VAT in the Digital Age
The Commission published the long-awaited proposals from the VAT in the Digital Age package on the 8th of December 2022.
Update November 2023: The implementation of the first Pillar about e-invoicing and digital reporting requirements (DRR) implementation seems to be delayed. The first changes were planned for January 2024, however, discussions are still in progress. Also, the e-invoicing and DRR introduction will most likely be delayed at least two years, and the new deadline seems to be 2030, instead of 2028. These delays will most probably impact the schedule foreseen for the other two pillars. Separately, based on discussions with Member States, the e-invoicing proposal is moving towards the implementation of a pre-clearance step.
The Commission published the long-awaited proposals from the VAT in the Digital Age package on 8 December 2022. You can find here the official information about the legislative proposal.
VAT in the Digital Age package consists of the following three pillars:
- VAT reporting obligations and e-invoicing
- VAT treatment of the platform economy
- Single EU VAT registration.
We have prepared a summary of the measures contained under each pillar.
Discover other EU VAT trends for 2023 here.
VAT reporting obligations and e-invoicing
Pillar 1 focus on VAT reporting obligations and e-invoicing. This proposal will abolish ESL returns. Insterad, mandatory e-invoicing will be required, with these invoices reported to the tax authorities within two days from the day they are issued.
Businesses will have two working days to issue e-invoices related to the intra-Community supplies from the moment the transaction takes place (tax point). The electronic invoice will be reported also within the next two working days since the issuance of the invoice.
These changes imply a derogation of Articles 218 and 232 of the EU VAT Directive. These articles establish that e-invoices are equally valid as paper invoices and that electronic invoices require, in any case, the acceptance of the recipient.
Under the current rules, countries implementing mandatory e-invoicing on B2B transactions must ask first the Commission an authorization to deviate from those articles. However, the ViDA proposal changes the approach by making the electronic invoices the standard, and the paper invoices only accepted in those cases where the Member States allow it. Authorizations will no longer be required.
Pre-clearance or post-clearance?
An e-invoice is an electronically delivered invoice in a specified standardized format. They are issued, transmitted, and received in an XML format. Normally, e-invoices are reported to the tax authorities immediately after they are issued. There are two options to communicate them:
- Pre-clearance: E‐invoicing can be implemented via the pre-clearance method, where the seller must receive approval from the tax authorities in order to issue each invoice.
- Post-clearance: On the contrary, under the post‐audit method (or post-clearance), the invoice is exchanged directly between the seller and the buyer, and only after the delivery to the customer, the invoice is subject to review from the tax authorities.
The Commission proposal follows the post-audit method, which is in line with the European standard for electronic invoicing. Those countries where e-invoicing is based on the clearance model would need to swift to the post-audit method up to 1 January 2028, in convergence with the digital reporting system.
Pillar one requires e-invoices, abolishes ESL returns and implements real-time reporting.
VAT treatment of the platform economy
- At the moment, e-commerce platforms are liable for VAT on sales made by their sellers under certain conditions. This deemed supplier model is extended to online platforms offering accommodation and passenger transport services, based on the ViDA proposal. The electronic interface would now have to account for the VAT on the underlying supply, while the supply from the actual service provider (lessor or driver) to the electronic interface is VAT exempt. This means that the platform will issue an invoice charging VAT to the final customer for the accommodation or transport service provided. Also, the actual supplier will issue an exempt invoice to the platform.
- Separately, the deemed supplier model is also extended for online marketplaces: as they will become deemed suppliers for all the intra-Community transfers of goods and supplies of goods B2B or B2C made through them, irrespective of where the supplier is established.
Electronic interfaces intermediating for accommodation and passenger transport services will see their business model impacted by legislative proposals of ViDA. From their currently role as mere intermediators, they would become “deemed suppliers” from a VAT perspective.
Single EU VAT registration
The third pillar proposal aims for the single VAT registration, or SVR, within the European Union. To achieve this goal, the measures proposed can be summarized as follows:
- Extension of the reverse charge from Article 194 of the VAT Directive to all domestic supplies of goods and services B2B performed by a non-established company. The VAT liability is shifted to the customer with a local VAT number, except for transactions subject to the margin scheme.
- Deemed Intra-Community transactions, or movements of own goods between EU countries, would no longer require a VAT registration abroad, as these movements would be reported in a new OSS scheme for the transfers of goods. The acquisition is considered VAT-exempt. The only exception would be the transfer of capital goods.
- The deemed supplier model for online marketplaces is extended to all types of supplies made within the EU via a marketplace, irrespective of where the seller is established, and irrespective of the status of the customer – B2B or B2C. Following this approach, the seller makes an exempt supply to the marketplace.
- Connected to the previous point, exceptionally, electronic interfaces can also declare domestic supplies of goods B2C made by sellers who do not have a VAT number in the country where the transaction is performed. This will be possible by extending the scope of Union OSS returns for reporting these transactions by the deemed suppliers.
- Extension of the Union OSS scheme to all B2C supplies of goods, including supplies of goods with installation, and supplies of goods on board of aircrafts, ships, trains, etc. and energy supplies made to final customers established in another Member State. In addition, the scheme can also be applied for domestic supplies of margin scheme goods to any other taxable person supplied under the margin scheme by taxable dealers
- IOSS will become mandatory for distance sales of imported goods made via marketplaces acting under the deemed supplier model. The non-Union scheme will be extended to cover the supplies of services made by non-EU supplies to all final customers.
Learn more about the current OSS schemes and e-commerce rules in our dedicated E-commerce manual.