European Commission releases first look at EU VAT regime changes

On 8 December 2022, The European Commission (EC) announced one of the most significant changes to the EU VAT regime in decades. These changes all relate to VAT in the Digital Age. The EC expects these reforms to raise billions in taxes while simultaneously adapting the old regime's VAT requirements to fit a fast-evolving digital economy. 

Until now, any predictions of VAT in the EU were based on a delicate balance of expert predictive analysis and wishful thinking. However, nothing had been confirmed or set in stone - until now. 

Beat the compliance curve with the latest confirmed reforms to the EU VAT regime. 

View the official EC press release here. 

The three game-changing reform pillars

The amended VAT Directive 2006/112/EC concerning VAT rules for the Digital Age, proposed by the Council Directive, was adopted by The European Commission (EC) colleague commissioners on 8 December 2022. The proposed amendments focus on three core reform pillars; 

1. Digital Reporting Requirements (DDR) & e-invoicing
2. Platform economy tax collections for travel & accommodation
3. Single VAT Registration (SVR) 

According to The EC, the critical actions proposed on 8 December 2022 are expected to help Member States collect an increased annual VAT revenue of up to €18 billion. In addition, it will also assist SMEs to grow and better meet and understand their VAT obligations. 

• Real-time digital reporting and e-invoicing

The EC has elaborated on new digital reporting rules for businesses operating across multiple EU Member States. The new system aims to introduce real-time digital reporting to combat VAT fraud. This system change will allow Member States to receive and transmit valuable real-time information through e-invoicing. The shift to e-invoicing is expected to reduce VAT fraud by up to €11 billion annually and decrease administrative and compliance costs for EU traders by over €4.1 billion per year over the next ten years. 

Furthermore, the EC announced that there would be two possible paths to combat VAT fraud and utilise the efficiencies of e-invoicing and reporting. This includes; 

• Mandatory Intra-Community Supplies (ICS) e-invoicing.

All businesses must issue and receive e-invoices for ICS. This must be based on the European standard for e-invoicing (EN 16931) for intra-community supplies. This will be a structured e-invoice format (XML, UBL, PDF/A3, etc.), not PDFs.

• Mandatory B2B Intra-Community Digital Reporting Requirement (DRR).

An intra-community supplies (ISC) digital reporting regime (DRR) will be introduced for all companies, including non-residents, from 2028. 

• New VAT rules for travel and accommodation

The newly reformed EU VAT regime requires platform economy operators in the travel and accommodation sector to become liable for collecting and remitting VAT to tax authorities. Service providers, however, are not - as they classify as either small businesses or individual providers. 

This is an extension of the deemed supplier VAT rule, which requires a marketplace to take on their sellers' EU VAT obligations. This removes the need for SMEs to understand and comply with the VAT rules in all Member States they conduct business with. 

Although this only applies to travel and accommodation marketplaces, it may flow into other gig and sharing economies. We can also expect improvements and clarifications regarding the roles and responsibilities of different players in the digital marketplace sphere and the standardisation of information requirements. 

In the past, ambiguity around taxation and fees has led to inconsistencies between Member States, resulting in double or no taxation. The EC estimates that these new measures will save €480 million per annum.

• Single VAT registration across the EU

The EC's new proposal builds on the existing 'VAT One Stop Shop' (OSS) model for eCommerce. However, the new reform will allow businesses that sell to consumers in another Member State (B2C) to register for VAT purposes for the entire EU in one go. This will enable them to fulfil all their VAT obligations across the EU via one single online portal in one designated language. 

Not only does this provide significant clarity to a complicated process, but the EC estimates that it could save businesses up to €8.7 billion in registration and administrative costs over the next ten years. 

By utilising the new Single VAT Registration (SVR), businesses can manage, report and charge VAT to the entire EU through their domestic tax authorities, eliminating the need for thousands of foreign VAT registrations for e-commerce sellers. The stock movement, however, will still be taxable with arrival and sale (two transactions). Both these transactions would need to be reported in the OSS. Additional information will be required here to the Member State of identification (where the OSS is registered). 

Prepare your business for the new EU VAT regime

Although the newly confirmed changes are set to bring much-needed clarity and simplification to the EU VAT regime, getting up to speed can still be challenging. Fortunately, you've got VAT IT experts in your corner. 

Reach out to our team for any questions regarding how the latest changes may influence your business and how to guarantee compliance. 

Get in touch with us here.