VAT in the Digital Age (ViDA)
On 8 December 2022, the European Commission published its legislative proposals in the framework of the VAT in the Digital Age initiative, contemporizing the EU’s VAT system by employing technological advances to reduce VAT non-compliance and fight VAT fraud.
The EC proposes action in three key pillars including:
Real time digital reporting and e-invoicing obligations
As of 2028, businesses involved in intra-Community supplies (B2B cross border) will be obliged to issue structured e-invoices, conforming to EU standards, within two days of the transaction and to digitally report data to tax authorities within two days of the invoice date. Member States must abide to the same EU standards when choosing to adopt mandatory e-invoicing and digital reports for domestic transactions.
Modernized VAT rules for the platform economy
Starting 1 January 2025, platform operators, rather than the underlying sellers, facilitating sales of short-term accommodation and passenger transport services, are compelled to account for VAT collections. For instance, when the seller is below the VAT registration threshold in a specified country. Essentially, the measure dismisses VAT exemption on such services, instigating additional measures to clarify when a platform facilitates a transaction as well as the prerequisite data retention for platforms.
Single VAT registration
A further measure commencing 1 January 2025, diminishes the need for businesses to VAT register in multiple EU Member States, achieving the expansion of the existing OSS and IOSS for B2C transactions and augmenting the reverse charge for B2B transaction by non-established traders.
The three principal measures necessitate the following:
- Remaining B2C suppliers of goods and services must report in OSS when the seller is established externally to the Member State of taxation.
- Platforms must report cross-border movement of an underlying seller’s goods in OSS, avoiding local VAT registration.
- IOSS, allowing VAT on B2C imports in consignments of less than €150 to be paid by the seller or platform, will become mandatory for platforms enabling such sales.
Our initial comments
Harmonization of e-invoicing and digital reporting will only succeed if Member States embrace harmonization, especially when domestic reporting regimes are already established. Adopting a platform economy will increase VAT collection obligations on platform operators, and the tight timeframe requires careful implementation considerations. We expect the single VAT registration to reduce VAT compliance burdens, however, complexity persists due to differential VAT treatment for imports above and below the €150 threshold.
KPMG actively participates in discussions with the relevant authorities and stakeholders on these measures, closely monitoring proposals in progress.
How can KPMG assist?
Should you like to further discuss the content and potential impact of the above, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.
KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.