The EU governments voted on the amended proposal on 21 June 2024, however, the political agreement was not reached because one Member State (MS) did not support the proposed platform supplier rules. However, Member States have reached a consensus on two other pillars of the ViDA. If proposed measures are adopted, it will mean a major overhaul of the EU VAT system in the coming years.
Background
Major changes in the EU VAT were proposed at the end of 2022, for more information see our article "The European Commission proposes ambitious VAT reforms”. This proposal includes new EU VAT rules for EU digital reporting requirements (DRR) based on e-invoicing; new VAT measures for short-term accommodation and passenger transport platforms, and an extension of the VAT One-Stop Shop (OSS). This article gives an overview of the last version of the proposal.
What’s new in the compromise?
All three pillars of the proposal have been postponed to allow governments and taxpayers more time to prepare:
- DRR based on e-invoicing – delayed to 1 July 2030
- Extension of the OSS – delayed to 1 July 2027 (to 2026 for electricity, gas, and heat)
- Extended VAT obligations for platforms – delayed to 1 July 2027
The most important proposed changes are summarized below. A consensus among MSs on first two pillars (i.e., 1. DRR based on e-invoicing and 2. Extension of the OSS) is already reached. Possible changes are expected to take place for the deemed supplier rules for platforms. Businesses are recommended to prepare for proposed changes that are expected to be adopted in near future.
DRR based on e-Invoicing
No derogation is required for domestic e-Invoicing requirements (DRR)
20 days after the publication of new rules, EU Member States (MSs) are not required to ask for an agreement from the European Commission to implement e-invoicing requirements for domestic transactions. MSs consequently have the option to introduce mandatory e-invoicing for domestic B2B and B2C transactions (for established businesses) without the need for a derogation from the European Commission. This could leave businesses with minimal time to prepare.
New domestic DRR should be harmonized with EU standards by 1 July 2030, and existing domestic DRR by 1 January 2035.
From 1 July 2030 common DRR/e-invoicing for intra-EU transactions
Effective from 1 July 2030, there will be an obligation to:
- issue structured e-invoices including all required data in standard format within 10 days from a chargeable event; and
- transmit data from these invoices to the relevant national VAT authority’s electronic portal in real-time.
This obligation will cover certain cross-border supplies and acquisitions of goods and services as well as supplies subject to the mandatory domestic reverse charge. While the supplier should report data of the sale when the e-invoice is issued, the recipient should report the transaction within 5 days
Harmonization of DRR of MSs not achieved as initially proposed
Amended proposal allows certain validation requirements, termed ‘accreditation schemes’ (initially was not included). Furthermore, compared to the original proposal, MSs have more flexibility over the DRR format.
Impact for business
Proposed changes mean that not only will sellers be obliged to issue e-invoices, but buyers should be able to receive e-invoices meeting at least EN16931 standards. Sellers and buyers also should be able to issue and/or receive invoices meeting various existing or new domestic e-invoicing/DRR requirements. They also should be able to comply with other transaction control systems of MSs which are allowed under the new rules.
A decrease in fragmentation in the compliance requirements will not be achieved as initially proposed because the amended rules include less harmonization for businesses operating cross-border in the EU. Since the amended ViDA includes less harmonized DRR and domestic e-invoicing rules and allows various other domestic transaction control systems, businesses will still face differing requirements in MSs for domestic and intra-EU transactions and need to have various software solutions to be compliant when operating across the EU.
Extension of OSS and other measures to reduce compliance costs for business
These measures generally apply from 1 July 2027 and aim at decreasing the need for multiple VAT registrations by expanding the OSS and domestic reverse charge.
From 1 January 2026, the OSS will be extended to cross-border supplies of natural gas, electricity, heating, and cooling.
From 1 July 2027, the OSS will be extended to
- all B2C supplies of goods and services, including domestic supplies of goods, and certain B2B transactions; and
- intra-EU stock transfers.
Mandatory domestic reverse charge (MDRC)
From 1 July 2027, the domestic reverse charge will apply for all B2B supplies of goods and services made by non-established and non-VAT-registered businesses if the customer is registered for VAT in the MS where the VAT is due. MSs may opt for applying the MDRC to all supplies by non-established businesses.
Impacts for business
The proposed changes (i.e., 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, however, their scope remains limited and does not cover all possible (B2B) scenarios. In addition, input VAT still cannot be deducted via the OSS.
Updated VAT Rules for Platform Economy and E-Commerce
The proposed rules enhance the role of online marketplaces in the collection of VAT when they facilitate a supply of passenger transport or short-term accommodation.
Providing services of rental and passenger transport via platforms
From 1 July 2027, a deemed supplier rule is proposed to 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 will not 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.
The proposed rules increase the administrative burden for certain platforms and the VAT burden for small businesses or individuals who operate via such platforms.
For a more detailed overview of the proposal in each area above, please read our recent article “The EU amends proposed VAT rules for the digital age”.
No agreement yet, what next?
The European Council made up of the representatives of the MSs, must approve the proposed amendments before they become effective. As explained, the latest proposal was voted on by the European governments (ECOFIN) on 21 June 2024, however, was NOT approved.
The Hungarian presidency of the Council is expected to make little progress in resolving last disagreements on the ViDA. The ViDA or VAT is not included in the priorities of the Hungarian presidency. The last open Pillar of the ViDA will not be on the table of the ECOFIN until October or November 2024 at the earliest.
Businesses are recommended to analyze the possible impact and prepare for major VAT changes ahead despite the delay in reaching the consensus in the EU.
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