VAT in the Digital Age

The Eu­ro­pean Com­mis­sion's le­gis­la­tive pro­po­sal on VAT in the Di­gi­tal Age or ViDA in­itia­tive is part of the EU Ac­tion Plan for Fair and Sim­ple Ta­xa­tion. The aim of the in­itia­tive is to sim­plify the VAT sys­tem on the one hand and to make it more re­sis­tant to fraud as a re­sult of in­cre­asing di­gi­ta­liza­tion on the other. The plan­ned chan­ges to the VAT Sys­tem Di­rec­tive and other re­gu­la­ti­ons pri­ma­rily in­clude the in­tro­duc­tion of di­gi­tal re­por­ting re­qui­re­ments in con­nec­tion with man­datory elec­tro­nic in­voi­cing, sim­pli­fi­ca­ti­ons to the uni­form EU VAT re­gis­tra­tion and ex­ten­sive chan­ges for the elec­tro­nic plat­form eco­nomy.

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Introduction of digital messages based on electronic invoices

Elec­tro­nic in­voices

The es­ta­blish­ment of elec­tro­nic in­voices is to be ad­van­ced by the pro­po­sals of the Eu­ro­pean Com­mis­sion and the im­ple­men­ta­tion is to be sim­pli­fied for mem­ber sta­tes and ta­xable per­sons. A two-stage im­ple­men­ta­tion of the mea­sure is pro­po­sed:

1st stage "Sim­pli­fi­ca­tion": first, the Eu­ro­pean Com­mis­sion plans to ad­apt the de­fi­ni­tion of an elec­tro­nic in­voice in the VAT Sys­tem Di­rec­tive (VAT­Sys­tRL) with ef­fect from 2024. Un­der the new de­fi­ni­tion, an elec­tro­nic in­voice must be is­sued and sent in a struc­tu­red, elec­tro­nic for­mat. The for­mat must al­low for au­to­ma­tic and elec­tro­nic pro­ces­sing of the in­voice.

2nd stage "elec­tro­nic in­voice": With ef­fect from 2028, the VA­Ty­stRL is to be amen­ded so that all in­voices for cross-bor­der supplies and ser­vices wi­thin the EU must be is­sued in a struc­tu­red elec­tro­nic for­mat (so-cal­led e-in­voi­cing). In­voices in pa­per form or other for­mats that do not meet the re­qui­re­ments of a struc­tu­red elec­tro­nic for­mat may now only be is­sued for supplies that are not sub­ject to di­gi­tal re­por­ting re­qui­re­ments. This in­clu­des, in par­ti­cu­lar, de­li­ve­ries and ser­vices wi­thin Ger­many and to third coun­tries.

Note: It re­mains to be seen to what ex­tent mem­ber sta­tes will also ad­opt na­tio­nal re­gu­la­ti­ons re­qui­ring the is­su­ance of in­voices in an elec­tro­nic struc­tu­red for­mat for tran­sac­tions not co­vered by the EU re­gu­la­tion. The co­ali­tion agree­ment of the cur­rent Ger­man go­vern­ment in­clu­des the fight against VAT fraud by me­ans of a uni­form na­ti­onwide elec­tro­nic re­por­ting sys­tem for the crea­tion, ve­ri­fi­ca­tion and for­war­ding of in­voices. Thus, in view of the co­ali­tion agree­ment, there is cer­tainly an op­por­tu­nity for the Ger­man le­gis­la­tor to re­gu­late in­voi­cing in a struc­tu­red elec­tro­nic for­mat for other use ca­ses as well.

In­tro­duc­tion of a di­gi­tal re­por­ting sys­tem

The EU Com­mis­sion plans to re­place the cur­rent re­por­ting sys­tem of the re­ca­pi­tu­la­tive state­ment (ZM) with a di­gi­tal re­por­ting ob­li­ga­tion sys­tem (DMP sys­tem) for in­tra-Com­mu­nity tran­sac­tions. Such a sys­tem is to be in­tro­du­ced by 2028. The plan­ned DMP sys­tem will col­lect in­for­ma­tion on tran­sac­tions made more quickly and in bet­ter qua­lity. The scope of the DMP sys­tem in­clu­des all tran­sac­tions that are cur­rently also to be re­por­ted as part of the ZM. In ad­di­tion, sa­les with a trans­fer of tax lia­bi­lity will be re­cor­ded.

