On Dec. 8, the European Commission proposed sweeping changes to the VAT system. These changes are part of the "VAT in the Digital Age" package and include three proposals, which we briefly and broadly explain below.
The European Commission's objective with these proposals is to modernize the European VAT system. By making greater use of the technological possibilities of the present time, the burdens associated with declaration and reporting obligations, as well as the costs of VAT fraud, can be reduced.
The three pillars in the proposals
The European Commission's proposals consist of three pillars, namely:
- One central VAT registration;
- The VAT treatment of the platform economy;
- Digital reporting requirements.
Below we explain these pillars in more detail.
One central VAT registration
Since July 1, 2021, new VAT regulations have been introduced in the EU regarding e-commerce. Under these new rules, (among others) certain types of services as well as distance sales of goods to private individuals (B2C) in the EU can, under certain conditions, be settled through one central VAT registration: the so-called One Stop Shop (OSS). By using the OSS system, VAT due in other EU member states will be declared and paid through a single declaration. The European Commission is now proposing to expand this OSS system as of Jan. 1, 2025. The proposal includes the following plans:
- The existing OSS system will be extended. Under this extension, domestic B2C supplies of goods in other EU member states and some other specific supplies (including installation supplies, supply of gas/electricity etc., supply of margin goods and supply of goods on board ships etc.) can also be processed in the OSS declaration, if the supplier does not have a VAT identification number in the relevant member state;
- VAT traders are now in principle still faced with additional VAT registrations if they transfer their own goods to another Member State. The proposal aims to put an end to this, by offering the possibility to settle such transfers via the OSS declaration as well (this therefore also applies to entrepreneurs outside the e-commerce sector);
- Currently, Member States have a specific regime (subject to conditions) for the transfer of goods under a so-called "call-off stock" regime. As a result of the aforementioned change with respect to the transfer of own goods, this specific regime has become redundant. Therefore, under the current proposals, this specific regime will be terminated as of January 1, 2025. For existing arrangements (made before January 1, 2025), there will be a transitional arrangement of one year (thus max. until December 31, 2025);
- A mandatory reverse charge mechanism is introduced for domestic B2B supplies, if the supplier is not established in the country of supply, while his customer has local VAT registration.
VAT treatment of the platform economy
As of July 1, 2021, a package of measures has also been introduced that aims to simplify VAT treatment in the so-called "platform economy. Under the current regulations, platforms/marketplaces - which are involved in certain electronic services and/or B2C supplies of certain goods (non-EU goods with a value of up to €150 or EU goods sold by non-EU suppliers, as the case may be) - can be regarded as the supplier by fiction or held responsible for the payment of VAT: the so-called 'platform fiction'.
The second proposal includes a package of measures to expand this platform fiction. The European Commission therefore proposes the following changes, effective Jan. 1, 2025:
- The operation of the deemed supplier concept is extended. Pursuant to this extension, all supplies of goods in the EU via a platform will in principle fall under the 'platform fiction', making platforms even more responsible for the payment of VAT on supplies via their platform;
- This extension will also cover the transfer of a supplier's own goods, for example, if a supplier transfers its goods to a central warehouse of a platform in one of the member states;
- In addition, this extension of the concept of 'deemed supplier' will also apply to a broader category of services if the underlying service provider does not charge VAT (for example, because it is a private individual or a company covered by the exemption for small entrepreneurs). In particular, this concerns services in the area of 'short-term rental of accommodation' and 'passenger transport';
- The IOSS regime for the import of goods with a value of up to €150 will become mandatory for platforms/markets that are considered suppliers under the platform fiction;
- Measures are being taken to combat misuse of IOSS numbers.
Digital reporting requirements
The last pillar we discuss here relates to digital reporting requirements. This proposal has the most far-reaching impact on a very large group of companies and includes proposals in the areas of electronic invoicing on the one hand and digital reporting (near real-time) on the other.
Electronic billing:
- The EU will move to a requirement for electronic invoicing in phases over the next few years;
- From January 1, 2024, member states will have the option to introduce their own measures around electronic invoicing. If they choose to do so, however, the measures must be based on standards prescribed by the EU. To this end, the requirements for digital invoices will (partially) change;
- As of January 1, 2024, member states must allow digital invoicing (in accordance with the new standards) in any case. Member States may not impose additional conditions (such as pre-verification with the local tax authorities). With respect to Member States that currently already impose such additional conditions (to verify digital invoicing in advance) may maintain them until January 1, 2028;
- As of Jan. 1, 2028, digital invoicing will become the standard throughout the EU. With regard to B2B supplies and services within the EU, digital invoicing will become mandatory from that date. In those cases, the invoice must be issued within two business days after the performance has taken place. For other supplies (i.e. other than B2B supplies/services within the EU), Member States will continue to have the option to allow paper invoicing.
Digital billing:
- The declaration of intra-Community supplies (declaration ICP) as we currently know it will expire as of Jan. 1, 2028;
- A digital reporting requirement will replace the Statement of CPI in which a transaction-by-transaction breakdown should be made for B2B supplies and/or services within the EU. This obligation will also be introduced on January 1, 2028;
- This accrual-based digital report must be provided within two business days of the issuance of the invoice (i.e., the deadline by which the invoice should have been issued);
- Member states are given the option to introduce this reporting requirement for other supplies (such as local supplies/services and/or B2C supplies/services) as well;
- There will be a (new) central European VIES database, which will store all data provided through these digital reports. This database can be used by member states to perform checks;
- All member states must ensure that their current systems are adapted to this new harmonized European system (a local database that can be used to "feed" the central European database) by January 1, 2028.
Importance for practice
The current package of proposals includes a large-scale change to the current VAT system, particularly with regard to invoicing and reporting obligations. We would like to explicitly stress that at this point in time, these are still proposals. These proposals still need to be approved (unanimously) by the European member states before they will enter into force definitively. The timeframe that the European Commission has in mind for this can be called very ambitious.
Thus, despite the fact that it is not yet certain whether this package will be (fully) adopted in its current proposed form and whether the intended implementation dates will remain intact, the proposed changes are of such magnitude that it is important to start preparing for them in the short term. After all, the proposed changes involve major changes to your administration/ERP system.
In early 2023 we will organize a seminar in which we will explain the proposed changes in more detail. We will send out invitations for this. In the meantime, do not hesitate to contact us to discuss the impact on your organization. You can reach us via phone number 040-2 504 504 or via btw@govers.nl.