08.19.22

VAT in the Digital Age – public consultation published

We previously communicated that the European Commission was busily engaged with a public consultation on the ‘VAT in the Digital Age’ initiative. The underlying aim of the initiative, as the name suggests, deals with how the EU’s fiscal, and specifically VAT rules, can be adapted alongside a more digitised working mechanism, and how technology can circumvent tax fraud, which in turn will reduce VAT gaps. It is hoped that a digitised platform can counter these problems and output a streamlined, automated and efficient working mechanism, coupled with cost benefits.

The public consultation covered multiple facets of the vision to fully digitise VAT.

On a high level, the following observations were collated during the public consultation:

• Most stakeholders negatively regard the current Digital Reporting Requirements (DRRs), implying that reform is a necessity
• Progress in the digitisation era is regarded slow, and EU intervention is paramount to accelerate progress in this area.

In terms of requisite action:

• Most stakeholders supported the introduction of EU level DRRs for intra-community transactions, with or without the inclusion of domestic transactions.

Clear consensus was not reached on the following issues:

• Recording data on VAT transactions in a standard digital format
• Adopting non-binding commission recommendations to introduce uniformity regarding reporting obligations across the EU
• Removing the requirement for Member States to request an explicit derogation for the introduction of B2B e-invoicing mandates.

The following specific issues were highlighted by respondents during the public consultation:

• Member States applying different VAT treatments, ranging from different rates, different treatment of electronically supplied and intermediary services, to different thresholds for the application of VAT to SMEs
• Problems with either double-taxation or non-taxation
• Problems concerning the definition of supplies, the status of the supplier and customer, and the place of supply
• Problems attributable to platform providers, for example, due to a lack of appropriate invoicing from their side, or the application of an erroneous VAT rate.
• Problems when dealing with non-EU counterparts, such as uncertainty over whether VAT should be applied, and if so, what rate this would be.

While the virtues of the One Stop Shop (OSS) and Import One Stop Shop (IOSS) were not extolled, it was acknowledged that these implementations have enjoyed moderate successes. OSS specifically allows online businesses to report certain B2C EU supplies in a single Member State. Similarly, the IOSS allows a taxable person to register in a single Member State and pay VAT on imported goods. Both schemes endeavour to reduce the compliance burden on taxpayers.

The schemes were commended for the following:

• minimising the need for businesses to hold multiple VAT registrations
• simplifying and facilitating VAT compliance
• reducing fraud and increasing VAT revenue
• modernising the VAT rules.

In terms of policy options:

• The strongest agreement among stakeholders was for the option to extend the OSS to cover all B2C supplies of goods and services by non-established suppliers. Only slightly less respondents agreed with extending the OSS to intra-Community supplies and acquisitions of goods, and to B2B supplies of goods and services, together with the introduction of a deduction mechanism into the OSS.
• More than half of responses were in favour of making the reverse charge available for all B2B supplies conducted by non-established suppliers, and with removing the 150 Euros threshold for the IOSS.
• However, the option of making the IOSS mandatory, either for all distance sales of goods above a certain threshold or for marketplaces only, did not have majority agreement.

The Commission’s summary report on the consultation can be accessed via the following link:

https://circabc.europa.eu/ui/group/cb1eaff7-eedd-413d-ab88-94f761f9773b/library/caee6205-b1d0-4705-8f64-213f4050e06a

A list of more detailed reports can be found below:

• Final report. Volume 1, Digital reporting requirements
• Final report. Volume 2, The VAT treatment of the platform economy
• Final report. Volume 3, Single place of VAT registration and import one stop shop
• Final report. Volume 4, Consultation activities.

All reports can be downloaded from the following website:

https://op.europa.eu/en/publication-detail/-/publication/a07ffdc4-0966-11ed-b11c-01aa75ed71a1/language-en