On 8 December the European Commission (“EC”) launched its long-awaited proposals to modernize the VAT rules within the EU collectively known as “VAT in the Digital Age package” (“ViDA”). In this series of articles we provide a summary of the proposed changes together with some initial comments. To note, the ViDA proposals will now be discussed by the EU Member States and ultimately the ViDA proposals will require unanimous approval by all Member States to come into law. It is therefore expected that there will be a number of developments regarding ViDA during 2023 of which we will keep you updated.
The ViDA consists of three key parts, commonly referred to as the following:
- Digital reporting and E-invoicing
- The Platform economy
- The Single VAT registration.
In the first part of the series we elaborate on the new digital reporting and e-voicing obligations.
Digital reporting and E-invoicing
Key takeaway – the introduction of e-invoicing and a two working day digital reporting requirement for all intra-Community B2B supplies with effect from 1 January 2028.
Rationale - the EU seeks to quickly identify and follow up on missing trader intra-Community (“MTIC”) VAT fraud to close the “VAT Gap” (i.e. lost or unreported VAT Revenue).
The main features of the proposed legislation are:
- Electronic invoices will be the default system for the issuing of all B2B intra-Community invoices.
- The deadline for issuing invoices for intra-Community supplies or for which the reverse charge rule applies is set to two working days after the chargeable event takes place. Additional data is to be included in the invoice as to ensure the use of the electronic invoice to automate the process of reporting.
- A new digital reporting requirement system (a new central VIES system) for intra-Community transactions will be set up, which will provide information on a transaction-by-transaction-basis. This information will feed into the risk analysis systems of the Member States to help them counter VAT fraud. The information for the digital reporting requirement system will have to be transmitted by taxable persons within two working days after the issuance of the invoice to their domestic Tax Authority. If the data is not transmitted or does not contain the correct information the exemption with credit/zero rating for intra-Community supplies cannot be applied.
- The information collected by the Member States must be transmitted by the domestic Tax Authority within one day after the collection to the central VIES system. The information remains available within the central VIES system for five years.
- Other features / points to note:
- EU Member States may not impose any additional reporting obligations on the transactions that are covered by the digital reporting requirements. In case the reverse charge rule applies, a tax representative has been appointed as the one liable for payment of VAT and in case of intra-Community acquisitions the person liable for these transactions must submit data.
- It will no longer be possible to issue summary invoices.
- Recapitulative statements will be abolished, but instead taxpayers that make intra-Community acquisitions of goods (i.e. the purchaser) must provide data to their local Tax Authority. It is currently optional for Member States to require the provision of this data.
- Member States can opt to introduce or maintain a digital reporting system for other transactions. If they do they need to have a system in place that includes the features of the harmonized reporting system used for intra-Community supplies mentioned above.
- Use of paper invoices is only permittable where EU Member States authorize the use of them. Paper invoices cannot be used for intra-Community supplies within scope of the digital reporting requirement system. The authorization of the recipient to issue an electronic invoice is deleted from the VAT Directive (the latter change will already apply as of 1 January 2024).
- Taxable persons will always be allowed to issue electronic invoices according to the European Standard (the one adopted by the Commission Implementing Regulation 2017/1870) (this will apply as of 1 January 2024).
- There is to be no pre-clearing of e-invoices (this will apply as of 1 January 2024, but an exception is made for special measures authorized under art. 395 VAT Directive already implemented at the time the directive enters into force. Therefore the e-invoicing system with clearance as used by Italy will in our view be allowed until 1 January 2028).
The rules are proposed to be applicable as of 1 January 2028 if not indicated otherwise above.
Our initial observations: The EC has made a choice for e-invoicing and near real time reporting of intra-Community supplies, while harmonizing the rules for EU Member States that want to apply a similar system for domestic supplies. From a business perspective harmonization is to be welcomed, because of the current fragmentation of rules. Still the reporting requirements will put an additional burden on businesses whereas we also have doubts whether businesses will be able to issue invoices within two working days. In our view, the EC will have a difficult time achieving unanimity for this proposal, as it will have to convince both EU Member States that have had a digital reporting requirement system in place for years and those that do not yet have one (and may not want to have one) to accept the harmonized system.
More information
As you will see from the above, the proposed rules are extremely complex and will take some time to fully digest. There is no doubt there will be much debate on the rules in 2023 and we at BDO very much look forward to contributing to this debate and keeping you updated on same. For the other proposed changes we refer to part 2 and part 3 in this series of articles. You can also download and watch our webinar: 'What do the EU VAT in the Digital Age proposals mean for me' for free.
In the meantime if you have any questions on the proposed changes please do not hesitate to contact your advisor.