European Commission

Consultation on an ‘action plan’ for ‘VAT in the digital age’

The "VAT in the digital age" initiative was announced in the commission’s July 2020 action plan for fair and simple taxation. The initiative seeks to introduce a single framework for digital VAT services, noting that the 30-year old VAT rules are not adapted to the digital age and new business models. The Commission says that technology can be used to reduce administrative burdens and related costs, especially for businesses with cross-border operations, as well as protecting against tax fraud; the consultation Impact Statement notes that while VAT represents around 7% of GDP in the EU, it is estimated that around EUR 134 billion is lost with a significant part of the loss resulting from fraud.

The European Commission’s proposal, to be brought forward later this year, will aim to:

• modernise VAT reporting obligations (including enabling e-invoicing): The Commission wishes to protect businesses from the potential proliferation of different domestic digital reporting obligations which Member States may be introducing to capture badly needed revenue following the pandemic. The policy options will look at the introduction of partial (cross-border transactions only) or fully harmonised (for both domestic and cross-border transactions) digital reporting requirements. A further option could be to introduce data storage obligations that will require taxpayers to record transactional data using a pre-determined format and provide information only on request;
• update VAT rules for the platform economy: The Commission wishes to ensure that Member States take a uniform approach to the application of VAT rules to the providers, nature of services, place of supply and reporting in the face of the divergent and evolving business models. The options range from clarifying existing rules to considering whether platforms could play an active role in the collection of VAT; and
• streamline VAT registration across the EU: The consultation notes that although the One-Stop-Shop allows businesses to avoid multiple VAT registrations in the EU for cross-border transactions, certain types of cross-border transactions are still outside its remit and it could be extended. In addition, the impact assessment notes that improvements to the Import One-Stop Shop are needed to strengthen VAT compliance in relation to imported goods.

The consultation is split into two parts: a public consultation based on a questionnaire accessible via the Commission’s website and a targeted stakeholder consultation to capture the views of national authorities and businesses.