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EU VAT in the Digital Age options – consultant’s report

European Commission publishes consultants’ report on impact of options for: Single VAT Registration; Digital Reporting Requirements; and VAT Treatment of Platform Economy

As part of the completion of the EU VAT in the Digital Age reforms programme, the European Commission has published reports prepared by outside consultants on three strands of reforms.  This includes detailed analysis of the public consultation undertaken on the three reforms earlier this year.

The EC is proposing to issue EU VAT Directive amendments on 16 November 2022.

Below are a summary of the main conclusions made:

1) Digital Reporting Requirements (DRRs)

  • This strand covers the potential harmonisation of live or near-live transaction reporting on domestic and intra-community transactions to tackle VAT fraud. This could include harmonised e-invoicing and Continuous Transaction Controls
  • The introduction of an EU-wide DRR scheme, introducing an EU DRR for intra-EU transactions and harmonise existing systems for domestic transactions, and introduce an EU DRR for both intra-EU and domestic transactions.
  • A centralised model to collect the data was the preferred option, but only be slim margin in support of EU DRR. However, the remains security and data protection concerns, as well as cost implications.
  • E-invoicing is the preferred solution over VAT listing, SAF-T or real-time reporting. Whilst brining extra costs, particularly for business benefits of digitising processes.
  • Initially focus on B2B and B2G transactions. B2C to be included at a later date.
  • Exclude small enterprises separately reporting under the VAT special scheme for small enterprises
  • Member states likely to be given option of pre-clearance model; but limited proof on advantages of imposing it (e.g. Italy)
  • Unlikely to require a customer acceptance requirement in any government e-invoicing clearing system (e.g. India)
  • There is no significant loss of control if e-invoicing is not live; therefore suggests reporting is within a day or so (e.g. Spain and Hungary)
  • Encourages the adoption of pre-filled returns as example of additional benefit from DDR adoption
  • Support mechanisms for small businesses should be included for any more complex e-invoicing obligations.

2) The VAT Treatment of the Platform Economy

  • This strand covers how digital platforms in the e-commerce and gig & sharing economies can play a further role in monitoring, reporting and potentially taking on VAT obligations of their third-party users.
  • There are clear difficulties in the lack of clarity and harmonisation across the EU member states of the VAT rules on the key sectors: accommodation; advertising; e-commerce, finance (fintech); household and professional services; real estate; and ride sharing. Issues around legal definitions and roles, deductions of input VAT and consideration remain high. As well as challenges on enforcements and lack of neutrality.
  • The results of the consultation favour a move to a VAT deemed supplier model, as introduced for e-commerce platforms in July 2021. Merely clarifying the roles and record keeping, including new DAC7 platform reporting obligations,  were not considered substantial enough. The three models of deemed supplier under review are:
    • Narrow deemed supplier for the supply of certain accommodation and transport services.
    • Sectoral deemed supplier for the supply of all accommodation and transport services.
    • All services deemed supplier for supplies of services for monetary consideration.
  • Crucially, the deemed supplier regime would rebalance the competition conditions between traditional and platform-based distribution channels

3) The Single VAT Registration and Import One Stop Shop (IOSS)

  • This strand, EU Single VAT Registration covers the extension of the use of the single EU One Stop-Shop VAT return to cover further B2C and B2C cross-border transactions to reduce the VAT compliance burden for businesses and tax authorities. In particular, how can the instances of foreign VAT registrations may be reduced.
  • The report considers the best option to adopt is extension of the OSS to intra-EU supplies and intra-EU acquisitions in the frame of B2B2C transactions common in e-commerce. This covers movement of own stocks across EU borders prior to a domestic EU sale. This option would generate significant benefits by almost completely eliminating the need to VAT register for distance sellers, and for many businesses outside the e-commerce sector. This would reduce administrative burdens significantly, as well as reducing distortions to the functioning of the Single Market.
  • The report also covers ways to improve on the success of the Import One Stop-Shop IOSS. It recommends lifting the €150 transaction threshold and making IOSS mandatory.

EU VAT in the Digital Age reforms

EU VAT in the Digital Age
3 reforms to improve efficiency of VAT for all and reduce fraud
1. Single VAT registration in the EU; extension of OSS to all B2C and certain B2B Following the 1 July 2021 introduction of the One Stop-Shop (OSS), can this be extended to cover further cross-border B2C and all / any B2B transactions (e.g. movement of own stock across borders) to reduce the foreign, non-resident VAT registrations and returns burden
More details on Single VAT Registration in the EU
2. Digital Reporting Requirements; e-invoicing What options are there to harmonise the digitisation of transaction reporting amongst the member states. The EU is looking at: Continuous Transaction Control (CTC) e-invoicing, live reporting; or Periodic Transaction Controls (PTC) invoice listings. Also if at a country, EU or hybrid-level.
Read more about EU Digital Reporting Requirements (DRR)
3. VAT treatment of the platform economy How can EU member states adapt their tax systems to reflect the new role taken on by Electronic Interfaces - platforms and marketplaces which have enabled millions of private individuals to provide services and goods for the first time. How should the VAT Directive be modified to capture the new dynamics created in the gig and sharing economies, including imposing full deemed supplier VAT obligations on platforms as with 2021 e-commerce package for goods.
EU VAT Treatment of Platform Economy update

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