Viva la ViDA!

Insights from Maria Elena Scoppio, Director for indirect taxation and tax administration at DG TAXUD.

Let’s start from the beginning, what is ViDA and how did we get there?

ViDA stands for VAT in the Digital Age. It is the biggest VAT reform since the Single Market. It is indeed a wide reform package proposed by the European Commission in 2022 to modernise and simplify the EU’s VAT (Value Added Tax) systems. In short, ViDA aims to create a more efficient and digital system for VAT obligations, while reducing administrative burdens, and tackling tax fraud. ViDA also addresses challenges that we see with increased online trade and it helps level the playing field between platforms and traditional providers in the short-term accommodation rental and passenger transport sectors. After two years of negotiations, finally on last 5 November, the Council agreed on the proposal - we are very happy about this key step towards embracing and promoting digitalisation. Special thanks to the Hungarian presidency for finalising the discussions, and to the other Presidencies (Czech, Swedish, Spanish and Belgian) for their hard work on this file. 

Why is ViDA important?

It was high time for this reform. ViDA brings VAT systems in line with the digital world that we are already living in. The platform economy is continuously growing in size and importance throughout the EU, but the existing VAT systems could not keep up with the new business models. We needed a system that can better handle the complexities of e-commerce’s digital transactions, including B2B (business to business) and B2C (business to consumer) sales across borders. Moreover, the current VAT rules can be complex and difficult to manage, especially for small and medium-sized businesses operating across multiple EU Member States. ViDA will simplify cross-border VAT significantly by streamlining processes and making them electronic. ViDA will also help to combat VAT fraud through fast, automatic and digital exchange of information between companies and tax authorities and between tax authorities on cross-border B2B transactions. 

What were the problems before and how does ViDA try to solve them now?

Let me first focus on how ViDA will benefit our colleagues in EU Member States. VAT is one of the key revenue raisers in national budgets and yet sizeable amounts of VAT revenue are lost to fraud. ViDA introduces Digital Reporting Requirements (DRRs), which is effectively an anti-fraud measure. Previously, for cross-border supplies, companies were asked to provide recapitulative statements every month or even every three months, which resulted in a gap between when the transaction happened and when it was reported. Of course, this was a perfect opportunity for fraud. Now, cross-border sales and purchases will be accounted for in quasi real-time and the data sent automatically to the tax administration – essentially companies will automatically share the data drawn from electronic invoices with the authorities. Tax authorities can then better monitor and intervene faster when they believe that there is fraud. The introduction of DRRs for VAT purposes will have a truly revolutionary effect. 

For businesses, we are making their lives easier and help them compete. The existence of different VAT rules in each of the 27 EU Member States means a considerable administrative burden and cost. This makes it especially difficult for small and medium-sized enterprises (SMEs) to scale across borders. The use of One Stop Shops has already reduced the need for businesses to register for VAT in other Member States. However, there are still some gaps. ViDA seeks to close these gaps with the Single VAT Registration (SVR). It extends the One-Stop Shop (OSS) to cover B2C sales and the reverse charge mechanism for B2B sales. The reverse charge mechanism is another simplification measure by which the buyer accounts for the VAT rather than the seller. Essentially, thanks to ViDA, companies no longer need to hold multiple costly VAT registrations. Instead, they can report and pay VAT for all EU sales in one place, via a single online portal and in one language. 

How is the Commission providing support for businesses to adapt to ViDA?

Businesses will need to adapt to the new requirements on electronic invoicing and Digital Reporting Requirements. Electronic invoicing implies that from 1 July 2030, businesses have to issue electronic invoices for all cross-border transactions they have to report to the tax administration.  This might also be required for domestic transactions when the Member State has opted for this possibility. At the same time, we  will amend the current European Standard for e-invoicing  to make it fully compliant for B2B  supplies. As a consequence, businesses will be able to use the same format across the EU. They will be able to report data to different tax administrations in the same way, wherever they trade in the EU. As there is a need for adaptation to the changes, it is important for us to keep stakeholders informed and engaged. To that extent, we will set up working groups and seminars to get input from EU Member States and businesses. We will also produce explanatory notes on how to implement the new measures.

How has ViDA been perceived so far by EU MS and businesses?

Generally, ViDA is quite popular. Most EU Member States are very keen to implement the new rules, as they help fight fraud. The move to e-invoicing alone will have significant effects. It will help to reduce fraud by up to EUR 11 billion per year and bring down administrative and compliance costs for EU businesses by up to EUR 4.1 billion per year. The SVR has also been positively received as it makes it easier for businesses to declare and account for their VAT, simplifying cross-border trade, in particular relating to the transfer of own goods across borders. Looking closer at the platform economy, currently, many providers of online short-term accommodation rental and passenger transport services do not pay VAT. Drivers or a person renting out their apartment are not always required to register for VAT or are often unaware of their obligations. Under the new rules, the platform will be responsible for collecting and remitting the VAT, taking the burden away from many small suppliers. For some platforms, this is a welcome simplification. 

How does ViDA fit in the big picture of tax, customs and legal reforms?

With ViDA, we contribute to the wider Commission priorities of better regulation, simplification and digitalisation. More specifically, there is a clear link with the EU Customs Reform. ViDA complements ongoing efforts to streamline cross-border customs processes, reducing red tape, combatting fraud and improving efficiency in international trade, for example by strengthening the Import One Stop Shop (IOSS) scheme, allowing the removal of the EUR 150 customs de minimis threshold to be based on a more robust VAT system. Overall, the fair and consistent application of VAT across all Member States is also strengthening our EU Single Market.

What are the next steps?

EU Finance Ministers are expected to adopt the proposal following a re-consultation with the European Parliament. Meanwhile, we are working with EU Member States and businesses to look at the implementation of the measures. We are currently in the process of developing secondary legislation, alongside the necessary technical framework, and drafting explanatory notes with detailed guidance on how ViDA should be implemented in practice. We are looking at how we can work together with EU Member States and the business community in a way that promotes best practices and facilitates the smooth implementation of this flagship initiative.

Read more about VAT in the Digital Age:

• VAT in the Digital Age

• VAT in the Digital Age (ViDA) - European Commission

   

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