VAT in the Digital Age: Major European Commission proposal for digital reporting requirements, e-invoicing and e-commerce platforms

On 8 December 2022, the European Commission issued its VAT in the Digital Age proposal, defining the core areas where European VAT might be modernized in the coming years. The most important reforms are expected to enter into force in 2025 and 2028. These changes aimed to:

• Decrease VAT compliance costs for businesses,
• Reduce market fragmentation linked to the diversity of digital reporting obligations currently emerging in the EU
• Fight VAT fraud
• And improve legal certainty.

We will highlight the most important changes of this complex and comprehensive proposal.

Interested persons can provide their feedback to the Commission, during a period of eight weeks that will start as soon as documents are published in all EU languages in the following days. The feedback period will end in February 2023, even if the precise date is yet unknown.
 

E-invoicing and (near) real-time reporting coming in 2028

The most ambitious and important change will be the obligation to issue structured e-invoices for all B2B intra-EU supply of goods and services within two working days after the chargeable event (typically the delivery of the goods or the completion of the service).

Starting in 2028, the goods or services supplier will have to transmit an extracted dataset from these invoices to an electronic portal of its national VAT authorities in (near) real time (i.e. two working days).

Similarly, a purchaser of goods in intra-community acquisitions will also be similarly obligated to transmit information for transactions where the domestic reverse charge would apply (see below, under Other changes).

VAT authorities will also have the possibility to enrich the data from these intra-EU transaction reports with other data sources like the Customs Surveillance system or the future Central Electronic System of Payment information (CESOP) that would enter in force as from 2024. This new digital reporting would make the European sales and services listing made redundant, and it would thus be abolished. The European Commission also proposes that future domestic e-reporting will be based on the EU model.

In this new reporting model, the definition of e-invoices will evolve to be “an invoice that has been issued, transmitted and received in a structured electronic format which allows for its automatic and electronic processing.” E-invoices will be based on the European standard EN 16931. In practice, reference is also made to PEPPOL BIS Billing 3.0 (OpenPeppol’s CIUS – Core Invoice Usage Specification w with EN 16931 as the underlying specification. As a reminder, PEPPOL is already the mandatory standard for B2G e-invoicing in Luxembourg. The new requirement would be a structured e-invoice format (XML, UBL, PDF/Q3, etc.) and not PDFs.

As of 2028, the standard process for issuing B2B intra-EU cross-border invoices would thus be a structured electronic format. Member States would still be allowed to foresee exceptions to this, but only for domestic transactions, as all other transactions would be subject to the e-reporting.

Although no obligation yet is created for such domestic transactions, Member States who would like to impose such an obligation would need to respect the EU standard format.

VAT invoices will have to include additional information:

• The supplier’s bank account IBAN to which the payment for the invoice will be made,
• The due date(s) for payment of the invoice,
• And, in case of corrective invoices, the corrected invoice’s sequential number.

The (near) real-time reporting removes the possibility to issue summary invoices covering multiple supplies during the same calendar month; this process change might be more complicated for by some businesses.

These reforms could allow Member States to recoup €11 billion of VAT revenue every year, while businesses would be able to save €4.1 billion a year in compliance costs. However, they would also require significant systems and process changes and investments from VAT authorities and all businesses engaged in cross-border trade within the EU. Implementation costs are estimated to total €11.3 billion for businesses and €2.2 billion for VAT authorities.

For businesses, these changes would certainly imply challenges, but, if properly implemented and managed, could also accelerate invoicing and thus benefit their cashflow and cost savings.
 

Additional liabilities for platforms coming in 2025

Other important changes relate to the platform economy.

Platforms are already subject to the “deemed supplier” regime when they facilitate B2C transactions on goods made by non-EU based sellers. Under this regime, the platform is deemed to have purchased and resold the goods and is thus liable to pay the VAT due on the transaction.

This regime would be extended to three new types of transactions facilitated by platforms:

1. All supplies of goods facilitated by platforms either performed by EU or non-EU sellers regardless of whether the purchaser of the goods is or not a VAT-taxable person. It would thus cover both B2C and B2B supplies of goods.
2. Passenger transports and short-term accommodation defined as those of less than a period of 45 uninterrupted days with or without ancillary services. These services represent around 70% of all services facilitated by platforms. This is why a first round the deemed supplier regime will apply to them, but all services facilitated by platforms will one day be in scope of this rule in a trend similar to the one for supply of goods.
3. Movement of goods belonging to third-party businesses between Member States before a transaction (i.e. when the goods are still the businesses’ “own goods”). This could be the case when a business moves goods between a warehouse in Member State A to a warehouse in Member State B before selling the goods clients established in that second Member State.

As a deemed supplier, the platforms would need to collect and remit VAT of the Member State where the transaction is taxable. This could be done via a local VAT number or the One Stop Shop (OSS) portal.

Lastly, the platforms would also be obligated to use the Import One Stop Shop (iOSS) portal to pay the VAT when they facilitate the import of goods with a value of less than €150 from non-EU countries; this is currently optional. When the value of the goods exceed €150, the VAT would be paid under the traditional custom procedure.
 

Single VAT registration

For VAT, the single registration means that, for a business not being obligated to register in a Member State other than the one of its establishment, it has to pay VAT in other Member States on some of its transactions. This could be done with the OSS and iOSS. The use of the OSS portal would probably increase for two reasons: first, the number of cases where platforms would be liable to pay the VAT in different Member States on transactions they facilitate, and second, the possibility to use OSS for all B2C supplies and cross-border sales of second-hand goods, works of art, collector’s items and antiques which would become taxable at destination. As mentioned above, the iOSS portal would become for platforms facilitating import of goods of less than € 150.

Unfortunately, despite clear requests of the participants to the public consultation organized by the European Commission, the proposal does not foresee that the OSS portal would also allow business to deduct VAT incurred abroad. This implies that businesses will still have to introduce a VAT refund claim pursuant to Directive 2008/9 which often delays reimbursement. This is a major drawback of OSS and explains why some businesses may prefer to register for VAT to prevent reimbursement delay for VAT incurred on their costs.
 

Other changes

As of 2025, the so-called domestic reverse charge for non-established suppliers will become a mandatory mechanism when the client is a registered VAT person. This would affect transactions such as supply of goods with installation, assembly or services linked to a property. Non-established suppliers would thus save the burden and costs of foreign registrations.

Another simplification and saving would be the possibility for businesses to use the One Stop Shop mechanism for moving and selling goods outside their home country beginning in 2025 – for example, if the business has a call-off stock in another Member State that could be immediately provided to its clients.

This proposal will now have to be voted by the EU Parliament and adopted unanimously by the EU Council of Ministers. This complex legislative mechanism may delay its entry in force and imply some changes. Due to the complexity of the questions and solutions at stake, and the importance of the underlying issues, it is imperative for concerned businesses to carefully review the proposal and provide the Commission with feedback in early 2023.

The Deloitte Luxembourg indirect tax team remains at your disposal to discuss the potential impacts of this topic for your organization.