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Businesses operating across the EU are struggling with differing VAT administrative requirements and the VAT compliance obligations in place in EU Member States (MSs). 14 EU MSs have already introduced/legislated, and several are planning to introduce, their own digital reporting requirements (DRR) which have proven successful in increasing VAT collection and combatting VAT fraud.
What is more, businesses trading across the EU or placing their inventory in MSs have to register for VAT in all MSs where they hold stock or have intra-EU supplies or acquisitions. This is costly and leads to inefficiencies.
In addition, the changes are required to modernize VAT rules applicable to new forms of doing business such as platform economy and e-commerce.
The European Commission’s VAT proposals can be divided into three main areas:
The following sections give a general overview of the proposed rules in those three areas. We will publish detailed articles about each area in the following weeks.
A new definition of electronic invoices
From 2024, a new definition of electronic invoices will be introduced. An ‘electronic invoice’ will mean an invoice that contains the required information and which has been issued, transmitted, and received in a structured electronic format that allows for its electronic processing.
Domestic e-invoicing should allow the European standard
From 2024, MSs can impose domestic DRR without prior approval of the EU. MSs may oblige e-invoicing but they should allow e-invoices that comply with the European standard on e-invoicing (EN 16931) adopted by the Commission Implementing Decision (EU) 2017/187055 and the Directive 2014/55/EU in the context of the B2G e-invoicing (the ‘European standard’). A domestic DRR introduced in the future cannot require pre-approval of the e-invoices, the existing DRRs are allowed to require pre-clearance until 2028.
The proposed EU DRR system (e-invoicing and digital transaction-based reporting (DTBR) would not only apply to all intra-Community supplies and acquisitions of goods and services, but also to all business-to-business (B2B) supplies of goods and services that are taxed in an MS other than that in which the supplier is established.
There will be an obligation to issue structured e-invoices and to transmit data from these invoices to the relevant national VAT authorities’ electronic portal, in near real-time (within two working days).
E-invoicing
The e-invoicing requirements will not only apply to all intra-EU supplies of goods and services but also to all supplies by non-established suppliers that are subject to the domestic reverse charge (see Section 3 under “Extended domestic reverse charge”).
Digital transaction-based reporting (DTBR)
From 2028, the European Sales Lists (and Purchase Lists which are obligatory in a few MSs) will be abolished and replaced with the DTBR.
The DTBR for intra-EU transactions will cover the same transactions that were covered by the European Sales Lists (ESLs) with the exception of the call-off stocks which will cease to exist from 2026. In addition, supplies of goods and services subject to the extended domestic reverse charge will also be included in the ESLs from 2025 and in the DTBR from 2028.
The data containing most of the mandatory VAT invoice details would need to be transmitted on a transaction-level basis within two working days after the issuance of the invoice.
Reporting purchases of goods and services taking place in the EU
The person acquiring the goods and the recipient of the services will be required to report the data on their intra-Community transactions. Businesses will be obliged to transmit the e-invoice data on their intra-Community acquisitions of goods and services as well as on their acquisitions of the goods or services subject to the domestic reverse charge. The purpose is to compare the data declared by the supplier with the data declared by the customer to detect VAT fraud.
Measures enhance the role of platforms in the collection of VAT when they facilitate the supply of passenger transport and short-term accommodation or sale of goods (e-commerce).
From 1 January 2025, a deemed supplier rule will be introduced for platform economy operators in passenger transport and short-term accommodation sectors. This means that the platforms will account for the VAT on the underlying supply where no VAT is charged by the underlying suppliers (e.g., by private individuals / non-entrepreneurs for VAT purposes or exempted small businesses).
From 1 January 2025, a deemed supplier rule will apply to all (both B2B and B2C; domestic and cross-border within the EU) sales of goods via platforms that facilitate those sales. This means that the facilitating platform instead of an underlying supplier selling goods through the platform becomes liable for VAT. Currently, a deemed supplier provision only applies to B2C supplies by underlying suppliers who are not established in the EU.
This provision does not apply if the platform is only established in one MS and facilitates local sales in this MS.
A deemed supply rule will also apply to the transfer of own goods
From 1 January 2025, a deemed supplier rule will also apply to intra-EU transfers of goods belonging to underlying sellers if those transfers are facilitated by a platform/marketplace. For example, if the goods belonging to marketplace sellers are moved between fulfillment centers, then the facilitating marketplaces are deemed to have received the ownership of those goods at the point of departure of the goods from their owner. The cross-border movement is treated as a movement of the goods belonging to the platform who must therefore report those stock movements for VAT purposes, either through their VAT registration in the MSs involved, or through a newly created OSS scheme for the transfer of their own goods (see Section 3. Below under “Extension of OSS to transfers of own goods”).
This measure aims to decrease the need for multiple VAT registrations by expanding the OSS and domestic reverse charge from 2025.
The scope of OSS is extended to cover all B2C services provided in the MSs where businesses are not established.
The scope of the OSS scheme will be expanded to cover domestic B2C supplies of goods by businesses that are not registered for VAT in the MS of consumption.
For the following types of supplies, the OSS cannot only be used for reporting B2C but also for B2B supplies:
From 2025, stock transfers could be reported via the OSS. Call-off stock arrangements will also be reported through the OSS. Businesses transferring stock between EU MSs could report those movements of own goods via the OSS in their MS of identification. This would be the MS of establishment for EU businesses and the MS of departure of the goods for non-EU businesses.
From 2025, the domestic reverse charge will apply for all B2B supplies of goods and services made by non-established businesses if the recipient of the goods or receiver of the services is registered for VAT in the MS in which the VAT is due.
In the Netherlands, the domestic reverse charge already applies to all local supplies of goods and services by non-established businesses if the recipient of the goods or receiver of the services is established in the Netherlands. If the EU proposal will be adopted, then this means that the scope of the reverse charge will be further extended.
The supplier needs to report all local transactions subject to this extended domestic reverse charge in the ESL from 1 January 2025, and in the EU DRR (e-invoicing and transaction-based reporting), from 1 January 2028. The acquirer of the goods or services also needs to report the purchases in the DTBR from 1 January 2028.
It will be obligatory for marketplaces and platforms to use the IOSS scheme when they facilitate certain imports of goods to consumers in the EU. This was introduced as an optional scheme for facilitating marketplaces in July 2021 and will become mandatory from 1 January 2025 for platforms facilitating B2C distance sales of imported goods with a low value.
The European Commission is considering ambitious reforms to harmonize the rules of VAT compliance in the EU.
The Council which contains the representatives of the MSs has to approve the proposed amendments before they become effective.
The proposed changes mean that the MSs who already have implemented DRRs need to make extra costs to adapt their systems to new EU rules. The MSs who did not introduce any DRR yet, need to implement a DRR according to proposed EU rules. However, it is expected that the MSs support (most of) the proposals since the benefits of increased VAT collection would exceed the costs of implementing the new DRR. Extension of OSS and the domestic reverse charge would reduce the costs of businesses. A new VAT framework for platforms and e-commerce would increase VAT revenue.
The Swedish Presidency of the Council of the EU has already identified the work on the proposal for new VAT rules for the digital age as one of the priorities for the first half of 2023.
For businesses, the new rules would mean a major implementation effort in short term. Those efforts are hopefully outweighed by the benefits, such as decreased compliance costs in the longer term.
“VAT in the Digital Age” proposal is currently open for feedback until the end of February 2027. All feedback received will be summarised by the European Commission and presented to the European Parliament and Council with the aim of feeding into the legislative debate.
The VAT in the Digital Age (ViDA) proposal includes the following changes:
