Three-Pillar ViDA-package adopted at ECO FIN Council Meeting of 5 November 2024
ViDA consists of three Pillars:
- Digital Reporting
- Platform Economy (incl. Deemed Supplier rules for short-term accommodation rentals and passenger transportation services "Deemed Supplier rules")
- Single EU VAT Registration (including expansion OSS/IOSS).
Since the European Commission released its ViDA-proposal on 8 December 2022, it has been subject to ongoing negotiations between the EU Member States. While Member States already reached consensus about Pillars 1 and 3 earlier this year, Estonia still had reservations about the impact on SMEs of the Deemed Supplier rules for short-term accommodation rentals and passenger transportation services.
As unanimity is required to get the ViDA-package adopted, middle ground had to be found for the Deemed Supplier rules: the rules will be postponed to 1 July 2030, with the option for MS to implement the rules per 1 July 2028.
1. Modernisation of VAT reporting: Digital Reporting
A key part of the ViDA proposal is the introduction of mandatory e-invoicing (to comply with the European Standard EN 16931) and digital reporting for cross-border transactions, replacing the now outdated recapitulative statements. The aim is that this will give Member States more valuable information in order to fight against VAT fraud.
The introduction of the mandatory e-invoicing and digital reporting has been postponed to 1 July 2030. However, it is important to note that Member States will have the option to introduce mandatory domestic e-invoicing regimes for established businesses 20 days after the publication of ViDA in the Official Journal of the European Union, without prior approval from the European Commission. This means there is likely to be a patchwork of invoicing regimes across the EU for domestic supplies until 2030, with some Member States retaining the current rules, some opting into the new EU standard for e-invoicing, and others able to continue with existing or proposed models for which they have pre-existing derogations (until 2035 at which time they must adapt to the EU standard).
A. Electronic invoicing (e-invoicing)
Under the current proposal, e-invoicing will be mandated for (i) intra-Community supplies of goods and (ii) supplies of goods or services -for which the reverse charged is applied. New data elements must be mentioned on the e-invoices, such as mandatory payment details (there has been some relaxation on this under the updated proposal), and the e-invoice will need to adhere to a structured format. Hybrid invoices combining structured and unstructured formats, such as applicable in Germany, will also be acceptable where the structured format includes the required elements.
One welcome update to the proposal, is that summary invoices for a calendar month will continue to be allowed, although they will need to comply with the new deadlines for issuing of invoices and Member States will have the ability to prohibit their use in sectors prone to fraud.
In response to concerns from businesses that they would not be able to comply with the originally proposed two working days to issue invoices, there is now a deadline of 10 days (i.e., not working days) in which taxpayers must issue the e-invoice (which is a reduction from the current deadline of 15 days after the end of month in which the supply took place).
As noted above, Member States can also opt in to apply the e-invoicing EU standard for domestic supplies without the need for approval prior to 2030. After 2030 it will become the default for those transactions, with Member States having the option to allow paper invoicing subject to customer acceptance.
Member States will be permitted to make having an e-invoice a substantive condition for VAT deduction, so it will be important for businesses to ensure they can comply with the new rules, as well as their counterparties to avoid the potential risk of VAT becoming a cost in the supply chain under these new rules.
B. Recapitulative statements will be replaced by the Digital Reporting
Under the new digital reporting regime, from 2030, the information relating to intra-EU transactions must be transmitted on a transaction-by-transaction basis no later than two working days after issuing the invoice or after the date the invoice had to be issued, but with an extended deadline of five days for self-billing and acquisitions.
Member States have flexibility over the format of such reporting, as the proposal does not address transmission protocols and technical specifications. This could cause issues for some businesses that may need to prepare to deal with multiple different technology platforms across the EU to submit their obligatory reports.
Member States can also mandate digital reporting for domestic transactions and can maintain their existing domestic reporting tools, such as SAF-T systems or cash registers; however, any digital reporting regimes must comply with the EU standard by 1 January 2035. As such, there is still likely to be a range of compliance measures in place until then and possibly even after 2035.
2. Updated rules for the Platform Economy
While the final version of the Directive differs from the European Commission's (EC) 8 December 2022 proposal, the main elements of the Second Pillar are still:
- Deemed Supplier rules for short-term accommodation rental services ("STRs") and passenger transportation services (per 2030; optional per 1 July 2028), and
- a clarification of the place of supply rule for online 'facilitation services'.
A. Deemed supplier rules for STRs and passenger transportation
Platforms facilitating STRs or passenger transportation by road will need to collect and remit VAT for the underlying supplies, unless an underlying supplier:
- Declares that it will charge and remit any VAT due on the underlying supply; and
- Shares its VAT ID number with the respective platform (i.e., local VAT ID or OSS registration).
