The EU’s Ambitious Proposed VAT Rules for the Digital Age

A majority of EU member states have already introduced, or are planning to introduce, their own digital reporting requirements, as these have widely proven successful in increasing VAT collection and combating VAT fraud.

However, there are no common rules in the EU for digital reporting requirements. VAT compliance requirements vary substantially between member states, and the resulting fragmentation is costly for businesses operating internationally.

In addition, the VAT gap and intra-EU VAT fraud cause major problems for the current origin-based EU VAT regime.

The commission’s Impact Assessment Report considers these as major problems.

Businesses trading across the EU or placing their inventory in member states also have to register for VAT in all member states where they hold stock or have intra-EU supplies or acquisitions, which is costly and leads to inefficiencies.

In addition, changes are required to update VAT rules applicable to new forms of doing business such as the platform economy and e-commerce.

Commission’s VAT Proposals

The European Commission’s VAT in the Digital Age proposals of Dec. 8, 2022 can be divided into three main areas:

• Real time digital reporting requirements based on e-invoicing;
• New VAT rules for the platform economy and e-commerce;
• An extension of the one-stop shop.

The following sections will give an overview of the proposed changes in each area.

Digital Reporting Based on E-Invoicing

New definition: From 2024, an “electronic invoice” will mean an invoice that contains the required information and that has been issued, transmitted, and received in a structured electronic format which allows for its automatic and electronic processing.

It seems from the proposal that invoices issued in pdf format wouldn’t comply with the new definition. If the widely used pdf format isn’t accepted, businesses currently issuing invoices in a pdf format and sharing them by e-mail or a weblink should switch to a new software that would allow them to issue, transmit, and receive invoices in an XML format. Issuing paper invoices (only allowed when member states authorize them) would be wasteful and impractical.

Common system for EU digital reporting requirements from 2028: There will be an obligation to issue structured e-invoices and to transmit data from these invoices to the relevant national VAT authority’s electronic portal in near real-time (within two working days).

The proposed EU digital reporting system (e-invoicing and digital transaction-based reporting) would cover:

• Intra-community business-to-business supplies of goods;
• “General” business-to-business services rendered between taxpayers established in different member states;
• Supplies of other services subject to the domestic reverse charge for non-established suppliers; and
• Supplies of goods subject to the domestic reverse charge mandatory from Jan. 1, 2025 for non-established suppliers.

The above transactions also need to be reported by an acquirer or purchaser.

E-invoicing: Additional data elements should be included on e-invoices, such as mandatory payment details. It won’t be possible to issue summary invoices.

The issuance of e-invoices won’t be subject to prior mandatory authorization or verification by the tax authorities (pre-clearance).

Digital transaction-based reporting: From 2028, the EC sales list (and purchase lists which are obligatory in a few member states) will be abolished and replaced with digital transaction-based reporting.

Digital transaction-based reporting for intra-EU transactions will cover the same transactions that were covered by the EC sales lists, with the exception of call-off stocks subject to EU simplification, which will cease to exist from 2026. In addition, supplies of goods and services subject to the domestic reverse charge mechanism also will be included in the EC sales lists from 2025 and in the digital transaction-based reporting from 2028.

The data containing most of the mandatory VAT invoice details would need to be transmitted on a transaction-level basis. The deadline for transmitting the data is two working days after the issuance of the invoice, or after the date the invoice should have been issued if the business hasn’t complied with their obligation to issue an invoice. The information can be submitted directly by the businesses themselves or by a third party on their behalf.

Reporting purchases of goods and services: The person acquiring the goods and the recipient of the services will be required to report the data on their intra-community transactions. Businesses will be obliged to transmit the e-invoice data on their intra-community acquisitions of goods and services as well as on their acquisitions of the goods or services subject to domestic reverse charge. The purpose is to compare the data declared by the supplier with the data declared by the customer to detect VAT fraud.

The current VIES will be replaced by the central VIES system: The central VIES store and cross check data received on cross-border operations and compare the data from the intra-EU transaction reports with other data sources.

Harmonization of domestic digital reporting requirements: From 2024, the digital reporting requirements already in place in 12 member states or legislated (for example, in Poland and France), may remain in place. However, tax authorities should accept e-invoices issued based on the European standard on e-invoicing (EN 16931) adopted by the Commission Implementing Decision (EU) 2017/187055 and the Directive 2014/55/EU in the context of business-to-government e-invoicing—the “European standard.”

Member states that already have e-invoicing in place are allowed to require pre-clearance until 2028, but no new pre-clearance systems are allowed from 2024.

The proposed EU digital reporting requirement is going to generate costs for taxpayers. However, the reduced fragmentation of compliance requirements and complementary measures—for example, the pre-filling of the VAT return, removal of other obligations—hopefully can generate savings which will compensate for the new burden.

VAT Rules for Platform Economy and E-Commerce

The proposed rules enhance the role of online marketplaces in collection of VAT when they facilitate the supply of goods. In addition, they make platforms liable for charging and remitting the VAT when they facilitate a supply of passenger transport or short-term accommodation.

