VAT in the Digital Age agreement reached - a milestone in the EU tax digitalisation

Evolving ViDA Proposal and Amendments

‍

The ViDA package, as amended by the European Commission, was a key agenda item for the ECOFIN Council for two years, with various elements the subject of extensive negotiations. One particularly controversial component was the "deemed supplier" regime within the “Platform Economy” pillar. After much deliberation, a broad compromise has been reached, with updates to the timeline for rollout and clarification of specific sections. With the commitment of the countries holding the EU Presidency, the package was finally finalised and adopted this spring.

‍

Since its announcement on 8 December 2022, ViDA has undergone active negotiations among EU Member States. The European Parliament's decisive approval in February 2025, following the ECOFIN agreement, and the subsequent adoption by the Council of the European Union on 11 March 2025, mark significant steps towards an evolving consensus on streamlining digital VAT reporting across the EU.

‍

Why ViDA is needed: Tackling the Persistent VAT Gap in Europe

‍

The VAT gap, the difference between VAT owed and collected, remains a significant issue. In 2022, this gap amounted to € 89 billion, a 7% loss of VAT revenue across the EU, primarily due to non-compliance, fraud, and administrative inefficiencies.

‍

In Belgium, for example, an estimated € 4.47 billion of the € 36.03 billion in expected VAT revenue, was lost due to fraud and non-compliance. And while Italy has the largest VAT gap in absolute terms according to the EU VAT gap report 2023, it has shown the most significant percentage decrease since 2020 (10.7%), indicating substantial progress. The overall EU VAT gap decreased from € 99 billion in 2020 to € 61 billion in 2021, reflecting positive efforts by Member States.

‍

These losses have severe consequences. VAT contributes about 27% of the EU's total yearly tax receipts, so any shortfall significantly impacts national budgets and the ability to fund public services.

‍

ViDA aims to further reduce this gap by enhancing VAT compliance and reporting efficiency. It supports the growing trend of mandatory electronic invoicing and reporting, crucial tools against VAT fraud. With countries like Italy, Serbia, Romania, Poland, Latvia, Germany, France, Spain, and Belgium implementing or planning B2B e-invoicing, ViDA will create a more robust and harmonised system to tackle the VAT gap across the EU.

‍

Key Components and Revised Timeline

‍

Domestic E-Invoicing Autonomy

‍

With the adoption of ViDA, Member States will gain the autonomy, with certain conditions, to implement e-invoicing schemes for domestic transactions and to waive the buyer’s right of acceptance without the need for prior derogation approval from the European Commission under the VAT Directive 2006/112/EC. This change will apply to domestic transactions between established businesses (excluding intra-Community supplies).

‍

In addition, businesses will need to be prepared to receive e-invoices when a Member State introduces a domestic e-invoicing scheme, as the issuance of e-invoices will no longer be subject to customer consent.

‍

These provisions will enter into force on 14 April 2025, 20 days after their publication in the Official Journal, also allowing Member States to set up accreditation schemes for third-party service providers who issue invoices on behalf of taxpayers, and will streamline the process for Member States to digitise their domestic invoicing systems.

‍

Mandatory Intra-Community Electronic Invoicing

‍

From 1 July 2030, electronic invoicing (e-invoicing) in accordance with the European e-invoicing standard (EN 16931) will be mandatory for intra-Community transactions. It's important to note that this mandate is specific to intra-Community transactions; other formats, including paper invoices, can still be used for other transactions, such as domestic supplies. Hybrid formats, such as the German ZUGFeRD, are considered valid if they contain the required data structure. A new definition of the EN16931 e-invoice standard is expected (draft due July 2025), which will further refine the requirements for electronic invoices. A key update will also allow Member States the flexibility to use alternative standards for domestic transactions when mandating e-invoicing, thereby accommodating country-specific systems without conflicting with the EU-wide framework.

‍

Significantly, the holding of an e-invoice for eligible transactions will become a substantive condition for the deduction or recovery of VAT, a change from the original proposals. In a compromise proposed by France, taxpayers will be able to use third-party e-invoicing service providers. For legal purposes, e-invoices will replace paper invoices, except in limited circumstances.

‍

To ensure compliance and data integrity, basic validation or technical requirements for e-invoices are included, referred to as "accreditation schemes", where tax authorities can check data structures through a platform.

‍

Under the revised ViDA proposal, the deadline for issuing intra-Community invoices is extended from the originally proposed two working days to 10 days after the chargeable event, although this is still shorter than the current 15-day rule. An e-invoice must be issued within 10 days of receipt of payment in the case of payment on account and within 5 days of delivery in the case of self-billing. This is intended to strike a balance between ease of compliance and timely availability of data. Again, these specific timing requirements do not apply to Member States' reporting systems for domestic supplies.

‍

In addition, the proposal to prohibit the use of summary invoices has been dropped. Instead, summary invoices may be issued if the VAT on the invoice is chargeable in the same month, the summary invoice is issued by the 10th of the following month, and the supply is not fraud-sensitive in a Member State that has opted to prohibit their use. In addition, any Member State that has introduced a national real-time reporting system after 1 January 2024 will have to harmonise with the EU ViDA standard.

‍

Mandatory B2B Intra-Community Digital Reporting Requirement (DRR)

‍

Starting 1 July 2030, all businesses will be required to digitally report specific intra-Community B2B transactions to their local tax authorities. This Digital Reporting Requirement (DRR) applies to suppliers and their customers for header-level data of intra-Community supplies, acquisitions, B2B services, reverse charge scenarios when the supplier is not established, supplies of energy to a taxable dealer, and triangulation.To avoid fragmentation, a harmonised, pan-European digital reporting requirement will include standardised data reporting, enabling tax administrations to cross-check transactions in real time and increase VAT compliance and transparency across Member States.

