VAT in the Digital Age – European Commission Consultation

The European Commission launched public consultation in January 2022. It is based on three main pillars and may lead to VAT reform in the European Union. The main purpose of these changes is to increase integrity, capability and tax collections in Member States, which will reduce the VAT gap. Draft legislation is expected to be presented before the end of 2022.

The public consultation is scheduled from 20 January to 15 April, 2022. A link to this survey can be found here.

The planned areas of change include:

  1. Digital Reporting requirements and e-invoicing – one of three models may be introduced in this area to improve reporting and electronic control for VAT purposes.

    • The first scenario assumes, as we can already observe in Member States, an increase in full electronic recording for VAT purposes (for example the well-known SAF-T which has been introduced in France, Poland and, recently, Romania). Furthermore, it is worth noting that the e-invoicing model will be one widely adopted by other Member States, as is happening in Poland, France and most likely in Bulgaria, Croatia and Slovakia.

    • The second scenario involves the creation of a specific electronic platform for real-time information exchange between Member States (similar to the VIES platform, which is already used), to allow the system to immediately identify suspicious transactions 

    • The third scenario would involve the EC maintaining a specific database to which traders from Member States would report all their transactions in real time. Specific algorithms would identify and report suspicious transactions to the concerned tax authorities and Eurofisc (a multilateral warning system of the Member States for combating VAT fraud)

  2. Extension of VAT OSS – this procedure was introduced in July 2021 for the e-commerce package (selling goods to customers from one Member State by another, supplying electronic services, and deliveries performed via electronic platforms, all in relation to B2C transactions). The EC plans that the OSS procedure will cover all B2C transactions in the EU, regardless of their nature.

  3. VAT treatment of the platform economy – the EC intends to create a dictionary with detailed guidance on how to identify a supplier of goods and services. There are plans to impose more obligations on the online platforms themselves, including extending the scope of reporting obligations of platforms, already set out in the DAC Directive, and introducing a split payment mechanism for payments received through online platforms treated as VAT taxpayers.

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