ECOFIN gives go ahead to VAT-in-the-Digital-Age package

In December 2022, the European Commission (EC) launched a proposal for regulatory modifications of VAT, known as the VAT-in-the-Digital-Age package ("ViDA"). This intended to adapt taxes to the digital economy in three specific areas (i) einvoicing and digital reporting, (ii) platform economy, and (iii) single VAT registration.

The need for Member States to be unanimous when adopting these measures is why the consensus text had to abandon some of its more ambitious approaches. Particularly, the latest subject of debate among Member States—which has postponed ViDA’s adoption and, therefore, its entry into force—has been on accommodation and transport services provided through digital platforms.

Below we summarize the main pillars agreed on, which, after being confirmed by the European parliament again—given the significant changes introduced after the project was presented in 2023—will come to light as an amendment to (i) VAT Directive (2006/112/EC), (ii) Council Regulation on administrative cooperation and combating fraud in the field of value added tax (EU 904/2010) and (iii) Council implementing regulation (282/2011) laying down implementing measures for Directive 2006/112/EC on the common system of value added tax.

Pillar 1 of the ViDA package intends to adapt tax management to new technologies and regulate common standards in the face of the different initiatives taken by most Member States.

• From 2025, Member States will be permitted to implement einvoicing systems without having to request approval of directive derogation from the EC. Einvoices issued by goods or services suppliers will no longer be subject to the client's consent.
• Electronic invoicing—meaning the structured invoice conforming to the European standards under Directive 2014/55/EU and other similar accepted formats—will be mandatory for intra-community transactions from 2030.
• From 2030, the current intra-community transactions report system (form 349) will be replaced by a new system based on issuing electronic invoices. It will provide data on the transaction and its payment almost in real time (10 days) to a centralized database. The information from each taxpayer will be transmitted to its national administration that, in turn, will share the data with the new Central VIES database. This is a new control system for intra-community traffic that replaces the current VIES.
• The existing national reporting systems (like the current Spanish VAT Immediate Information System, “SII-VAT”) will have to be harmonized with the ViDA standard in 2035, enabling interoperability.

Pillar 2 is centered around the accommodation and transport sectors. The arrival of platforms on the market that facilitate these transactions and their growing relevance has shown a defect in VAT collections from these kinds of services when they are provided by private or small businesses. To remedy this situation, a new rule has been introduced that shifts the obligation to charge and pay the corresponding VAT to the platform facilitating the transaction.

• This new system can be voluntarily implemented by Member States from July 2028, and will be mandatory from 2030.
• The platform will be responsible for charging and collecting VAT, releasing the underlying supplier from the obligation to register, but preventing it from deducting the input VAT. However, if the underlying supplier provides a VAT identification number and declares it will be responsible for charging and collecting VAT, the general regime will apply.
• This provision will apply to short-term accommodation rental services (30 days maximum, with conditions defined by Member States, which continue to have the power to consider these transactions exempt or not) and to transport services incompatible with the Travel Agents Margin Scheme.
• Member States will be able to exclude suppliers under the new franchise regime from this system that will enter into force in 2025.
• Finally, it has been clarified that facilitation services will be carried out in the location of the underlying transaction.

Pillar 3 aims to simplify formal obligations for taxpayers operating in different Member States. From 2028:

• The One-Stop Shop (“OSS”) model will be extended to (i) domestic business to consumer (“B2C”) operations (delivering a product to the end consumer); (ii) supplies of goods to be installed or assembled; (iii) electricity, heat and gas supplies; and (iv) goods sold aboard ships, trains and aircraft.
• There will also be a model for declaring movements of own goods, meaning current call-off stocks—proven to be ineffective—will no longer be required, and there will be a transition period until June 2029.
• The proposal to make using the Import One-Stop Shop (“IOSS”) mandatory has been dropped from ViDA, although it is expected to be considered in the customs reform currently under discussion.

Finally, the generalized application of the B2B reverse charge mechanism is expected for non-EU established suppliers (offering some flexibility for Member states, particularly when the recipient is not established either), a mechanism that is already provided for in Spain under article 84 of VAT Act 37/1992 for such transactions