VAT in the Digital Age

The proposal also aims to address challenges in the area of VAT raised by the development of the platform economy.

Member States lost €93 billion in VAT revenues in 2020 according to the 2022 VAT Gap report. Conservative estimates suggest that one quarter of the missing revenues can be attributed directly to VAT fraud linked to intra-EU trade. In addition, VAT arrangements in the EU can still be burdensome for businesses, especially for SMEs, scale-ups and other companies who operate cross-border.

Infographic that shows the three changes we need to make vat fit for the digital age: A new real time digital reporting system based on e-invoicing, Updated vat rules for the platform economy, A single vat registration for businesses selling to consumers across the eu

Key actions proposedwill help Member States collect up to €18 billion more in VAT revenues annually (€11 billion as a result of anti-fraud measures) while helping businesses, including SMEs, to grow:

A move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU

The new system introduces real-time digital reporting for VAT purposes based on e-invoicing that will give Member States valuable information they need to step up the fight against VAT fraud, especially carousel fraud. The move to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU traders by over €4.1 billion per year over the next ten years. It also makes sure that existing national systems converge across the EU and paves the way for Member States that wish to set up national digital reporting systems for domestic trade in the coming years.

Text on the image: Modernising how companies account for VAT in cross-border business, removing cumbersome administrative procedures and streamlining processes for all. At a stroke, the new system makes sure that Member State authorities are fully informed of transactions in almost real time, allowing them to immediately address instances of VAT fraud. Member States will recoup up to €11 billion in lost VAT revenues a year for the next 10 years. Businesses will save €4.1 billion a year over the next 10 year

Updated VAT rules for passenger transport and short-term accommodation platforms

Under the new rules, platform economy operators in those sectors will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example because they are a small business or individual provider. Together with other clarifications, this will ensure a uniform approach across all Member States and contribute to a more level playing field between online and traditional short-term accommodation and transport services. It will also whilst simplifying life for SMEs who would need to understand and comply with the VAT rules, often in other Member States.

Text on the image: Platform economy operators in the short-term accommodation and passenger transport sectors will be deemed responsible for collecting VAT when their users do not, and for remitting this VAT to tax authorities. Introducing a level playing field for traditional providers, while simplifying compliance for SME and individual platform users.

The introduction of a single VAT registration across the EU

Building on the already existing ‘VAT One Stop Shop’ model for online shopping companies, the proposals would allow businesses selling to consumers in another Member State to register only once for VAT purposes for the entire EU, and to fulfil their VAT obligations via a single online portal in one single language. Further measures to improve the collection of VAT include making the ‘Import One Stop Shop’ mandatory for certain platforms facilitating sales to consumers in the EU.