Luc Heylens
VAT Expert, Kreston-VDN BVBA

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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.

VAT in the digital age

May 23, 2023

On 8 December 2022, the European Commission launched the VAT in a Digital Age package, a series of measures to modernise and make the EU’s Value-Added Tax (VAT) system work better for businesses and more resilient to fraud by embracing and promoting digitalisation.

VAT in the Digital Age package (“ViDA”)

This “VAT in the Digital Age package” (“ViDA”) has 3 pillars :
• Digital Reporting Requirements (DRR)
• Platform Economy
• Single EU VAT Registration

Member States lost €93 billion in VAT revenues in 2020 according to the 2022 VAT Gap report of the EU. Conservative estimates suggest that one-quarter of the missing revenues can be attributed directly to VAT fraud linked to intra-EU trade. In addition, VAT arrangements in the EU can still be burdensome for businesses, especially for SMEs, scale-ups and other companies that operate cross-border.
The package of proposals is in fact draft amendments to three pieces of EU legislation. The proposed changes still need to be adopted by the Member States.

Real-time digital reporting based on E-invoicing

For ViDA to become effective, the proposal will need unanimous consent from all 27 EU Member States. If adopted by all Member States, the changes proposed by ViDA will gradually become effective between 1 January 2024 and 1 January 2028.

Streamlining cross-border transactions with real-time digital reporting

Real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU
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.

Changes in electronic invoicing and reporting deadlines

The ‘Digital Reporting Requirements’ is any obligation for VAT-taxable persons to submit data periodically or continuously in a digital way on all (most of) their transactions, including by means of mandatory e-invoicing, to the tax authorities.

Below, the most important changes are indicated :

• The proposal changes the legislation, providing that electronic invoicing will be the default system for the issuance of invoices for cross-border B2B transactions within the EU from 2028. There will be no thresholds or exemptions for small businesses;
• From 1 January 2024, the definition of an electronic invoice will change. These invoices must be issued in a structured format. The condition that the recipient must accept electronic invoices will no longer be required;
• The deadline for issuance of e-invoices for intra-community supplies of goods and services that are subject to a reverse charge is two days after the chargeable event took place;
• The deadline for digital reporting of intra Community transactions will be 2 days after the issuance of the invoice or when the invoice should have been issued;
• Real-time reporting will be introduced to replace the existing system of intra-Community declarations. The new system should allow Member States to exchange information on VAT returns in cross-border transactions much more quickly;
• Member states will be allowed to establish additional real-time reporting systems for transactions to private individuals or domestic transactions but based on the common reporting system;
• Extension of the definition of intra Community distance sales of goods to cover second-hand goods, works of art, collectors’ items and antiques.
• Discontinuation of the call-off stock simplifications as of 31 December 2025 as those can be covered under the One Stop Shop (OSS).

VAT responsibilities in the platform economy

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.

Further :
• The extension of the OSS return to e-commerce and own stock movements across EU borders;
• Call-off stock withdrawal as traders will be able to use OSS (see above);
• Marketplaces become deemed suppliers for their EU sellers’ B2C goods sales across EU borders;
• The Import One Stop Shop (IOSS) to become mandatory for marketplaces which have facilitated their sellers’ imported goods sales;
• The proposal clarifies the VAT treatment of services provided by platforms. These will be subject to VAT in the country where the underlying facilitated transaction for VAT purposes takes place.

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.
The following new rules will be introduced :

• The e-commerce package success of One-Stop-Shop VAT return for distance selling will be extended to movements of own stock by e-commerce sellers prior to B2C e-commerce sale (B2B2C transactions);
• The SVR will enable businesses to charge, report and manage their entire EU VAT through their domestic tax authorities, including eventually the entire audit process;
• The stock movement remains taxable with two transactions – arrival and sale. Both would be reported in the OSS, which would need additional information added to be reported to the member state of identification (where OSS is registered);
• This will eliminate the need for hundreds of thousands of foreign VAT registrations for e-commerce sellers;
• All B2B deliveries by foreigners to registered customers will be subject to the reverse charge of tax. The reverse charge transactions must be indicated by the supplier in its EU sales listing (from 2025), and are subject to (real-time) intra-EU reporting (from 2028). Under the current system, such a shift is only optional. Most countries have some form of reverse charge, but impose their own country-specific conditions, which makes the VAT rules for foreign registrations very complex;
• Extension of deemed supplier: 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 exception is sales in the country where the seller is resident.
• This is irrespective of where the seller is established, meaning an extension from the 2021 e-commerce package for just non-EU to include EU sellers. This will level the playing field;
• 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. The disadvantage of this option is that it would favour sellers using marketplaces and penalise their own website sales which would still be responsible for the domestic VAT reporting.

Considering readiness for digital VAT

These proposals and possible changes will probably have a significant impact on companies’ systems and processes. Businesses operating in the EU should start to consider their readiness for the changes should they come into force, particularly in respect of the systems changes that would be required for standardised e-invoicing. The simplification regime (OSS) if implemented, offers opportunities for businesses to streamline their reporting obligations.