VAT in the Digital Age - What is It?

This is a comprehensive VAT in the Digital Age (ViDA) guide covering the following topics.

• What ViDA is
• Why is VAT in the digital age necessary in the EU
• What ViDA means for electronic invoicing, digital reporting requirements (DRR)
• Platform economy
• Single VAT registration
• VAT in the digital age timelines
• How Unimaze can help you implement ViDA

Let’s get started.

ViDA is an acronym for VAT in the Digital Age. The term refers to a set of regulations by the EU Commission to help member states deploy systems that can handle emerging VAT challenges in the digital economy.

The traditional European VAT system does cater to the needs of the ever-growing digital economy.

The European Commission formulated VAT in the Digital Age to amend the current VAT system to address the challenges of digitalization in EU member states.

By introducing ViDA, the commission aims to eliminate VAT fraud for cross-border transactions. Authorities analyze intra-EU trade transactions months after they’ve occurred, making it harder for EU member states to prevent tax evasion.

ViDA seeks to bridge the VAT fraud gap in the European Union. According to stats, the EU grapples with over €93 billion in VAT fraud.

ViDA affects businesses operating in the European Union. It applies to any business selling goods or services to EU customers based in or outside the Union.

The proposed rules apply to intermediaries and online marketplaces, enabling sellers and buyers transactions.

ViDA revolves around three main proposals.

1. Introduce a common, standardized Digital Reporting Requirement (DRR) and e-invoicing on intra-EU transactions.
2. Clarify current rules and improve the role played by platforms in VAT collection. That way, member states can deal with platform economy challenges in the short-term accommodation rental and passenger transportation services.
3. Expand the One Stop Shop (OSS) scope to reduce registration requirements in the European Union and B2B transactions reverse charge application.

These proposals will become effective between 2024 and 2028.

The proposed VAT initiative will be implemented in phases as follows.

1. Electronic Invoicing

By January 2024

• Member states can implement e-invoicing mandates without seeking permission from the European Commission.
• The e-invoices must comply with the European Standard EN 16931 applicable to B2G transactions.
• The recipient’s consent won’t be necessary to issue an e-invoice which is currently the situation for B2B and B2C transactions in most EU countries.

By January 2028

• Electronic invoices will be a standard for all transactions. While member states can still allow paper invoices, electronic invoicing for intra-community goods and service supplies will be mandatory.

2. Digital Reporting Requirements (DRR)

By January 2028

• The digital age VAT proposals will give way to the implementation of a new Digital Reporting System for intra-community transactions, helping close the VAT gap and fight trader fraud.
• The DRR for intra-EU transactions will apply to transactions covered in recapitulative statements. It’ll also cover goods and services suppliers governed by the domestic reverse charge mechanism as article 194 of the EU VAT directive.
• Businesses will transmit transaction data as per the current recapitulative statements. However, the data will be more detailed instead of relying on information aggregated by the customer.
• Businesses will transmit data electronically via the systems provided by each member state on a transaction-by-transaction basis.
• Businesses can transmit data according to the European Standard EN 16931. However, EU member states can allow other formats if their interoperability aligns with the European standard.
• A taxpayer can transmit transaction data or have a third party do it on their behalf.
• Member states can implement DRR for domestic suppliers of goods and services similar to the mandate applicable to intra-EU transactions.

3. Platform Economy

By January 2025

• The VAT in the Digital Age proposes facilitation services offered by platforms to non-taxable persons that qualify as intermediary services. Currently, member states perceive these as electronically supplied services.
• The deemed supplier regime will take over in the accommodation and passenger transport sectors. Suppliers of intermediary services will not charge VAT. Instead, the platform will charge and assume VAT reporting obligations.
• Vida proposes the extension of the deemed supplier for platforms to all B2B and B2C transactions currently performed by EU and non-EU members.
• IOSS, which is currently optional, will become mandatory for platforms for particular goods imports to EU consumers enabled by the systems.

