(Part 4) Get ready for Dec 7, 2022: Policy options – Will it be Option 4a? Partial harmonisation. An EU DRR is introduced for intra-EU transactions

On December 7, 2022, it is expected that the EU Commission will publish its proposals on ”VAT in the Digital Age”. This will include proposals on

Digital Reporting Requirements (DRRs);
The VAT Treatment of the Platform Economy; and
The Single VAT Registration and Import One Stop Shop (IOSS).

In a countdown towards November 16, we will publish a number of interesting facts around ”Digital Reporting Requirements”

The following policy options are retained for the analysis of impacts:

Option 1 – Status quo. No measures to harmonise the DRRs are introduced at EU level; a number of Member States are likely to introduce DRRs depending on their VAT Gap and the policy patterns of other Member States; the introduction of mandatory e-invoicing remains subject to a derogation being obtained and recapitulative statements are not modified.
Option 2 – Recommendation & Removal. The introduction of DRRs remains optional for Member States; their introduction is encouraged for those Member States with a significant VAT Gap and supported by the Commission, provided that the new system conforms to the EU design. The core elements of the EU design are described in a non-binding Recommendation. The Recommendation elaborates on the design of both a transactional reporting mechanism DRR and an e-invoicing system. In parallel, the derogation currently needed to introduce
mandatory B2B e-invoicing is removed. Recapitulative statements are not modified.
Option 3 – Keep data with the taxpayers. No EU DRR is imposed; rather, a new provision is included in the VAT Directive requiring taxpayers to record transactional data according to a pre-determined format. The tax authority could access such records upon request. Member States remain free to maintain (or introduce) national DRRs. For Member States which introduce a DRR, compliance with the reporting mechanism would also ensure compliance with the new obligation (hence, no duplication).
Option 4 – Introduction of an EU DRR.
1. Option 4a. Partial harmonisation. An EU DRR is introduced for intraEU transactions; the recapitulative statements are abolished. DRRs for domestic transactions remain optional for Member States. Member States wishing to introduce such mechanisms should conform to the system used for intra-EU transactions. For Member States where DRRs for domestic transactions are already in place, interoperability must be ensured in the short-term; then, national DRRs are required to converge to the EU DRR system in the medium-term (i.e. in five to ten years).
2. Option 4b. Full harmonisation. An EU DRR is introduced for intra-EU and domestic transactions alike. The recapitulative statements are abolished. For Member States where DRRs for domestic transactions are already in place, the interoperability clause applies in the short-term; then, national DRRs are required to converge to the EU DRR system in the medium-term (i.e. in five to ten years).