On March 11, the European Union adopted the “VAT in the Digital Age” (ViDA) package, a series of reforms aimed at modernizing and digitizing the Value Added Tax (VAT) system in the EU. These measures seek to improve efficiency in tax collection and adapt to the challenges of the digital economy.
In this article, we review the main changes and their implementation dates.
From the entry into force of the package (that is, already in effect), EU member states may implement mandatory electronic invoicing for domestic B2B and B2C transactions without the need for prior authorization from the European Commission, as long as these measures are limited to taxpayers established in their territory.
As of July 1, 2030, electronic invoicing will be mandatory for intra-community B2B transactions (that is, between companies from different EU countries). Furthermore, this obligation will also apply to those transactions where the reverse charge mechanism will be applicable. This mechanism is used when the responsibility for paying VAT is not the seller’s, but rather the buyer’s (as in some sectors where tax fraud is intended to be prevented).
In practical terms, this means that:
Businesses registered for VAT purposes will have to issue structured electronic invoices in an EU standard format within 10 days after the supply of goods or services (or payment, if it occurs earlier).
Before January 1, 2035, the existing national electronic invoicing systems before 2024 must be fully harmonized with EU standards.
Previously, recapitulative statements of cross-border sales were carried out monthly or quarterly, which caused delays that could be exploited to commit fraud. As María Elena Scoppio, Director of Indirect Taxation and Tax Administration, explains, “With ViDA, cross-border sales and purchases will be recorded almost in real time, and the data will be automatically sent to tax administrations, improving the detection and response capability against fraudulent activities.”
Starting from July 1, 2028 (voluntary phase) and January 1, 2030 (mandatory), digital platforms facilitating short-term accommodation rental and passenger transportation services will be considered responsible for collecting and remitting VAT in certain transactions, for example, because they are individual suppliers or small businesses not required to register for VAT. This seeks to ensure fair competition with traditional providers.
From January 1, 2027, the One Stop Shop (OSS) system and the Import One Stop Shop (IOSS) system will be expanded so that businesses selling to consumers throughout the EU can register once for VAT purposes and fulfill their obligations across the Union. This measure aims to significantly reduce the administrative burden and compliance costs for businesses operating in multiple Member States with fewer procedures.
To contextualize the approval of these new measures, the European Commission explains that in 2020, EU countries lost approximately 99 billion euros in VAT revenue, of which it is estimated that a quarter was directly due to fraud related to intra-community trade.
Moreover, they assert that current VAT provisions can be complex and cumbersome for businesses, especially for small and medium-sized enterprises, and those operating cross-border. Official bodies expect that the key actions proposed in ViDA will help EU countries collect up to 18 billion euros more in VAT revenue annually, of which 11 billion euros would come from anti-fraud measures.
On the other hand, the new measures will reduce administrative and compliance costs for EU traders by more than 4,1 billion euros annually over the next ten years. Additionally, it ensures that, over time, existing national systems converge across the EU and paves the way for countries wishing to introduce national digital reporting systems for domestic trade to do so.
Photo: European Commission
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