4. Single VAT Registration

By January 2025

• The EU’s One-Stop-Shop will be extended to cover B2C goods supplies, including:
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• Taxable businesses operating a margin model for second-hand goods may choose to register under the EU’s OSS to declare and pay VAT for cross-border supplies.
• The reverse charge for B2B supplies will become mandatory.
• The call-off stock simplification per article 17a of the EU’s VAT Directive will be phased out on 31st December 2025.
• A new OSS that allows for own-goods transfers will be introduced. It’ll cover the transfer of own goods between member states and cross-border goods movement currently regulated by article 17a of the EU VAT Directive.
• The OSS scope for non-EU member states will be extended to cover supply services provided by non-EU suppliers to non-taxable individuals.

Besides helping EU member states fight tax fraud, VAT in the digital age will have the following repercussions.

Real-time Digital Reporting

ViDA will introduce real-time digital reporting powered by electronic invoicing.

Apart from reducing VAT fraud by €11 billion annually, e-invoicing will help businesses cut administrative and compliance costs.

The digital age VAT proposals will also ensure that existing national systems integrate across the EU. In addition, it gives member states the liberty to develop national digital reporting systems for domestic supplies and trade.

Updated VAT Rules

Platform economy operators will be charged with collecting and remitting VAT to tax authorities when their customers don’t, for instance, because they’re an individual provider or run a small business.

The idea is to ensure a similar approach across all EU states. It’ll also introduce fairness between online-based and traditional short-term accommodation and transport services.

In addition, the digital ViDA proposal will simplify things for Small and Medium Operators (SMEs) that must understand and comply with EU VAT legislation in other member states.

Single VAT Registration Across the EU

By proposing to build on the current VAT One Stop Shop model, VAT in the digital age will allow the creation of a single online portal.

That way, online-based shopping companies can only register once for VAT for the entire region. These companies can also fulfill their VAT obligations in a single language.

Based on the timelines above, ViDA will be rolled out starting 2025 to 2028. Some questions that arise regarding how the new proposal will affect your business include the following:

There Will Be New Technology Demands for Businesses

To meet reporting obligations, businesses must implement new technology to handle ViDA's protocols, document exchange, and authentication.

In addition, they'll need to evaluate ViDA's impact on Continuous Transaction Controls (CTC) models.

Many businesses in the EU use multiple ERPs, accounts payable, and billing systems for different needs.

Most of these systems process invoice data on PDF or paper that cannot be easily upgraded to handle the quality and data completeness requirements of strict electronic invoicing and e-reporting.

ViDA, therefore, means businesses will need to modify their systems. Besides upgrading their infrastructure, other changes may include

• Removing the taxpayer's ability to use summary invoices
• Introduce several mandatory fields on invoices
• Redefine what makes an invoice

VAT in the digital age may also mean converting the massive number of PDF invoices in the EU to machine-readable formats.

Further, EU businesses must meet the growing mandatory B2G e-invoicing requirements in most member states and the imminent electronic invoicing in the B2B sphere.

Overall, this implies that EU businesses must partner with service providers like Unimaze to guarantee compliance with the laws and frameworks. Simply ViDA means businesses in the EU will need to overhaul or rethink their invoicing processes and systems.

Certain Business Processes Will Be Impacted

VAT in the digital age will impact all invoicing and related processes. These include accounts receivable and accounts payable processes as well as the IT infrastructure required to support them.

EU businesses must be ready for the digitization paradigm shift that ViDA will introduce.

Businesses Will Need to Reevaluate their Current Technology Partnerships

Businesses that use EDI systems, accounts payable automation, procure-to-pay, order-to-cash, customer communication management, payment solutions, and e-billing must consider how their platform can adapt to ViDA’s e-invoicing and e-reporting requirements.

And because these systems aren’t built to anticipate changes such as the one ViDA will introduce, it’d be best to contact a reliable service provider to help ensure your systems are compliant when the new regulations kick in.

Next Steps

VAT in the digital age revolves around data and business digitization. The initiative aims to converge the current VAT system with the digital age.

By ensuring efficient and fair VAT collection, ViDA will help even the playing field for business while enabling the government to tackle revenue loss.

Further, VAT in the digital age means businesses must prep their ERPs and accounting to handle the eminent mandatory e-invoicing.

Unimaze is a leading electronic business provider with 20+ years in the industry. Working with us will ensure your business will be ready for ViDA regulations and compliance. We offer a suite of innovative solutions ranging from cloud-based e-invoicing software to EDI services and Accounts Payable automation.

Book a meeting with one of our experts to prepare your business for VAT in the digital age or learn more about ViDA.

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