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On 5 November 2024, the EU finance ministers reached a long-awaited political agreement on the VAT in the Digital Age (ViDA) package. The agreement entailed a compromise on measures relating to the VAT treatment of the platform economy after Estonia raised objections in June (for prior coverage, see the article in the July 2024 issue of BDO’s Indirect Tax News). The ViDA measures will have significant consequences for companies trading in the EU, particularly those involved in cross-border trade.
The ViDA package—originally released by the European Commission on 8 December 2022—covers three acts (directive, regulation and implementing regulation) that will effect wide-ranging changes to the EU VAT system. New rules will be introduced on e-invoicing and real-time reporting of data, VAT registration and the taxation of business conducted via digital platforms. The ViDA package aims to modernise and adapt the EU VAT system to the realities of the digital economy, ensure VAT compliance and prevent tax fraud. Various digital tools will help streamline compliance, minimise errors and improve transparency.
The ViDA package has been subject to protracted negotiations over the last two years. Most recently, Estonia expressed reservations about the deemed supplier rules that would apply to short-term accommodation rentals and passenger transportation services, but a compromise agreement has now been reached. The adopted text is largely similar to the version released in May 2024 but, in addition to compromises in the adopted text, changes are made to the effective dates, which will be phased in mainly during the period 2027-2035. The text of the compromise agreement must be formally adopted by the European Council before it can be published in the EU official journal and enter into force.
ViDA consists of three pillars:
Digital real-time reporting based on e-invoicing aims to combat VAT fraud and ensure uniform rules within the EU. The rules include e-invoicing, mandatory digital reporting for intra-EU transactions and optional digital reporting for domestic supplies and services.
E-invoicing obligations will apply only to transactions that are subject to digital reporting obligations in cross-border transactions, i.e., intra-Community supplies and acquisitions, supplies of goods and services on which VAT is reverse-charged and transfers of own goods. An EU standard for e-invoices will be applicable. The supplier will be required to issue an e-invoice and report the data within 10 days after the taxable event and the customer will have to report on the transaction within five days following receipt of the invoice. The sales list or recapitulative statement (a report VAT-registered businesses must submit to the tax authorities, which records transactions between EU businesses in EU member states) will be abolished.
EU member states can introduce digital reporting and e-invoicing obligations for domestic transactions, but this is not mandatory. If they do so, it should be possible to use the EU format. As of entry into force of the directive adopted by the members states, they can impose an obligation on taxable persons established in their territory to issue e-invoices for supplies of goods and services other than cross-border supplies. Member states can also determine whether the e-invoices will be subject to acceptance by the recipient of the supply.
The new rules on e-invoicing and digital reporting will be effective as from 1 July 2030. Member states that already have a domestic real-time reporting system in place (or that have been authorised to introduce one by the European Commission) on 1 January 2024 have until January 2035 to adapt their system to the EU standard.
The second pillar of ViDA contains two measures:
Under a new deeming provision, a platform will be liable for the payment of VAT on transactions with the ultimate customer that involve short-term rentals of accommodation (up to 30 nights) and passenger road transport services—the platform will be deemed to purchase the service from the underlying supplier and then provide it to the customer. The supply between the provider of the service and the platform will be exempt from VAT without a right to deduct VAT. By providing the VAT number or One-Stop-Shop (OSS) registration number to the platform and declaring that it will charge VAT on the service offered, the service provider can avoid the application of the deeming provision and its inability to deduct VAT. The consequence is, of course, that the service provider will have to charge and remit VAT on the service.
The new place of supply rule will apply to B2C platform facilitation services, which will be taxed at the place where the underlying service is subject to VAT.
Platforms should keep track of the underlying service they facilitate and make data about the supplier and the service available electronically to member states upon request in situations where the deeming provision does not apply.
The effective date of these rules has been postponed for a year so that they will apply as from 1 July 2028 rather than 1 July 2027 as set out in the ViDA text published in May 2024. Member states will have until 1 January 2030 to implement the deeming provision. The European Commission’s evaluation of the deeming provision has also been postponed to 1 July 2033 from 1 July 2032.
Single VAT registration, the third pillar of ViDA, is designed to limit the number of VAT registrations for businesses within the EU. The rules have three components:
The OSS allows businesses in the EU to fulfil their VAT obligations using a single online portal, i.e., they may submit a single VAT return and pay the VAT due in one member state. This scheme currently applies to all B2C services and EU distance selling (and for platforms in some cases of domestic B2C supplies). Under the ViDA package, single VAT registration will be extended to all domestic B2C supplies, B2C supplies with installation and assembly, B2C supplies of electricity, gas, heating and cooling (that will apply as from 1 January 2027) and B2C supplies on board EU passenger transport.
The mandatory reverse charge will be extended to apply to all B2B supplies and services where the supplier is not established and VAT- registered in the member state where VAT is due, and the recipient is identified for VAT in that member state.
A new OSS scheme for the transfer of own goods will be introduced, which will cover transfers of goods to another member state (provided there is a full right to deduct input VAT). The intra-Community acquisition of goods in the member state from which the goods are sent or transported will be exempt from VAT in the member state of arrival and should not give rise to registration requirements.
As from 1 July 2028, it will no longer be possible to transfer goods to another member state under the call-off stock arrangement. However, goods that were transferred under the call-off stock arrangement before that date will still be able to be supplied to the customer through 30 June 2029 under that special scheme.
The adopted measures also contain some changes to the B2C e-commerce rules that have applied since 1 July 2021. It is important to note that most of the changes have been postponed by one year (for prior coverage, see the BDO article on this topic).
