Executive Summary
The EU has reached agreement on the VAT in the digital age (ViDA) proposals – Taxation: Council agrees on VAT in the digital age package.
On 5 November, the Economic and Financial Affairs Council (ECOFIN) of the European Union (EU) met to discuss changes to the EU VAT rules as part of the VAT in the digital age (ViDA) initiative, which was originally announced in December 2022.
ECOFIN has now adopted all three pillars of the proposal, following the adoption of compromises to the original proposals made to satisfy all 27 Member States.
The three ViDA pillars can be summarised as:
- Digital Reporting Requirements (DRR) – Introducing common standardised Digital Reporting Requirements and e-invoicing for intra-community transactions (i.e., between Member States)
- Platform Economy – Addressing the challenges of the platform economy for short-term rental of accommodation and passenger transport services by enhancing the role of digital platforms in collecting VAT
- Single VAT Registration – Reducing VAT registration requirements in the EU by expanding the scope of the One Stop Shop (OSS) for imports and the reverse charge for business-to-business (B2B) transactions
Initially, it was intended that the new rules were to be implemented generally in 2025 and the DRR rules were to apply as of 2028. The measures are currently expected to be implemented gradually in the period 2027 to 2035. All dates are to be confirmed as well as any grandfathering of current e-invoicing systems for individual Member States.
Businesses operating in the EU will need to consider the new rules and the associated systems, tax, process, pricing and commercial implications of the changes.
Further details
Digital VAT reporting
The Council has agreed that a real-time digital reporting system will be set up for VAT purposes through e-invoicing. Businesses will issue e‑invoices for cross-border business-to-business transactions and automatically report the data to their tax administration. This will be based on the existing European standard for e-invoicing in the area of public procurement. National tax administrations will then share the data through a new IT system that will be capable of providing analyses of suspicious activities.
A framework at national level is intended to ensure the quality of the data included in e-invoices, with flexibility for member states in the operationalisation of that framework. The aim is to provide member states with quick and complete information on cross-border transactions that they can use to fight VAT fraud.
The EU system should be in place in 2030 and existing national systems should become interoperable with the EU system by 2035.
Comment: Since the original ViDA announcement in December 2022, many EU countries have introduced their own real-time reporting and e‑invoicing requirements with Germany, Belgium, Spain, France and others launching requirements in the next few years. Businesses operating throughout the EU have therefore already had to ready themselves for the rules including considering the data, systems, tax and commercial implications of the changes.
Member States will need to consider what the harmonisation with EU rules entails.
The UK also confirmed during the Budget on 30 October, that an e‑invoicing consultation will be published in early 2025. The UK is behind the curve in terms of VAT digitalisation so this will be welcome news allowing businesses operating in the UK time to feed in lessons learned from implementing recent changes across the EU as well as other more advanced countries such as LATAM who have had e-invoicing and real-time reporting in place for years.
VAT for the platform economy
Currently, many providers of online accommodation rental and passenger transport services (such as drivers or persons renting out accommodation) or small businesses are not required to register for VAT (for instance, as they are under the VAT registration thresholds). Some fail to register as they are unaware of their obligations or of tax compliance rules in other member states.
This can lead to the correct VAT not being collected and to unfair competition between traditional accommodation and transport services and those operating through platforms.
Under the new rules, platform economy operators will be responsible for collecting and remitting VAT in cases where their service providers do not pay VAT themselves under the ‘deemed supplier’ model. The platform will collect the VAT directly from the customer and remit it to the tax authorities.
The agreed proposal is intended to provide member states with greater flexibility by expanding the definition of short-term accommodation rental for VAT purposes and giving member states the possibility to exempt small and medium-sized enterprises (SMEs) from the deemed supplier rules. The Council has also agreed on a short transition period for applying the deemed supplier rules.
The deemed supplier regime for short-term rental of accommodation and passenger transport services will come into effect from 1 July 2028 (optionally) and as of 1 January 2030 (mandatorily).
Comment: The aim here is to remove inequality where private individuals and small enterprises supply services without VAT via the platform economy. The deemed supplier rule is also intended to address the current inability in this sector to determine the correct VAT treatment due to either lack of availability of information about the status of underlying suppliers or based on differing interpretation adopted by Member States on the taxability of “facilitation services” by platforms.
Single VAT registration
Currently, a system of ‘one-stop shops’ allows businesses to declare and remit VAT due on their sales of goods and services to consumers from one EU country to another through one member state’s administration and in one language. However, companies that want to sell goods to consumers using EU warehouses or other arrangements still need to register for VAT purposes more than once.
Building on the existing ‘VAT One Stop Shop' (OSS) model which was originally designed for online sales, the scope of the OSS has been extended to include business-to-consumer sales of certain items, like electricity or gas, which are conducted within a member state other than their own – not just cross-border supplies. The scope of the OSS will also be increased to include the movement of own stock across the EU for businesses making B2C sales.
The adopted proposals also allow for use of the reverse charge mechanism by a B2B customer when sales are made in a Member State where the supplier is not established. This was already possible in some situations, but will become mandatory in the future.
B2C supplies of gas, electricity, heating and cooling will be treated as EU distance sales as of 1 January 2027 and consequently (subject to certain conditions) will fall under the current OSS.
The scope of the OSS regime will subsequently be extended from 1 July 2028 for B2C supplies of goods with installation or assembly, supplies of goods on board of ships, aircrafts or trains and domestic supplies of goods.
The separate OSS regime for the movement of own goods between EU countries (where they are subject to full input tax deduction), plus the mandatory use of the reverse charge mechanism by a B2B customer will also come into effect from 1 July 2028.
Due to the introduction of the new OSS regime for the transfer of own goods, the call-off stock simplification will be phased out and cease to apply on 30 June 2029. This means that the latest transport/dispatch of goods under the special call-off stock arrangement can ultimately take place on 30 June 2028.
Comment: The expanded one-stop shop is intended to assist more businesses to fulfil their VAT obligations via a single online portal and in one language. The simplification will be good news for businesses involved in reporting for large supply chain projects.
Interestingly, the inclusion of B2C electricity and gas could bring supplies such as electric vehicle charging into the OSS.
Proposals not taken forward
In contrast with the Commission’s proposal, the Council decided not to extend the existing deemed supplier provision (which places the responsibility for collecting VAT on platforms that facilitate transactions rather than on the underlying suppliers) to all goods supplied by online platforms and the transfers of own goods. It also agreed not to change the rules on works of art and antiques.
The Council also decided to discuss the proposal to make the one-stop-shop for imports mandatory within the framework of the VAT aspects of the proposal to reform the Union Customs Code, which is currently under discussion in the Council.
Next Steps
The draft Directive and regulations are available here:
The directive and the regulations are subject to a special legislative procedure. The European Parliament will be consulted on the agreed text and the text will then need to be formally adopted by the Council before being published in the EU’s Official Journal and entering into force.
Further information
If you have any questions on the VIDA proposals or require further information, please contact your usual advisor or one of the following:
Digital platforms
Alex Hale
One Stop Shop and Single VAT registration
Gaurav Patney
Digital reporting
Chris Taylor
Ben Woodfield
Emmie Nygard
Chiu Ming Man
