European Commission publishes VAT in the Digital Age proposals

The objectives of the proposals

The general objectives of the proposals are to improve VAT collection and control (and fight VAT fraud) and to reduce the excessive compliance burdens and costs for tax administrations and businesses. To achieve these objectives, the European Commission proposes three main changes:

1. a new real time digital reporting system based on e-invoicing,
2. updated VAT rules for the platform economy, and
3. a single VAT registration for businesses selling to consumers across the EU.

Below we briefly explain the proposed changes.

Digital Reporting Requirements

The European Commission proposes to replace the current recapitulative statements (EC Sales listings) with digital reporting requirements for intracommunity transactions. With these digital reporting requirements, the tax authorities will have access to the information on intracommunity transactions performed by taxable persons almost in real time. The main features of the digital reporting requirements are:

• The information has to be transmitted on a transaction-by-transaction basis;
• The deadline for the transmission of the data is two working days after the issuance of the invoice;
• The transmission of the data has to be carried out electronically;
• EU countries will provide the means for that transmission; and
• The information can be submitted directly by the taxable person or by a third party on their behalf.

To facilitate the digital reporting requirements, the European Commission proposes the use of electronic invoicing (e-invoicing) to become the default system for issuing invoices. In addition, the use of e-invoicing becomes mandatory for intracommunity transactions, and the e-invoices should be issued ultimately two working days after the intracommunity transaction took place. The e-invoice should contain all the data that later has to be transmitted to the tax administration. Unlike the current situation in some EU countries, the issuance of e-invoices and their transmission to the customer should not be conditional on prior authorisation or verification by the tax administration.

Platform Economy

According to the European Commission, the platform economy has led to an unjustified distortion of competition between supplies performed through online platforms that escape VAT taxation, and supplies performed in the traditional economy that are subject to VAT. To address this distortion in the short-term accommodation rental and passenger transport sectors, the European Commission proposes platforms be required to charge VAT (as a deemed supplier) when the underlying supplier does not charge VAT, e.g. because the underlying person is a private individual or a taxable person using the special scheme for small enterprises.

Moreover, an extension of the deemed supplier provision for platforms facilitating the supply of goods is proposed. This deemed supplier provision entered into force on 1 July 2021, as part of the VAT e-commerce package. The European Commission now proposes to extend this liability for platforms to almost all supplies of goods within the EU that are facilitated by the platform, irrespective of where the underlying supplier is established and the status of the purchaser. The extension of the deemed supplier provision also applies to platforms facilitating the transfer of own goods by underlying suppliers and the supply of margin goods.

Also, the European Commission proposes the use of the Import One Stop Shop (IOSS) to become mandatory for platforms that facilitate distance sales of imported goods. Besides, special measures such as linking the unique consignment number with the IOSS VAT identification number should be introduced to prevent fraud connected to the use of the IOSS.

Single VAT Registration

To limit the number of VAT registrations of businesses in different EU-countries, the European Commission proposes to extend the use of the One Stop Shop (OSS). Through the OSS, businesses can report and pay VAT due in other countries in the VAT return in their country of establishment. According to the proposal, the Union Scheme of the OSS is extended to include supplies of goods with installation or assembly, supplies of goods on board of ships, aircrafts or trains, supplies of gas, electricity, heating and cooling and domestic supplies of (margin) goods.

In addition, a new (optional) scheme is introduced within the OSS, to simplify the VAT compliance obligations associated with certain transfers of own goods. Under this scheme, the intracommunity acquisitions caused by the transfer of own goods, in the EU-country to which the goods are dispatched or transported, are exempt. Consequently, the current arrangements for call-off stock will no longer be required and will cease to apply.

Further to the above changes to the OSS, the European Commission proposes to make the reverse charge mechanism for domestic supplies carried out by a supplier that is not established for VAT purposes in the EU-country where the VAT is due, to a person identified for VAT in that EU-country, mandatory for EU-countries. Currently, implementation of such a reverse charge mechanism is optional for EU-countries.

The way forward

The European Commission aims at an implementation date of 1 January 2025 for most of the abovementioned regulations and 1 January 2028 for the Digital Reporting Requirements. It should however be emphasized that the abovementioned regulations are still subject to the decision-making process of the EU. Currently, the proposals are open for a feedback period of at least 8 weeks from stakeholders. Subsequently, the European Commission will present this feedback to the European Parliament and Council. Of course, we will keep you updated on the next steps in the proposals.