by Renee

6 min reading time

VAT in the Digital Age: the New Rules Explained

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vat in the digital age

 

On December 8, 2022, the European Commission presented its proposals under the title “VAT in the Digital Age” (ViDA). These proposals highlight the key areas in which value-added tax (VAT) in the European Union will be modernized in the coming years. In particular, digital reporting requirements in the EU will have a significant impact on B2B trade within the EU. What can we expect between 2024 and 2028?

This overview provides updates on all developments related to the ViDA proposal. We will guide you through the rules that will come into effect between 2024 and 2028 and provide a timeline of all changes at the end.

Why Was the ‘VAT in the Digital Age’ Proposal Made?

The reason for the proposal is clear: the EU lost €93 billion (!) in VAT revenue in 2020, according to the 2022 VAT gap report. Remarkably, about a quarter of these lost revenues can be attributed to VAT fraud, especially related to intra-EU trade. Moreover, the existing VAT mechanisms impose a complex burden on businesses, particularly for SMEs and startups selling across borders.

The proposed changes aim to address this gap. It is expected that the proposals will generate an additional €18 billion in VAT revenue, of which €11 billion (!) will result from combating fraud.

The European Commission’s ‘VAT in the Digital Age’ proposal contains three core changes:

What is Going to Change? The 3 Key Points:

1. Real-Time Digital Reporting Via E-Invoicing

This change introduces digital VAT reporting through e-invoicing. The benefits? Authorities will quickly have information about transactions, which will combat VAT fraud, resulting in approximately €11 billion less VAT fraud per year. Additionally, it will reduce compliance costs for EU traders by €4.1 billion annually (over the next 10 years!) and bring more consistency across national systems.

Here are The Precise Changes:

  • E-invoicing: Starting from January 1, 2028, electronic invoicing (e-invoicing) will become the norm in the EU. Paper invoices will only be allowed in certain situations approved by the EU member state.
  • Invoice standardization: The EU will introduce a uniform e-invoice standard. Companies can use this method without prior approval from the buyer or verification from the tax authorities.
  • Real-time digital reporting: The current EU Supplier Listing will disappear. Starting from January 1, 2028, a new reporting system for specific deliveries and services, called ‘Real-Time Digital Reporting,’ will be introduced. Companies will report based on each transaction and will have two working days to do so after invoicing. The reporting requirements will be more extensive than what is currently in the EU Supplier Listing. This also applies to certain ‘B2B main rule services’ with the mandatory reverse charge mechanism.
  • Real-time invoicing: For intra-community supplies of goods, the invoicing rules will become stricter. Starting from January 1, 2028, invoices must be issued within two working days of the taxable event. This also applies to certain B2B services supplied under the reverse charge mechanism by providers outside the respective EU member state.
  • Other digital reporting obligations: EU countries can decide to introduce digital reporting obligations for other types of transactions, such as domestic deliveries between businesses or to end customers.

2. Revised VAT Rules for the Platform Economy

The European Commission aims to introduce new rules for the platform economy. In a platform economy, digital platforms act as intermediaries between providers and consumers. Think of popular online marketplaces like Amazon and eBay.

They focus on the ‘deemed supplier regime’ for platforms like Airbnb and Uber in the short-stay and transportation sectors. The proposal makes platforms (the operators) responsible for collecting and remitting VAT if their users, such as small businesses or individual providers, do not do so.

This, along with other adjustments, ensures a consistent approach across all EU countries and levels the playing field between online and traditional services (such as taxis and hotels) and online platforms (such as Airbnb and Uber). It also makes it easier for SMEs to understand and comply with VAT rules in other EU countries.

3. Single VAT Registration in the EU

This proposal concerns an expansion of the One Stop Shop (OSS) scheme. A brief recap: the One Stop Shop (OSS) scheme, as we know it, is relatively new. It came into effect on July 1, 2021, and introduced a single overall European threshold of €10,000 for all distance sales. Thanks to the OSS, international VAT compliance is simplified for many entrepreneurs: they only need to file one OSS return with the tax authorities once per quarter, and the tax authorities ensure that the correct VAT amount is distributed among the EU countries where the entrepreneur operates.

What is going to change? The ‘One-Stop-Shop’ (OSS) scheme may be expanded from 2025. Currently, OSS allows some businesses to register for VAT in just one EU member state, even if they operate in different countries. This allows businesses that sell to consumers in another EU member state to register for VAT once for the entire EU and fulfill their obligations through a central online portal in their own language. The Commission wants this to also apply to supplies and installations, as well as transfers of own goods within the EU. Additionally, the simplification of “call-off stock” will be removed.

Furthermore, the European Commission plans to introduce a mandatory reverse charge mechanism for B2B supplies made by suppliers outside an EU member state to registered VAT customers in that state. This is intended to reduce the number of VAT registrations for international businesses.

To further improve VAT collection, the ‘Import One Stop Shop’ (IOSS) will be made mandatory for certain platforms selling to consumers within the European Union.

What Impact Does ViDA Have on Your Business?

The changes offer numerous benefits. The adoption of real-time digital reporting could help member states recover up to €11 billion annually over the next decade. Streamlined VAT rules also promote fairness and ease of compliance in the platform economy. Finally, the introduction of a uniform VAT registration model in the EU could help businesses, especially SMEs, save approximately €8.7 billion in administrative costs over the next decade.

What Will You Notice?

  • Real-time digital reporting via e-invoicing: For sellers on platforms like Amazon, Bol.com, and Shopify, this will likely mean increased administrative burdens, especially initially as systems need to be adjusted to comply with real-time digital reporting.
  • Revised VAT rules for the platform economy: Platforms like Amazon or Bol.com may become responsible for collecting and remitting VAT on behalf of their sellers, especially if those sellers are small businesses or individual providers. How platforms will implement this and whether there will be additional rules or compliance checks for sellers is still unclear.
  • Single VAT registration in the EU: For international sellers using platforms, the expansion of the OSS scheme could be a blessing. It significantly simplifies their VAT reporting process. On the other hand, with the mandatory reverse charge mechanism, companies selling goods in different EU countries may benefit from reduced administrative burdens.

What’s Next?

The finance ministers of the EU (‘Ecofin’) met on September 11 and 12, 2023 to review the proposals. They will do so again on September 15 and 16. Several EU member states have already called for at least a one-year delay in the implementation of the new rules, especially the revised e-invoicing rules in 2028. Spain, currently holding the EU Council presidency, wants the finance ministers to cast an affirmative vote during their Ecofin meeting on December 8, 2023. This vote is essential to proceed with the proposed rollout of the new ‘VAT in the Digital Age’  rules between 2024 and 2028.

Ties den Dekker, CEO of Staxxer, is not surprised by the call for postponement: “The One Stop Shop as we know it is still in its infancy. We see that the average e-commerce entrepreneur hasn’t fully grasped the OSS yet, resulting in tax authorities receiving incorrect or incomplete OSS returns. I believe we should first complete phase one of the OSS successfully before discussing further innovations. Give it time.”

Below, you will find a timeline summarizing all the changes. Would you like to save it for your reference? You can!

ViDA-Timeline-NL.pdf

 

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All across Europe, no matter where you sell. Get in touch to discuss which solutions best fit your company: you can directly plan a meeting with one of our VAT experts below.

 

vat in the digital age

 

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Yonis Brander

VAT consultant

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