ViDA and its impact on platform economy
The draft VAT in the Digital Age (ViDA) Directive promises to modernise the VAT system across the European Union. The aim is to increase EU tax revenues, digitalise reporting, defend against tax fraud more effectively, and move towards a definitive VAT system. The directive also regulates the platform economy environment.
According to the directive, a platform is an electronic marketplace where supply and demand meet to conclude a deal. Currently, the use of platforms has created a strong market imbalance through the consolidation of small and medium-sized entities that are individually below the VAT registration threshold but together, via a platform, create a network effect. At the same time, they gain an economic and price advantage over established competitors who, due to exceeding the VAT registration threshold, are VAT payers in their countries and the price for their services is thus higher by the VAT amount. Due to the large volume of transactions, platforms themselves are VAT payers, but they only charge VAT on the service they provide (intermediary service) and not on the value of the entire supply for the final customer.
The new ‘deemed supplier’ concept
The ViDA Directive plans to eliminate the imbalance especially in the mediation of short-term accommodation (airbnb, Booking), passenger transport (UBER), and advertising services (Facebook, Google) by introducing the deemed supplier concept. This would mean that platforms would have to tax the entire output (i.e., both the service being mediated, and the intermediary fee) even though they may purchase services from non-VAT payers – natural persons. This is to ensure a level playing field for service platforms and for other, traditional providers in the sector (hoteliers, taxis).
At the time of providing the service to the final customer, platforms will be obliged to settle their tax obligations in the customer's country through a one-stop-shop (OSS) system.
Change in the definition of short-term lease
The directive introduces further changes, the most fundamental one being a change in the definition of short-term leases. In the future, the provision of a short-term lease of up to 45 days will be considered a taxable supply. Only afterwards, i.e., from the 46th day, will the lease be considered long-term and can be exempt from VAT. Platforms will also need to adapt their systems to collect data on suppliers, transaction flows, and customers. Such data will need to be archived by the platforms for 10 years. The EU estimates that the EU budget will increase by EUR 6.6 billion in the next 10 years after the directive is adopted.
In the next article on the ViDA Directive, we will take a closer look at the issue of expanding the one-stop-shop (OSS) system and the introduction of a single VAT registration across the EU.