On 8 December 2022, the European Commission proposed measures to modernise the EU’s Value-Added Tax (VAT) system, make it work better for businesses and more resilient to fraud, and address challenges in VAT raised by the development of the platform economy.
Background
According to the 2023 VAT Gap Report, EU countries lost €99 billion in VAT revenues in 2020. 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 SMEs, scale-ups and companies operating cross-border.
Key actions proposed under ViDA will help EU countries 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.
Real-time digital reporting
The new system introduces real-time digital reporting for cross-border trade, based on e-invoicing. It will give Member States the 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 ensures that, in time, existing national systems converge across the EU and paves the way for EU countries that wish to introduce national digital reporting systems for domestic trade.
Updated rules for the platform economy
Under the new rules, platforms facilitating supplies in the passenger transport and short-term accommodation 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 providers.
Together with other clarifications, this will ensure a uniform approach across all EU countries and contribute to a more level playing field between online and traditional short-term accommodation and transport services. It will also simplify life for SMEs who currently need to understand and comply with the VAT rules, often in different EU countries.
Single VAT registration
Building on the already existing ‘VAT One Stop Shop’ (OSS) model for e-commerce, the proposals would allow more businesses selling to consumers in another EU country to fulfil their VAT obligations via an online portal in one EU country. Further measures to improve the collection of VAT include making the ‘Import One Stop Shop’ (IOSS) mandatory for certain platforms facilitating sales by persons established outside the EU to consumers in the EU.