The government’s summary of a proposed amendment to EU directive 2006/112 as regards VAT rules for the digital age.
1. On the 8 December 2022 the EU published proposals as part of its VAT in the Digital Age (VITDA) initiative. The measures proposed are subject to change and there is no certainty that they will come into force in their current form or at all. This EM explains the proposed changes as they are currently drafted.
2. In accordance with the Northern Ireland Protocol, Northern Ireland remains aligned with EU VAT rules concerning goods. Therefore, the VITDA proposal has the potential to impact Northern Ireland, although the UK Government would thoroughly review the finalised set of proposals and look to negotiate changes to any aspects which could negatively impact Northern Ireland. Most of the proposed VITDA amendments are to the EU’s VAT Directive which governs the treatment of VAT throughout the EU. However, to achieve comprehensive implementation of the VITDA proposals, amendments are also proposed to the EU’s supporting legislation; the Implementing Regulation and the VAT Administration Co-operation Regulation.
3. The objective of the VITDA proposal is to adapt existing VAT rules and to use digital technology to better combat VAT fraud and improve businesses’ EU VAT experience in the digital age. To achieve this aim, the proposal targets three broad policy areas for improvement.
4. Firstly, the EU propose to adapt VAT rules on goods applied to the platform economy (online marketplaces). Secondly, they hope to expand the scope of the
EU’s VAT accounting systems. Finally, they want to modernise EU VAT reporting and invoicing rules. A proposed timeline is outlined below, staggering the changes introduced throughout 2024-2030.
5. In 2024 the proposed changes for this year would simply lay the foundations for subsequent key VITDA proposed amendments, whilst also further clarifying existing VAT e-commerce policies.
6. From 2025, to address VAT non-compliance, it is proposed that online marketplaces facilitating the sales of goods would have greater responsibility to collect VAT on behalf of suppliers. The current EU rules limit online marketplace liability to overseas suppliers selling to EU consumers through an online platform. The EU’s VITDA proposal extends this liability to intra-EU supplies, meaning supplies made by EU businesses fall in scope. It also provides that Online Marketplaces are liable regardless of whether the sale is business-to-business or business-to-consumer.
7. Additionally, to further strengthen VAT compliance, use of the EU’s Import One Stop Shop would become mandatory for online marketplaces. This is the EU’s import VAT accounting scheme used for imported low value goods supplied from businesses to consumers. Further VITDA proposals for 2025 also extend online marketplace liability to sectors of the sharing economy such as short-term rental accommodation. However, as this concerns services and not goods, it would not impact Northern Ireland.
8. Furthermore, the EU proposes the expansion of the One Stop Shop (OSS): an intra EU VAT accounting scheme for business to consumer trade. They propose that a broader range of goods could be reported through OSS, including the movement of a business’s own stock.
9. It is also proposed that Member States will be required to accept the cross-border reverse charge. The reverse charge is currently an optional facilitation for business-to-business sales where the supplier is not established in the Member State it is supplying to. It moves the burden of VAT payment to the buyer rather than the seller, meaning that the overseas seller does not need to register for VAT in the EU country it is supplying to.
10. The key VITDA proposals relating to EU reporting and invoicing are proposed to be implemented in 2028, although amendments in the years prior would help prepare for this. Their aim is to establish standardised digital reporting to further combat VAT non-compliance and address differing reporting standards across the EU
11. The introduction of Digital Reporting Requirements is proposed for intra-EU transactions of goods, replacing the use of recapitulative statements. The new Digital Reporting Requirements would progress towards transaction-by-transaction reporting for intra EU business-to-business supplies. This would also require a greater level of information about the sale to be recorded to facilitate identifying VAT non-compliance. Additionally, e-invoicing would be mandated for intra-EU supplies of goods and services.
12. Finally, it is also proposed that a new central EU data system would be created for business-to business sales, to more effectively share data to tackle VAT non-compliance. This would require Member States to develop and maintain a new national IT system to store and transmit data to the EU system. This information is predominately data collected through the new Digital Reporting Requirements and information that identifies the taxable person.
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