Madeleine Merkx
BDO in Netherlands
The ViDA package—originally released by the European Commission on 8 December 2022—covers three acts (directive, regulation and implementing regulation) that will effect wide-ranging changes to the EU VAT system. New rules will be introduced on e-invoicing and real-time reporting of data, VAT registration and the taxation of business conducted via digital platforms. The ViDA package aims to modernise and adapt the EU VAT system to the realities of the digital economy, ensure VAT compliance and prevent tax fraud. Various digital tools will help streamline compliance, minimise errors and improve transparency.
The ViDA package has been subject to protracted negotiations over the last two years. Most recently, Estonia expressed reservations about the deemed supplier rules that would apply to short-term accommodation rentals and passenger transportation services, but a compromise agreement has now been reached. The adopted text is largely similar to the version released in May 2024 but, in addition to compromises in the adopted text, changes are made to the effective dates, which will be phased in mainly during the period 2027-2035. The text of the compromise agreement must be formally adopted by the European Council before it can be published in the EU official journal and enter into force.
ViDA consists of three pillars:
- Digital real-time reporting based on e-invoicing;
- The platform economy; and
- Single VAT registration.
Digital Real-Time Reporting Based on E-Invoicing
Digital real-time reporting based on e-invoicing aims to combat VAT fraud and ensure uniform rules within the EU. The rules include e-invoicing, mandatory digital reporting for intra-EU transactions and optional digital reporting for domestic supplies and services.E-invoicing obligations will apply only to transactions that are subject to digital reporting obligations in cross-border transactions, i.e., intra-Community supplies and acquisitions, supplies of goods and services on which VAT is reverse-charged and transfers of own goods. An EU standard for e-invoices will be applicable. The supplier will be required to issue an e-invoice and report the data within 10 days after the taxable event and the customer will have to report on the transaction within five days following receipt of the invoice. The sales list or recapitulative statement (a report VAT-registered businesses must submit to the tax authorities, which records transactions between EU businesses in EU member states) will be abolished.
EU member states can introduce digital reporting and e-invoicing obligations for domestic transactions, but this is not mandatory. If they do so, it should be possible to use the EU format. As of entry into force of the directive adopted by the members states, they can impose an obligation on taxable persons established in their territory to issue e-invoices for supplies of goods and services other than cross-border supplies. Member states can also determine whether the e-invoices will be subject to acceptance by the recipient of the supply.
The new rules on e-invoicing and digital reporting will be effective as from 1 July 2030. Member states that already have a domestic real-time reporting system in place (or that have been authorised to introduce one by the European Commission) on 1 January 2024 have until January 2035 to adapt their system to the EU standard.
Platform Economy
The second pillar of ViDA contains two measures:
- The introduction of a deeming provision; and
- A new place of supply rule for platform facilitation services.
Under a new deeming provision, a platform will be liable for the payment of VAT on transactions with the ultimate customer that involve short-term rentals of accommodation (up to 30 nights) and passenger road transport services—the platform will be deemed to purchase the service from the underlying supplier and then provide it to the customer. The supply between the provider of the service and the platform will be exempt from VAT without a right to deduct VAT. By providing the VAT number or One-Stop-Shop (OSS) registration number to the platform and declaring that it will charge VAT on the service offered, the service provider can avoid the application of the deeming provision and its inability to deduct VAT. The consequence is, of course, that the service provider will have to charge and remit VAT on the service.
The new place of supply rule will apply to B2C platform facilitation services, which will be taxed at the place where the underlying service is subject to VAT.
Platforms should keep track of the underlying service they facilitate and make data about the supplier and the service available electronically to member states upon request in situations where the deeming provision does not apply.
The effective date of these rules has been postponed for a year so that they will apply as from 1 July 2028 rather than 1 July 2027 as set out in the ViDA text published in May 2024. Member states will have until 1 January 2030 to implement the deeming provision. The European Commission’s evaluation of the deeming provision has also been postponed to 1 July 2033 from 1 July 2032.
Single VAT Registration
Single VAT registration, the third pillar of ViDA, is designed to limit the number of VAT registrations for businesses within the EU. The rules have three components:
- Extension of the OSS regime;
- Extension of the mandatory reverse charge; and
- Introduction of a special regime for the transfer of own goods.
The OSS allows businesses in the EU to fulfil their VAT obligations using a single online portal, i.e., they may submit a single VAT return and pay the VAT due in one member state. This scheme currently applies to all B2C services and EU distance selling (and for platforms in some cases of domestic B2C supplies). Under the ViDA package, single VAT registration will be extended to all domestic B2C supplies, B2C supplies with installation and assembly, B2C supplies of electricity, gas, heating and cooling (that will apply as from 1 January 2027) and B2C supplies on board EU passenger transport.
The mandatory reverse charge will be extended to apply to all B2B supplies and services where the supplier is not established and VAT- registered in the member state where VAT is due, and the recipient is identified for VAT in that member state.
A new OSS scheme for the transfer of own goods will be introduced, which will cover transfers of goods to another member state (provided there is a full right to deduct input VAT). The intra-Community acquisition of goods in the member state from which the goods are sent or transported will be exempt from VAT in the member state of arrival and should not give rise to registration requirements.
As from 1 July 2028, it will no longer be possible to transfer goods to another member state under the call-off stock arrangement. However, goods that were transferred under the call-off stock arrangement before that date will still be able to be supplied to the customer through 30 June 2029 under that special scheme.
Changes and Clarifications to Existing E-Commerce Rules
The adopted measures also contain some changes to the B2C e-commerce rules that have applied since 1 July 2021. It is important to note that most of the changes have been postponed by one year (for prior coverage, see the BDO article on this topic).Madeleine Merkx
BDO in Netherlands