Updated Alert from June 25, 2024
Once again, the EU Member States have failed to reach a political agreement on the VAT in the Digital Age (ViDA) proposal during the Economic and Financial Affairs Council (ECOFIN) meeting under the Belgian presidency on June 21, 2024. Despite including slight changes in the June 2024 proposal to address Estonia’s objections, the deemed supplier model for platforms in the platform economy pillar remains contentious. The task now falls to the upcoming Hungarian presidency of the EU Council to secure consensus in the latter half of 2024.
Given that EU Member States agree on most parts of the proposal, only limited changes are expected. This alert covers the revised ViDA proposal of June 19, 2024, focusing on the updated timeline and key changes.
Background and Impact
What is the ViDA proposal and its current state of play?
During the previous ECOFIN meeting on May 14, 2024, Estonia opposed the proposal due to concerns about the new deemed supplier regime, which would impose VAT collection responsibilities on platforms facilitating short-term accommodation rentals and passenger transport. Estonia suggested making these rules optional, allowing EU Member States to decide whether or not to implement them in their national VAT legislation. In response, the Belgian presidency proposed reducing the administrative burden for platforms and underlying suppliers in EU Member States that exempt SMEs from the deemed supplier regime. However, these changes were insufficient to achieve consensus, necessitating further negotiations, as unanimity is required.
What is the ViDA Proposal?
The ViDA proposal represents the largest revision of the EU VAT Directive in years, aiming to make the EU VAT system more robust against fraud, level the playing field between online and traditional economies, and reduce administrative burdens for taxpayers. The proposal includes three pillars:
- Digital Reporting
- Updated Rules for the Platform Economy
- Single VAT Registration
The initial draft was published on December 8, 2022. Following public consultation and political discussions, revised proposals were released on May 8, 2024, but Estonia’s opposition to the platform economy rules stalled progress. The Hungarian presidency aims to achieve agreement in the next ECOFIN meeting on July 16, 2024. If unsuccessful, the next opportunity will be on October 8, 2024.
Key Dates in the ViDA Proposal
- 20 days after publication of the Directive: EU Member States may require e-invoices for domestic supplies.
- July 1, 2027: Updated platform rules for short-term accommodation (maximum 30 days) and passenger transport. Extended scope of reverse charge rule and related reporting. Extended scope of OSS (supplies without transport, installation supplies, transfer of own goods).
- July 1, 2030: Intra-EU e-invoice and Digital Reporting Requirements (DRR), start of harmonization of Domestic DRR.
Pillar 1 – Digital Reporting
What is it?
The Digital Reporting Requirements (DRR) pillar introduces new rules for near real-time digital reporting based on structured e-invoices. Its primary goal is to provide EU Member States with valuable information to combat VAT fraud and reduce compliance costs for EU traders. Measures include:
- Domestic DRR: EU Member States can introduce mandatory B2B and B2C e-invoicing for domestic transactions. Harmonization in models and formats for Domestic DRR will be effective from July 2030 (2035 for states with pre-2024 legislation).
- Intra-EU DRR: Mandatory e-invoicing for intra-EU supplies, issued within 10 days of the chargeable event, with near real-time reporting to tax authorities.
- Standards: Revised EN16931 e-invoice standard and Directive 2014/55/EU will govern the standards for e-invoices, allowing hybrid formats.
Effective Dates:
- 20 days after publication: EU Member States may require e-invoices for local supplies, potentially waiving recipient consent.
- January 1, 2026: New mandatory invoice reference for cash accounting invoices.
- July 1, 2030: Intra-EU e-invoice and DRR requirements, start of Domestic DRR harmonization.
- January 1, 2035: Full harmonization of Domestic DRR for states with pre-2024 legislation.
Key Changes Since December 2022:
- Summary invoices allowed under stricter conditions.
- Extended deadlines for issuing and reporting e-invoices.
- Link between VAT recovery and e-invoice now included.
Pillar 2 – Platform Economy
What is it?
This pillar shifts VAT liability to platforms, ensuring a level playing field between online and traditional businesses. Measures include:
- Deemed Supplier Model: Platforms in short-term accommodation (up to 30 days) and passenger transport by road sectors must charge and collect VAT if the underlying supply is VAT-exempt. Member States can provide exceptions for SMEs.
- Facilitation Service: VAT on facilitation services by platforms to non-taxable persons is taxable at the service location and non-recoverable.
- TOMS Exclusion: Platforms as deemed suppliers cannot use the Tour Operators Margin Scheme (TOMS).
- Record-Keeping: Platforms not covered by deemed supplier rules must keep records of B2B and B2C services.
- Supply of Goods: Minor changes include supplies to taxable persons whose intra-Community acquisitions are not subject to VAT.
Effective Dates:
- July 1, 2027: Implementation of platform rules for accommodation and passenger transport.
Key Changes Since December 2022:
- IOSS remains optional.
- Deemed supplier rules for EU-established businesses excluded.
- Passenger transport limited to road.
- Exempt supplies to platforms included in SME threshold.
Pillar 3 – Single VAT Registration
What is it?
This pillar aims to reduce administrative burdens by minimizing the need for foreign VAT registrations through measures like:
- Extending OSS: Includes domestic supplies.
- TOOG OSS: New scheme for transfer of own goods.
- Local Reverse Charge: Applies to supplies by non-established taxpayers to registered taxable persons.
Effective Dates:
- July 1, 2027: Major changes including extended OSS scope and TOOG OSS implementation.
Key Changes Since December 2022:
- Local reverse charge rule dependent on non-registration of supplier.
- No changes for second-hand goods.
- Clarifications for TOOG OSS and other OSS schemes.
Next Steps
The next ECOFIN meeting on July 16, 2024, could reach an agreement. We recommend businesses prepare for the significant changes, especially the DRR, by developing an implementation roadmap focused on priority countries. Keep an eye on local developments in Belgium, Poland, Romania, Germany, France, and Spain.
