The ‘digital’ steadily increases its presence expanding business opportunities for cross-border activities and blurring the borders between countries. Transactions that were difficult to imagine several decades ago represent a significant part of every country’s economy nowadays. In 2021, for instance, every fifth EU enterprise made e-sales[1].

As any other economic activity, these transactions have a noticeable impact on the VAT area, creating opportunities for VAT evasion and fraud which can be difficult to detect with traditional VAT systems. Evidently, VAT collection and control methods, especially with respect to the digital transactions, demonstrate lack of efficiency being administratively burdensome for both the tax authorities and the taxpayers. These sub-optimal collection and control methods inevitably result in revenue loss, known as VAT gap, which was estimated in 2020, at EUR 93 billion[2]. As of now, the ViDA initiative is under the review of the EU Parliament to be voted by the Member States on 23 October 2023.

1. Overview of the ViDA initiative

Considering that VAT remains the key source of revenue in each EU country[1] and finances the EU budget up to 12%[2], the European Commission proposed a series of measures addressing the challenges and recognizing the opportunities digitalization presents. As part of these measures, on 8 December 2022, the “VAT in the Digital Age initiative” (ViDA initiative)[3] was released with the aim to amend, inter alia, Directive 2006/112/EC (VAT Directive) in respect of the three main ways:

  1. VAT digital reporting requirements and e-invoicing;
  2. VAT treatment of the platform economy; and
  3. the single VAT registration in the European Union.

The proposed measures are predominantly tailored by the experiences of the Member States, having attempted to establish streamlining tax administration and real-time monitoring of transactions. Overall, it is estimated that implementation of the described measures will help Member States to collect up to €18 billion more in VAT revenues annually (€11 billion due to anti-fraud measures)[6].

    1.1 Transfer to the Digital Reporting Requirements 

Although many EU countries have recognized the opportunities the use of the digital tools for VAT collection unveils, the very VAT Directive creates considerable barriers in implementation of the reporting obligations based on the mandatory e-invoicing. Under the VAT Directive, the Member States must maneuver through the burdensome and time-consuming procedure, namely, to request a derogation subject to the unanimous agreement of the Council based on a proposal from the Commission[7].

At the same time, the existing mechanism (i.e., the Recapitulative statements) aimed to obtain the information on the intra-Community transactions, provides only aggregated data, without the opportunity to crossmatch supplies with acquisitions (as the later are optional). Even if the information is available in full, the time has elapsed and the opportunity to immediately address instances of VAT fraud might be missed.

Neverthless, currently enacted local reporting obligations, although they demonstrate an increase in VAT collection in particular Member States, do not always allow to trace the intra-Community transactions and, being divergent from country to country, place a noticeable administrative burden on the businesses operating in many of them. In particular, the ViDA initiative estimates the compliance costs at about EUR 1.2 million by small-scale companies and EUR 0.4 million by large-scale multinational companies[8].

Considering the issues described above, the ViDA initiative proposes to introduce the transaction-by-transaction reporting system operating in (almost) real time: the taxpayers will have to report the data on intra-Community B2B transactions within two days from the moment the electronic invoice is issued or should be issued[9]. To receive and to circulate the information in the unified format it is suggested to accept e-invoices issued according to the EU standard (EN16931)[10] and if the Member States decide so, other data formats will be also acceptable. For the domestic B2B supplies, the ViDA initiative proposes partial alignment allowing Member States to implement their own DRR or leave the one they already have, but the system must be compliant with requirements introduced for the intra-EU DRR.

The authors of the ViDA initiative expect the reporting obligation (along with the merger of the currently active local reporting systems to the new one) to be effective starting from 1 January 2028. The possibility to implement e-invoicing will be granted as soon as the described amendments become effective[11] (therefore, some Member States have already initiated local implementation processes, e.g., Germany[12], Belgium[13]). Overall, it is expected that the Member States will be able to recoup up to EUR 11 billion in lost VAT revenues a year for the next 10 years, whereas the businesses will save EUR 4.1 billion a year over the next 10 years in compliance costs[14].

    1.2 New VAT treatment rules for passenger transport and short-term accommodation platforms

The ViDA initiative points out that currently the EU countries have different VAT approaches in respect of the transactions via online platforms, namely, they struggle with VAT treatment of the services rendered by the platforms (electronically supplied services vs. intermediary services) and VAT status of the underlying supplier (possibility to apply reverse charge mechanism or OSS)[15]. Undoubtedly, the European Court of Justice attempted to shed some light on these questions in OnlyFans (analysis of deemed supplier model)[16], Star Taxi App[17] and Airbnb[18] (qualification of intermediation services as information society services), nevertheless, most of the issues remain unresolved and lack harmonization.

The proposed measures focus on the short-term accommodation and transportation sectors attempting to address the imbalance resulted from the current VAT treatment. The ViDA initiative highlights that, for instance, the cost of accommodation in Europe booked via a platform can be, on average, 8% to 17% cheaper than a regional hotel’s average daily rate, whereas up to 70% of the suppliers using the platform are not registered for VAT purposes[19]. The solution proposed is to implement the mandatory deemed supplier model. Under the new rules, all platforms will be obliged to account for VAT on the underlying supply if the underlying supplier does not charge it. The facilitation services are proposed to be treated exclusively as intermediary services[20]. As a result, VAT should be due in the country where the underlying transaction is supplied, i.e., the place where the transport takes place or where the rental accommodation is located.

