ViDA Package: New tax solutions for the digital economy

To address the challenges of the rapidly developing digital economy, the European Union has proposed the “VAT in the Digital Age” (ViDA) package. The goal of these changes is to modernize VAT collection methods, making them effective for both traditional and digital business models. During the May meeting of the ECOFIN Council, the key aspects of the ViDA package and the timeline for its implementation were discussed.

Goals and motivations of the ViDA package

The ViDA package is a European Commission initiative from December 2022 aimed at simplifying and improving the VAT system in the digital era. This is to ensure effective tax collection from businesses selling goods and services online within the EU, regardless of their location. During the ECOFIN Council meeting in May 2024, the latest version of this package, which introduces significant changes compared to the original proposal, was discussed.

Electronic invoicing and digital reporting

One of the key elements of the ViDA package is the introduction of mandatory electronic invoicing and digital transaction reporting. According to the latest regulations, member states will be able to impose the requirement for e-invoicing in domestic transactions without the prior approval from the European Commission. The new rules will also allow for the issuance of e-invoices without customer consent, meaning businesses will need to be prepared to accept and process them.

New rules for digital platforms

Digital platforms that facilitate short-term accommodation rentals and passenger transport will have to act as deemed VAT suppliers. This means they will be responsible for charging and collecting VAT on behalf of suppliers unless these suppliers provide a valid VAT identification number and declare their intention to handle VAT themselves. However, member states will have the option to exempt small and medium-sized enterprises from these obligations to protect smaller economic entities.

Implementation timeline for the ViDA package

• 2024: Introduction of mandatory e-invoicing

The adoption of the ViDA package in 2024 will require businesses to quickly adapt to the new e-invoicing requirements. Just 20 days after the regulations are published in the EU Official Journal, member states will be able to introduce mandatory e-invoicing for domestic transactions without needing additional EU approval.

• 2026: Changes in the e-commerce package

From 2026, the way VAT is calculated on cross-border B2C sales of goods and electronic services will change. The €10,000 threshold, below which companies can charge VAT in their country of establishment, will only apply to goods shipped from the member state where the seller is established. Additionally, cross-border supplies of natural gas, and heating and cooling energy will be reportable through the One Stop Shop (OSS) system.

• 2027: New rules for short-term accommodation and passenger transport platforms

Digital platforms will have to operate as deemed VAT suppliers. The new regulations change the definition of “short-term accommodation” from 45 to 30 days, allowing member states greater flexibility in adjusting local regulations.

• 2027: Unified VAT registration

The ViDA package aims to simplify VAT registration obligations across different EU countries through the expansion of the One Stop Shop (OSS) procedure. This change includes sales of goods by suppliers without a presence in the country, the introduction of a new OSS regime for cross-border transfers of own goods, and the extension of mandatory reverse charge on B2B supplies of goods and services.

• 2030: Mandatory digital reporting and e-invoicing

2030 will see the implementation of key changes regarding digital reporting and electronic invoicing. Under the ViDA package, all businesses engaging in transactions subject to Digital Reporting Requirements (DDR) will be required to issue electronic invoices. The new regulations mandate the use of structured invoices compliant with the European e-invoicing standard (EN16931). Notably, the deadline for issuing an electronic invoice will be extended to 10 days from the transaction date, compared to the initial proposal of 2 days. Furthermore, unlike earlier assumptions, the updated version of the package allows member states to recognize the possession of an electronic invoice as a significant condition for VAT deduction.

Digital reporting represents another significant step towards the modernization of tax systems. According to the new regulations, entrepreneurs will be required to digitally report intra-community transactions, including, among others, the sale of goods with a zero VAT rate, intra-Union acquisitions of goods, and cross-border sales and purchases of goods and services. The new Digital Reporting Requirements (DRR) system will replace the existing summary reports (VAT-EU), which aims to reduce the scale of tax fraud by transmitting data in real-time, within 10 days of the invoice issuance date.

• 2035: Unification of domestic and cross-border transaction reporting

By 2035, member states that have implemented national digital reporting systems will need to align them with the new DDR system. This is a step towards the harmonization of tax regulations across the EU, which will facilitate business operations in the common market.

Significance of the ViDA package for businesses and the economy

Experts unanimously emphasize that the implementation of the ViDA package is not only necessary to modernize the tax system but also a key element to support economic growth and the integration of the EU internal market. In the face of rapid economic changes, technological innovations, and ongoing globalization, swift adaptation of legal regulations is essential for them to effectively meet their objectives. Belgium, currently holding the EU Council presidency, aims to reach an agreement on this matter before the end of its term in June 2024.

Summary

The ViDA package is a comprehensive set of reforms aimed at adapting the VAT system to the demands of the modern digital economy. The implementation timeline for these changes is ambitious yet necessary to meet the challenges of the contemporary economy. Businesses should closely follow legislative developments and prepare in advance for the upcoming changes to smoothly adapt to the new tax requirements. The introduction of ViDA is a crucial step towards simplifying and improving the tax system, which is vital for the further economic development of the European Union.

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