Tax Flash No. 4/2022 – The European Commission proposes the update of the VAT Directive – “VAT in the Digital Age” legislative package
13.12.2022 – The European Commission proposes the update of the VAT Directive – “VAT in the Digital Age” legislative package
On 8 December 2022, the European Commission (EC) published the proposal for a Directive amending Council Directive 2006/112/EC on the common system of VAT.
The proposal has three (3) main measures aiming to combat tax fraud, ease VAT compliance and address the VAT challenges of the platform economy, by embracing and promoting digitalization.
Important to note: to become law, the proposal must obtain the unanimous vote of all EU Member States. Considering the recent experience with ambitious EU tax law proposals, this exercise may prove difficult. Especially since several EU Member States initiated own VAT digital reporting mechanisms, some of them divergent with those proposed now.
Our reasonable expectation is that the proposal will be adopted swiftly (even during 2023) with rather minimal changes given the juicy benefits compared to costs.
If adopted, the proposed measures will be phased in between 2024 – 2028 (this timeline may suffer changes depending on the moment when the proposal is adopted).
In Romania, the adoption of this proposal may impact the domestic RO e-Factura system as Romania is waiting to obtain the approval of the EU for this system (expected to happen somewhere in 2023, with effect from 2024). It may be that the EU will not endorse Romania’s request before the adoption this proposal.
The 3 main measures provided by the proposal are:
- Electronic invoicing (“e-Invoice”) and digital (almost) real-time reporting for intra-EU transactions (Digital Reporting Requirements – DRR), with the purpose to standardize the information that taxable persons must submit to the tax authorities for each transaction, providing the authorities with the important needed information to step up the fight against VAT fraud.
The e-invoicing would:
- mean an invoice that has been issued, transmitted and received in a structured electronic format which allows for its automatic and electronic processing.
- in principle need to be issued on a transactional basis.
- be based on the EU e-invoicing standard EN16931 set up in Directive 2014/55/EU on electronic invoicing in public procurement (n.b. used also in the Romanian e-Factura).
- no longer depend on the acceptance of the recipient.
- not be conditional on a prior authorisation or validation by the tax authorities in order to be sent to the recipient. Several EU Member States have been granted a special measure to apply mandatory e-invoicing, where such clearance systems have been implemented. These systems can only be applied by those Member States up to 1 January 2028, ensuring the convergence with the (now proposed) EU mechanism.
- need to contain more information than what is required today: the new information is the supplier’s bank account IBAN to which the payment for the invoice will be made, the due date(s) for payment of the invoice and, in case of corrective invoices, the corrected invoice’s sequential number.
The DRR system for intra-EU transactions:
- will cover all intra-EU supplies and acquisitions of goods and services. In addition, the DRR will also cover operations subject to a ”so-called” domestic reverse charge for non-established suppliers (currently provided by art. 194 of the VAT Directive), which will become a mandatory mechanism as of 2025 (Romania opted to transpose this mechanism at art. 307 para. (6) of the Tax Code, although there are certain differences).
- will replace recapitulative statements (in Romania, Forms 390) and will be based on the e-invoicing.
- the information has to be transmitted on a transaction-by-transaction basis (the deadline is 2 days after the invoice is issued).
- the transmission of the data has to be carried out electronically by the taxable person or by a third party on their behalf.
- the information transmitted is mostly the same as the one that currently has to be submitted in the recapitulative statements but detailed for each transaction.
The digital reporting reform is only partial, leaving the reporting of domestic transactions to EU Member States. Thus, the proposed amendments allow (by option) Member States to set up a reporting system for local supplies of goods and services. However, if an EU Member State decides to put in place a reporting system, such system will have to comply with the features of the EU DRR.
The EC will set up a central system for the exchange of VAT information (“Central VIES”) the manage the data collected via the DRR. This system will update the current VIES, having significantly more capabilities: store and crosscheck the data transmitted on intra-EU trade, integrate data per VAT ID number to make it available to national tax authorities, and corelate the data from the intra-EU transaction reports with other data sources like the Customs Surveillance System or the future Central Electronic System of Payment information (CESOP).
- Updating the VAT rules related to the platform economy for short-term accommodation rental and passenger transport
The role of platforms in the collection of VAT is enhanced when they facilitate the supply of short-term accommodation rental or passenger transport services.
Thus, the platforms operating in the mentioned fields will be considered to have received and provided those services themselves (“deemed supplier”) and will be responsible for collecting and remitting the related VAT to the tax authorities, when the underlying supplier of the services does not charge VAT, because they are, for example, a non-taxable natural person, a person not established and not registered for EU VAT purposes or a person applying the small enterprises special scheme.
The measure would be applicable from 2025.
- A single VAT registration across the EU
The measure implies:
- Extension of the One Stop Shop (OSS) system for all B2C intra-EU supplies of goods and services. Businesses that sell goods to consumers in another EU Member State would have to register for VAT purposes only once, in a single EU Member State for the entire EU, and to fulfill their VAT obligations through a single online portal, in one language. B2B transactions are not included in the extension of the system.
- Introduction of a new regime for transfers of own stocks to another Member State, which will be available to all taxpayers. Once the new regime for intra-Community movements of own stocks, which requires reporting of intra-Community movements of own stocks in the OSS, becomes mandatory, the call-off stock regime will cease to apply. The exemption will no longer apply to call-off stock arrangements made after 31 December 2024 and will end on 31 December 2025.
- The reverse charge will become mandatory for B2B transactions where the supplier is not established in the EU Member State where VAT is due and the beneficiary is registered for VAT in that Member State.
- Mandatory use of the Import One Stop Shop (IOSS) system for certain platforms that facilitate certain distance sales of goods to EU consumers. However, the ceiling for the use of the scheme is neither increased nor removed, and the relatively reduced amount of €150 is maintained.
The measures would become applicable gradually in the period 2024 – 2025.
The Romanian version of this newsletter is available here.