The recent Economic and Financial Affairs Council, commonly known as ECOFIN, convened in Luxembourg in July. During this meeting, EU member states demonstrated broad agreement on the majority of proposals presented under the ViDA project.
Nevertheless, to facilitate the adoption of these measures, the European Parliament's Committee on Economic and Monetary Affairs has proposed several changes, which are as follows:
- The Parliament has put forth a proposal to postpone the implementation of most reforms, initially planned for 2028, by a period of 2 years.
- Member States will have the option to retain their national VAT pre-clearance models, ensuring full harmonization by 2028.
- Expanding the mandatory reporting timeframe for digital transactions beyond the current 2-day requirement.
- Regarding the adoption of the structured e-invoice EN 16931, the proposal suggests making it an optional measure instead of a mandatory one by 2028.
- Lastly, as part of the digital platform reforms, the proposal aims to extend the current 45-day threshold for accommodation rentals to be considered equivalent to a hotel service.
It is evident that VAT in the digital age is now an undeniable reality. Numerous countries, including Hungary, France, Poland, Belgium, Germany, Romania, and Denmark, are diligently laying the foundation for a successful adjustment to this new landscape.
The VAT Evolution in the Digital Age: a chronological overview
2023.- The European Parliament and Member States will carefully consider, negotiate, and approve changes, given the widespread support for the proposed reforms.
- The EC 'VAT Expert Group' will convene in early October, discussing potential changes based on previous consultations.
- On 17th October, ECOFIN will hold a vote on member states' proposals.
- The 2025 reforms must realistically be agreed upon by the Council before the end of 2023 to meet the implementation target.
- Taxpayers must ensure their capability to accept ICS e-invoices from suppliers.
- The requirement of customer consent for issuing e-invoices will be eliminated.
- Businesses should be prepared to accept electronic invoices, as PDF files will no longer qualify as e-invoices.
2025.
- Marketplaces will be recognized as suppliers for B2C cross-border sales within the EU and beyond.
- IOSS will become mandatory for marketplaces that facilitate the sale of imported goods by their sellers.
- The reverse charge mechanism for B2B goods will be harmonized for cases where the customer or supplier is non-resident.
- Accommodation and ride-sharing platforms will take responsibility for collecting and declaring VAT from users.
2028.
- Electronic invoices will replace paper invoices for legal purposes, with limited exceptions.
- Member States have the option to mandate e-invoices for domestic transactions following the EN 16931 standard.
- Member States cannot introduce new pre-clearance e-invoicing systems, but existing systems (e.g., Italy or Poland) can continue until January 2028.
- This chronological overview illustrates the progressive developments and key milestones shaping VAT regulations in the digital era.
What is the ViDA project?
The ViDA project revolves around implementing three key reforms aimed at enhancing VAT efficiency and curbing fraud. In essence, its objective is to completely revolutionize the VAT framework.
- Single EU VAT registration and extension of the one-stop shop to B2C movements of goods.This reform entails establishing a unified EU VAT registration system while also extending the one-stop shop concept to cover business-to-consumer (B2C) movements of goods.
- Digital reporting and e-invoicing requirements. The ViDA project introduces mandatory digital reporting for intra-Community transactions and enforces the obligation for entities to send and receive intra-EU electronic invoices. Member States also have the freedom to impose their own e-invoicing or real-time reporting standards (with EN 16931) as part of this initiative.
- VAT in the platform economy. Under this reform, travel and accommodation sharing platforms will be recognized as suppliers and will be held liable for the VAT of their users.
In conclusion, the ViDA project aims to drive significant advancements in VAT operations by implementing these three comprehensive reforms, ultimately leading to increased efficiency and reduced fraudulent activities within the VAT system.
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