The European Commission's legislative proposal on VAT in the Digital Age (ViDA initiative) is part of the EU Action Plan for Fair and Simple Taxation. The aim of the initiative is to simplify the VAT system and to make it more resistant to fraud as a result of increasing digitalization. The final agreement will be concluded probably in 2024. As for now, it is most probable that:
- Pillar 1, Digital Reporting Requirements (DRR) & e-invoicing, will be delayed until 2030 or even 2032. The pillar introduces mandatory structured VAT e-invoicing for suppliers and digital reporting of intra-community B2B transactions, whereby member states may opt for separate e-invoicing or digital reporting for domestic transactions.
- Pillar 2, Platform Economy deemed supplier, will be delayed probably until 2026. This pillar shifts VAT collection to home country.
- Pillar 3, Single VAT Registration, will be probably delayed until 2026. This pillar provides for extension of OSS single VAT return for (i) harmonization of non-resident VAT reverse charge, (ii) e-commerce and cross-border movements of certain B2B goods.
VAT in Digital Age - Pilar 1
Pilar 1 provides for two paths to tackle the EU VAT Gap:
- Replacing of EC Sales Lists by mandatory B2B intra-community DRR near-live reporting ICS supplies & acquisitions for all companies, including non-residents.
- The submitted data will be consolidated by local tax authorities in a common EU database with endpoints.
- Reporting frequency: 2 working days of a taxable event.
- Applicable only to B2B transactions - B2C would be still excluded.
- The introduction of this regime will lead to withdrawal of EC Sales Lists.
- Central VIES checker will be updated to include DRR transactions.
- Mandatory intra-community e-invoicing:
- Any business will be obliged to be able to issue and receive VAT e-invoice for ICS supplies.
- Electronic invoicing will be default system, however Member State may authorize paper invoices.
VAT in Digital Age - Pilar 2
Pillar 2 focuses on the platform economy environment and the elimination of the unequal conditions in this environment.
The platform economy environment has recently been increasingly used for business because digital platform and marketplaces to sell goods or services allow reaching out a huge number of potential consumers. According to studies mostly affected sectors are passenger transport and accommodation. Currently, the use of the platform by individuals and small businesses may cause an inequality of pricing conditions compared to large businesses which are usually VAT payers, as individuals and small businesses offer their services without VAT, usually being not VAT registered.
The platforms themselves are usually VAT payers in the EU countries, but currently they only charge VAT on the service they provide (intermediary service) and not on the value of the entire supply (e.g. accommodation) invoiced to the final customer.
The ViDA Directive introduces the special rule for “deemed suppliers”. According to the new rule the deemed supplier (i.e. the platform) would have to tax the entire supply, not only the intermediation fee, but the service itself as well. Such rule would have to be applied for intermediary services provided by platforms to non-taxable persons. If the supplier does not charge VAT, the platform would have to tax the supply, not only the intermediary service. The platforms (deemed suppliers) will pay output VAT from the services via OSS regime. This approach aims to level the playing field between digital platforms and traditional suppliers, ensuring equal treatment under VAT regulations and addressing the issue of non-compliance and fraud in cross-border transactions.
It is also proposed to extend use of IOSS mandatory for electronic interfaces facilitating as deemed supplier certain distance sales of imported goods.
VAT in Digital Age - Pilar 3
The aim of Pilar 3 to allow taxpayers to carry out business within EU using a single VAT registration and with increased use of OSS (One Stop Shop) regimes. A new special scheme for transfers of stock across EU borders is to be introduced, whereby entrepreneurs could report transfers of stock in their member state of identification under OSS scheme instead of through multiple VAT registrations which would be necessary currently. Additionally, the scope of transactions covered by the Union One Stop Shop (UOSS) would be increased and include all domestic business-to-consumer supplies of goods.
Moreover, domestic reverse charge for business-to-business supplies of goods and services made by non-established or non VAT-registered taxpayers. This change would result in shift of VAT on transactions performed by non-established businesses to a recipient under the reverse charge mechanism, if the recipient is already registered for VAT in that member state.
At the same time, the following provisions have been dropped from Pilar 3 during the recent work:
- extension of deemed supplier for marketplaces on EU seller trade;
- works of art and second-hand goods;
- mandatory IOSS for all consignment imports (postponed until 2028 EU Customs Reforms).
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