ViDA (VAT in the Digital Age) - European Union promotes B2B electronic invoicing
Following the ECOFIN meeting last June 21, 2024, there is still no agreement on the ViDA initiative, due to Estonia's opposition.
Estonia strongly opposes the proposed reform of VAT in the digital age, which would impose new obligations on digital platforms that facilitate short-term accommodation rentals and passenger transportation.
Estonia argues that this new regime would effectively tax small and medium-sized businesses, placing an unfair burden on them that hinders competition. Instead of a mandatory tax, Estonia has proposed an opt-in approach, allowing each country to choose what suits it best.
Under the umbrella of the VAT in the Digital Age (ViDA) project, the European Commission is proposing a series of measures aimed at modernizing the current VAT system in the European Union to combat tax fraud. Among the initiatives, a key focus is the implementation of a new tax reporting system through electronic invoicing between companies.
The three pillars of the ViDA initiative can be summarized as follows:
- Digital Reporting Requirements (DRR): Introduce common standardized digital reporting and e-invoicing requirements for intra-EU (i.e., between Member States) transactions.
- Platform Economy: Address the challenges of the platform economy for short-term rental of accommodation and passenger transport services by enhancing the role of digital platforms in VAT collection.
- Single VAT Registration: Reduce VAT registration requirements in the EU by extending the scope of the one-stop-shop (OSS) for imports and reverse charge for business-to-business (B2B) transactions.
Initially planned for 2028 and postponed to 2030, the member states have not yet agreed on a final date, so the timeline remains unconfirmed.
The Estonian government has expressed concern about the plans for the platform economy pillar, although it has stated that it does not oppose the other elements.
Estonia opposes the current proposal as it seeks to introduce new VAT collection responsibilities on platforms that facilitate short-term accommodation rentals and passenger transportation.
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What is the ViDA (VAT in the Digital Age) initiative: Modernizing the VAT system in Europe?
VAT is a very important source of tax revenue for all member states of the European Union, and it represents a significant portion of the EU budget. However, the current VAT regulations are outdated and ineffective, making it difficult to properly control tax compliance and resulting in a significant loss of revenue. The European Commission's 2022 VAT Gap Report estimates that in 2020, approximately 93,000 billion euros in revenue was lost, of which a quarter can be attributed to cross-border transactions.
In light of the global nature of the market and the rise of e-commerce, the European Union has decided to update its policies on value-added tax. This will help to ensure that the EU can continue to compete in the global marketplace and provide consumers with the best possible experience.
This reform is designed to improve the efficiency of VAT declarations by harmonizing them in an electronic format. The new system will allow for real-time electronic declaration of tax information through the use of electronic invoices.
The ViDA proposal includes:
- The ViDA proposal includes changes to the definition of e-invoice as of January 1, 2030. No PDF, Word, Excel files, or other unstructured invoice formats will be accepted; only 'authentic' (structured) e-invoices will enable DDR.
- E-invoicing will become the norm from January 1, 2030. Structured e-invoices will be the default system for issuing invoices, and e-invoicing will become mandatory for intra-community (IC) transactions, with member states having more flexibility to implement national e-invoicing systems.
- Recapitulative statements (EC sales and purchase listings) will be replaced by the digital reporting requirement (DRR) for intra-EU transactions as of January 1, 2030.
- Harmonization of reporting systems for domestic transactions will occur from January 1, 2030.
- Pre-validation templates will no longer be accepted; national templates will need to align with the ViDA framework, requiring companies to reassess their current solutions.
The timetable for implementing the Proposal is uncertain, and there are divergent opinions among EU Member States on various aspects. However, most European countries have already begun regulating e-invoicing between private companies.
Objectives of the new European VAT system
The ViDA project is primarily aimed at modernizing the European VAT system and has set itself the following objectives:
- Guarantee an efficient and fair VAT system for the digital economy.
- Fight against fraud, especially intra-community fraud.
- To ensure the proper functioning of the Internal Market.
- Simplify and adapt VAT regulations to the new digital reality of the market to facilitate tax compliance and provide greater legal certainty.
- Optimize tax reporting requirements through digitalization.
Who will be affected by the new regulations?
The new system will have implications for both companies that are subject to Value Added Tax and for member states. They will need to transpose the new European measures into their tax systems and take measures to audit electronic invoices between companies.
Legal Measures
With regard to electronic invoicing, the VAT in Digital Age - ViDA project describes this battery of measures:
- The electronic invoice will be the default method for electronic tax returns.
- The use of the electronic invoice will be the default method of issuing invoices.
- The exchange of electronic invoices will no longer be subject to acceptance by the recipient.
- Member states will be able to impose B2B e-invoicing without the need to request a derogation from the European Parliament.
- e-Invoicing will be mandatory for cross-border transactions.
- A common electronic invoicing standard will be established.
- The possibility of issuing summary invoices will be eliminated.
Legal Texts
At the legislative level, there are proposed amendments to various legal texts to give effect to the measures. The European Commission has published these proposals to help ensure that the measures are properly implemented.
- Directive 2006/112/EC as regards VAT rules in the digital age.
- Regulation (EU) No. 904/2010 as regards the VAT administrative cooperation scheme necessary for the digital age.
- Implementing Regulation (EU) No. 282/2011 as regards the information requirements applicable to certain VAT schemes.
The legislative proposals will be submitted to the Council for approval, and to the European Parliament and the Economic and Social Committee for consultation.
Benefits of the new European VAT system
- Reduction of tax compliance costs. According to the ViDA report, an estimated saving of 4.3 million euros is expected thanks to pre-filing VAT.
- Savings in handling costs. The EC estimates that 1.9 billion euros will be saved in postal shipments alone.
- Acceleration of the digital transformation of companies by implementing automation technologies to report business data electronically.
- Increased efficiency of tax control thanks to improved risk analysis systems.
- Increased tax collection. According to the ViDA report, an estimated collection of between €135 billion to €177 billion.
- Reduction of tax fraud. Obtaining information in real time will make it much more difficult for fraudsters to operate.
- Faster introduction of digital reporting requirements (DDR) as there is a standardized model at European level.
- Improved cross-border trade as member states have to develop their tax reporting systems to ensure compatibility and interoperability within the Union.
- Improved environmental impact. The report quantifies that the reduction of carbon emissions would have an economic equivalent of between 0.01 billion and 500 million euros.
