EU’s VAT in the Digital Age: what can we expect? | Deloitte Netherlands

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EU’s VAT in the Digital Age: what can we expect?

In our Q&A we prepare you for the coming proposals with recommendations for the VAT in the Digital Age initiative of the European Commission. We will guide you through what we know so far.

7 December 2022

On 8 December 2022, the European Commission will publish its proposals in the context of the VAT in the Digital Age (ViDA) project. The publication was expected on 16 November 2022 but has been delayed twice. Since then more details of what to expect have seen the light.

We can find useful indications in the final reports published by the European Commission on 21 July 2022 (find the executive summary here), and we will help you to understand the impact of the expected content of the new anticipated legislation and the obligations that have to be fulfilled in this article.

Background

Q: what is the origin of the VAT in the Digital Age initiative?
A: the European Commission has published its 2022 Work Program on 19 October 2021. From a VAT perspective, the main initiative is “VAT in the digital age” (ViDA). It originates from the Commission’s action plan for fair and simple taxation that was published on 15 July 2020.

Q: was November 16, 2022 not the intended date for publication?
A: the European Commission has decided to announce its proposals with recommendations for its "VAT in the Digital Age" initiative (ViDA) on 7 December 2022 instead of 16 November 2022. The supposed reason is administrative issues (link). The announcement was further delayed with one day to 8 December.

Q: what does the ViDA initiative cover exactly?
A: there are three distinct but interrelated areas of VAT policy to look out for, namely

  1. Digital Reporting Requirements (DRRs);
  2. The VAT Treatment of the Platform Economy; and
  3. The Single VAT Registration and Import One Stop Shop (IOSS).

Q: in what form will these proposals be published?
A: for each of the three areas a draft Directive will be published to amend the VAT Directive that will need to be formally adopted by the Council of the European Union and the European Parliament under the ordinary legislative procedures.

Digital Reporting Requirements (DRR)

Q: what is it its aim?
A: modernizing VAT reporting obligations and facilitating e-invoicing as well as a more general push towards digitization and automated VAT reporting and collection via mandatory (government or agent cleared) e-invoicing.

Q: what do we know so far about proposals on Digital Reporting Requirements (DRR)?
A: It appears that e-invoicing will be mandated (i.e. with some form of verification via the government or via certified agents) across EU for all B2B intra-Community supplies. Under the draft Directive all businesses, without any thresholds, so including micro-businesses, will be covered by this new reporting requirement and will need to issue and receive e-invoices for verification for the cross-border supply of goods and services. These e-invoices will not be submitted to the national tax authorities directly (i.e. no-pre-clearance) but instead a sub-set of this invoice data will be reported close to real time (i.e. days) by both the supplier and the customer to the relevant national tax authorities. Tax authorities will then share data with other Member States by reporting it to the European Commission’s new central database.

Q: will there be a EU e-invoicing standard?
A: E-Invoices will need to meet the existing EN16931 European e-invoicing standard in its basis. Work has already started on updating this standard.

Q: why are domestic supplies of goods and services not included?
A: the European Commission was not able to prevail over the Member States with regard to a comprehensive e-invoicing system. This means that national reporting systems will not become mandatory for the Member States. However, the European Commission's requirement will be that national reporting systems must be interoperable with EU standards. Individual Member States can choose whether to implement digital reporting for domestic transactions, but this will not be mandatory under the draft Directive. However, if Member States are introducing new digital reporting requirements domestically, they will need to conform to the new DRRs. In other words, if a Member State decides to introduce a domestic DRR, it will also need to mandate domestic e-invoicing, with a subset of the e-invoice data reported by businesses.

Q: what about the existing DRRs in, for example, Spain (SII) and Hungary (RITR)?
A: existing digital reporting and e-reporting requirements must ensure interoperability with the new EU DRRs in the short-term, before eventually fully converging in the medium-term to the full requirements. In other words also existing DRRs need to move in the EU DRR direction and be updated to these full requirements.

Q: what is the future of the EC Sales Lists in all this?
A: EC Sales Lists or recapulative statements will be removed and replaced by a new EU tax return for intra-EU transactions, a new DRR. The existing periodic summary of intra-EU sales will be replaced with (close to) real-time transactional level digital reporting by both parties.

Q: how much are Member States to recoup every year after the introduction of e-reporting systems?
A: according to Commissioner Gentiloni in his speech at the first EU Tax Symposium on 28 November 2022 better use of IT is very promising in this field. The analysis of the European Commission suggests that the introduction of e-reporting systems will allow Member States to recoup 11 billion euros more every year over the next ten years in currently uncollected VAT revenues.

