, and has since undergone discussions among member states to address various concerns. The updated draft reflects a compromise of different positions and amends certain areas significantly.
Electronic invoicing
The revised proposal mandates electronic invoicing as the default system for issuing invoices in the EU from 2030 onwards. It clarifies that an electronic invoice must adhere to a structured format and comply with the European e-invoicing standard (EN16931), thereby excluding PDFs from being considered e-invoices. Hybrid invoices, such as the German ZUGFeRD, combining structured and unstructured formats, will be covered if they include all requisite data in a structured format.
Electronic invoices will become mandatory for transactions falling within the scope of the Digital Reporting Requirements (DRR). They must be issued no later than the 10th day after the transaction, a deadline shorter than the current requirement of issuing invoices within 15 days after the end of the month following the supply. While the initial ViDA proposal suggested a two-day issuance window, the revised version extends this period, recognizing the practical challenges of such a short timeframe. However, the new wording refers to ‘days’ instead of ‘working days’, although it would be logical to exclude public holidays from the ten-day timeframe.
Member states may still allow other invoicing formats, including paper, for domestic supplies or supplies to third countries. However, the use of invoices in other electronic formats will be contingent upon customer acceptance. Unlike the original proposal, the revised version permits member states to make holding an electronic invoice a substantive condition for VAT deduction. This may limit the scope of input VAT deduction, as currently, possessing an invoice complying with all formal content requirements is not necessary.
The proposal explicitly permits member states to implement ‘accreditation schemes’ to ensure that electronic invoices meet formal requirements. This suggests that sending invoices to a government platform for validation purposes is generally compatible with the new ViDA.
Summary invoices, which were initially proposed for abolition, will be permitted for sales made within the same calendar month if issued no later than ten days after the month’s end. This is a welcomed development as without summary invoices, businesses would need to generate a larger number of invoices, leading to increased processing and potential errors. Member states have the discretion to exclude certain sectors prone to fraud.
The requirement to include seller’s bank details on an invoice has been retained to provide tax administrations with more insight into financial flows. In contrast to the original proposal, multiple bank account numbers may now be provided. The requirement to display the payment date has been dropped, which is favorable as it allows for flexibility in referencing contractual agreements.
If the ViDA proposal is approved this year, some changes related to e-invoicing may take effect soon. Within 20 days after the publication of the ViDA legislation in the official journal of the European Union, member states will be authorized to mandate e-invoicing for domestic transactions by established businesses without requiring prior approval from the European Commission. Consequently, all businesses must be prepared to accept and process electronic invoices. This may pose a challenge for small businesses that will need to adapt their systems within a short timeframe.
Digital reporting requirement
Starting from 2030, there will be mandatory Digital Reporting Requirements (DRR) for several types of transactions within the EU:
- zero-rated sales of goods to VAT-registered customers in other member states,
- intra-EU acquisitions of goods,
- cross-border sales and purchases of goods and services where the customer is responsible for paying VAT under the reverse charge mechanism.
Member states can choose not to require recipients of goods and services to report data on these transactions. Businesses must report invoice data when they issue invoices, with an extended deadline of five days for self-billing and acquisitions. This new DRR will replace recapitulative statements (also known as EC sales lists), which were found to be ineffective in combating VAT fraud in cross-border sales within the EU.
While the ViDA proposal aims to standardize invoice formats for transactions falling within the scope of the DRR, it does not address transmission protocols and technical specifications for transmitting data to tax administration systems. Each member state will develop its own real-time reporting technology for cross-border transactions, potentially leading to increased compliance costs and timing challenges for businesses.
The ViDA proposal prohibits member states from imposing additional general transaction-based reporting obligations for transactions covered by the DRR unless such obligations are necessary at a national level for VAT return preparation, submission, or audit purposes. Member states can maintain their existing domestic reporting tools, such as SAF-T systems or cash registers. EU countries planning to implement digital reporting requirements for domestic sales must ensure compliance with the new DRR, while those with existing domestic digital reporting obligations must align their systems with the new DRR by January 1, 2035.
Short-term accommodation and passenger transport platforms
The implementation of new rules for the platform economy has been postponed until 2027. Under these rules, platforms facilitating short-term accommodation rentals and road passenger transport will be required to act as deemed suppliers for VAT purposes. This means they must charge and collect VAT unless the supplier provides the platform operator with a valid VAT identification number and declares their intention to handle VAT themselves. Simply providing the seller’s VAT number won’t suffice to exempt the platform from the deemed seller rules; platforms need confirmation that the seller will charge VAT to avoid liability for tax collection. Additionally, member states may require platforms to verify the VAT identification numbers provided by the sellers.
In contrast to the original proposal, the updated version allows member states to exclude short-term accommodation rentals and road passenger transport services provided by small and medium-sized businesses participating in the 2025 SME scheme from the deemed seller rules. This means platforms won’t have to collect VAT on services provided by such small businesses.
