Digital age VAT in the EU – reforms on the way

The EU is proposing changes to reduce VAT compliance cost and the administrative burden of cross-border trade within the EU.

There will be a mandatory reverse charge rule for supplies of goods and services for all intra-Community B2B supplies where:

• The supplier is not established in the Member State in which the VAT is due, and
• The purchaser/recipient is VAT registered in that latter Member State, and
• The supplies do not fall within a margin scheme.

The VAT one-stop-shop (OSS) is to be extended to cover B2C-supplies of goods, including domestic supplies, installation or assembly supplies, supply of goods on board of ships, aircrafts or trains and supply of gas, electricity, heating and cooling.

Platforms trading in the EU will be the “deemed supplier” for all supplies of goods within the EU facilitated by them - they will be treated as having received and supplied those goods. This includes both B2C supplies of goods within the EU by EU-businesses operating on the platform and B2B supplies. Platforms that are established in one EU Member State and only facilitate supplies in that State will not fall within the “deeming provision”.

All Platforms must use the OSS and, in all cases, where the Platform is a “deemed supplier”, records must be kept about the suppliers whose sales the Platform has facilitated. This includes the name, postal address and electronic address or website of the supplier, its VAT registration or tax ID number and its bank account.

Call-off stock arrangements at present causes difficulties – placing stock within a member state prior to the goods being sold. In many cases, a VAT registration is needed to invoice and report the eventual sales and deal with imports/intra EU VAT. These rules will be abolished and it should be possible to avoid a VAT registration and deal with the reporting of the movement and sales to businesses and consumers in other ways.

Second-hand goods supplied under the margin schemes, works of arts, collector’s items and antiques will be subject to distance selling rules making them subject to VAT in the Member State of arrival of the goods. If works of art or antiques are not transported or dispatched or the transport starts and ends in the same EU Member state the supply will be subject to VAT where the customer is established, has its permanent address or usually resides.

A “deemed supplier” rule for Platforms is to be introduced for short-term accommodation rental (duration to be determined) and passenger transport in situations where the underlying supplier does not charge VAT, for example, because it is a non-taxable person, or it uses the exemption for small businesses.

How it will work

• The supply of the underlying supplier (landlord/travel company) to the Platform shall be regarded as “exempt”, with no right to deduct VAT
• The Platform will charge VAT on its supply because it is deemed to make the supply to the customer (and to receive it from the supplier)
• The supply by the Platform for which it is a “deemed supplier” (i.e., to the end customer) will be taxed
• The facilitation service provided by the Platform to the supplier operating on the Platform is to be regarded as an intermediary service where the recipient of the supply is a non-taxable person.

This will only apply if the landlord or travel company is not registered for VAT, so the net effect is to ensure that VAT is always charged on such services – the key aim of the proposal is to level the playing field for all businesses in these sectors.

Small, unregistered businesses will suffer the effects of VAT without the right to recover it on their input costs for providing the underlying service. However, they can opt to voluntarily register for VAT if they wish to.

EU proposals would create mandatory e-invoicing and a two working day digital reporting requirement for all intra-Community B2B supplies to help reduce missing trader intra-Community (MTIC) VAT fraud.

Key features of the proposed e-invoicing system

• B2B intra-Community invoices will be electronic.
• A formal deadline for issuing invoices for intra-Community supplies or for which the reverse charge rule applies is likely to be established. Additional data is to be included in the invoice to ensure the use of the electronic invoice to automate the process of reporting.
• A new central VIES system for intra-Community transactions will be set up, which will provide information on a transaction-by-transaction-basis. Taxable persons must report on the transaction using this central system within a specified number of days of issuing the e-invoice to their domestic Tax Authority. If the data is not transmitted or does not contain the correct information, the exemption with credit/zero rating for intra-Community supplies cannot be applied.
• The information collected by the domestic Tax Authority must be transmitted within prescribed time limits after the collection to the central VIES system. The information will remain available within the central VIES system.
• It will no longer be possible to issue summary invoices.
• Recapitulative statements, such as EC Sales Lists and Intrastats will be abolished, as instead the Digital Reporting Rules will provide information to Member States.
• Use of paper invoices is only permissible where EU Member States directly authorise the use of them.
• Taxable persons will always be allowed to issue electronic invoices.

It appears that in a number of areas, businesses outside the EU who operate within the EU would benefit from the proposals to extend the ‘reverse charge’ and ‘One Stop Shop’ rules. In addition, the proposed reform of the current arrangements when businesses move stock to a member state prior to sale looks likely to be helpful.

Collectively, these changes should minimise the number of VAT registrations an exporting business requires in the EU and, therefore, reduce their administration costs.

The ViDA proposals are currently being discussed by the EU Member States and ultimately, they will require unanimous approval by all Member States to come into law. Although current timescales for implementation are unclear, we expect more developments regarding ViDA during the coming months – bookmark this page to keep up to date.