The Netherlands

Q: what does The Netherlands do with e-invoicing/real time reporting?
A: currently, nothing apart from B2G e-invoicing, which has been mandatory since 2020. Earlier this year we pleaded for tax digitization in the Netherlands as this country has been broadly lagging behind for years. Recently questions have been asked by the political party VVD on the preparation of The Netherlands in view of the VAT in the Digital Age proposals as The Netherlands will need to take action in the coming two to three years.

Q: do other EU Member States struggle with implementing e-invoicing as well?
A: Germany, which is in quite a similar position as The Netherlands, has decided to apply for temporary departure from Articles 218 and 232 of VAT Directive to impose mandatory electronic invoicing on certain B2B transactions. No implementation date has been set. Ostensibly, this is because the German Ministry of Finance (BMF) wishes to have more details of the EU e-invoicing plans to ensure the interoperability of a possible German reporting system. Gaining permission can take up to one year.

Q: what is the timeline for the proposed changes?
A: the likely date for the implementation and adoption of the new e-invoicing rules is 1 January 2025. The system changes required for the new DRRs need more time to implement and go-live. The likely date set is 1 January 2028.

VAT treatment of the platform economy

Q: what is it its aim?
A: adapting the VAT framework to the platform economy.

Q: How should the VAT Directive be modified to capture the new dynamics created by platforms and marketplaces, including imposing full deemed supplier VAT obligations on platforms as with 2021 e-commerce rules for goods?
A: it is expected that there will be improved definitions and clarifications of the parties involved and roles in the digital marketplace sphere.Eventual extension of the deemed supplier VAT obligations to accommodation sharing and transport economies platforms. But this measure is highly complex, with some tourist-popular states pushing for the full liability model for platforms. This makes any implementation timing difficult to predict.

Single EU VAT registration

Q: what is it its aim?
A: further extending the scope of the One Stop Shop (OSS) and the Import One Stop Shop (IOSS).

Q: can the OSS registration be extended to more transactions in order to reduce the VAT registrations and reporting burden?
A: in the first place, the OSS return will be extended to include traditional cross-border services where the seller is not resident in the Member State of the consumer. Further, OSS is extended to the transfer of own stock prior to B2C e-commerce sale (B2B2C transactions). This in order to avoid the number of costly VAT registrations for e-commerce sellers. Also, regarding domestic supplies to consumers, where this is facilitated by a marketplace, the marketplace will become the deemed supplier. The seller will use OSS to report the zero-rated taxable acquisition to the marketplace. B2B transactions under the scenario would be zero-rated for VAT.

Q: what are the expected modifications of the IOSS?
A: the current €150 consignment threshold for imported B2C sales is expected not to be raised or abolished in the near future. Most likely, this change will be postponed until the Customs processes are modified. IOSS will be mandated for marketplaces and sellers in order to combat fraud and errors.

What more can be expected?

Q: what more can we expect on 8 December 2022?
A: We understand that the proposal for the DAC8 Directive will be published by the European Commission which will make it mandatory for digital platforms to verify and report information of e-money and crypto currency sellers active on their platform to the tax authorities.

On 10 October 2022 the OECD published its Crypto-Asset Reporting Framework (“CARF”), as well various amendments to the Common Reporting Standard (“CRS”), in order to align the two. Under the proposed rules, a broad range of intermediaries that provide services relating to crypto-assets will be required to exchange data with the tax authorities. The goal of the proposal is to increase tax-transparency on crypto-assets. Although the proposal does not yet include key deadlines and is yet to be proposed, it is likely to be the foundation for the DAC8 legislation that is currently being developed by the European Commission. Read more about CARF and CRS in this alert.

VAT Gap Report

Q: what is the VAT Gap Report?
A: This report is published annually and provides details about the so-called VAT gap. This VAT gap seeks to estimate the difference between tax forecasts and actual receipts of VAT. The VAT losses can be explained by i) liquidations of companies owing VAT; ii) administrative inefficiencies at the tax authorities, iii) VAT structure optimisation; and fraud.

Q: what do we know so far?
A: we understand from Commissioner Gentiloni in his speech at the first EU Tax Symposium on 28 November 2022 that EU Member States lost €93 billion in 2020 in VAT revenues based on the European Commission’s latest ‘VAT Gap’ estimate. IN 2019 the VAT Gap was €136 billion (including the UK). Detailed figures will be published on 8 December 2022, which will exclude obviously the numbers for the UK due to Brexit.

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