The Council reached an agreement on new measures that will bring the EU’s value added tax (VAT) rules into the digital age.
With new rules on electronic invoices and real-time data reporting, as well as business carried out through digital platforms, this package of legislation will fight tax fraud, support businesses and promote digitalisation.
After almost two years of negotiations, the Council has reached an agreement on the VAT package. This is a cornerstone for the digital transition and a significant step in improving the competitiveness of the EU. The new rules will update our VAT systems to reflect the digitalisation of our economies, help combat VAT fraud, and ease administrative obligations for small companies and individual service providers. Today’s decision was preceded by intense discussions led by the Hungarian presidency; thus, we are grateful to all delegations for their constructive approach and hard work.
Mihály Varga, Hungarian minister for finance
The agreement covers three acts – a directive, a regulation and an implementing regulation – which taken together bring about changes to three different aspects of the VAT system. The new rules will:
make VAT reporting obligations for cross-border transactions fully digital by 2030
require online platforms to pay VAT on short-term accommodation and passenger transport services in most cases where individual service providers do not charge VAT
improve and expand online VAT one-stop-shops so that businesses do not have to go through costly registrations for VAT in every member state in which they do business
Digital VAT reporting
Currently, businesses are asked every few months to submit to their national tax authorities ‘recapitulative statements' of goods and services sold to businesses in other EU member states which are taxable in those member states.
This opens up a gap for fraudsters to exploit the difficulty authorities face in rapidly detecting suspicious or fraudulent transactions, since the data is incomplete and not available in real-time.
The Council now agreed that a real-time digital reporting system will be set up for VAT purposes through e-invoices.
Businesses will issue e-invoices for cross-border business-to-business transactions and automatically report the data to their tax administration. This will be based on the existing European standard for e-invoicing in the area of public procurement. National tax administrations will then share the data through a new IT system that will be capable of providing analyses of suspicious activities.
A framework at national level will ensure the quality of the data included in electronic invoices, with flexibility for member states in the operationalisation of that framework.
This will provide member states with quick and complete information on cross-border transactions that they can use to fight VAT fraud.
The Council agreed that the EU system should be in place in 2030 and that all existing national systems should become interoperable with the EU system by 2035.
VAT for the platform economy
Currently, many providers of online accommodation rental and passenger transport services do not pay VAT. This is mainly because they tend to be either individual providers (such as a driver or a person renting out their apartment) or small businesses, who are usually not required to register for VAT or are often simply unaware of their obligations, or of tax compliance rules in other member states.
This leads to large amounts of VAT not being collected and sometimes to unfair competition between traditional accommodation and transport services and those operating through platforms.
Under the new rules, platform economy operators will be responsible for collecting and remitting VAT, in cases where their service providers do not pay VAT themselves (under the so-called ‘deemed supplier’ model). The platform will collect the VAT directly from the customer and remit it to the tax authorities.
The Council provided member states with greater flexibility by expanding the definition of short-term accommodation rental for tax purposes and giving member states the possibility to exempt small and medium-sized enterprises (SMEs) from the deemed supplier rules. The Council also agreed on a short transition period for applying the deemed supplier rules.
One-stop shop for VAT registration
For the moment, a system of ‘one-stop shops’ allows businesses to declare and remit the VAT due on their sales of goods and services to consumers from one EU country to another, through one member state’s administration and in one language. However, companies that want to sell goods to consumers within a member state other than their own (i.e. from a warehouse or a weekly market in that member state) still need to register for VAT purposes twice.
Therefore, the new rules will now extend the scope of the existing ‘one stop shops’ to business-to-consumer sales of certain items, like electricity or gas, which are conducted within a member state other than their own - not just cross-border supplies. This will include situations where companies simply want to move stock to another member state in order to sell it there directly to consumers at a later stage.
This way, the expanded one-stop shop will allow even more businesses to fulfil their VAT obligations via a single online portal and in one language.
The Council also agreed to shift the liability for the payment of VAT in business-to-business transactions from the supplier of a good or service to the buyer if that supplier is not established in the member state where the VAT is due (under the so-called ‘reverse charge mechanism’). This was already possible in some situations, but will become mandatory in the future.
In contrast with the Commission’s proposal, the Council decided not to extend the existing deemed supplier provision –which places the responsibility for collecting VAT on platforms that facilitate transactions rather than on the underlying suppliers - to all goods supplied by online platforms and the transfers of own goods. It also agreed not to change the rules on works of art and antiques.
The Council also decided to discuss the proposal to make the one-stop-shop for imports mandatory within the framework of the VAT aspects of the proposal to reform the Union Customs Code, which is currently under discussion in the Council.
Background and next steps
On 8 December 2022, the Commission presented the ‘VAT in the digital age’ package which consists of three proposals:
a proposal for a Council directive amending directive 2006/112/EC as regards VAT rules for the digital age;
a proposal for a Council regulation amending regulation (EU) No 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital age
a proposal for a Council implementing regulation amending implementing regulation (EU) No 282/2011 as regards information requirements for certain VAT schemes
The directive and the regulation are subject to a special legislative procedure. Within the Council unanimity is required for all three legal acts. The European Parliament was consulted and delivered its opinion on 22 November 2023. However, due to substantial changes made by the Council in the directive, the European Parliament will be consulted again on the agreed text.
The text will then need to be formally adopted by the Council before being published in the EU’s Official Journal and entering into force.
