VAT in The Digital Age (ViDA) – Developments You Should Know

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May 28, 2024

AGN EMEA Tax Committee News

Are you aware of the ViDA reforms and what impact this will have on EU Businesses?

In December 2022, the European Commission published its proposed “VAT in the Digital Age” (ViDA) reforms to amend the European Union (EU) Value Added Tax (VAT) system with the view to respond to the challenges of digitalisation.

The proposed changes, which aim to reduce the estimated €93 billion “VAT Gap” in the EU and to make the VAT system more efficient for businesses, revolve around three “pillars”.

VAT in the Digital Age (ViDA) Three Pillars

Pillar 1:

Introduction of common standard digital reporting requirements and e-invoicing on intra-community transactions.

Mandatory digital reporting of intra-community transactions; obligation to be able to issue and receive intra-community e-invoices; Member States free to impose own e-invoicing or real-time reporting but most conform to EU e-invoice standard EN 16931;
Original Introduction Date: January 2028;
Revised Introduction Date: July 2030.

Pillar 2:

Looking at challenges of trading on platforms such as short-term accommodation rental and passenger transport.

Travel & accommodation sharing platforms to become deemed supplier / liable to users’ VAT. New definitions of the roles of providers, users and platforms to avoid double and no-taxation;
Original Introduction Date: January 2025;
Revised Introduction Date: July 2028.

Pillar 3:

Reducing VAT registration requirements in the EU by expanding the scope of the One Stop Shop (“OSS”) and the reverse charge for B2B trade.

Following the 1 July 2021 introduction of the One Stop-Shop (OSS), OSS will be extended to cover movement of own stocks prior to cross-border B2C to reduce the foreign, non-resident VAT registrations & returns (single pan-EU VAT registrations). Potential changes for movements of own stock with ending of ‘call-off’ stock burden;
• Original Introduction Date: January 2025;
• Revised Introduction Date: July 2028.

There are many questions arising from businesses on the proposed changes. Read on for an outline of the main questions listed below.

1. Where are we now?
2. Why is ViDA important?
3. What are the revised timings for ViDA?
4. What impact will this have on EU VAT registered businesses and their processes?
5. How will future Intra EU trade be affected?

1. Where are we now?

The ECOFIN ministers met in May 2024 to seek a political agreement on the above proposals, however it was not passed due to objections from one EU Member State (Estonia) around the Pillar 2 platform rules.

This has halted progress on all of the measures for now, however there is agreement to work through these and there remains a strong will to implement all measures as two of the three ViDA pillars were accepted with unanimity. As unanimous consent is required on all parts, none of the proposals can proceed until a compromise solution is found.

The current Belgian Presidency of the EU Council is likely to reattempt agreement with Estonia by the next ECOFIN on 21 June 2024.

2. Why is ViDA important?

The ViDA proposals will mean that EU Member States can use technology to improve the current VAT system and prevent fraud more efficiently.

As outlined above, the updates include facilitation of e-invoicing, introduction of mandatory digital reporting requirements of cross-border transactions and legal mechanisms to facilitate cross-border business and compliance. When enacted, this will mean significant changes to how VAT registered businesses operate in the EU.

As expected, changes of this size and scope are generating a lot of questions among businesses that conduct operations in the EU. Everything from process costs to technology needs is being evaluated as more information on ViDA becomes available.

3. What are the revised timings for ViDA?

Based on current information, the ViDA proposals will eventually be introduced at different times between 2025 and 2030. That latter date applies to the ViDA proposals for mandatory electronic invoicing and digital reporting for intra-Community transactions.

ViDA proposes to remove current restrictions for EU countries to introduce domestic mandatory e-invoicing as soon as the ViDA package gets adopted, which may well be during this year. This means that, most likely, EU countries that do not have such regimes yet will likely accelerate the introduction of mandatory e-invoicing and real-time reporting already in the next couple of years.

Many EU countries have already announced initiatives in this direction, or even started their rollout, so the effect of this provision will be an intensification of the current wave of new Continuous Transaction Control (“CTC”) mandates to prepare for in the very short term.

The other two pillars of ViDA, mainly relating to VAT rules for platform operators who facilitate short-term accommodation rentals and passenger transport services, and simplifying VAT registrations in the EU, will provisionally both take effect as of 1 July 2028.

4. What impact will this have on EU VAT registered businesses and their processes?

In addition to compulsory e-invoicing and real-time reporting, the further requirements will mean that there will need to be changes to business processes, including what constitutes an invoice which will require PDF invoices in the EU to be converted to machine-readable formats. This means that businesses must increasingly use software and service providers that can guarantee compliance with frameworks and laws that may require a change to invoicing processes and systems throughout most businesses.

It is likely that all invoicing and related processes will be impacted and accounts payable and accounts receivable process and the associated information systems that support them – all these need to be reviewed.

5. How will future Intra EU trade be affected?

Cross-border transactions between EU countries will be subject to a new real-time reporting regime that replaces the current requirement for EC Sales Lists.

The actual reporting will be done on a transactional basis to each Member State, and Member States will report this information to a central European Commission database. In addition to these digital reporting sections of ViDA, intra-EU cross-border transactions are also affected by parts of the proposal in other ways.

For example, changes to remove administrative burdens for businesses moving their own stock between EU countries have been put forward. In addition, the Import One Stop Shop (I-OSS) for cross-border remote sales of low-value goods to EU consumers will become mandatory, which will impact e-commerce sellers and platforms outside the EU.