Key points of the DMP system:

• In­for­ma­tion is to be sub­mit­ted for each tur­no­ver. This me­ans that (monthly) col­lec­tive in­voices are no lon­ger per­mit­ted.
• In­voices for sa­les to be re­por­ted in the DMP sys­tem must be is­sued wi­thin two working days af­ter the de­li­very has been made or the ser­vice has been pro­vi­ded. The trans­mis­sion dead­line for these sa­les is two working days af­ter the in­voice is is­sued or af­ter the date on which the in­voice should have been is­sued.
• Data trans­mis­sion shall be car­ried out elec­tro­ni­cally.
• The me­ans for data trans­mis­sion are pro­vi­ded by the Mem­ber Sta­tes.
• Data can be trans­mit­ted by the ta­xable per­son him­self or by a third party on his be­half.
• It is plan­ned to trans­mit all cur­rent com­pul­sory in­voice data as well as new com­pul­sory in­voice ele­ments (bank ac­count to which the in­voice pay­ment is to be cre­di­ted, date of pay­ment, amount of each pay­ment and, in case of in­voice mo­di­fi­ca­tion, the ori­gi­nal in­voice num­ber).

In ad­di­tion to the re­cor­ding of out­put tran­sac­tions, the op­tion to col­lect data on in­tra-Com­mu­nity ac­qui­si­ti­ons is to be­come an ob­li­ga­tion for the Mem­ber Sta­tes of the Eu­ro­pean Union.

Uniform EU VAT Registration

VAT re­gis­tra­tion ab­road is of­ten as­so­cia­ted with ef­fort and risks for en­tre­pre­neurs. Par­ti­cu­larly in e-com­merce, goods are of­ten trans­por­ted back and forth bet­ween EU coun­tries wi­thout the en­tre­pre­neur ha­ving any in­flu­ence, so that VAT re­gis­tra­ti­ons are una­vo­ida­ble.

With its pro­po­sal for a di­rec­tive on Sin­gle VAT Re­gis­tra­tion, the EU Com­mis­sion aims to en­sure that in fu­ture en­tre­pre­neurs are only re­qui­red to re­gis­ter in their coun­try of re­si­dence.

In or­der to achieve this goal, it is plan­ned that, as of Ja­nu­ary 1, 2025, the tax lia­bi­lity for all ser­vices pro­vi­ded by an en­tre­pre­neur in a coun­try other than his coun­try of re­si­dence will be trans­fer­red to the re­ci­pi­ent of the ser­vice, pro­vi­ded that the re­ci­pi­ent is re­gis­te­red for VAT pur­po­ses in the coun­try in ques­tion. The re­por­ting is car­ried out by the supp­ly­ing en­tre­pre­neur as part of the re­ca­pi­tu­la­tive state­ment, or then from 2028 in the DMP sys­tem. This does not ap­ply to ser­vices that are sub­ject to mar­gin ta­xa­tion.

In ad­di­tion, the one-stop store (OSS) pro­ce­dure will be ex­ten­ded to the ef­fect that all B2C supplies in the EU can be re­por­ted if the un­der­ly­ing supply would other­wise trig­ger a VAT re­gis­tra­tion ob­li­ga­tion for the supp­ly­ing tra­der es­ta­blis­hed in the EU. This in­clu­des, in par­ti­cu­lar, lo­cal de­li­ve­ries wi­thin ano­ther EU mem­ber state as well as de­li­ve­ries that are due to­ge­ther with an in­stal­la­tion in ano­ther EU coun­try if the en­tre­pre­neur is not re­gis­te­red for VAT pur­po­ses in the other mem­ber state.

