VAT in the Digital Age (ViDA): The Compromise!

Consensus has finally been reached on the October 2024 Proposal during the Economic and Financial Affairs Council (ECOFIN) configuration, held on 5 November 2024.

The ViDA proposal consists of three ‘pillars’, of which Estonia has previously opposed one of the three pillars, placing a nearly two-year hold on final consensus being reached. However, we finally have a verdict! Estonia has withdrawn its ‘veto’ on the third pillar, due to having reached a compromise. The proposal has consequently been referred to the European Parliament to reconsult on the text, in view of the substantial adaptations having been made to facilitate the compromise.

The above ‘reconvention’ of the European Parliament will be a simplified procedure, as Parliament has already in great part reviewed the text. This begs the question: “Do we expect any further changes to the proposal?”. A simple answer is no, however, as the proposal is still subject to review, there is always a possibility of additional changes being made.

In this article, we will attempt to summarise the differentiating aspects of the ViDA proposal in reflection on the December 2022 proposal.

The Pillars of the ViDA proposal

The first pillar of the ViDA proposal is ‘Digital Reporting Requirements (DRR) and E-invoicing’, which is set to standardise the necessary information required to submit valid e-invoices to the respective tax authorities. It further attempts to generalise e-invoicing to allow for a more seamless adoption process for businesses’ internal administration.

The second pillar of the ViDA proposal is ‘Platform Economies’, which is expected to receive and improve the VAT-collection procedure, creating a more level playing field for more traditional sectors.

The third and final pillar of the ViDA proposal is the ‘Single VAT registration’ concept which attempts to simplify the administrative burden of having to register in multiple EU Member States, thus, it rather establishes a ‘one-stop-shop’-system and a better reverse charge mechanism.

In reflection, the above pillars are meant to address the challenges and administrative problems posed by traditional VAT. The rise of the digital economy necessitates structure, essentially ensuring a fair and efficient VAT collection process within the European Union, in addition to reducing the compliance impact on business entities.

Comparative Study of the December 2022 Proposal and the October 2024 Proposal

Pillar 1: Digital Reporting Requirements and E-Invoicing

1. EU Member States may elect to impose domestic e-invoicing, without prior directive derogation approval by the EU Commission from 2025, having been postponed from 2024. This e-invoicing implementation will have specific application to B2B and B2C transactions affecting established businesses.
2. Where previously e-invoices would have been deemed the legal document, even if it has not been accepted by the recipient, EU Member States will now be free to develop their own reporting protocols and technical specifications. Additionally, there must be no requirement for acceptance of an e-invoice by a recipient.
3. The ‘central VIES’ database, overseen and maintained by the European Commission, will include DRR transaction data, taxpayer ID information, and VAT identification number. This will provide a level of transparency for recipients to be able to observe what intra-EU transactions are being reported against their VAT numbers. A fraud-preventative step enabled by a common EU endpoint (API).
4. An updated EN 16931 will be published in July 2025, which is to be used as the legal invoice definition (standard). The definition will now include not just structured data, but also unstructured data (Hybrid invoices), thus there will now be a basic guideline for validation or technical requirements of e-invoices, termed “Accreditation Schemes”. Respective tax authorities can subsequently check the data structures via a platform.
5. Real-time reporting regimes established after 1 January 2024 will have to be harmonized with ViDA.
6. The European Commission is required to compile a report to the Council on the functioning of DRR and E-Invoicing, by March 2033.
7. The Centralised clearance (CTC model) or validation, exclusively, via a government portal, is allowed.

 Pillar 2: Platform Economy – Ride and Accommodation Sharing

1. Providers of short-term accommodation and transportation services, via an online platform, are deemed to be the suppliers for VAT purposes – with effect from July 2027 – and would have been responsible for collecting VAT. Conversely, with the October 2024 compromises, the deemed supplier obligation will find application to supplies to all persons, not just taxable persons – effective July 2028.
2. In addition to the above, a voluntary opt-in phase for ride and accommodation-sharing platforms (deemed supplier rules for VAT collection) will begin in July 2028.
3. The deemed supplier obligation will be mandatory as of January 2030. As such short-term accommodation and transportation services (via an online portal) will have to collect VAT on behalf of underlying suppliers. There are exceptions.
4. Member States may optout from the deemed supplier obligation for 10 years, thus excluding: 1. Suppliers who provide their own VAT number (for purposes of continuing recovery of input VAT costs); and 2. Suppliers utilising the 2025 VAT registration special schemes for SMEs.
5. Travel agents are still excluded from the deemed supplier obligation, and platform supplies are excluded from TOMS.
6. The European Commission is required to compile a report to the Council on the operation of the Deemed Supplier Regime, by July 2033.

 Pillar 3: Single VAT Registration

1. As of July 2028, OSS returns will be extended to e-commerce and own-stock movements intra-EU, enabling e-commerce providers and B2B business entities with the ability to significantly cut their foreign VAT registrations and all associated expenses.
2. Capital goods will be included in the OSS extension, subject to the owner’s entitlement to full VAT recovery.
3. Supply and installation, of goods sold abroad ships, trains and aircrafts will fall under the OSS scope, as well as energy through systems.
4. Call-off stock is withdrawn as traders, will be able to make use of OSS. No new call-off stock arrangements may be used from 1 July 2028, having been postponed from 2027.

 End Note

The agreement reached at the ECOFIN meeting on 5 November 2024 is a large step in the direction of the implementation of a global digitalisation strategy. This will lead to a more efficient and effective VAT collection process with the added benefit of decreasing fraudulent accounting.

Viva la ViDA!