Can the VAT in the Digital Age proposal lead to a fairer and more efficient EU VAT System?

Mariella Caruana
Tax Policy Lead at BusinessEurope

Άρθρο στο Μηνιαίο Ενημερωτικό Δελτίο ΣΕΒ – Ρυθμιστικό Περιβάλλον και Επιχειρήσεις –  27 Απριλίου 2023

On December 8, 2022, the European Commission published its proposed VAT in the Digital Age (“ViDA”) reform for the 2024-2028 timeframe aimed at reducing the EU’s VAT gap and making the VAT system work better for businesses. Broadly, ViDA proposes to introduce digital reporting requirements, tax collection obligations for platform operators of short-term accommodation rental and passenger transport services, and a Single VAT registration to avoid multiple VAT registrations.

In its response to the Commission’s public consultation, BusinessEurope has been largely supportive of this reform provided that the fight against VAT fraud does not come at the expense of the large majority of companies that are trying their best to comply with an increasingly complicated tax compliance environment. As ViDA introduces extensive changes to businesses’ operational processes and will entail a significant implementation cost, BusinessEurope has put forward recommendations for ViDA to achieve a fair and efficient VAT system, notably:

• A timeframe of at least 24 months before the first measures take effect to allow businesses to manage their readiness.
• Digital reporting should refrain from introducing unnecessary complexities. The proposed two-day timelines to issue and report invoices, the additional data points required on invoices and the elimination of summary invoices will, in particular, create practical difficulties for businesses of all sizes.
• To incentivise an optimal implementation of ViDA for businesses, measures such as faster VAT refunds, faster audits, combining the use of data for more efficient reporting, and other investment incentives from a direct tax perspective should be considered.
• ViDA should be accompanied by a robust process aimed at detecting and preventing the misuse of information and/or cyber-attacks to safeguard the proper functioning of the proposed digital reporting rules.
• To achieve further simplification, ViDA should have standardised the VAT treatment of goods and services as the distinction has become increasingly blurred through digital tools.
• The ‘deemed supply’ rules should respect the principle of VAT neutrality. In addition, and to provide legal and tax certainty, a uniform definition of an ‘intermediary’ in the context of the Platform Economy is required together with common presumptions for when platforms are acting in their own name.
• More flexibility should be provided for businesses to elect for a Member State of Identification for OSS purposes.

As the legislative process of this proposal progresses, it will be key for Member States to maintain a continuous engagement with all stakeholders involved, to examine how ViDA can be implemented appropriately for Small and Medium-sized businesses, to improve the co-operation between the different national tax administrations and to establish greater levels of trust and efficiency (for example, by permitting input VAT deductions, VAT refunds, harmonised sanctions, and interest payments in the OSS).

Finally, and as ViDA will significantly impact a large number of businesses in the EU and beyond, it will be important to ensure that this reform process results in an improved Single Market that promotes the growth of European businesses and that offers an improved environment for cross-border trade with reduced compliance costs.