Preparing for ViDA: What Businesses Need to Know

ViDA (VAT in the Digital Age) is a proposal introduced by the European Commission in December 2022, aimed at modernizing the EU VAT system.

Key Objectives

The key objectives of ViDA are to leverage technology to combat VAT fraud, enhance VAT collection, and simplify VAT compliance for businesses operating across European borders.

The ViDA proposal states that there is a need for:

“Harmonizing and coordinating tax policies within the Member States of the EU in order to prevent tax evasion and avoidance”, and “Promoting cooperation between EU Member States to ensure that all companies in the EU pay their fair share of taxes” in line with the final report of the Conference on the Future of Europe citizens.

It also states that:

“The rise of the digital economy has significantly impacted on the operation of the Union VAT system, as it is unsuited to the new digital business models, and does not allow for the full use of the data generated by digitalisation. Council Directive 2006/112/EC1 should be amended to take account of this evolution. The VAT reporting obligations should be adapted to address the challenges of the platform economy and to reduce the need for multiple VAT registrations in the Union”

ViDA Structure:

The proposal comprises of three pillars to pursue its objectives:

1. Pillar 1: Real-Time Digital Reporting via E-Invoicing
   • Focuses on real-time digital reporting for intra-community transactions.
   • Seeks to establish a harmonized e-invoicing framework for all EU Member States.
2. Pillar 2: Deemed Supplier Rules for Platforms
   • Expands VAT obligations for platforms involved in passenger transport and short-term accommodations, designating them as deemed suppliers.
3. Pillar 3: Single VAT Registration
   • Streamlines VAT registration processes for businesses selling to EU consumers.
   • Extends the One-Stop-Shop (OSS) mechanism and uses the reverse charge to reduce multiple VAT registrations.

Implementation Timeline:

Due to extensive consultations and negotiations, the implementation of ViDA will proceed as follows, subject to final agreement:

• July 2027: Implementation of Pillars 2 and 3, including the deemed supplier rules for platform economies and streamlined VAT registration.
• July 2030: Full implementation of real-time digital reporting based on e-invoicing for intra-community transactions, with harmonization of domestic digital reporting requirements.
• January 2035: Member States with existing digital real-time reporting systems as of January 2024 will need to harmonize with ViDA standards.

The EU Commission clarifies that “Member States having a domestic digital real-time transaction-based reporting system in place on 1/1/2024 or obtained a derogation prior to that date or having adopted legislation for the implementation of such a system before that date where no derogation was necessary can keep them until January 2035 (for domestic transactions)”.

Domestic Digital Reporting Flexibility:

• Once overall agreement of the ViDA proposal is reached, Member States are permitted to implement domestic digital reporting requirements (DRR) without seeking derogation from the E-Invoicing Directive. We can therefore expect that more and more Member States will move to implement their domestic mandates, which should be in line with the overall ViDA objectives to avoid further changes down the line.

ViDA represents a significant shift in the EU’s approach to VAT, aiming for a unified and digitally advanced VAT framework to improve compliance and reduce fraud.

What’s Next?

We now await the update from the next ECOFIN meeting on 5^th November to see if we can move forward on a compromise for Pillar 2.

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