VAT in the digital age

In “A new plan for Europe's sustainable prosperity and competitiveness”

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On 15 July 2020, the Commission adopted an Action Plan for a fair and simple taxation supporting the recovery strategy and presenting a number of upcoming initiatives in the field of direct and indirect taxation. The Commission put forward this action plan to support the recovery strategy post-Covid19 taking into account that fair and efficient taxation will be even more important in the months and years ahead. The Action plan announced a legislative package for 2022 under the heading ‘VAT in the digital age’.

On 8 December 2022, the European Commission presented its VAT in the Digital Age package, consisting of three elements: improving and expanding the single VAT registration for businesses through the VAT One Stop Shop, updating VAT rules for the platform economy and introducing real-time digital reporting for VAT purposes.

  • Single VAT Registration: this concerns the VAT One-Stop Shop (OSS)/Import One-Stop Shop (IOSS). When businesses sell goods or provide services across borders to private individuals, they would normally be required to register for VAT in each Member State where they make a certain amount of sales. VAT registration is itself a costly procedure, involving numerous documentation requirements in coordination with the local tax authority, sometimes in a language which the business owner does not necessarily speak. In order to reduce administrative costs for companies, the EU introduced a so-called One-Stop-Shop (OSS), allowing businesses to deal with their VAT declaration and payments in only one Member State, thereby avoiding multiple VAT registrations in the EU for cross-border transactions. Separately, an Import-One-Stop-Shop (IOSS) was created, for when goods are dispatched from outside the EU. As of July 2021, the VAT (I)OSS covers B2C supplies of services and distance sales of goods. In its VAT in the Digital Age initiative, the Commission proposes to improve and expand the existing systems of OSS and IOSS, so that more types of transactions can be covered. In particular, the European Commission proposes to expand the OSS to deal with the transfer of own stock (e.g. businesses moving their stock from one Member State to a warehouse in another Member State) in order to be sold there directly to consumers at a later stage.

  • The Commission proposes to update VAT rules relating to passenger transport and short-term accommodation platforms. The platform economy has introduced new business models that blurry the divide between taxable persons and private individuals. Often, private individuals offering services through the platform economy model are unaware that they may be liable to charge and collect VAT. They may also have difficulties in understanding the complex VAT rules, leading to mistakes, disputes and losses in tax revenue. This can lead to a situation of VAT inequality between private individuals and taxable persons (e.g. accommodation platform model competes directly with the hotel sector, and the passenger transportation platform model competes directly with private taxi firms). Under the Commission's proposal, a 'deemed supplier model' would be introduced whereby the platform economy operators would become responsible for automatically charging and collecting VAT (unless the service providers are already doing this themselves).

  • As a third part of the VAT in the Digital Age initiative, the Commission proposes to introduce digital real-time VAT reporting based on e-invoicing into the EU. Member State are estimated to have lost €93 billion in VAT revenue in 2019, with a substantial share due to criminal activities, such as cross-border VAT carousel fraud. Through the introduction of digital VAT reporting through e-invoicing, the Commission aims to provide Member States with sufficient information to track cross-border transactions and the amount of VAT they should collect. National tax administrations will work together and share the data from the e-invoices via a new IT system so as to detect instances of VAT fraud immediately.

The proposal requires unanimity in the Council for its adoption, following consultation of the European Parliament and the European Economic and Social Committee (special legislative procedure).

In the European Parliament, the proposal was assigned to the Economic and Monetary Affairs Committee (Rapporteur: Olivier Chastel, Renew, Belgium). The Parliament's (non-binding) report was adopted in plenary in November 2023. The Parliament's report expressed strong support for the objectives of the proposal. However, in order to provide a more flexible system, the Parliament's report increased the maximum time for businesses to report the invoice data to the tax authorities and shortened the list of data to be reported. 

In November 2024, the ECFIN-Council reached a general approach on the proposal:

  • The Council supported the introduction of an EU digital VAT reporting requirement for intra-EU B2B schemes by 2030. Existing national systems should become interoperable by 2035.
  • The Council further expanded the One-Stop Shop (including towards transfers of own goods) and extended the number of situations where the use of the reverse charge mechanism becomes mandatory.
  • The Council supported the introduction of a 'deemed supplier' model for online accommodation rental and passenger transport services. However, Member States were given the possibility to exempt supplies made by SMEs.

Due to the many changes compared to the original proposal, the Parliament will need to be 'reconsulted', before Council can formally adopt the proposal.

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Further reading:

Author: Pieter Baert, Members' Research Service, legislative-train@europarl.europa.eu

As of 24/01/2025.