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 third and final part of the series we elaborate on the introduction of the single VAT registration.
Single VAT registration
Key takeaway – the extension of the reverse charge rule and the One Stop Shop (“OSS”) and the introduction of new rules for the transfer of own goods with effect from 1 January 2025.
Rationale – to reduce the VAT compliance cost and administrative burden of cross border EU trade.
The main features of the proposed legislation are:
- A mandatory reverse charge rule for supplies of goods and services for all B2B supplies where:
- The supplier is not established in the Member State in which the VAT is due; and,
- The purchaser/recipient is VAT registered in that latter Member State.
- To note, the reverse charge rule does not apply where goods are supplied under a margin scheme.
- The OSS is extended to cover B2C-supplies of goods including domestic supplies, installation or assembly supplies, supply of goods on board of ships, aircrafts or trains and supply of gas, electricity, heating and cooling.
- Platforms will be the “deemed supplier” for all supplies of goods within the EU facilitated by them. Under the new provision they will be assumed to have received and supplied those goods. The extension includes B2C supplies of goods within the EU by EU-businesses operating on the platform and B2B supplies. Platforms that are established in one EU Member State and only facilitate domestic supplies in that Member State are not in scope of the “deeming provision”.
- Platforms will become the “deemed supplier” for transfer of own goods if they facilitate the transfer of those goods and those goods are not capital goods or goods in relation to which there is not a full entitlement to VAT deduction.
- In all cases where the Platform is a “deemed supplier”, records must be kept about the suppliers whose sales the Platform has facilitated. This includes the name, postal address and electronic address or website of the supplier, it’s VAT id or tax id number and its bank account. The idea behind this seems to be the reconciliation of the information with CESOP information (payment data).
- Use of the I-OSS will be mandatory for Platforms. The €150 threshold is to be maintained for now.
- The transfer of own goods for which a Platform is not the “deemed supplier” can be reported under a new special OSS scheme for transfer of own goods. Capital goods and goods in relation to which there is not a full entitlement to VAT deduction cannot be reported under the scheme. The use of the scheme is optional. If the special scheme is used, the intra-Community acquisition of such goods shall be exempt with credit / zero rated in the Member State to which the goods are dispatched or transported. A record-keeping provision applies. The retention period is 5 years.
- Call-off stock arrangements that were introduced in 2020 will be abolished. Taxpayers will not be allowed to use the arrangement after 31 December 2024. Goods that were transferred under the scheme to an EU Member State before 1 January can however continue to be supplied under the regime until 31 December 2025.
- Second-hand goods supplied under the margin schemes, works of arts, collector’s items and antiques will be subject to distance selling rules making them subject to VAT in the Member State of arrival of the goods. If works of art or antiques are not transported or dispatched or the transport starts and ends in the same EU Member state the supply will be subject to VAT where the customer is established, has its permanent address or usually resides.
The rules are proposed to be applicable as of 1 January 2025.
Our initial observations: extension of the reverse charge rule and the OSS will be welcomed by businesses that can avoid multiple VAT registrations with the related administrative and cost burdens. It should be noted that supplies covered by the new reverse charge rule will also be covered by the digital reporting requirements addressed in part 1 of the series as of 1 January 2028. The extension of the “deeming provision” for Platforms in our view comes as a surprise and we have doubts about the proportionality of such a measure, in particular as regards B2B supplies and smaller Platforms. The success of the e-commerce changes in 2021 seem to be the reason for this extension. It is unfortunate that transfers of own goods still have to be declared, but the OSS does make this process easier. Businesses will need to make sure to comply with the rules to avoid penalties or exclusion from the scheme.
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 1 and part 2 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.