VAT in the Digital Age (ViDA): Single VAT registration

On 8 December 2022 the EU Commission published its proposals on VAT in the Digital Age (ViDA). This proposal also includes additions which aim to reduce foreign VAT compliance burden for internationally active companies. The respective changes are discussed in this article.

Following our previous blogs on the sections of the VAT in the Digital Age (ViDA) proposals covering the Digital Reporting Requirements (‘DRRs’) and the Platform Economy, in this blog we are focusing on the last pillar of the proposals, i.e. the “Single VAT registration”.

Businesses carrying out transactions taxed in multiple EU Member States historically faced considerable VAT compliance burdens and costs, which constitute(d) a barrier within the European single market. 

The VAT e-commerce package that entered into force on 1 July 2021 brought new VAT legislation which significantly reduced the overall VAT compliance burden for e-commerce businesses. Instead of having VAT registrations in each EU Member State of their customer base, such rules allow a central registration and reporting of VAT liabilities as follows:

• via the One-Stop-Shop scheme (OSS) for supplies to consumers within the EU and/or 
• via the Import One-Stop-Shop scheme (IOSS) for the importation of consumer goods with a parcel value not exceeding EUR 150. 

The implementation of the OSS and IOSS has proved to be a great success. However, as the scope of its application is limited, many businesses remained subject to burdensome VAT requirements in multiple EU Member States.

The aim of the proposal is to reduce the number of situations in which businesses are obliged to register in an EU Member State where they are not established. In summary, such will be achieved by:

1. Expanding the existing (I)OSS schemes
2. Introducing a new OSS scheme for transfers of own goods between EU Member States
3. Expanding the scope of mandatory reverse charge mechanisms 
4. Expanding the scope of the deemed supplier rule for platform operators

On the one hand, the existing Union OSS scheme will be expanded to also cover: 

• supplies of goods with installation or assembly;
• supply of goods on board of ships, aircrafts or trains; 
• supply of gas, electricity, heating and cooling; and 
• domestic supplies of goods 

insofar as these are supplied to non-taxable persons (or to taxable persons or non-taxable legal persons whose intra-Community acquisitions of goods are not subject to VAT). In addition, the scheme is extended for certain sales of margin scheme goods.

On the other hand, the scope of the non-Union OSS scheme will be expanded to cover supplies of services from non-EU business to all non-taxable persons.

Furthermore, also making amendments to (I)OSS returns will be eased as they can now be made in the same period (via a corrective return) insofar as the amendments take place before the filing deadline of such return.

However as currently the case, the OSS schemes will still not allow businesses to recover input VAT, for which the VAT refund scheme needs to be followed. 

A new OSS scheme will be introduced allowing a monthly centralized reporting of any cross-border transfer of own goods by businesses within the EU. As intra-EU acquisitions of goods by businesses applying this scheme will be VAT exempt, this will eliminate the need to register in each EU Member State of arrival. 

As such scheme will also cover transfers to call-off stocks, the specific simplification scheme as introduced with the “2020 Quick Fixes” will be discontinued.

Currently EU Member States have the option to implement a so-called “local reverse charge mechanism for foreign suppliers”. Such option will be replaced with the required reverse charge mechanism for any supply (of both goods or services) performed by a business not established in the country to a business VAT registered in the country. Such mechanism will ensure that, in such circumstances, the supplier who is not identified there, does not have to VAT register in that EU Member State.

Finally, the deemed supplier rule for sales via electronic platforms is expanded to include all supplies of goods within the EU facilitated by an electronic interface, irrespective of where the underlying supplier is established and irrespective of the status of the purchaser. Furthermore, a deemed supplier rule will apply to certain transfers of own goods that are facilitated via an electronic interface. This will further easy the VAT obligations for EU sellers leveraging selling via electronic platforms. 

Most of these proposed rules are expected to take effect in January 2025.  

As a next step, the draft proposals must go through the ordinary legislative procedure in order to take effect. Given that unanimous approval by all EU Member States is required to enact new EU VAT legislation, it remains to be seen whether the proposed regulations will come into effect in its current shape and under the proposed timeline. Nevertheless, it is key for businesses to follow up closely on these developments and assess the (potential) impact on their business going forward.