Luc Heylens
Kreston Global Indirect Tax Group Technical Director and Director of VAT at Kreston VDN, Belgium
Luc works as a VAT expert at Kreston MDS in Beersel at Kreston VDN. He began his career as an inspector with the Belgian VAT Authorities. He provides VAT expertise and advice for the mid-market and SMEs. Luc has also worked within a large big 4 company as VAT director. He is specialised in EU VAT matters, cross-border trade and real estate issues.
2024 EU VAT Regulations January update: What is the real impact on gig economy digital platforms?
January 10, 2024
The impact of 2024 EU VAT Regulations on the gig economy hit the headlines this week as consumers reacted to the 1 January update, only partially rolled out across the EU. Despite the coverage across social media, the new update does not seek to target casual sellers, but has been created to fill the VAT shortfall, after a recent ruling in the UK court against Uber redefining Uber as an employer and therefore liable for VAT.
We spoke to Luc Heylens, Kreston Global’s Indirect Tax Group Technical Director and Director of VAT at Kreston VDN in Belgium to explain the wider context of this court ruling and new VAT update and what it means for businesses with operations in Europe.
VAT in the Digital Age (ViDA)
The digital economy has long been stress-testing antiquated tax systems, set up well before the onset of the Internet. The EU VAT gap has been a focus of the European Commission, with lost revenue in Member States reaching €99 billion in VAT revenues in 2020. ViDA (VAT in the Digital Age) has been part of the response, with the new legislation adopted across the region from 1 January 2024. In regards to the introduction of ViDA. Heylens is resolute about the change,
“Conservative estimates suggest that one-quarter of the missing revenues can be attributed directly to VAT fraud linked to intra-EU trade. The new system introduces real-time digital reporting for VAT purposes based on e-invoicing that will give Member States valuable information they need to step up the fight against VAT fraud, especially carousel fraud.”
Shortening the €99 billion VAT gap
The European Commission has already seen impressive reductions in the VAT gap, reducing to €61 billion in 2021. This has been attributed to several different environmental factors, not least an improvement in compliance during COVID so businesses could access support. Heylens believes that businesses will welcome ViDA,
“VAT arrangements in the EU can still be burdensome for businesses, especially for SMEs, scale-ups and other companies that operate cross-border. There is already a great deal of cost involved when starting the business. ViDA allows businesses to pay VAT in just one member country. The administrative burden is then on that country to share the VAT correctly to other member countries.”
The introduction of a single VAT registration across the EU
Building on the already existing ‘VAT One Stop Shop’ model for online shopping companies, the proposals would allow businesses selling to consumers in another Member State to register only once for VAT purposes for the entire EU, and to fulfil their VAT obligations via a single online portal in one single language. Further measures to improve the collection of VAT include making the ‘Import One Stop Shop’ mandatory for certain platforms facilitating sales to consumers in the EU.
VAT changes tackling the gig economy: Uber and Airbnb
New digital economy businesses have also brought in the gig economy, a challenge in terms of understanding what a business is before VAT can be applied. Recent court cases against two global platforms, Airbnb and Uber, have established drivers and home-owners as workers and not contractors, meaning the individuals are now subject to VAT. Uber was ordered to pay the UK HMRC £615 million in outstanding VAT in 2022, opening the door for the European Commission to insist that platform businesses correctly declare their VAT in member states. Heylens feels the tightening of regulations was inevitable,
“In this digital age, the EU recognises the complexity of identifying who exactly provides services such as accommodation rentals or transport. The crux of the issue lies in distinguishing whether the service provider is an individual, like a driver, or a company, such as Uber. This becomes particularly challenging when individual service providers, who are physical persons, must register for VAT in their respective countries. This requirement can lead to a burdensome amount of formalities, often for minimal gain. Therefore, if VAT payments were to be centralised through these platforms, it would streamline the process, reducing the administrative workload for individual service providers and ensuring a simpler method of VAT collection.”
Impact on SME businesses
Heylens is hopeful the SME sector will take heed of these developments and prioritise paying the correct VAT, “Under the new rules, platform economy operators, in particular the short-term rental of tourist accommodation and passenger transport will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example because they are a small business or individual provider (deemed suppliers). From 2025, these platforms will be made responsible for VAT payments in certain situations (C2C and C2B transactions). The implementing regulation stipulates that the platform is subject to VAT in all cases where the provider has not provided a valid VAT number.”
E-invoicing
These proposals and possible changes will probably have a significant impact on companies’ systems and processes. Businesses operating in the EU should consider their readiness for the changes should they come into force, particularly regarding the systems changes that would be required for standardised e-invoicing. If implemented, the simplification regime (OSS) offers businesses opportunities to streamline their reporting obligations.
Heylens is resolute about the changes, but warns businesses should be considering these updates in their financial planning,
“Of course, individuals and businesses often seek ways to circumvent paying VAT, which is a typical practice in taxable transactions, such as the Uber case in the UK. It foreshadows the likely penalties for smaller businesses, and the magnitude of unpaid taxes and ensuing settlements highlights the significant financial stakes involved. We must guide our clients, especially those in the gig economy or utilising various platforms, towards adhering to VAT regulations. Given the severe financial implications of non-compliance and the impending enforcement of new regulations within a few months to a few years, we must inform and prepare our clients promptly.”
If you would like advice on the new 2024 EU VAT Regulations and how it might affect your business, please get in touch.
