On Dec 8, 2022, the European Commission has launched its proposal which includes measures to modernize the VAT system to avoid fraudulent activities, primarily through Digitalization. It aims to address the VAT problems created by the growth of the platform economy.
According to the most recent VAT Gap numbers, EUR 93 billion in VAT revenues were lost in 2020. This is bad for the public finances, no doubt. Thus, the proposed action seeks to collect up to EUR 18 billion more in VAT revenues annually while helping businesses to grow, especially SMEs.
The proposal mainly includes factors for Digitalization:
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New real-time digital reporting system for cross-borders using e-invoicing
The proposed program introduces real-time digital reporting for VAT purposes based on e-invoicing. It gives the member states the essential information they need to limit the possibility of VAT fraud, particularly carousel fraud.
Over the next ten years, switching to e-invoicing will help reduce administrative and compliance costs for EU traders by over EUR 4.1 billion annually and help reduce VAT fraud by up to EUR 11 billion annually.
Also, it lays the groundwork for Member States that want to set up digital reporting systems for domestic trade in the coming years and ensures that the national systems that are already in place work together across the EU.
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Updated VAT rules for passenger transport and short-term accommodation platforms
Under the new rules, platform economy operators in these industries will have to collect and send VAT to tax authorities if service providers don’t, for example in case if the service provider is a sole proprietor or a small business.
This will guarantee consistency across all member states and help create a level playing field for traditional and online short-term accommodation and transportation services. It will also make things easier for small and medium-sized businesses (SMEs).
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Single VAT registration for businesses selling to consumers within EU
Along with the existence of “VAT One Stop Shop” applicable only for EU Member States, the current proposal would enable companies to sell to consumers in another Member State to register only once for VAT purposes for the entire EU and to fulfill their VAT obligations via a single online portal in a single language.
Furthermore, according to estimates, this action could save businesses, especially SMEs, about EUR 8.7 billion in registration and administrative costs over the course of ten years. For further improvement of the VAT Collection, “Import One Stop Shop” will be required for some platforms that facilitate sales to customers in the EU.
Before the plan is implemented, it will be sent to the Legal Council for agreement, the European Parliament, and the Economic and Social Committee for further discussion.
Disclaimer: Reproduced/Adapted with permission from Global VAT Compliance.