In addition to leveling the playing field between traditional providers and those who use online platforms, the deemed supplier model is dedicated to simplify VAT compliance for the third-party hosts or drivers who sell through online platforms. According to the proposed measures, they will not need to register for VAT purposes and report their sales separately, as the online platform will take care about everything and remit VAT on their behalf. At the same time, this measure is considered to help in raising up to €6 billion in tax revenue per year.

    1.3 Single VAT Registration

Although IOSS and OSS are proved to be successful reaching both aims: reducing the compliance burden and improving tax collection, the ViDA initiative notes that certain supplies of goods and services still remain outside the scope of these simplified schemes. As a result, the suppliers operating in different Member States have to follow the burdensome compliance procedures suffering one-off (on average EUR 1 200 for VAT registration in another Member State) and ongoing expenses (on average EUR 8 000 for an annual VAT compliance[21].

In order to avoid the necessity for multiple registrations, the ViDA initiative introduces the Single VAT Registration targeting to minimize the instances for which a taxable person has to VAT register in another Member States. The proposed measure will allow businesses having consumers in another Member State to VAT register only once for the entire Union and fulfil their VAT obligations in one language, via a single online portal. Technically, Single VAT Registration will extend the application of OSS/ IOSS (e.g., in respect of supply of goods with installation or assembly, supply of goods on board means of transport, supply of gas, electricity, heating and cooling, the supply of margin scheme goods, transfer of own goods between the Member States) and reverse charge mechanism.

All three measures considered, ViDA initiative has introduced conceptually new VAT framework for the EU intracommunity trade. Aiming to eliminate piecemeal regulation and varying across the EU market VAT approaches, ViDA measures promise to establish coherent and well-organized structure helping in combating VAT gap and easing certain compliance requirements for business. Although it is impossible to predict the results of ViDA initiative adoption precisely, we will try to give you a fuller picture of potential implications based on experience of some Member States in Part 2 of this Article.


Michael Grekas

Board Member, Indirect Taxes and Tax

Technology, KPMG Ltd

Elena Strelkova

Assistant Manager

Indirect Taxes

[1] Digital economy and society statistics – enterprises: Digital economy and society statistics - enterprises - Statistics Explained (
[2] European Commission, Directorate-General for Taxation and Customs Union, Poniatowski, G., Bonch-Osmolovskiy, M., Śmietanka, A., et al., VAT gap in the EU : report 2022, Publications Office of the European Union, 2022, P. 137. 
[3] About €1 trillion is collected in the EU in VAT revenue alone, making it the third highest tax revenue raiser in the EU on average, behind social contributions and the personal income tax. In 2021, nearly 18 % of all taxes collected in the EU was sourced from VAT. For more information, please refer to:
[4] Eurostat: 
[5] Publications Office of the European Union. (2022, December 8). ST 15842 2022 INIT, Proposal for a Council Regulation amending Regulation (EU) No 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital age. &Copy; European Union.
[6] EUR-Lex - 52022SC0394 - EN - EUR-Lex. (n.d.).
[7] Article 395 of the VAT Directive
[8] Proposal for a Council Directive amending Directive 2006/112/EC as regards VAT rules for the digital age dated 08/12/2022. EUR-Lex - 52022PC0701 - EN - EUR-Lex (
[9] Group on the Future of VAT (GFV) - EU monitor. (n.d.). P. 4. 
[10] Directive 2014/55/EU of the European Parliament and of the Council of 16 April 2014 on electronic invoicing in public procurement Text with EEA relevance

[11] Group on the Future of VAT (GFV) - EU monitor. (n.d.). P. 4. 
[12] Germany will publish a discussion draft law for the introduction of mandatory B2B e-invoicing:
[13] Belgium Steps Closer to Mandatory E-Invoicing:
[14] EUR-Lex - 52022SC0394 - EN - EUR-Lex. (n.d.)
[15] For the analysis of different approaches followed, please refer to: Luchetta G. VAT in the Digital Age Final Report Volume 2 – The VAT Treatment of the Platform Economy. Study prepared for the European Commission, 2022. P. 91-92
[16] Judgment of 28/02/2023, Fenix International Ltd (‘Fenix’) v. HMRC, ECJ C-695/20, EU:C:2023:127.
[17] C-62/19, Star Taxi App SRL v. Unitatea Administrativ Teritorială Municipiul Bucureşti prin Primar General and Consiliul General al Municipiului Bucureşti, 3.12.2020.
[18] C-390/18, criminal proceedings against X, interveners: YA, Airbnb Ireland UC, Hôtelière Turenne SAS, Association pour un hébergement et un tourisme professionnels (AHTOP), and Valhotel, 19.12.2019. 
[19] VAT in the Digital Age. Final Report (vol. I – III). Specific Contract No 07 implementing Framework Contract No TAXUD/2019/CC/150
[20] In line with the Article 46 of the VAT Directive
[21] Proposal for a Council Directive amending Directive 2006/112/EC as regards VAT rules for the digital age dated 08/12/2022. EUR-Lex - 52022PC0701 - EN - EUR-Lex (

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