On the 8th of December 2022, the European Commission launched its long-awaited proposals to modernise the VAT rules within the EU, collectively known as 'VAT in the Digital Age package' (ViDA).
The ViDA consists of three key parts, commonly referred to as the following:
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Digital reporting and E-invoicing;
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The Platform economy; and,
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The Single VAT registration.
I. Digital reporting and E-invoicing
Key takeaway – the introduction of e-invoicing and a two working day digital reporting requirement for all intra-Community B2B supplies with effect from 1 January 2028.
Rationale - the EU seeks to quickly identify and follow up on missing trader intra-Community (“MTIC”) VAT fraud to close the “VAT Gap” (i.e. lost or unreported VAT Revenue).
The main features of the proposed legislation are:
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Electronic invoices will be the default system for the issuing of all B2B intra-Community invoices.
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The deadline for issuing invoices for intra-Community supplies or for which the reverse charge rule applies (including the extended reverse charge rule – see below) is set to two working days after the chargeable event takes place. Additional data is to be included in the invoice as to ensure the use of the electronic invoice to automate the process of reporting.
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A new digital reporting requirement system (a new central VIES system) for intra-Community transactions will be set up, which will provide information on a transaction-by-transaction-basis. This information will feed into the risk analysis systems of the Member States to help them counter VAT fraud. The information for the digital reporting requirement system will have to be transmitted by taxable persons within two working days after the issuance of the invoice to their domestic Tax Authority. If the data is not transmitted or does not contain the correct information the exemption with credit/zero rating for intra-Community supplies cannot be applied.
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The information collected by the Member States must be transmitted within one day after the collection to the central VIES system. The information remains available within the central VIES system for five years.
The rules are proposed to be applicable as of 1 January 2028 if not indicated otherwise above.
II. The platform economy
Key takeaway – the introduction of a “deemed supplier” for VAT purposes for certain Platforms in the short-term accommodation rental and passenger transport sectors with effect from 1 January 2025.
Rationale – to ensure a level playing field from a VAT perspective for all supplies in the short-term accommodation rental and passenger transport sectors.
The main features of the proposed legislation are:
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A “deemed supplier” rule for Platforms is to be introduced for short-term accommodation rental and passenger transport in situations where the underlying supplier does not charge VAT, for example because it is a non-taxable person or it uses the exemption for small businesses.
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The platform will charge VAT on the underlying supply because it is deemed to make the supply to the customer (and to receive it from the supplier).
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The supply of the underlying supplier to the Platform shall be regarded as “exempt” without a right to deduct VAT.
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The supply by the Platform for which it is a “deemed supplier” will be taxed as outlined below and shall not affect the Platforms VAT deduction entitlement.
The rules are proposed to be applicable as of 1 January 2025.
III. Single VAT registration
Key takeaway – the extension of the reverse charge rule and the One Stop Shop (“OSS”) and the introduction of new rules for the transfer of own goods with effect from 1 January 2025.
Rationale – to reduce the VAT compliance cost and administrative burden of cross border EU trade.
The main features of the proposed legislation are:
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A mandatory reverse charge rule for supplies of goods and services for all intra-Community B2B supplies where the supplier is not established in the Member State in which the VAT is due, and the purchaser/recipient is VAT registered in that latter Member State.
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To note, the reverse charge rule does not apply where goods are supplied under a margin scheme.
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The OSS is extended to cover B2C-supplies of goods including domestic supplies, installation or assembly supplies, supply of goods on board of ships, aircrafts or trains and supply of gas, electricity, heating and cooling.
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Platforms will become the “deemed supplier” for transfer of own goods if they facilitate the transfer of those goods and those goods are not capital goods or goods in relation to which there is not a full entitlement to VAT deduction.
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In all cases where the Platform is a “deemed supplier”, records must be kept about the suppliers whose sales the Platform has facilitated. This includes the name, postal address and electronic address or website of the supplier, it’s VAT id or tax id number and its bank account. The idea behind this seems to be the reconciliation of the information with CESOP information (EU cross-border payments reporting).
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Use of the I-OSS will be mandatory for Platforms. The €150 threshold is to be maintained for now.
The rules are proposed to be applicable as of 1 January 2025.
The ViDA proposals will now be discussed by the EU Member States and ultimately the ViDA proposals will require unanimous approval by all Member States to come into law. It is therefore expected that there will be a number of developments regarding ViDA during 2023 and we look forward to keeping you updated on this topic
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