ViDA - VAT in the Digital Age

On 08.12.2022, the European Commission proposed a package of measures "VAT in the digital age (ViDA)" to modernise VAT in order to make the EU VAT system more efficient for businesses and more fraud-resistant by promoting digitisation.

With its proposals, in particular to amend the VATyst Directive and the VAT Implementing Regulation, the Commission aims to address the discrepancy between the 30-year-old VAT rules and the current digital reality.

What is ViDA about?

The draft directive provides for three key areas of action ("pillars"):

the extension of electronic invoicing, as well as the introduction of digital reporting obligations
the concept of a single VAT registration to avoid a multitude of local registrations in the member states, and
the extension of the supply chain fiction for online marketplaces involved in the short-term rental of accommodation or the provision of passenger transport services.

What does this mean?

Through the introduction of digital reporting obligations towards the tax authorities as well as the expansion of electronic invoicing, a modernisation of VAT reporting obligations is to take place in gradual steps over time. Up to now, the issuing of electronic invoices has been dependent on the acceptance of the recipient. From 2024, Member States may provide that invoices are to be issued electronically, while from 2028 electronic invoicing is to be the standard and the use of paper invoices only the exception. According to the proposals, from 2028, invoices for intra-Community supplies and other cross-border B2B transactions subject to the reverse charge should be issued within two working days of the transaction.

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

The necessity of multiple registrations under VAT law is to be avoided within the EU. The goal of a so-called one-stop VAT registration is to be approached through an expansion of the existing one-stop reporting systems (OSS and IOSS) combined with the expansion of the so-called reverse-charge procedure. These changes are to apply from 2025 and are also intended, among other things, to enable compliance with the reporting obligations in view of the Europe-wide consignment warehouse regulation of Art. 17a VAT Directive (or § 6b UStG) expiring on 31.12.2025.

The requirements for the so-called (internet) platform economy will be updated with regard to the determination of 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 transport services. For this purpose, 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 invoice the customer for the turnover tax.

Timeline

Main Contact

Nils Bleckmann

Partner

Lawyer, Certified tax advisor

Germany

+49691338456615

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Contact

Anton A. Appel

Lawyer

Attorney-at-law (Germany)

Germany

+ 49 162 2444 940

Contact

Conceição Gamito

Portugal

(+351) 21 311 3400

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.

Updates and news on ViDA

The German tax authorities, together with the legislator, are aiming for mandatory electronic invoicing for certain business transactions as early as January 1, 2025. The amended requirements show clear parallels to the European Commission's proposed directive "ViDA - VAT in the Digital Age".

Mandatory electronic invoicing in Germany