Sale of goods via platforms—e-commerce: From 2025, a deemed supplier rule will apply to all (both B2B and business-to-consumer; domestic and cross-border within the EU) sales of goods via platforms that facilitate those sales. This means that the facilitating platform, instead of an underlying supplier, becomes liable for VAT. Currently, a deemed supplier provision only applies to B2C supplies by underlying suppliers who aren’t established in the EU.

The deeming provision doesn’t apply if the platform is only established in one member state and facilitates local sales in this member state.

A deemed supply rule will apply to transfer of own goods: From 2025, a deemed supplier rule also will apply to intra-EU transfers of goods belonging to underlying sellers if those transfers are facilitated by a platform/marketplace. For example, if the goods belonging to marketplace sellers are moved between fulfillment centers, the facilitating marketplaces are deemed to have received the goods at the point of departure from the owner of those goods.

The cross-border movement is treated as a movement of the goods belonging to the platform, that must therefore report those stock movements for VAT purposes, either through their VAT registration in the member states involved, or through a newly created OSS scheme for the transfer of own goods (details under new special scheme for transfers of own goods are below).

Providing services of rental and passenger transport via platforms: From 2025, a deemed supplier rule will be introduced for platforms operating in passenger transport and short-term accommodation sectors. The platforms will be responsible for collecting and remitting VAT when their underlying suppliers won’t charge VAT because they are, for example, individuals acting in their private capacity (non-entrepreneurs for VAT purposes) or exempted small businesses, for example operating under the VAT registration threshold.

These platforms also will be required to collect and store information regarding services of short-term accommodation rental and passenger transport for which they aren’t held liable for VAT.

Platform facilitation services: From 2025, the facilitation service provided by a platform will be regarded as an intermediary service. Consequently, the place of supply of the B2C facilitation services would follow that of the underlying transaction.

The extended VAT liability for online marketplaces facilitating sales of goods would increase the administrative obligations for such marketplaces. However, the special scheme for transfers of own goods, or the extended scope of the OSS, will be expected to reduce the VAT compliance costs for businesses.

Platforms operating in the accommodation and transportation sectors need to charge, report and pay VAT on the underlying supplies when the underlying suppliers are not liable to pay VAT. These changes may be discriminatory towards underlying suppliers who must always pay VAT without the right to deduct any input VAT (unless they can register for VAT). Other traders operating locally, but not via platforms, either should not register when acting in a private capacity or have a choice not to register if they operate under a threshold applicable for small businesses. To avoid such discrimination, rules could allow platforms not to pay VAT when the underlying sellers operate under the threshold or in private capacity.

Measures to Reduce Compliance Costs for Business

These measures apply from 2025 and aim to reduce the need for multiple VAT registrations by expanding the one-stop shop and domestic reverse charge. In addition, they will make it obligatory for marketplaces and platforms to make use of the import one-stop shop scheme when they facilitate certain low-value imports of goods to consumers in the EU.

Extension of the OSS to all types of B2C and to some B2B supplies: The OSS scheme currently provides a business selling goods B2C in other member states as well as a marketplace collecting VAT as the deemed supplier to fulfill their VAT compliance obligations via a single online portal. Several cross-border B2C services provided across the EU can also be reported via the OSS.

The proposed rules will extend the scope of the OSS to cover all B2C services which are provided in the member states where businesses are not established.

The scope of the OSS will be expanded to cover domestic B2C supplies of goods by businesses that are not registered for VAT in in the member state of consumption.

For the following types of supplies the OSS can be used not only for reporting B2C but also for B2B supplies:

• Supply of goods with installation;
• Supply of goods on board ships, aircraft or trains;
• Supply of gas, electricity, heating and cooling types of supplies; and
• Certain domestic supplies of margin scheme goods.

New special scheme for transfers of own goods: From 2025, stock transfers could be reported in a Union OSS return. Call-off stocks arrangements also should be reported through the OSS return.

The EU call-off stock simplification will cease to apply since the simplification no longer will be required because those movements of goods can be reported via the OSS.

Extended domestic reverse charge: From 2025, the domestic reverse charge will apply for all B2B supplies of goods and services made by non-established businesses if the recipient of the goods or the receiver of the services is registered for VAT in the member state in which the VAT is due.

Marketplaces will be obliged to use the import OSS scheme: It will be obligatory for marketplaces and platforms to make use of the IOSS scheme when they facilitate certain imports of goods to consumers in the EU. This was introduced as optional for facilitating marketplaces in July 2021 and will become mandatory from Jan. 1, 2025 for platforms facilitating B2C distance sales of imported goods with a low consignment value. However, platforms that exclusively facilitate domestic supplies in their member state of establishment would fall outside the scope of the measure.

These changes—the extended scope of the OSS, the special scheme for transfers of own goods, and the extended scope of application of the domestic reverse charge—will reduce the VAT compliance costs for businesses and are expected to be welcomed by businesses.

Concluding Remarks

The European Commission is certainly considering ambitious reforms to harmonize the rules of VAT compliance in the EU.

The European Council, made up of the representatives of the member states, must approve the proposed amendments before they become effective.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Aiki Kuldkepp is senior manager, tax, with Grant Thornton Netherlands.

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