12.22.22

VAT in the Digital Age (ViDA) proposal

Tungsten has previously communicated on the VAT in the Digital Age initiative, where we relayed the European Commission’s intention to introduce harmonisation across Europe with respect to its fiscal operations.  

The rapid acceleration of digitisation permeating all facets of society has led the European Union to review its own fiscal policies and consider how the processing of these fiscal measures can be aligned with these increasingly high standards of digitisation.  

This, coupled with the need to combat fraud and alleviate multiple cumbersome compliance processes, has propelled the EU to conduct a high-scale review of its fiscal operations and propose a radical overhaul of the VAT system as we know it.  

To this effect, the European commission published the VAT in the Digital Age (ViDA) proposal. The proposal has colossal implications for the future of e-invoicing and e-reporting in the coming years.   

The below is a high-level summary only of the most significant changes, from the proposal: 

Proposed Digital reporting requirements  

• From 1 January 2024, PDFs will no longer come under the definition of an e-invoice. Paper invoices will still be permitted, but if opting for e-invoicing, structured invoices only can be issued.  

• The requirement for buyers to accept e-invoices will be removed, thus acting as a major catalyst to compel e-invoicing and ultimately contribute to its proliferation. 
• EU Member States are free to impose their own e-invoicing obligations- but this crucially excludes clearance models. Clearance models typically require verification via an e-invoicing platform before e-invoices can be issued to the buyer. Italy is one such country which has adopted a clearance e-invoicing model, amongst others, and Poland, to date, has been advancing a similar clearance model. Clearance models which have previously been approved by the European Commission, such as Italy, can continue to operate as per their current process until 1 January 2028. The current process to request derogations to mandate e-invoicing will become obsolete from 1 January 2024. 
• Invoices must comply with a European standard, rather than utilise country-specific variations. 
• 1 January 2028: E-invoicing is expected become the default standard for invoice issuance. Paper invoices will need to be specified for certain transactions.  

Real-time reporting obligations 

• From 1 January 2028, a real-time reporting obligation will be introduced for all EU B2B intra-community transactions. The reporting requirement must be completed within 2 working days after the invoice date.  

Single VAT registration and other e-commerce implications  

• From 1 January 2025, the EU proposes to introduce a single VAT registration number, effective abolishing the concept of foreign VAT registration, for certain transactions.  
• A mandatory reverse-charge mechanism will be introduced for B2B supplies of goods and services where the supplier is not established in the country where VAT applies and the customer does have a VAT identification number in that country. 
• The existing deemed supplier rule for marketplaces facilitating B2C supplies of goods will be extended. All supplies of goods (B2C and B2B) within the EU facilitated by marketplaces will be subject to the extended deemed supplier rule. This means that the marketplace will need to collect and account for VAT in the place the services/goods are delivered. This will have a profound impact for several businesses, as this implies that the requirement to collect VAT will not be passed to local entities.  

• The Import One Stop Shop (IOSS) scheme for the importation of low-value consignments into the EU will be mandatory for marketplace operators. The IOSS was initially introduced as a fiscal measure to simply VAT-related processes, by allowing taxpayers to register in a single European state and pay European Union import VAT. 
• Further implementing rules will be introduced for the secure use of the IOSS scheme, e.g. by linking the unique consignment number to the IOSS number.  

Tungsten acknowledges that these are radical changes which will have a profound effect on e-invoicing mandates and e-reporting in the next few years. By extension, Tungsten will also need to consider how the ViDA proposals impact the way Tungsten operates as a service provider. The published consultation has additionally raised some further questions we are working to obtain clarity on and we are collaborating with other EESPA members to respond to the proposal during the Public Consultation We are analysing these changes and are also in contact with our compliance partner, PwC, to discuss the implication of these changes.  

The proposal is ambitious and radical with multiple implications and will require the unanimous consent of all Member States. We are assimilating the changes and will update you further with the development of the proposals, and how we plan to accommodate these, if confirmed.  

The VAT in the Digital Age proposal published by the commission can be found here: 

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD%3A2022%3A394%3AFIN&qid=1670500532473 

There is an 8 week public consultation period, which can be accessed as per the following: 

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13186-VAT-in-the-digital-age_en