Update on modernization of the EU VAT system (ViDA proposals)

On 8 December 2022, the European Commission presented its long-awaited proposals for VAT in the digital age (ViDA), proposals that should make the existing EU VAT system adaptable and fit for the future (for prior coverage, see the article in the January 2023 issue of BDO’s Indirect Tax News). The plans were ambitious because some proposals were slated to enter into force as early as 1 January 2024. By the end of 2023, it became apparent that even though no agreement had been reached on the proposals, significant progress had been made. The ViDA proposals require the unanimous agreement of all 27 member states for the measures to be adopted. 

This article looks at the three key pillars of the ViDA proposals and provides an update on the progress:

• Digital reporting
• Platform economy 
• Single VAT registration

Digital reporting 

Digital reporting, the first pillar of ViDA, will require that entrepreneurs issue e-invoices via an EU standard format for intra-Community supplies, services on which the VAT is reverse charged to the customer and transfers of own goods; certain data from the invoices will have to be reported. Both the issuance of the invoice and the reporting of data will take place in a short period: Invoices will have to be issued within two working days from the day the supply or service is provided and the reporting will have to be submitted within two working days after the invoice has been issued. In certain cases, the buyer (also) will have to report. EU member states may impose reporting requirements for domestic transactions, but they are not obliged to do so. However, if such obligations are imposed, it should be possible for entrepreneurs to use the EU format. It is expected that the reported data will facilitate the detection of VAT fraud at an earlier stage. The targeted effective date for the new invoicing and reporting requirements is 1 January 2028 (with certain adjustments as from 1 January 2024).

Status: EU member states have welcomed the proposal in general, but have diverging views on the degree of harmonization to be pursued. A compromise text (unpublished) presented by the Spanish Presidency in the second half of 2023 forms the basis for further deliberations in 2024. Given previous amendments by the European Parliament and the various delays, we expect that entry into force of the invoicing and reporting requirements will be delayed by one year at least and that the short deadlines for issuing an invoice and reporting will be extended.

Platform economy

The second pillar of ViDA looks at the platform economy, which contains three proposals, which are scheduled to take effect on 1 January 2025:

1. A “deemed supplier” provision for platforms is to be introduced for short-term accommodation and passenger transport in situations where the underlying supplier does not charge VAT (e.g., because it is a nontaxable person or it uses the exemption for small businesses). The effect of this provision is that the service supplier will be deemed to have provided the service to the platform and the platform will be deemed to have provided the service to the customer. By doing so, the service from the supplier to the platform will be exempt without the right to deduct input tax but the service from the platform to the customer will be taxed. Thus, under the proposal, the obligation to pay VAT will shift from the service provider to the platform. 
2. The rental of an accommodation for up to 45 days will be treated the same as a rental in the context of the hotel business and therefore will always be subject to VAT regardless of whether additional services are provided (e.g., cleaning or the provision of bed linens).
3. The services provided by the platform itself (i.e., making the platform available) will be considered intermediary services. As a result, if the customer is a private consumer, the supply will be taxed in the country where the underlying transaction takes place. If the customer is an entrepreneur, the place of supply will be the place where the customer is established. VAT may be reverse-charged if the supplier is not established in the customer’s country.

Status: There is a general consensus among EU member states that platforms should have a greater role in collecting VAT on transactions within the platform economy. EU member states have concerns about the deemed supplier provision, which led the Spanish Presidency to amend the regulation (the amended text is not published). In addition, some EU member states have difficulty with the mandatory VAT on the short-term rental of accommodation. The Spanish Presidency modified the provision to allow more freedoms for member states. The majority of member states support the modified proposal, but others want more freedoms. The effective date of this measure is also likely to be delayed for at least one year.

Single VAT registration

The third and final part of the ViDA proposal, the single VAT registration, aims to reduce the number of VAT registrations for entrepreneurs in the EU. The proposals envisage that entrepreneurs will only need VAT registration in their own EU member state. There are five components to make this possible: 

1. Expansion of the One Stop Shop scheme
2. Expansion of the mandatory reverse charge mechanism 
3. Expansion of the deemed supplier provision for platforms
4. Introduction of a special regime for transfers of own goods 
5. Making the import One Stop Shop scheme mandatory for platforms. 

There are also a number of adjustments that relate to the existing e-commerce rules. The most important of these is the application of the distance selling scheme to second-hand goods supplied under the margin scheme. The intended effective date is 1 January 2025 (with certain adjustments as from 1 January 2024).

Status: EU member states agree on the extension of the One Stop Shop regime and the mandatory reverse charge. The extension of the deeming provision for platforms is not retained (it is unclear whether this is for the proposed full extension or only part and whether it is postponed or deferred). The requirement for platforms to use the import One Stop Shop has been put on hold for discussion in conjunction with the customs reform proposed on 17 May 2023. Here, too, we expect a postponement of at least one year.

What to expect?

If you are engaged in international trade or are active in the platform economy, it is important to keep a close eye on the status of the ViDA proposals and prepare for possible changes. We will keep you informed. If you need any assistance, please contact one of our VAT specialists.