VAT in the Digital Age package is the European Commission’s action plan that aims to make it easier for tax authorities in EU member states to combat tax fraud through the use of digital technology.
The proposal is known by the acronym ViDA and was published on December 8, 2022 after a long and lengthy work phase.
What are the areas that this new action plan focuses on, and therefore, its impacts?
- Digital reporting requirements and e-invoicing for intra-EU transactions: in this regard, read our post that focuses on European e-invoicing and the related news contained in the ViDA plan.
- VAT treatment for the platform economy: an increasingly urgent and pressing issue, especially as a result of the vast spread and diversification of e-commerce (just think of the push in this direction by the pandemic)
- Single VAT registration in the EU.
More generally, ViDA requires member states to review the effectiveness of their current VAT rules against the innovations that have taken hold with the digital transformation; and—most interestingly—in anticipation of further innovations that have already been planned and only await full implementation.
To best frame the importance of this set of reforms, keep in mind this very telling figure that emerged in the 2022 VAT Gap report:
- In 2020 alone, EU member states lost as much as €93 billion in revenue related to uncollected VAT.
In particular, according to the most conservative estimates, a quarter of the total revenue shortfall is directly attributable to VAT fraud related to trade between EU states, also referred to as “carousel” fraud. (Vat Gap Report 2022)
In short, these are the dimensions of the problem, and it’s very clear that they require decisive action. In this post, we will first address the objectives of the proposed reforms collected in ViDA and how they will affect businesses (both large and small).
There are many sides involved, and in some cases they are very technical. In fact, we will focus on the specifics of single registration for VAT purposes: one of the most anticipated and sensitive issues, with even a greater focus on the OSS and IOSS systems.
The goals of the reform and the impact on enterprises
The ViDA action plan is certainly necessary. At the same time, it is also shaped as a very ambitious plan. The goal outlined is to aim to recover more than €11 billion in VAT (VAT) per year in the territory of the European Union. As a result, it will be a matter of having about €111 billion converge in the Union’s coffers over 10 years. According to estimates, this goal appears attainable as well as desirable. What are the consequences of the ViDA plan on the business ecosystem? Let’s be very clear: the impact on European (but also non-European) companies will be extensive and decisive for both small and large companies.
The aspects involved will first be related to tax compliance.
A digital reporting system, or e-reporting, will be introduced to allow for Union-wide monitoring of intra-EU transaction data.
The issue of electronic invoicing is part of this, with legislative advances that have already been set in motion in all states, although the features and roadmaps are still uneven at the present moment.
Looking at the big picture, the real impact will be on the digitization of processes and the production ecosystem as a whole, all to ensure compliance with the new requirements, which can no longer be postponed.
Be careful, however, not to make a very serious mistake: don’t limit yourself to the requirements or see them as impositions or obstacles to the normal flow of work.
Quite the opposite is true!
In fact, the requirements offer many interesting and decisive opportunities, both direct but also indirect, that affect companies of all sizes.
These are opportunities that are all to be seized and have to do with achieving true digital maturity.
We will also and especially focus on these benefits and opportunities in this post, and we’ll tighten our focus on the topic of single registration for VAT purposes.
SVR, OSS, and IOSS – the benefits of single registration for VAT purposes
Let’s start by providing some definitions and map out the field of play:
- SVR: Single VAT Registration; the single registration for VAT purposes.
- OSS: One Stop Shop. It covers all the different actors involved in the e-commerce supply chain. It is a unified European VAT clearance system that includes the following transactions:
- distance sales of imported goods from third countries or territories (except for goods subject to access) made by suppliers or through the use of electronic interface;
- intra-Community distance sales of goods made by suppliers or through the use of an electronic interface;
- supplies of services by taxable persons not established in the EU or by non-taxable persons (final consumers);
- domestic sales of goods made through the use of electronic interfaces.
- IOSS: Import One Stop Shop. This is a scheme similar to OSS, but is focused on distance sales of imported goods from non-EU territories and countries.
Who can join it? Non-EU taxable persons—if they are established in a country with which the EU has a mutual assistance agreement recovering VAT and make distant sales of goods imported from that country—can use the IOSS scheme by identifying themselves in any EU state. Otherwise, the trader needs an intermediary established in the EU to use the import scheme.
Coming out of the narrower technicalities, the advantages for everything related to SVR, OSS, IOSS revolve around one decisive keyword: simplification. In short, it avoids complications between the VAT requirements of different European Union countries (where there are large bureaucratic and legal pitfalls).In short, it’s an important step toward digital unification for European companies and citizens.
The OSS and IOSS regimes are not new per se. In fact, they were first defined in the “VAT e-commerce package” and became fully operational in Italy starting July 1, 2021.
Currently, joining the OSS scheme is optional and allows a business selling to other European states to avoid registering for VAT in each of those nations. Instead, through the OSS scheme it is possible to register and pay VAT in a single country, through a portal, and the relevant authority will then take charge of distributing the VAT due to the different countries.
Under the European Commission’s proposal, the OSS regime will be strengthened and expanded to include scenarios that are currently governed by call-of-stock agreements. Beginning in 2025, it will no longer be possible to enter into new call-of-stock contracts, while those entered into up to that point can remain in force only until 2026. In general, the aim of the proposal is to minimize the cases in which a business is required to register for VAT purposes in another EU state.
The IOSS regime will also be modified. Currently optional, it will become mandatory for those marketplaces or platforms that facilitate distance and cross-border sales of imported goods. Simplification is not the only benefit.
Other benefits include operational efficiency, especially for small- and medium-sized businesses that often lack the resources to deal with the enormous compliance burden required for intra-EU trade. As a result, all of this translates into a further opening of the intra-EU market, with definite benefits for consumers as well, in terms of choice and price competitiveness.
Finally, there is an important issue of transparency and justice that affects European society as a whole. It’s a virtuous circle where everyone ultimately wins.
The timetable of new requirements related to single registration for VAT purposes
Here, we come to the concluding section that we open with an important specification: the new ViDA action plan came to be as a proposal of the European Commission. This means that there is an 8-week public consultation period. The deadline for comments, originally scheduled for February 2023, has been extended to early April 2023. Before this deadline, there will be an opportunity for the various stakeholders to pose questions, clarifications, and suggestions. Only at the end of these consultations will the final text of the reforms be available. But we can already go out on a limb and say that the process of the plan has already been very long, and the various proposals it contains have already been widely discussed and shared at multiple levels.
In short, the path already seems very clear, and any changes will probably be kept to a minimum. In any case, after this final approval, there will be a need for substantial technological and procedural adjustments for different EU member states and stakeholders.
Translated: the introduction of the amendments will be gradual and progressive. In the first instance, member states will have to proceed with enacting the necessary measures and regulations to implement the amendments: this phase will have to be completed between the end of 2023 and the beginning of 2024. Obviously, the timeframe is still quite tight. Then, starting in 2025 and by 2030, the various requirements related to intra-EU digital reporting, single registration for VAT purposes (SVR) and new rules for platforms (OSS and IOSS) will gradually come into effect.
It almost goes without saying, but it is still important to do so: moving ahead on these compliance issues is, and will be, absolutely critical. Those in business know what the competitive advantages can be for those who adapt most quickly. Such advantages automatically translate into new opportunities to be seized sooner, better, and deeper than everyone else.