VAT in the Digital Age

18. December 2024.

The European Commission proposed measures to modernise the EU’s Value-Added Tax (VAT) system, make it more business-friendly and resilient to fraud and address challenges in VAT raised by the development of the platform economy. Proposal was unanimously adopted by the EU Council on 5 November 2024.

VAT in the Digital Age (ViDA) initiative introduces a series of measures that aim to align the VAT system in the European Union, considering the current technological advancements. This package of measures includes: real-time digital reporting, updated rules for the platform economy and single VAT registration.

Background

VAT is one of the most important revenue streams for Member State authorities. However, according to the latest VAT GAP Report 2023, Member States lost €99 billion in VAT revenues in 2020 and around €61 billion in VAT revenues in 2021. To address these losses and respond to the increasing digitisation of the economy, in December 2022 the Commission proposed to modernise VAT obligations by promoting the digital transition. This legislative package was announced in the 2020 Action Plan for fair and simple taxation supporting the recovery strategy.

Real-time digital reporting

The new system introduces real-time digital reporting for cross-border transactions, based on e-invoicing. It will give Member States the valuable information they need to step up the fight against VAT fraud, especially carousel fraud.

The move to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU traders by over €4.1 billion per year over the next ten years. It ensures that, in time, existing national systems converge across the EU and paves the way for EU countries that wish to introduce national digital reporting systems for domestic trade.

E-invoicing will furthermore accelerate business transformation in the digital age by streamlining operations, ensuring compliance and security, enabling data-driven decision-making, and supporting scalability for future growth and innovation.

Platform economy

Under the new rules, platform economy operators in the passenger transport and short-term accommodation rental sectors will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example because they are a small business or individual providers.

Together with other clarifications, this measure will ensure a uniform approach across all EU countries and contribute to a more level playing field between online and traditional short-term accommodation and transport services. It will also simplify life for small and medium-sized enterprises who will not be liable for the VAT.

Single VAT registration

This initiative will further reduce the need for multiple VAT registrations in different Member States, expanding the already existing ‘VAT One Stop Shop’ model for shopping-commerce companies. The proposals would allow more businesses selling to consumers in another EU country to fulfil their VAT obligations via an online portal in one EU country. Further measures to improve the collection of VAT include making the ‘Import One Stop Shop’ (IOSS) mandatory for certain platforms facilitating sales by persons established outside the EU to consumers in the EU.

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Please keep in mind the fact that legislation tends to change frequently. This article is therefore necessarily based on our understanding and correct interpretation of the law and practice at the time of issuing this article. This article will not be updated due to changes in legislation that occur after this article is issued.