The Deemed Supplier rules will potentially result in VAT becoming due in respect of services of underlying suppliers who would normally be able to benefit from local SME exemptions, where available (e.g., home owners occasionally renting out their property via a platform). As such, the Deemed Supplier can de facto result in an abolishment of SME exemptions for certain supplies facilitated by platforms, which was a concern raised by Member States. Member States are therefore allowed to exclude supplies of SMEs from the Deemed Supplier rules. When exercising this option, Member States should be able to apply it in a way that it does not cause any disproportionate administrative burdens on platforms or underlying suppliers.
While the EC's initial proposal stated that a STR lasted up to 45 days, in the adopted proposal an STR is considered an uninterrupted stay of up to 30 nights by the same person. This was the result of negotiations between Member States, which also resulted in Member States having room to determine when such an STR is having a function similar to the hotel sector and is therefore excluded from the VAT exemption for accommodation rentals (Art. 135(2)(a) VAT Directive).
In line with the EC's 8 December 2022 proposal, the Directive will also state that the Tour Operator Margin Scheme (TOMS) does not apply to Deemed Supplies of passenger transportation services and STRs.
The Commission is expected to report about the effectiveness of the Deemed Supplier rules by 1 July 2033.
B. Place of Supply B2C Facilitation Services
Another important change, or clarification, as it was mentioned by the EC in its 8 December 2022 proposal, is that B2C facilitation services of platforms will be deemed to take place in the jurisdiction where the underlying supply occurs (a new provision: Art. 46a VAT Directive).
It was considered that this clarification is necessary as some Member States tend to characterize services of platforms as intermediary services even when the platform's service is provided fully automated online requiring only minimal human intervention and hence being an Electronically Supplied Service (ESS- subject to VAT in the Member State of residence of the Consumer). However, the wording of the new provision (i.e., Art. 46a VAT Directive) as such does not (yet) explicitly 'overrule' the ESS definition that is laid down in the VAT Implementing Regulation.
3. Single EU VAT Registration (including expansion OSS/IOSS)
Among the three pillars of the ViDA proposal is a simplification aimed at avoiding the need for multiple VAT registrations across the EU, i.e., a Single VAT Registration.
Within this pillar, the first group of measures is related to the expansion of the scope of the OSS schemes. First, the OSS Union Scheme (Art. 369b of the VAT Directive) has been expanded to include the following:
- Specific supplies of goods, such as supply of goods that are installed orassembled (Art. 36 of the VAT Directive), supply of goods on board ships, aircraft or trains (Art. 37 of the VAT Directive) and the supply of gas, electricity, heat or cooling energy (Art. 39 of the VAT Directive).
- Domestic business-to-consumer (B2C) supplies of goods carried out by taxable persons not established in the Member State in which the goods are subject to VAT (not only deemed resellers — OMPs).
Second, the OSS Non-Union scheme has been expanded to all business-to-consumer supplies of services and not only supplies of services to EU established customers.
Third, a new OSS scheme specifically designed to cover certain transfers of own goods is introduced. This includes the transfer of goods to another member state in accordance with Art. 17(1) of the VAT Directive and does not include the transfer of goods in relation to which there is no full right of deduction in that member state. In this regard, the intra-community acquisition of goods in the Member State where the goods are dispatched or transported would be exempted. This will avoid having to register in multiple jurisdictions, unless a specific exemption applies, in case of transfers of own goods between member states.
Some amendments are made to the OSS schemes that cover topics such as the Member State of identification, the content of the returns and amendment of the returns (it is clarified that corrections to previous VAT returns are only allowed in VAT returns of subsequent periods). Finally, the timing of the chargeable event with respect to supplies under the special schemes has been clarified to avoid differences in the application of the rules among the Member States.
In line with the objective of a 'Single VAT Registration', the second group of measures covers the mandatory application of the reverse charge mechanism in situations in which the supplier is not established or identified for VAT purposes in the Member State in which VAT is due. In any case, for control purposes, such supplies should be reported in the recapitulative statement. Currently, the VAT Directive provides the option to Member States to implement a reverse charge for domestic supplies of goods by foreign suppliers to local B2B customers.
Finally, call-off stock arrangements will have an end date, i.e., 30 June 2027, after which it will no longer be possible to enter into new call-off stock arrangements. Existing call-off stock arrangements will end on 30 June 2028. This is in line with the introduction of the simplified regime for the transfer of own goods.
The expansion of OSS combined with the mandatory application of the reverse charge mechanism provides businesses with an opportunity to further streamline their VAT compliance and to revisit the current VAT flows. However, careful planning would be necessary as ViDA does not cover the expansion of potential simplified VAT refunds for businesses registered in OSS schemes.
Next steps
As substantive changes have been made to the 8 December 2022 proposal, on which EU Parliament was consulted, EU Parliament must be reconsulted. The next meeting of EU Parliament's Committee on Economic and Monetary Affairs is scheduled for 18 November 2024. It is being reported that the ViDA package is on the agenda for this meeting.
