EU VAT in the Digital Age: major tax and legal implications for businesses

The European Commission announced significant reforms to the EU VAT system on December 8, 2022. The reforms are part of its VAT in the Digital Age initiative (ViDA), which aims to combat EU VAT revenue loss and to modernize the EU VAT system by making it simpler, more efficient and fit for the digital age. The reforms introduce (1) new e-invoicing and digital reporting requirements, (2) platform economy updates and (3) e-commerce and international trade changes. Once enacted, the reforms are expected to go live in multiple annual waves starting January 1, 2024.

Andy van Esdonk, Head of VAT Netherlands at Bird & Bird, says: “This is the biggest overhaul in EU VAT of the past 30 years, impacting many businesses operating in the EU. We recommend businesses to start determining what these reforms mean for their business models, operational processes and tax and legal positions.”

New e-invoicing and digital reporting requirements

As of January 1, 2024 e-invoices should be issued in a structured format allowing for automatic and electronic processing. EU Member States may impose the obligation to issue e-invoices, but must allow e-invoices complying with the European standard on electronic invoicing. As of January 1, 2028 e-invoicing will be the default and paper invoices may only be allowed for specific EU Member State authorizations. Moreover, transactional data should be collected and reported for B2B intra-EU sales of goods and services, within two working days after the invoice is issued or had to be issued. The invoice should in principle be issued within two working days after the sale. The option to issue summary invoices and the requirement to file EU Sales Listings will become obsolete and will therefore be removed. EU Member States may introduce digital reporting requirements for other transactions, such as B2B domestic sales.

“The new e-invoicing and digital reporting requirements call upon businesses to manage VAT in real time. This means that VAT positions should be analysed promptly upfront and transactional data must be correct upon invoicing and reporting,” Andy van Esdonk points out.

Berend van der Eijk, Partner Data Protection at Bird & Bird, adds: “The transactional data will be hosted, maintained and technically managed by the European Commission via a new EU system. For businesses exchanging transactional data, this means a continuous flow of data which they need to secure properly, including through their third party solutions.”

Platform economy updates

As of January 1, 2025 a new deemed seller fiction for platforms will be introduced specifically for the short-term accommodation rental sector and passenger transport sector. Platforms in these sectors need to collect and remit VAT on covered sales if the underlying Seller does not, for example if the underlying Seller is a consumer or subject to a small business scheme. For sales not covered by the fiction, the platform should still keep transaction records.

For platforms in the e-commerce sector, the currently existing deemed seller fiction for facilitating B2C sales of goods in the EU by non-EU Sellers, will be expanded to cover all sales of goods B2B and B2C within the EU, regardless where the Seller is established. This means that platforms in this sector will need to collect and remit VAT on covered sales within the EU by default.

“With yet another deemed seller fiction for platforms being introduced in EU VAT, affected businesses need to consider how to manage multiple VAT regimes and VAT record keeping requirements in parallel. Furthermore, the expansion of the currently existing deemed seller fiction for e-commerce platforms is fundamental and requires both platforms and Sellers to pivot and rethink their VAT strategy already quite soon after introduction of the EU VAT e-commerce recast on July 1, 2021,” Andy van Esdonk notes.

Roelien van Neck, Partner IT/Commercial at Bird & Bird, observes: “The EU VAT updates for the platform economy fit within the wider EU legislative trend to place and sometimes shift responsibilities to online platforms. Platform operators should take action and examine whether trading practices and contracts with Sellers and Buyers require updates to comply with VAT changes, in order to avoid attracting potential liability for the platforms themselves. Besides the platform backend, this also includes liability considerations if Sellers misinform platforms about their VAT status or provide them with incorrect product or transaction data.”

E-commerce and international trade changes

As of January 1, 2025 the current One Stop Shop (OSS) schemes for e-commerce will be expanded significantly. Amongst others, B2C domestic sales of goods in EU Member States where Sellers are not VAT registered will be added into OSS. The same goes for second-hand goods, works of art, collectors’ items and antiques. The Import One Stop Shop (IOSS) will become mandatory for platforms facilitating non-EU distance sales of goods not exceeding EUR 150 for low value consignments, and security of IOSS will be enhanced.

Beyond e-commerce, a One Stop Shop expansion for intra-EU movements of own goods will be introduced, phasing out the current call-off stock arrangements. Also, a new mandatory B2B reverse charge will be introduced for certain sales of goods and services if the customer is VAT registered in the EU Member State where VAT is due, whilst the supplier is not established there.

“The expansions of OSS and the introduction of the new mandatory reverse charge are gamechangers removing the need for multiple VAT registrations for many business models and supply chains,” Andy van Esdonk mentions.

Brian Mulier, Partner International Trade and Customs at Bird & Bird, comments: “The EU customs authorities will be granted access to information about IOSS registered traders. This is promising for a better functioning of IOSS, but also an incentive for traders to improve processes and controls for importing goods into the EU. Furthermore, other changes may be expected through separate EU customs reforms, for example a possible removal of the EUR 150 threshold for low value consignments.”

Manon Rieger-Jansen, Head of the international luxury, fashion and retail team at Bird & Bird, reflects: “Nearly all retailers sell goods via multiple e-commerce channels, including their online branded stores and third party platforms. These EU VAT developments are a big issue impacting the industry.”

Next steps

The reforms must be approved through the EU’s legislative process first and may still be subject to change.

Willem Bongaerts, Partner International Tax at Bird & Bird, concludes: “Next to EU based businesses, this development is also important for non-EU based businesses operating in the EU or entering the EU market. We will therefore organize a webinar in 2023Q1, so that our clients and relations can get a bird’s-eye view, as well as tips and tricks to start determining impact. Further details will follow shortly. Looking forward to seeing you there!”

Please contact Andy van Esdonk or your regular Bird & Bird contact to further discuss this development.

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