VAT in the digital age: what’s going to change? [1]

We’re on the eve of far-reaching changes to the VAT system, with experts comparing the impact to the introduction of the euro in 2002. If you don’t prepare your organisation in time, you could face significant (financial) risks in the future. The new legislation mainly affects the processes related to invoicing, compliance and everything connected to them, including Accounts Payable. This has consequences for your people, your processes and the systems that support those processes. In a series of blogs, Menno Steur, Director Solutions at Spendlinq, explains how you can prepare your organisation for the requirements of the new digital VAT system. And more importantly, how you can make these changes work in your favour. In blog 1 of this series, Menno outlines the key changes this legislation brings.

VAT in the digital age

“With the new legislative proposal VAT in the Digital Age – or ViDA for short – the European Union wants to make the VAT system ‘future-proof’,” says Menno. “In short, the measures enable EU countries to use technology to improve the current VAT system and combat fraud more effectively. On 8 December 2022, the European Commission published the proposal as part of its action plan for fair and simple taxation. The measures aim to improve efficiency and minimise VAT fraud. This is done by modernising VAT reporting obligations and facilitating e-invoicing, extending the scope of the VAT rules to the platform economy and moving to a single VAT registration for organisations in the EU.”

The EU plans to introduce the ViDA system by 2028. After the deadline, invoices that don’t comply with the new directives will no longer be accepted for payment. The most important change the legislation brings is that invoices will be exchanged via the tax authorities. The specific methods may differ from country to country, but the basic concept stays the same: every invoice with a VAT component goes through the Dutch Tax and Customs Administration. This allows them to check compliance with VAT obligations invoice by invoice.

“At the moment, the ViDA initiative still has to be adopted by the EU Council as a legislative proposal before it actually takes effect. Until 23 April 2023, it was possible to give feedback on the proposal. Various stakeholders asked questions, put forward ideas or made comments on the proposed directives. Based on this feedback, further changes will most likely be made, but we expect these adjustments to be minimal,” says Menno.

What’s going to change in the new VAT system?

The proposed changes focus on three pillars that aim to narrow the VAT gap in the EU.

1. E-invoicing and real-time digital reporting

The most striking development is the European Commission’s plan to create a new reporting and invoicing system. The underlying aim is mainly to curb widespread VAT fraud. The changes include the following:

• E-invoicing: From 1 January 2028, electronic invoicing becomes the default rule within the EU. Paper invoices will only remain possible for specific situations permitted by the Member State of invoicing.
• European invoice standard: A mandatory invoice standard will be introduced for the EU e-invoice. Businesses will have the option to use this invoicing method. EU Member States will no longer be allowed to require prior authorisation by the customer, or to make verification of the invoice by the tax authorities mandatory.
• Real-time digital reporting obligations: The current Opgaaf Intracommunautaire Prestaties (Opgaaf ICP, the Dutch EC Sales List) will disappear. From 1 January 2028 it will be replaced by a new reporting system for intra-Community supplies of goods and services, among other things (‘Real-Time Digital Reporting’). Businesses will be required to report on a transaction basis, with the deadline for submitting the report set at two working days after the invoice is issued. The (transaction) information required for reporting will be expanded and goes beyond the data currently included in the periodic Opgaaf ICP. These rules will also apply to supplies under the mandatory reverse-charge mechanism for so-called B2B general-rule services (see below).
• Other digital reporting obligations: EU member states will be able to introduce digital reporting obligations for other transaction categories too. According to the Commission, this could include, for example, domestic supplies of goods and services between businesses or supplies to end consumers.
• Real-time invoicing: The invoicing rules for supplies of goods in EU countries other than the Netherlands will be tightened. If the European Commission has its way, the deadline for issuing an invoice will be shortened from 1 January 2028 to two working days after the chargeable event has taken place. This will also apply to B2B general-rule services supplied under the reverse-charge mechanism by a business not established in the EU member state concerned.

2. New rules for the platform economy

The growing popularity of the platform economy as a business model poses challenges for the current VAT system. The European Commission plans to introduce new rules for it. The focus is on the ‘deemed supplier regime’, which is aimed at platforms operating in the ‘short-stay’ sector and passenger transport. In essence, the regime means that from 2025 (online) platforms – such as Uber and Airbnb – will be required to charge VAT to the end consumer when the provider does not do so itself. This should ensure that traditional providers in these sectors – such as hotel chains and taxi companies – no longer face a competitive disadvantage. The European Commission has also proposed several other technical measures to ensure VAT is collected correctly in the platform economy.

3. One VAT registration in the EU (‘Single VAT Registration’)

To reduce the number of VAT registrations organisations need in different EU countries, the European Commission proposes extending the use of a single portal system (the so-called ‘One-Stop-Shop’ or OSS). Through the OSS, businesses can declare and pay the VAT due in other member states as part of the VAT return in their member state of establishment.

Tip: don’t get caught out

“Although many practical questions and uncertainties still need to be resolved before the new proposals take effect, member states – and organisations – will have to act quickly. For some elements, the new rules come into force as early as 1 January 2024. Either way, we advise organisations to keep a close eye on how the proposals progress at EU level,” says Menno.

Here are some examples of websites where you can follow the latest developments:

• Bloomberg.com
• VAT in the Digital Age | Europa.eu
• Economic and Financial Affairs Council | Europa.eu
• VAT in the Digital Age: Suggested amendments European Parliament | Deloitte Nederland
• VAT in the Digital Age | All You Need To Know | Sovos

Read the whitepaper | The new digital VAT system and the future of your Accounts Payable process.

VAT in the Digital Age: are you ready? We’re on the eve of far-reaching changes to the VAT system. The new legislation mainly affects the processes related to invoicing, compliance and everything connected with them, including Accounts Payable. This has consequences for your people and your processes, but also for the systems that support those processes. What will change in the new digital VAT system? What does this mean for your organisation? How can you prepare your organisation for the requirements the new legislation sets? And more importantly, how can you make these changes work to your advantage? In this whitepaper, Menno Steur sets out the answers for you.

Download the whitepaper here.