Ex­am­ple: A Ger­man en­tre­pre­neur de­li­vers goods from a warehouse in Spain to a pri­vate cu­st­omer also re­si­dent in Spain. The Ger­man en­tre­pre­neur is not re­gis­te­red for VAT pur­po­ses in Spain. The tur­no­ver is to be re­por­ted un­der the OSS pro­ce­dure.

B2C supplies on board me­ans of trans­port (e.g. ships or air­craft) as well as the supply of gas, elec­tri­city, hea­ting and coo­ling can then also be re­por­ted un­der the OSS pro­ce­dure.

In ad­di­tion to B2C supplies, the OSS re­por­ting of in­tra-Com­mu­nity ship­ments is also en­vi­sa­ged from 01.01.2025. Un­til now, an in­tra-Com­mu­nity trans­fer usually trig­gers re­gis­tra­tion ob­li­ga­ti­ons in the coun­try of de­sti­na­tion for the trans­fer­ring en­tre­pre­neur to re­port the re­sul­ting in­tra-Com­mu­nity ac­qui­si­tion. This also ap­plies if an off­set­ting in­put tax de­duc­tion re­sults in no VAT being owed over­all.

By re­por­ting in the OSS pro­ce­dure, the re­gis­tra­tion ob­li­ga­ti­ons do not ap­ply. The cor­re­spon­ding in­tra-Com­mu­nity ac­qui­si­tion is also ex­empt from VAT. Ca­pi­tal goods and goods not en­tit­led to full in­put tax de­duc­tion are ex­clu­ded from the pro­po­sal.

The sim­pli­fi­ca­tion rule for con­si­gn­ment warehouses, which was ap­plied for the first time in 2020, will be ab­olis­hed as of Dec. 31, 2025, un­der the pro­po­sed di­rec­tive. Al­re­ady af­ter Dec. 31, 2024, no goods can be placed in sto­rage using the con­si­gn­ment warehouse rule.

Note: De­spite the ab­oli­tion of the sim­pli­fi­ca­tion rule, the im­ple­men­ta­tion of the afo­re­men­tio­ned pro­po­sals should not re­sult in a re­gis­tra­tion ob­li­ga­tion due to the sto­rage and sub­se­quent lo­cal de­li­very.

The in­tra-Com­mu­nity trans­fer to a con­si­gn­ment warehouse can be re­por­ted un­der the OSS pro­ce­dure. The VAT for the lo­cal supply upon wi­th­dra­wal from the con­si­gn­ment warehouse will be owed by the re­ci­pi­ent of the ser­vice.

Changes for platform operators

The pre­viously exis­ting supply chain fic­tion for on­line plat­forms with a third coun­try con­nec­tion will be ex­pan­ded. Cur­rently, in ca­ses where a tra­der ba­sed in a third coun­try sells goods to Eu­ro­pean B2C cu­st­omers via an EU on­line mar­ket­place, a chain tran­sac­tion is as­su­med bet­ween the tra­der, the plat­form ope­ra­tor and the cu­st­omer. The fic­tion of se­ries tran­sac­tion is also ap­plied to im­ports of goods up to a va­lue of 150 eu­ros.

Thus, there is a fic­ti­tious de­li­very by the mer­chant to the plat­form ope­ra­tor and a de­li­very by the plat­form ope­ra­tor to the cu­st­omer. In this case, the fic­ti­tious de­li­very of the mer­chant to the plat­form is VAT-ex­empt. The de­li­very from the plat­form ope­ra­tor to the cu­st­omer, on the other hand, is sub­ject to re­gu­lar ta­xa­tion.

The draft di­rec­tive pro­vi­des for the supply chain fic­tion to be ex­ten­ded to all de­li­ve­ries wi­thin the EU in­vol­ving a plat­form from 01.01.2025. This con­cerns both de­li­ve­ries to busi­ness and pri­vate cu­st­omers. Thus, the re­spon­si­bi­lity for the VAT as­sess­ment of the de­li­ve­ries and the as­so­cia­ted (re­gis­tra­tion) ob­li­ga­ti­ons will be trans­fer­red to the plat­form. In re­turn, the cur­rent pro­blem of re­co­gnizing ca­ses in which the supply chain fic­tion is ap­plied is eli­mi­na­ted for the plat­form ope­ra­tors, since all de­li­ve­ries are pro­ces­sed wi­thin the frame­work of a fic­ti­tious chain tran­sac­tion.

