On 5 November 2024, ECOFIN (the European Council on Economic and Financial Affairs) adopted the proposal ‘VAT in the Digital Age’. The new rules are intended to make the levy of VAT in the EU simpler and more resistant to fraud. In this article, our Baker Tilly International network partners in the Netherlands discuss ECOFIN’s decision and the practical consequences of the new rules.
Agreement finally reached after repeated delays due to political disagreement
The ‘VAT in the Digital Age’ proposal (also known as ViDA) dates back to 2022. However, political disagreement led to multiple changes and repeated delays. This is striking because there is broad agreement in Europe about the weaknesses of the current VAT system, which have been the subject of debate for decades.
VAT fraud in particular is a thorn in the European Commission’s side: every year, cross-border tax evasion structures (including ‘carousel fraud’) result in billions in losses for the treasuries of the EU and its member states. Furthermore, the current rules are complex and confront companies with a relatively high administrative burden.
With the package of new policies, the EU now aims to overhaul the VAT system to solve these problems. Although the policy package still has to be presented to the European Parliament for consultation, this ECOFIN decision marks the most important step. We therefore expect final adoption of the proposed measures soon.
Core of the new VAT rules
The new VAT rules will be phased in, meaning that they will come into force in stages. The proposal has been adjusted several times in the past few years. Following the latest changes and the recent consultation, the main elements of the proposal are as follows:
- ‘Deemed supplier regime’ for the platform economy: (online) platforms such as Airbnb and Uber will be required to charge VAT to the end consumer if the service provider (accommodation, transport) does not do so itself. This change will take effect on 1 July 2028, but member states have the option to postpone this date to 1 January 2030.
- E-Invoicing: from 1 July 2030, electronic invoicing will become the general rule in the EU. However, Member States may choose to continue to allow paper invoices, with the exception of a few specific (primarily cross-border) situations. Additionally, the (electronic) invoice for certain transaction types (including intra-Community supplies) must be issued no later than 10 days after the taxable event.
- Digital Reporting: new reporting and invoicing rules to make the VAT system more fraud-resistant will apply from 1 July 2030. In short, from that date onwards, business owners will have to send transaction data to the government, among other things for intra-Community supplies of goods, intra-Community acquisitions and transactions subject to certain reverse charge mechanisms (e.g. intra-Community B2B services).
- Single VAT Registration: to simplify the system, the number of VAT registrations required from businesses is to be reduced. For example, there will be a mandatory reverse charge mechanism for domestic B2B deliveries by suppliers not established and registered in the EU member state of supply to customers registered there for VAT purposes. Additionally, the One-Stop Shop will be expanded to include installation supplies and intra-Community transfers of own goods by businesses. These changes will in principle take effect on 1 July 2028, but member states have the option to postpone this to 1 January 2030.
Aside from these main points, the adjusted proposal contains a number of other changes. Your Baker Tilly advisor can tell you more about this.
Prepare your business for ViDA in time
The most far-reaching changes will not take effect until 1 July 2028 at the earliest. That may seem far away, but don’t underestimate the preparation required. We recommend that (internationally operating) businesses begin preparations early on. For instance, in many cases business processes such as invoicing and ERP configuration will have to be adjusted to comply with the new e-invoicing rules. The new digital reporting requirements will also quite a few business challenges. Implementing the changes properly will often be an expensive and time-consuming matter.
The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.