The revised proposal also narrows down the definition of ‘short-term accommodation’ from 45 to 30 days and grants Member states the flexibility to add more conditions. Short-term accommodation rentals, in this context, refer to renting accommodation to the same person for up to 30 nights without interruption. These short-term rentals are akin to the hotel industry and will be subject to rules set by each member state.
Furthermore, the updated proposal clarifies that platform facilitation services provided to final consumers will be taxable in the member state where the transaction occurs. This provision applies not only to platforms facilitating short-term accommodation and passenger transport services but also to other facilitation services.
To prevent platforms classified as deemed suppliers from being included in the special scheme for travel agents, it will be clarified that those transactions fall outside the scope of that special scheme. Similarly, travel agents will not be subject to the deemed supplier rule.
E-commerce platforms
The original ViDA proposal had two measures for e-commerce platforms:
- the deemed supplier rule, which currently applies to goods owned by non-EU sellers, was planned to be expanded to cover all goods sold within the EU, regardless of the buyer’s status or the seller’s location, and
- the Import One-Stop Shop (IOSS), a special system to simplify VAT declaration and payment for distance sales of goods imported in shipments valued under €150, was set to become mandatory for platform operators.
These measures were not included in the revised ViDA proposals. Nonetheless, they may still be discussed in connection with EU Customs reform.
Single VAT registration
The main proposals for single VAT registration have been postponed until 2027. These proposals aim to reduce the occasions when businesses are required to register in a member state where they’re not established. This will be done by:
- expanding the One Stop Shop (OSS),
- introducing a new OSS regime for transferring own goods to other member states,
- broadening the scope of mandatory reverse charge.
The current OSS regimes will be expanded to cover various scenarios, including business-to-consumer (B2C) sales of goods by suppliers not established in the member state where the goods’ transport begins or ends, sales of goods with installation and assembly, and supplies of gas, electricity, heat, cooling energy, and goods on ships, aircraft, and trains. Initially, sales subject to the margin scheme were also part of the proposal, but this aspect is no longer included in the updated text.
The new simplification scheme for cross-border transfers of own goods will allow businesses to report these transactions in one member state, regardless of where the goods are transported from. Intra-EU acquisitions of goods by businesses using this scheme will be exempt, removing the need to register in the member state of arrival.
Mandatory reverse charge will be expanded to all business-to-business (B2B) supplies of goods and services by businesses neither established nor registered in the country where VAT is due if the customer is registered in that member state. Member states will have the flexibility to adopt different rules for applying reverse charge in other situations.
Minor changes will also take effect in 2026. Currently, EU businesses must charge VAT of the customer’s country for cross-border B2C sales of goods and electronic services. However, businesses whose sales do not exceed the €10,000 threshold can collect VAT of their home country. The VAT Directive will be revised to clarify that only goods dispatched from the seller’s member state of establishment will count toward this threshold. Additionally, supplies of natural gas, heating, and cooling energy across borders may be reported via OSS from 2026 onwards.
Concluding remarks
The revised ViDA proposals have extended the initially proposed implementation deadlines, which is a positive development as it gives businesses more time to prepare for the upcoming changes. Since the new e-invoicing and digital reporting requirements will have the most significant impact on businesses operating in the EU, it will be crucial for them to understand how these obligations affect their transactions and how they interact with the mandatory e-invoicing and digital reporting systems being implemented in individual member states.
While the DRR will harmonize reporting obligations for cross-border B2B sales, the fragmentation of the VAT reporting and invoicing landscape is likely to continue. Member states will be allowed to use e-invoicing standards other than the EU norm for domestic supplies. They will also be able to rely on their current reporting requirements that they deem necessary for VAT return submission or audit purposes.
Although the OSS system reduces the compliance burden by providing a simple way to declare and pay VAT, businesses still need to understand local VAT rules to determine their tax liability in other member states. Additionally, the OSS doesn’t allow for the deduction of input VAT on expenses incurred abroad. Businesses still have to go through separate, often lengthy refund procedures to claim tax refunds. The parallel processes of declarations and refunds require businesses using OSS to pre-finance VAT, resulting in cash flow disadvantages. The absence of an input VAT deduction mechanism within the OSS may prompt businesses to opt for multiple local VAT registrations.
The expanded scope of OSS and the option for member states to require validation of VAT identification numbers by short-term accommodation and passenger transport providers mean that businesses must have sufficient means to determine the customer’s status (whether they are a business or a consumer). Currently, the verification of a customer’s VAT number relies on the VAT Information Exchange System (VIES) database. However, this portal has its limitations. It often experiences periods of downtime due to high usage or maintenance. To ensure efficient and reliable verification of VAT numbers, it’s essential for VIES to support bulk validation, real-time updates, and minimize downtime. Unfortunately, there are no plans in place to upgrade the existing VIES system to meet these additional demands.
The opinions expressed in this article are those of the author and do not necessarily reflect the views of any organizations with which the author is affiliated.
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