In ad­di­tion, in­tra-Com­mu­nity mo­ve­ment in the con­text of plat­forms is also con­side­red as a supply from the tra­der to the plat­form ope­ra­tor and from the plat­form ope­ra­tor back to the tra­der. The mo­ving supply is to be at­tri­bu­ted to the supply of the plat­form ope­ra­tor and thus to be ta­xed re­gu­larly. The supply of the tra­der, on the other hand, is ex­empt from VAT. This does not ap­ply to the in­tra-Com­mu­nity trans­fer of ca­pi­tal goods and goods that do not qua­lify for full in­put tax de­duc­tion.

On­line mar­ket­places that are ba­sed in an EU mem­ber state and ex­clu­si­vely sup­port de­li­ve­ries that take place wi­thin that coun­try are also ex­clu­ded from the supply chain fic­tion.

Ac­cor­ding to the EU Com­mis­sion's pro­po­sal, the supply chain fic­tion will also ap­ply to ac­com­mo­da­tion and pas­sen­ger trans­port plat­forms from 01.01.2025. The back­ground to this is that pro­vi­ders of ac­com­mo­da­tion or trans­port ser­vices of­ten do not owe VAT on the ren­tal or trans­port, as they are eit­her not en­tre­pre­neurs or can make use of the small busi­ness re­gu­la­tion. As a re­sult, such ser­vices can be of­fe­red more cheaply than by com­pe­ting com­pa­nies in the ho­tel or cab in­dus­try, whose ser­vices are ge­ne­rally sub­ject to VAT.

If the pro­vi­der is a non-en­tre­pre­neur or small en­tre­pre­neur, a fic­ti­tious ser­vice chain is as­su­med. Ser­vices pro­vi­ded by the plat­form to cu­st­omers are then sub­ject to re­gu­lar ta­xa­tion and are ge­ne­rally sub­ject to VAT. The ser­vices pro­vi­ded by the pro­vi­der of the ac­com­mo­da­tion or trans­por­ta­tion to the plat­form, on the other hand, are ex­empt from VAT. The pro­vi­ders of the ser­vices are not en­tit­led to de­duct in­put tax in this re­spect.

If the ser­vice chain is not ap­plied, the plat­form ope­ra­tor will have to pro­vide evi­dence of the supplier's en­tre­pre­neu­rial sta­tus. This evi­dence must be re­cor­ded and kept for ten years.

Outlook

The EU Com­mis­sion's pro­po­sals must now be ex­ami­ned by the in­di­vi­dual EU mem­ber sta­tes. All EU mem­ber sta­tes must agree to the draft di­rec­tive be­fore the re­gu­la­ti­ons can be im­ple­men­ted. It re­mains to be seen in what form and in what time frame the re­gu­la­ti­ons can be in­tro­du­ced. What is cer­tain is that the Eu­ro­pean VAT sys­tem will con­ti­nue to de­ve­lop over the next few years.

The plan­ned chan­ges are li­kely to af­fect a large num­ber of com­pa­nies and lead to ex­ten­sive ad­just­ments to pro­ces­ses and sys­tems. In ad­di­tion, the first im­ple­men­ta­tion steps are al­re­ady plan­ned in less than a year. For this re­ason, it is im­port­ant to keep an eye on de­ve­lop­ments and pre­pare for any ne­cessary chan­ges in good time.

We will be happy to keep you in­for­med about de­ve­lop­ments in the field of di­gi­tal sa­les tax and to sup­port you in the im­ple­men­ta­tion that may be ne­cessary in prac­tice at a la­ter date.

If you are in­te­res­ted in in­for­ma­tion, work­shops and a tar­ge­ted ex­change on the to­pic of "VAT in the Di­gi­tal Age", sim­ply send us an e-mail with your con­tact de­tails to vida@eb­ner­stolz.de.