Parliament has approved an update to the VAT rules to make them more suitable for the digital age. This update will require that VAT be paid on services provided through online platforms, which aims to eliminate unfair competition. It will also help combat VAT fraud.
On Wednesday, the Parliament’s plenary session approved these changes, which member states expressed a desire to implement back in November. The decision passed with 589 votes in favour, 42 against, and 10 abstentions.
By 2030, online platforms will be required to collect VAT for services offered through them in most cases where individual service providers do not charge VAT. This measure seeks to rectify market distortions, particularly those affecting the short-term accommodation rental and road passenger transport sectors, where similar services in the traditional economy are already subject to VAT.
Member states can exempt small and medium-sized enterprises (SMEs) from this requirement, a provision advocated by Parliament as well.
The update will also digitalise VAT reporting obligations for cross-border transactions by 2030. Businesses must issue electronic invoices for cross-border business-to-business transactions and automatically report these to their tax administrations. This approach enhances tax authorities’ ability to address VAT fraud.
To reduce the administrative burden on businesses, the updated rules will strengthen online VAT one-stop shops, allowing even more businesses engaged in cross-border activities to fulfil their VAT obligations through a single online portal and in one language.
This revision of the VAT rules has been in development for over two years. On December 8, 2022, the European Commission presented the “VAT in the Digital Age” package (ViDA package), which included three proposals, one of which was the update to the VAT directive established in 2006.
The Commission estimates that member states could recoup up to €11 billion in lost VAT revenues each year for the next decade. Businesses are projected to save €4.1 billion annually over the next ten years in compliance costs and €8.7 billion in registration and administrative expenses during the same period.