‍

Notably, the reporting deadline has been extended to 10 days from the initial proposal of 2 working days following the issuance of the e-invoice. Each Member State will be free to develop its own reporting protocols and technical specifications. Member States may also exempt customers of goods or services from reporting the transaction if they can obtain assurances by other means. In addition to the existing information required for recapitulative statements, additional information will be required, including bank details to enable tax authorities to track payments, although the payment date requirement has been removed. With the introduction of the DRR, the existing EC Sales List (ESL) or recapitulative reporting will be withdrawn.

‍

The legacy VIES (VAT Information Exchange System, a current EU VAT number validation tool) will be phased out in July 2032. It will be replaced by a new "Central VIES" database maintained by the European Commission, designed to centralise and enhance intra-EU transaction data. This new database will include DRR transactions, taxpayer identification information (including VAT identification numbers), and integrate with the Customs Surveillance System and the Central Electronic System of Payment (CESOP). It will also provide customers with transparency on intra-EU transactions reported against their VAT numbers, potentially through a common endpoint at the European Commission.

‍

Taxable persons will benefit from mandated tools to facilitate the transmission of invoice data to tax authorities, whether directly, through third-party service providers, or via available public portals. While no specific reporting protocols are mandated at the EU level, allowing Member States a degree of flexibility to tailor their implementation, by 1 January 2035, countries with existing mandatory e-reporting systems introduced prior to 1 January 2024 must align with the pan-European standard.

‍

Other ViDA Pillars and Updates

‍

Beyond e-invoicing and Digital Reporting Requirements, ViDA introduces key changes to the e-commerce package, significantly reinforcing the One-Stop Shop (OSS) system, which allows businesses operating in multiple European countries to file VAT returns from a single location, significantly reducing the administrative burden of dealing with VAT across different jurisdictions. Starting in 2027 and 2028, distance selling thresholds will be updated, and the OSS scope expanded. This simplifies VAT compliance for businesses operating across multiple EU countries by allowing them to file VAT returns from a single location.

‍

Additionally, the "Platform Economy" pillar will introduce new VAT obligations for digital platforms (e.g., Airbnb, Uber, etc.), which have long operated without the same VAT responsibilities as traditional businesses. ViDA will require them to collect and remit VAT on certain transactions, ensuring a fairer and more equitable VAT system and promoting compliance within the platform economy, which facilitates large volumes of cross-border transactions. A voluntary phase begins in July 2028 for ride & accommodation sharing platforms (deemed supplier), with mandatory application from January 2030.

‍

These broader changes contribute to a comprehensive overhaul of the EU's VAT system, enhancing fairness and efficiency in the digital age.

‍

How ViDA fights VAT fraud

‍

‍One of ViDA’s core aims is to combat VAT fraud, especially carousel fraud and VAT evasion, through e-invoicing and e-reporting. By shifting towards a digital VAT system, ViDA enables real-time reporting, which helps tax authorities detect suspicious activity more quickly.

‍

ViDA’s anti-fraud measures:

• E-invoicing: Businesses will have to issue structured e-invoices, which are faster to process, more accurate and easier for tax authorities to verify.
• E-reporting: Businesses will be obliged to transmit invoice data to tax authorities in near-real-time, enabling faster fraud detection and improving overall VAT compliance.
• One-Stop-Shop (OSS): Strengthening the OSS system simplifies VAT compliance for cross-border businesses. This reduces the administrative burden and makes it easier for businesses to comply, which in turn minimises errors and reduces the opportunity for fraud.
• Platform economy obligations: By requiring digital platforms to collect and remit VAT, ViDA closes a significant loophole, preventing VAT evasion in the platform economy and ensuring fair competition.

‍

By digitising and streamlining the VAT system, ViDA creates a more transparent and efficient environment, making it harder for fraudulent activity to go undetected.

‍

E-invoicing and E-reporting: Shaping the Future of VAT

‍

As we've discussed, ViDA mandates a significant shift to digital VAT. Starting from 1 July 2030, e-invoicing becomes obligatory for intra-Community transactions, marking a pivotal move towards a streamlined and accurate EU VAT system.

‍

E-invoicing: More Than Just a Digital Invoice

‍

E-invoicing goes beyond simply digitising paper invoices. It involves structured digital invoices, often in XML format, that automate processing, minimise errors, and ensure compliance. This is a trend gaining momentum globally, with more countries embracing e-invoicing for enhanced VAT administration.

‍

E-reporting: Real-Time VAT Compliance

‍

E-reporting takes VAT compliance a step further by enabling businesses to submit invoice data to tax authorities in near-real-time. This provides tax administrations with the ability to quickly analyse transactions, detect anomalies, and improve overall VAT compliance across the EU.

‍

By placing e-invoicing and e-reporting at the center of ViDA, the EU is building a more transparent, efficient, and secure VAT framework for the digital age.

‍

Conclusion: A more transparent and efficient VAT system

‍

‍With ViDA, the EU is taking significant steps towards creating a more efficient, transparent, and fraud-resistant VAT system. Key measures such as e-invoicing, e-reporting, and the extension of VAT obligations to digital platforms will help improve VAT collection, reduce fraud, and simplify VAT compliance for businesses across the EU.

‍

As ViDA progresses, it will play a pivotal role in improving VAT compliance and ensuring fairer taxation for all businesses operating in the EU.

‍