The European Commission proposed a series of measures to modernize and make the EU’s VAT system work better for businesses and more resilient to fraud by embracing and promoting digitalization on 8 December 2022. The implementation of the measures on the Member States level is expected between 2023-2028.
The Commission’s proposal is built on mainly three pillars:
1. A move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU by introducing Digital Reporting Requirements (DRR), This will standardize the information that needs to be submitted by taxable persons on each transaction to the tax authorities in an electronic format.By establishing a common template, the issues related to the lack of harmonization of domestic reporting systems will be tackled.
● The use of e-invoicing for cross-border transactions will be imposed with a transaction-by-transaction reporting system, and Member States will be provided information in almost real-time.
● Member States will be allowed to introduce mandatory e-invoicing for domestic B2B transactions provided that the same European standard is made available to businesses. Already existing DRRs will have to ensure interoperability with the new EU DRRs by 1 January 2028.
● All businesses will be obliged to be able to issue and receive e-invoices for ICS’s based on EN 16931 for intra-community supplies. This will be a structured e-invoice format (XML; UBL; PDF/A3 etc) and not PDFs. Taxpayers may submit the information directly or via 3rd party. Further data will be added to existing invoicing information including the IBAN (or other identifiers) of the supplier’s account that will receive payment; Payment due date; and invoice correction.
● The definition of electronic invoice in the VAT Directive has changed. When referring to electronic invoices in the VAT Directive, reference will be made to structured electronic invoices. Also, EU Member States will be free to remove the obligation for suppliers to obtain their customers’ approval before issuing electronic invoices.
2. Addressing the challenges of the platform economy, by updating the VAT rules applicable to the platform economy in order to create a level playing field and enhancing the role of the platforms in the collection of VAT when they facilitate the supply of short-term accommodation rental or passenger transport services(Airbnb, Booking.com, Uber-type businesses). Under the new rules, platform economy operators in those sectors will become responsible for collecting and remitting VAT to tax authorities when their users do not, for example, because they are small businesses or individual providers.
3. Avoiding the need for multiple VAT registrations for businesses carrying out cross-border transactions in the EU by improving and expanding the already existing ‘One Stop Shop’ model for online shopping companies. Taxpayers will be able to fulfill their VAT obligations via a single online portal in one single language. Further measures to improve the collection of VAT include making the ‘Import One Stop Shop’ mandatory for certain platforms facilitating sales to consumers in the EU.