On 21 June 2024, the Economic and Financial Affairs Council of the European Union (EU) met under the Belgian Presidency to discuss changes to the EU Value Added Tax (VAT) rules as part of the VAT in the digital age (ViDA) initiative. However, once again, the Ministers did not reach an agreement on the changes and discussions will continue with a view to reaching a compromise that all 27 Member States can approve.

It is not possible now to reach agreement on the three ViDA Pillars under Belgian Presidency (which ends on 30 June 2024). It is understood that discussions will resume at the next ECOFIN meeting, on 14 July 2024, under the Hungarian Presidency.

The measures for Pillar 1 (Digital Reporting and e-invoicing) and Pillar 3 (Single VAT Registration) were agreed at the May ECOFIN meeting. However, one Member State, Estonia, has not yet agreed to the compromise proposals put forward for Pillar 2 for Digital Platform "deemed suppliers."

Estonia remains concerned that the mandatory requirement for platforms to account for VAT of their third-party traders would undermine neutrality and adversely affect smaller traders that were below the VAT registration threshold. The compromise proposed by the Belgian Presidency was to change this deemed-supplier obligation to allow Member States to opt out small and medium-sized enterprises (SMEs) from the provision. However, this has not yet been accepted.

Background

The ViDA initiative is a package of fundamental changes to the common VAT rules across the EU with three pillars and gradual implementation dates. It aims to ensure VAT compliance, prevent tax fraud, and elevate the VAT regulations to the next level, fitting the needs of the digital age. Only after the EU Member States' Finance Ministers have reached a political agreement can further legislative steps be taken to implement the package.

The three ViDA pillars may be summarized as:

• Digital Reporting Requirements (DRR) — Introducing common standardized Digital Reporting Requirements and e-invoicing for intra-community transactions (i.e., between Member States)
• Platform Economy — Addressing the challenges of the platform economy for short-term rental of accommodation and passenger transport services by enhancing the role of digital platforms in collecting VAT
• Single VAT Registration — Reducing VAT registration requirements in the EU by expanding the scope of the One Stop Shop (OSS) for imports and the reverse charge for business-to-business (B2B) transactions.

Initially, it was intended that the new rules were to be implemented generally in 2025 and the DRR rules were to apply as of 2028. With a few exceptions, the implementation dates are postponed, possibly to July 2027 (for the Platform Economy and Single VAT Registration reforms) and to the period 2030 to 2035 for DRR and the new e-invoicing rules, including grandfathering rules for current e-invoicing systems for individual Member States. However, all dates are to be confirmed as well as any grandfathering of current e-invoicing systems for individual Member States.

Implications

Despite the lack of final agreement, businesses operating in the EU need to assess how their transactions, invoicing, and reporting processes are affected and how they may set up their systems to ensure that their future VAT reporting requirements are met.

Further, despite the delay to the EU DRR rules, many Member States have already introduced or are in the process of introducing, domestic e-invoicing and e-reporting rules sooner than 2028. Therefore, businesses should also consider undertaking a readiness assessment for their ability to comply with those rules, if they have not already done so.