ViDA 

On 8 December 2022, the European Commission proposed a package of measures “VAT in the digital age (ViDA)” to modernize VAT in order to modernize the EU's VAT system, make it more efficient for businesses and more resistant to fraud by promoting digitalization. With its proposals to amend the VAT Directive and the VAT Implementing Regulation in particular, the Commission aims to counteract the discrepancy between the 30-year-old VAT regulations and the current digital reality.

Three central pillars in the ViDA draft directive:

ECOFIN Council agrees on adapted ViDA proposals

After unsuccessful attempts in the past, the Economic and Financial Affairs Council (ECOFIN Council) was able to reach unanimity on the European legislative proposals “VAT in the Digital Age” (ViDA) at its meeting on November 5, 2024. The Directive and the Regulation are subject to a special legislative procedure and, due to the significant changes made by the ECOFIN Council, the European Parliament must now be consulted again on the agreed text as the legislative procedure continues. 

According to the current version of the proposals, the timetable is as follows:

More news Vida

+++ Once again no agreement in the ECOFIN Council on adapted ViDA proposals +++

As on 14.05.2024, the Economic and Financial Affairs Council (ECOFIN Council) was again unable to reach an agreement on the European legislative proposals “VAT in the Digital Age” (ViDA) at its meeting on 21.06.2024. The unanimity required for an agreement failed once again due to Estonia, which refused to agree to the planned inclusion of platform operators for short-term accommodation services and passenger transportation despite the improvements. Efforts to achieve a legislative proposal that can be approved are to be continued under the Hungarian Council Presidency in the second half of 2024.

+++ E-invoicing obligation from 01.01.2025 in Germany +++

In order to be able to act independently of the implementation of the legislative proposals on “VAT in the Digital Age (ViDA)”, Germany had applied for a special measure under Art. 395 of the VAT Directive with the aim of being allowed to deviate from the current European regulations on invoicing. The Growth Opportunities Act with the fundamental changes to Section 14 UStG has since been published in the Federal Law Gazette. As of 01.01.2025, electronic invoicing will now become the norm for certain domestic B2B transactions. For invoice issuers, transitional regulations are provided until 31.12.2027, which, among other things, continue to allow the issuing of paper invoices. However, there are no specific simplifications for the invoice recipient. If the supplier wishes to issue an e-invoice in the cases specified by law, the customer's consent is no longer required. Businesses must therefore prepare themselves to be able to receive e-invoices from 01.01.2025. 

Information about ViDA

Digital reporting system and e-invoicing
The introduction of digital reporting obligations to the tax authorities and the expansion of electronic invoicing are intended to modernize VAT reporting obligations in gradual steps. Until now, the issuing of electronic invoices has been dependent on the acceptance of the recipient. From 2024, Member States may stipulate that invoices must be issued electronically, while from 2028, electronic invoicing will be the standard and the use of paper invoices will only be the exception. According to the proposals, invoices for intra-Community supplies and other cross-border B2B transactions subject to the reverse charge mechanism should then be issued within two working days of the transaction taking place from 2028. 

The recapitulative statement is also to be replaced in its current form from 2028. For intra-Community supplies, intra-Community acquisitions and other cross-border B2B transactions that are subject to the reverse charge mechanism, a corresponding electronic report is to be submitted to the tax authorities within a further two working days of invoicing.

Modernization of the VAT system
The need for multiple VAT registrations within the EU is to be avoided. The goal of a so-called single VAT registration is to be achieved by expanding the existing reporting systems of the one-stop shop (OSS and IOSS) combined with the expansion of the so-called reverse-charge procedure. These changes are to apply from 2025 and are intended, among other things, to enable the fulfillment of reporting obligations in view of the consignment stock regulation of Art. 17a VAT Directive (or Section 6b UStG), which expires throughout Europe on 31.12.2025.

Extended inclusion of online platforms
The requirements for the so-called (internet) platform economy will be updated with regard to the location of transactions and the increased inclusion of platforms in VAT collection in the area of short-term rental of accommodation or the provision of passenger transportation services. To this end, from 2025 onwards, a tax-exempt supply by the service provider to the operator of the electronic interface would be fictitious and, at the same time, a corresponding supply of services by the interface operator to the customer would be assumed. This turnover would then be regarded as taxable and the interface operator would have to charge the customer VAT.

What are the effects of this?

The entry of the planned changes into force is subject to approval by the EU member states. Should the proposals be implemented unchanged or, as the case may be, only slightly adjusted, they would result in fundamental changes - also in German VAT law.

In view of the so-called single VAT registration, companies operating in the cross-border B2B sector could benefit from the elimination of VAT registrations abroad and the associated costs. The same applies to companies that operate as online traders and sell their services via online marketplaces. However, the complexity of the proposed changes requires a detailed analysis of the business transactions to determine whether, on the one hand, it is possible to benefit from these simplifications and, on the other hand, how this affects other business activities locally, e.g. with regard to the claiming of input tax amounts.

In Germany in particular, in addition to the extensive introduction of electronic invoices and shortened deadlines for invoicing, there would also be extremely short-term reporting obligations to the tax authorities. In addition to the tax authorities, the majority of entrepreneurs could also be affected by a significant need for conversion. Affected companies would have to ensure, among other things, that their data situation allows such short-term invoicing and that this can be created in electronic form in a compatible manner to their IT or ERP systems. Accordingly, the necessary readiness to receive incoming electronic invoices would also have to be ensured. In addition, the IT adjustment for the transmission of digital reports to the tax authorities has to be ensured.

Companies should therefore promptly examine the extent to which their business model would be affected by these measures in order to be able to estimate the need for and expense of conversion.

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