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EU VAT in the Digital Age ViDA; what to expect

ViDA – the most ambitious reforms to the EU VAT regime in decades will be unveiled on 7th December 2022. What should we expect?

I’ve dusted off my crystal ball.  A treat. And in this blog I get to speculate what big changes to EU e-commerce VAT reporting, real time invoicing and digital platforms will be sprung upon us by the European Commission on 7th December. This is when its VAT in the Digital Age (ViDA) reforms are revealed, which will likely be phased in between 2025 and 2028 once agreed by the member states.

3 reforms: pan-EU VAT registration; digital reporting & e-invoicing; and digital economy role in VAT collections

ViDA comes in three strands. Here are some of the big proposals that will emerge under those:

1 Single VAT Registration in the EU – 2025

  • The e-commerce package One-Stop-Shop VAT return will be extended to traditional cross-border services where the seller is not resident.
  • OSS also extended to movement of own stock prior to B2C e-commerce sale (B2B2C transactions). This will wipe out the need for a huge number of foreign VAT registrations for e-commerce sellers.
  • Where this is facilitated by a marketplace, the VAT on the local domestic sale to the consumer will flip to the marketplace as the deemed supplier. The seller will use OSS to report the zero-rated taxable acquisition to the marketplace. B2B transactions under the scenario would be zero-rated for VAT.
  • There are two important modifications being considered for the Import One-Stop-Shop which was introduced under the 2021 e-Commerce VAT Package:
    • The current €150 consignment threshold for imported B2C sales will NOT be raised in the immediate future. It will likely be postponed until the Customs processes and requirement can be reformed, too.
    • IOSS will be mandated for marketplaces and sellers to cut down fraud and errors. However, not immediately and may not make the 2025 first-round of reforms.

2 Digital Reporting Requirements – 2025-28

Under ViDA’s second strand for Digital Reporting Requirements, there will be two paths to tackle VAT fraud and realise the efficiencies of digitalisation of invoicing and reporting. Firstly, mandatory intra-community supplies (ICS) – sales across EU state borders – e-invoicing. Secondly, near-real time digital reporting of transaction summary data to be consolidated at the EU level. This double track may result in a major, complex burden for taxpayers, and much scope for diverging standards. But no doubt it is a product of a set of compromises to meet member states’ wishes to retain local control and limit the burden on digital reporting to reflect their economic conditions and levels of VAT fraud.

  1. Mandatory intra-community E-invoicing; domestic transactions left to member states’ local plans
    • All businesses will be obliged to be able to issue and receive e-invoices for ICS’s based on European standard for e-invoicing (EN 16931) for intra-community supplies.
    • For domestic transactions, member states will be free to remove the obligation for customers to accept e-invoicing from their suppliers to help adoption.
    • States will also no longer have to seek EU approval for mandatory domestic e-invoicing.
    • Member states may still adopt their own formats, but will be encouraged to follow or converge towards EN 16931 to help with long-term harmonisation of EU reporting systems. It is therefore not clear yet if or what role there will be for PEPPOL or e-invoicing agents for transmission of e-invoices at the national level. The key requirement is that they are ineteroperable with the EU plans.
  1. B2B Intra-community digital reporting requirement (DRR) to fight fraud
    • Intra-community supplies (ISC) digital reporting regime will be introduced for all companies, including non-residents, from 2028.
    • This will be a header-level transaction reporting schema based on the European standard for e-invoicing (EN 16931) and so following exiting B2G initiatives.
    • It will give transparency for customers to see what transactions are being reported against their VAT numbers.
    • It will not be a full exchange of transaction invoices largely for privacy reasons. And no pre-clearance of invoices or Continuous Transaction Control CTC
    • Reporting frequency will likely be within a few days of a transaction – so not real-time.
    • It would only apply to B2B transactions – intra-community B2C will be excluded for the time being.
    • Following EN 16931 will help encourage adoption of the standard by all countries for their domestic digital reporting requirements, improving interoperability and reducing costs for taxpayers since it will be a subset of the above e-invoicing requirements.
    • The new regime will gather data at the national tax authorities’ level, for consolidation centrally with the EC.
    • The introduction of the new intra-community reporting regime will enable the withdrawal of EC Sales Lists (ESL), known as recapitulative statements.

3 VAT treatment of the digital economy – ?

  • Alongside the DAC7 marketplace reporting reforms, there will be improved definition and clarifications of the players and roles in the digital marketplace sphere.
  • Eventual extension of the deemed supplier VAT obligations to accommodation sharing and transport economies platforms. But this measure is highly complex, with some tourist-popular states pushing for the full liability model for platforms. This makes any implementation timing difficult to predict.

For more details of the whole program, follow the links below.

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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