VAT in the Digital Age
What is VAT in the Digital Age (“ViDA”)?
ViDA is a set of proposals intended to modernise the EU’s VAT system for technological advances, reduce VAT compliance burdens, and help combat VAT fraud. The proposals will require the unanimous approval of all 27 EU member states before they can be adopted.
The package is made up of 3 main pillars:
- New Real-time Digital Reporting and e-Invoicing Requirements
- Updated VAT Rules for the Platform economy
- Single VAT Registration.
Digital reporting and e-invoicing
The key measures proposed are follows:
- From 2028, businesses will be required to issue structured e-invoices following a common EU standard for B2B cross-border transactions within two days of the transaction and to digitally report data to tax authorities within two days of the invoice date (or due date).
- Member States will have the option, but not the obligation, to introduce mandatory e-invoicing and digital reporting obligations for domestic transactions. Where they do so, they must follow the same EU standard as for cross-border reporting.
- Member States which already have digital reporting requirements will have to bring them in line with the harmonised EU standard by 2028.
This proposal would give EU governments access to almost real time data to assist them to combat potential VAT fraud. The annual reduction in fraud is estimated to worth €11 billion. There should be a net benefit for businesses as a result of the harmonisation of digital reporting rules across the EU.
The key measure proposed is to make platform operators which facilitate sales of short-term accommodation and passenger transport services responsible for VAT collection on those services where the underlying seller is not obliged to do so. This would arise where, for example, the seller is below the VAT registration threshold in the relevant country. The VAT exemption applied in some Member States for short term rental accommodation would be removed. There would be additional measures to clarify when a platform facilitates a transaction and what data retention requirements apply to platforms.
This change is due to come into effect on 1 January 2025.
Single VAT registration
The aim of this proposal to minimise the need for businesses to have VAT registrations in multiple EU member states. This will be achieved by expanding the existing OSS and Import One Stop Shop regimes (IOSS) for B2C transactions and extending the reverse charge for B2B transactions by non-established traders.
The principal measures include:
- All remaining B2C supplies of goods and services can be reported in the OSS where the seller is not established in the member state of taxation. This includes for example domestic supplies of goods with that member state.
- A further extension of OSS will allow reporting of cross-border movements of a business’s own goods rather than requiring a local VAT registration. Where a platform moves an underlying sellers’ goods cross-border, the platform will be responsible for reporting this movement in their OSS return.
- The IOSS, which allows VAT on B2C imports in consignments of less than €150 to paid by the seller or platform, will be made mandatory for platforms where they facilitate such sales. The Commission had also considered the option of removing the €150 threshold for IOSS but this is not part of the current package. It will instead be considered alongside a review of the Customs Duty requirements for online sales.
These changes are also due to take effect from 1 January 2025.
Our initial reaction to the proposals
We welcome the proposals for harmonisation of digital reporting and e-invoicing which are designed to both reduce the incidence of VAT fraud in the economy and support businesses in digitisation and harmonisation of invoicing processes across the EU. The key to success will be for Member States to embrace harmonisation, in particular, where there are already domestic reporting regimes in place.
The proposals for the platform economy, if adopted, will place increased VAT collection obligations on platforms which they will need to carefully consider. This is particularly the case given the relatively tight timeframe for proposed implementation of 1 January 2025.
We expect the Single VAT Registration proposal to reduce the VAT compliance burden for businesses. However, complexity will still arise given the differing VAT treatment for imports above and below the €150.
KPMG will be actively participating in discussions with the European Commission and other stakeholders on these measures and will keep you updated as the proposals progress.
If you would like to discuss further how these changes could impact your business, please do not hesitate to contact us.