Digitization is the order of the day and VAT compliance, and functional requirements are no exception to this trend. Automation and digitization are a one-time endeavor that simplifies and streamlines the VAT compliance requirements while also enabling real-time tracking of the transactions that trigger indirect taxes by the authorities.
The latest proposals of the European Union (“EU”) on VAT in the Digital Age (“ViDA”), published on December 8, 2022 are in line with the above concepts. The ViDA initiatives propose to replace the current three-decade-old system and rest on the below key pillars:
- Introduction of uniform transaction-wise digital reporting requirements and exchange of information relating to these transactions as well as the corresponding VAT implications. The above harmonization is expected to result in sealing revenue leakages and simplifying the overall transaction tracking and tax collection systems.
- Structured, mandatory e-invoicing for cross-border intra-community B2B transactions will be the default system for supplies of goods and services. Member states would need to adopt this system by 2028. It is expected that this initiative would bring close to real-time reporting of the above transactions. e-invoices related to intra-community transactions would need to be raised within two working days since the tax point took place. Spain has officially published a law mandating B2B e-invoicing from 2024.
- A deadline of two working days from the date of the e-invoice has been prescribed for digital reporting of intra-community transactions. Additional real-time reporting systems can be put in place by the member states.
- Single EU VAT registrations would do away with the need for businesses to register in multiple member states.
- Guidelines relating to the ‘platform economy’ and their role as facilitators for short-term accommodation, rental, and passenger transport services are part of the ViDA initiatives. The existing ‘deemed supplier’ rule would get extended to the above facilitators also, regardless of the location of the supplier and the nature of the transaction (B2B/ B2C). This would result in the platform operators collecting and remitting VAT to the authorities in instances when the actual suppliers do not.
- Marketplaces that were hitherto ‘deemed suppliers’ of their non-EU principals (sellers) would now assume this role for their EU principals also. The “Import One-Stop Shop” scheme(“IOSS”) would be triggered if they facilitated the sale of imported goods.
- All intra-community transactions would be consolidated on a common EU database which would make the tracking of the same much simpler for the authorities.
- The “Call off Stock” concept would be discontinued effective 31 December 2025, since the “One Stop Shop” (“OSS”) scheme would be extended to movement of own goods; the OSS concept is being extended to e-commerce transactions also.
- The definition of Intra-community distance sales would be broadened to include secondhand goods, artworks, collector’s pieces, and antiques.
From a constraint’s perspective, the ViDA initiatives would need to be embraced by the member states overriding the existing established domestic reporting regimes. Moreover, these initiatives might be perceived as burdensome by the platform operators. The tight timelines might also prove to be cumbersome.
