EU still trying to reach an agreement on VAT in the digital age (ViDA) proposal

31 October 2024

EU member states’ tax experts and the president of the EU Council are reviewing compromises to the ViDA reforms to try to gain Estonia’s approval of VAT rule changes for passenger transport and short-term accommodation platforms (pillar 2).

Pillar 2 in previous ViDA reforms proposed that platform economy operators would be responsible for collecting and remitting VAT to tax authorities on supplies of passenger transport and short-term accommodation. However, Estonia disagreed with this approach and argued that member states should be able to choose whether they make their resident platform economy operators responsible for the VAT collection.

Per previous articles, the ViDA initiative is being proposed to revamp the European Union’s (EU) VAT system by implementing a series of digital measures that aim to modernise, simplify, and make the EU VAT system more resilient to VAT fraud. 

If agreed, the ViDA changes will be gradually implemented, and the measures include:

1 - Digital Reporting Requirements (DRR)

A real-time digital reporting system for VAT purposes (based on electronic invoicing) will be used by businesses that undertake domestic reverse charge sales and cross-border sales in the EU (both goods and services). 

It’s hoped by implementing this system it will eventually eliminate the current European Sales Listing reporting obligations as the new system will allow tax authorities to view intra-EU trade as it happens, meaning they can spot any discrepancies or errors. 

2 - Updated VAT rules for passenger transport and short-term accommodation platforms

Under the proposed rules, platform economy operators will become responsible for collecting and remitting VAT to tax authorities in these sectors.

This will ensure a consistent approach across all member states when applying VAT on these types of services and will provide more of a level playing field between online and traditional sales of short-term accommodation and transport services. It could also simplify life for small businesses in this area, as they will no longer have to comply with each country’s specific VAT rules or register in multiple EU jurisdictions.

3 - The extension of the One Stop Shop return in the EU, and harmonisation of domestic reverse charge rules

The extension of the use of the One Stop Shop system to include further e-commerce supplies, (including the supply and installation of goods, goods sold at exhibitions and own stock movements of goods to fulfil from another EU country), cross border supplies of natural gas, heating and cooling energy, and some business-to-business (B2B) reverse charge transactions, will allow thousands more suppliers to use this system to fulfil their VAT obligations via a single online portal in one single language. 

This pillar will also see EU member states harmonise the use of the reverse charge mechanism applicable when non-established businesses sell and deliver goods to customers domestically in a country. Currently EU countries implement these rules differently meaning some require you to VAT register and some do not. By harmonising these rules it should make it easier for non-established suppliers to understand their obligations when trading in the EU.