Breakthrough at last: EU Member States reach political consensus on the ViDA package

On 5 November 2024, the Economic and Financial Affairs Council (ECOFIN) convened its first meeting under the Hungarian Presidency to address the "VAT in the Digital Age" (ViDA) proposal. After numerous rounds of discussions and collaborative efforts to balance differing national priorities and accommodate specific concerns over the past year, the 27 EU Member States have finally reached an agreement on the package, marking a pivotal step towards modernizing VAT systems across the EU. A European Parliament consultation is still required due to the significant changes with the initial proposal published on 8 December 2022 by the European Commission.

The ViDA proposal contains the European Commission’s vision for how VAT reporting should embrace digital opportunities, recommends changes to the VAT rules applicable to the platform economy and e-commerce, and presents steps to improve and extend the existing schemes reducing the VAT compliance burden for businesses through a single VAT registration in the EU. 

The proposal agreed upon contains a set of measures that have different application dates between 2025 and 2035. The following sections will outline key changes and their respective timelines in detail.

Pillar I: Digital Reporting requirements

The measures suggested regarding the Digital Reporting Requirements (DRR) were already politically agreed on during May’s ECOFIN meeting:

Domestic DRR

• As from the date of entry into force of the Directive change (20 days after its publication in the Official Journal): Member States have the option to introduce mandatory business-to-business (B2B) and business-to-consumer (B2C) e-invoicing without the need to obtain a derogation from the European Commission.
• 1 July 2030: Member States introducing domestic DRR obligations that need to be aligned with the EU standard or other formats ensuring interoperability with the EU standard.
• 1 January 2035: Member States that had already implemented a form of DRR prior to 1 January 2024 (e.g., Italy) or that had received a derogation before that date (e.g., France, Germany, Poland and Romania), should align with the EU standards for their domestic DRR.

Substantial flexibility has been granted to Member States regarding domestic e-invoicing and digital reporting requirements. EU law does not prescribe a single, standardized approach or format for domestic e-invoicing. In the Council Statement, the Council recognized the significant IT and administrative challenges this implementation poses and therefore recommends Member States to introduce digital reporting requirements for domestic transactions to roll out these obligations in consecutive stages, based on taxpayer size and operational capacity.

Intra-EU DRR

• 1 July 2030: e-invoicing would become mandatory for all intra-EU supplies of goods and services, combined with real-time reporting of the data included on the e-invoice to the national tax authorities. The timeframe to issue e-invoices for intra-EU DRR is 10 days and the reporting deadlines for invoicing data would be as follows:
  • Real-time for supplier: at the time the invoice is issued or should have been issued;
  • Near-real time in case of self-billing: no later than five days from the date the invoice is issued or should have been issued; and
  • Near-real time for the recipient: no later than five days as from the date the invoice is received.

Pillar II: the platform economy

During the previous ECOFIN meetings, the Estonian government opposed the ViDA proposal due to concerns about the new deemed supplier regime, which imposes VAT collection responsibilities on platforms facilitating short-term accommodation rentals (30 days maximum) and passenger transport by road. According to the initial proposal, the deemed supplier regime would lead to a VAT liability for platforms on all supplies of such services for which the underlying supplier does not have a VAT liability (e.g., small exempt businesses, occasional providers, private persons). This platform liability arises unless the underlying provider has supplied the platform with a VAT registration number and has declared that they will charge any VAT due on that supply.

This effect has been mitigated significantly by several additional modalities that foresee a large level of flexibility for the Member States when implementing this rule:

• Member States can define criteria, conditions and limitations on what is to be considered as short-term accommodation rental that is subject to VAT.
• Member States are allowed to not apply the deemed supplier regime in case the underlying provider qualifies as a VAT exempt SME.
• The implementation will follow a phased timeline, beginning on 1 July 2028, with mandatory adoption required by 1 January 2030. It is to be expected that several EU Member States will adopt this new regime in a broad and immediate way as from 1 July 2028, while others may choose a more tailored approach that aligns with their local market needs or leverages on learnings from early adopters.

The other suggested changes within the platform economy pillar (i.a. place of taxation of facilitation fees, data retention obligations…) will entry into force as from 1 July 2028.

Pillar III: Single VAT registration

The measures suggested on the Single VAT registration under the ViDA package were also politically agreed on during May’s ECOFIN meeting, although the implementation timelines have now been moved mainly to 1 July 2028:

• Businesses shall be able to declare cross-border transfers of own goods under a single VAT number (OSS) regime.
• The UOSS return shall cover all B2C supplies of goods and services made by a business, including domestic supplies of goods.
• Member States shall be required to implement a domestic reverse charge mechanism for non-established suppliers. This means that if a supplier is not established or VAT registered in the Member State, the VAT responsibility shifts to the customer if it already has a VAT registration number in the respective Member State.

Implications for businesses

The most significant impact for businesses would result from the pilar DRR, where one of the primary objectives of the proposal—namely the aim to harmonise the e-invoicing and DRR framework for domestic and intra-EU transactions—is not realised to the extent initially proposed. Consequently, businesses operating across multiple Member States shall still need to navigate varied models and invest in diverse information technology solutions to fulfil these obligations.

This challenge is compounded by the fact that Member States shall have the option to introduce mandatory B2B and B2C e-invoicing, without the need for a derogation from the European Commission, which could leave businesses with minimal time to plan. On Belgian level, to the extent the Directive change is published in (early) 2025, this will allow the domestic B2B e-invoicing mandate to be introduced as foreseen on 1 January 2026.

It is crucial that businesses proactively prepare by gaining a clear understanding of their footprint and transactions, both for accounts payable and accounts receivable, as well as their systems architectures. This will enable them to develop an implementation roadmap for ViDA readiness with a focus on priority Member States.

The other two pillars of the ViDA proposal bring both challenges and valuable opportunities for businesses. Although implementation deadlines are still some time away, it is crucial for businesses to understand timely the upcoming rules and plan ahead to effectively leverage the reforms for more efficient VAT processes and seamless cross-border activity.

Next steps

The next step involves the European Parliament being reconsulted on the adopted proposal. As political agreement has been reached, we do not expect any further changes. The directive will need to be formally adopted by the Council before being published in the EU’s Official Journal and enter into force. 

The changes in the VAT Directive should subsequently be transposed to national law by the EU Member States. The Implementation Regulation and Council Regulation have direct effect.

How we can help / Further reading

If you have any questions concerning the items in this alert, please contact your usual VAT advisors or the Deloitte contacts below.

For additional reading see links below:

• Pillar I: Digital reporting
• Pillar II: Platform economy
• Pillar III: Single VAT registration