VAT in the Digital Age: Introduction (part 1)

The current European VAT system has been in place since 1993. Since that time, a formal transitional regime has has been in place, and this regime has been in place for almost 30 years now. Economic and technological developments have not stood still, and despite several updates to the VAT rules in 2006, 2010, 2020 and 2021, on December 8, 2022, the European Commission finally presented a completely new plan to modernize the VAT rules in the EU: VAT in the Digital Age (ViDA).

Perhaps completely new is a bit of an exaggeration. The European Commission itself states that it is mainly building on the direction already taken several years ago. For example, the new VAT rules for e-commerce that apply from July 1, 2021 are a precursor to the ideas as presented now. But there is much more.

Focus on 3 components

The proposals (for that is what they are, nothing is final yet) focus on 3 main points:

  1. Digital VAT compliance and invoicing;
  2. VAT levied through platforms; and
  3. One EU-wide VAT registration.

Below I will briefly explain each point.

Further digitalization

There are two spearheads the European Commission is targeting: electronic invoicing and digital reporting. Currently, EU member states still have different ways and conditions for issuing invoices electronically. The European Commission wants to allow only one standard for electronic invoices. Initially, this standard will only apply to intra-community supplies.

The reason behind this is that the European Commission cannot simply impose conditions on member states for their "local" transactions. But intra-community transactions are an EU matter, and therefore the European Commission can impose requirements. The idea is that by standardizing intra-community obligations, member states will (start) applying the same conditions to local obligations.

The same applies to the reporting of intra-community supplies. These will no longer have to be declared monthly or quarterly, but within two days. An (almost) real-time reporting, in other words, which will allow member states to see and coordinate ('matching') purchases, sales and transfers between member states faster and better.

By the way, the latter implies that summary invoicing will no longer be possible. After all, transactions must be reported immediately, and it is no longer possible to wait until the end of the month before invoicing.

In brief: new obligations intra-EU transactions

  • Electronic invoice
  • Report by transaction
  • Report sales and purchases
  • Additional information per transaction
  • Within 2 days

Platforms as taxpayers

With the introduction of the VAT rules for e-commerce as of July 1, 2021, a hefty task has been added for so-called facilitating platforms. They are seen as buyers and sellers for the supply of goods sold through the platform to private customers. The European Commission is very enthusiastic about the "success" of taxation through these platforms. This is not surprising since, according to this European Commission, nearly 10 billion euros of additional VAT was received in the first year that the e-commerce rules came into effect, most of it by 8 largest platforms.

The European Commission is keen to build on this with VAT in the Digital Age, and the proposals therefore focus on the following major platform economies: passenger transport and accommodation. Whereas the rules are currently concerned with the sale of goods, in these proposals the platform is also expected to purchase and sell in the provision of services. Think of Uber and Air-BNB.

No more foreign VAT registrations

In addition to platform deliveries, the European Commission is also very enthusiastic about One Stop Shop returns. This system allows entrepreneurs to declare all their sales to private customers in other member states and remit the VAT due through their own tax authorities.

In the European Commission's proposals, this system is further expanded, to the point where an entrepreneur only needs to be registered for VAT in his own member state. All sales to foreign customers must then be reported in the OSS declaration. This saves an enormous administrative burden and costs, because the entrepreneur no longer has to register separately in all EU member states.

What contributes to this is the proposal to apply the reverse charge mechanism to all local supplies by a foreign supplier. This is already the case in some member states (including the Netherlands). Under this arrangement, a foreign supplier making a local supply is not allowed to charge VAT. Instead, the customer must calculate the VAT due, and declare it on his own VAT return. The implementation of this rule (and all other proposed changes) does require further elaboration and implementation.

Entry into force

There are still many practical questions and ambiguities that must first be resolved in the VAT in the Digital Age proposals. Member states (and business owners) will have to move quickly, however, as the effective date of the new rules is as early as Jan. 1, 2024, for some parts.

In the coming period, we will regularly update you on the new rules. And of course about the consequences and opportunities for you, as a business owner.

Want to know more?

We can help you with all your VAT questions. Please feel free to contact us, for example by booking an appointment directly through our website.

At Less Grey, we have the knowledge and experience to help you with VAT Advice, Compliance and Refunds. And if you are interested in IOSS, it is good to know that Less Grey is one of the largest VAT intermediaries in the Netherlands.