In recent months, the public’s attention with regards to the the financial and economic changes has been focused on a number of important and significant issues: the new US administration may take important decisions affecting the operation of business operators – we can think of the possible tariffs on the EU or the possible renewal of the Hungarian-US double-taxation agreement is also on the table.
Next to all these important issues, few may have been aware of the ECOFIN meeting of 5 November 2024, at which the Finance Ministers of the EU Member States, in the framework of the Hungarian Presidency of the Council of the European Union, agreed on the adoption of the proposal on “VAT in the Digital Age” (ViDA)[1] . The European Parliament adopted the draft, which has been amended several times in the meantime, at its sitting on 12 February, thus completing the legislative process to modernise the EU VAT system, following formal agreement by the Council.
The original text of the ViDA proposal was published by the European Commission in December 2022, we have also informed our readers about the key pillars of the planned regulation, in particular the changes affecting the platform economy. The following is a brief summary of the new rules taxpayers should be prepared for and when they should be prepared for them as a result of the amendments of the EU VAT Directive.
1. Electronic invoicing and invoice data reporting
The most important change affecting all taxpayers is the introduction of mandatory electronic invoicing for cross-border transactions between taxpayers. However, it is important to underline that the text of the Directive defines an e-invoice as an invoice “issued, transmitted and received in a structured electronic format which allows for its automatic and electronic processing.” The definition therefore means that the widespread use of “simple” PDF invoicing will no longer be applicable, and many businesses will need to improve their internal processes. The time limit for issuing invoices is also standardised and must be within 10 days of the date of performance (or receipt of an advance payment).
In parallel with the above, we will also say goodbye to the current form of the “A60” return, the Intra-Community sales and purchase lists, which will be replaced by the transaction-level reporting obligation under the “Digital Reporting Requirements”, that will be the responsibility of the taxable person issuing the invoice. The explicit aim of the amendment is to speed up the exchange of information between Member States, thereby enabling effective action to be taken against VAT fraud.
The rules on electronic invoicing and digital reporting of cross-border transactions will apply from 1 July 2030.
2. Modernising the platform economy
We have previously reported on the introduction of the “deemed supplier” model for accommodation and ride-sharing platforms, a legal presumption that will result in platforms that essentially connect the service provider and the private individual customer being liable for VAT payment.
The draft regulation on platforms led to lengthy discussions in the Council, and the text adopted as a result includes an exemption rule for, among others, small traders and clarifies the exclusion of travel agents from the presumed vendor model.
The regulation on platforms will be introduced in multiple steps by Member States between 1 July 2028 and 1 January 2030.
3. Extension of the one-stop shop system
The free movement of goods and services is a fundamental principle of the European Union, but businesses selling in more than one Member State used to have to register separately with the tax authorities of each Member State concerned and regularly submit tax returns for any tax number they had issued for a single transaction.
The EU has sought to address this problem by introducing a one-stop-shop system, originally set up to account for VAT on electronically supplied services, and then extended to cover the Community’s distance selling transaction type. The one-stop scheme allows both the country of consumption to benefit from the VAT revenue and traders to account to their national tax authorities for these other national transactions via the one-stop scheme.
The new rules will further simplify administration for EU traders by extending the one-stop shop system, which will result in the movement of (own) goods within the EU being covered under the new one-stop shop.
The extension of the one-stop shop scheme will come into force from 1 January 2027.
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Value Added Tax systems are in constant need of modernisation as the economy develops, and the adoption of the ViDA package is a major step towards the creation of a digitalised and efficient EU Community tax system. The legislation provides for a significantly longer preparation time than previously foreseen in several areas, so that the electronic invoicing rules, which were originally due to be mandatory from 2024, will be effective six years later. However, it will be important for taxpayers to monitor these changes, as the evolution of the rules may require improvements to their own internal systems and processes.
[1] https://www.consilium.europa.eu/en/press/press-releases/2024/11/05/taxation-council-agrees-on-vat-in-the-digital-age-package/
