State of play, main conclusions, outlook

This initiative aims to modernise the current VAT rules, taking into account the opportunities offered by digital technologies. The Commission’s action plan for fair and simple taxation underlined the need to reflect on how technology can be used by tax authorities to fight tax fraud and benefit businesses, and whether the current VAT rules are adapted to doing business in the digital age. The action plan announced a legislative proposal for 2022 under the heading ‘VAT in the digital age’ covering 1) VAT reporting obligations and e-invoicing 2) VAT treatment of the platform economy and 3) single VAT registration in the EU. The package is expected to simplify compliance and to help improve tax collection and therefore ensure sustainable revenues during the COVID-19 recovery.

In December 2022 the Commission adopted a package of three proposals with the aim of addressing:

1. Digital Reporting Requirements (DRRs), including e-invoicing

Many Member States, pressed by the magnitude and importance of losing revenue when they need it the most to support the economy and to recover after the COVID-pandemic, are introducing different digital reporting obligations domestically. This uncoordinated growth of reporting obligations creates substantial new compliance burdens across the Single Market and increases the risk of fragmentation. The current rules do also not allow for the mandatory use of e-invoicing.

2. The VAT treatment of the platform economy

Current VAT rules are ill-equipped to deal with the challenges of the platform economy, e.g. ensuring a fair taxation between on-line and traditional economic transactions or a uniform and simple approach across Member States to the application of the VAT rules.

3. Single VAT Registration in the EU

The newly introduced OSS (One-Stop-Shop) allows businesses to avoid multiple VAT registrations in the EU for cross-border transactions but there remain specific types of cross-border transactions which still fall outside of its remit (e.g. supplies with installation, e-mobility). Improvements to the IOSS (Import One-Stop Shop, covering imports from outside the EU) are also needed to further strengthen VAT compliance in relation to imported goods.

Estimated savings and benefits

All three measures are intended to reduce the administrative burdens for businesses, as well as prevent fraud. The DRR element and that on the platform economy will reduce the fragmented regulatory landscape for businesses across the EU, and the Single VAT Registration element will expand the ability to use a currently existing simplification measure. Important IT investments will be needed notably for the DRR, which will imply a longer implementation time for this.

Fit for Future Platform

The Platform’s opinion on the enterprise friendly VAT in the digital age contains a broad range of suggestions on how to simplify, streamline and cut regulatory tape around the VAT. The Platform suggestions concurred with the Commission’s reflections on ways to avoid additional registration through the extension of the VAT One-Stop Shop (OSS) to the transfer of own goods and by generally improving existing simplification measures to reduce the requirement for businesses to register in other Member States.

Further, the Commission proposal removes the necessity for a derogation to introduce mandatory e-invoicing and modernises the VAT reporting obligations by introducing digital reporting requirements for intra-EU supplies following an EU standard based on e-invoicing, with a convergence of domestic digital reporting requirements towards that standard.

By extending the deemed supplier provision to intra-EU sales, the reform will limit the non-compliance of EU businesses selling through platforms. This is done by transferring certain responsibilities towards the platforms and hence lowering the risk of businesses receiving heavy penalties in case of non-compliance. This is also an aspect brought up by the Fit for Future Platform evidence.