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Any progress with VAT system digitisation?

The draft amendment to the VAT Directive which has already undergone the first public comment procedure, aims to digitise the value added tax system and establish a legal framework to level the business environment across EU member states.

We already informed you about the European Commission’s legislative intent the last year. As VAT is the largest revenue item in the national budgets of all EU member states, its harmonisation represents a major taxation issue for the European Commission (“EC”) and the European Parliament (“EP”). While both institutions are aware of local tax regulation differences, they agree on the need to unify VAT reporting, proactively address the rapidly evolving digital platform economy, and enable uniform VAT registrations across the EU.

Harmonisation of digital VAT reporting

In 2014, VAT reporting in the Czech Republic was digitised based on an amendment to the VAT directive. Since that date, companies submit tax returns, VAT ledger statements, and other forms exclusively electronically. The EC confirms that member states have in this way succeeded in collecting approx. 3% more on VAT payments. Unfortunate, however, was leaving the digitisation competencies with the local tax administrators. As a result, various models have been implemented – e.g. electronic invoicing (Italy), real-time reporting (Hungary, Spain), reporting carried out using a standard ledger file for tax purposes – SAF-T (Lithuania, Poland, Portugal), or the VAT ledger statement (Bulgaria, Croatia, Czech Republic, Estonia, Latvia, Slovakia). Several other member states (France, Greece, Romania) have also announced new reporting requirements.

The aim of the current amendment to the VAT Directive is to unify the requirements on digital reporting in all member states and to introduce a mandatory electronic invoicing scheme for cross-border supplies. A common template should thus be introduced. The EC expects this template to significantly reduce the period for issuing the tax documents for intra-community supplies (from the current up to 45 days to two business days, or in near real time). At the same time, both the option to issue summary tax documents for a certain period would be cancelled, as would the duty to submit an EC Sales List, now by the EC considered a technological anachronism not appropriate for today’s digital economy.

Application of VAT to web interfaces

Platform economy, i.e., the provision of services using web interfaces (electronic shops), should also undergo significant changes. The EC insists on the introduction of a deemed (fictive) supplier as it argues that services such as short-term accommodation or passenger transport are not equally regulated for all operators in the member states and that current conditions distort the competitive business environment. The deemed supplier concept shall ensure that online platforms will be subject to VAT and will settle the tax if the supplier does not charge VAT. Certain steps to regulate the online platform market have already been taken. They result from the recently adopted DAC 7 Directive, implemented into Czech law on the turn of last year, with effect from 1 January 2023.

Unified registration for VAT in EU; extension of one-stop-shop regime

The implementation of the one-stop-shop regime (OSS) has resulted in increases in EU’s tax revenues and a more effective fight against tax evasion. The option to register for VAT in one spot goes hand in hand with the extension of the one-stop-shop regime across member states. In this respect, the EC has also published its comments on the call-off stock regime, which should be restricted as at 31 December 2024, making new relocations of inventories no longer possible. As from 31 December 2025 this regime will not be allowed at all.

According to the EC, the draft amendment to the VAT Directive is in line with the 2018 legislative proposal concerning the definitive VAT system, still under discussion by the European Council. It aims to replace the current ‘transitional’ system by treating supplies provided within the EU as domestic supplies. VAT will then be due in the destination member state at a rate stipulated by that member state. However, suppliers will charge and collect VAT in their home member state.

We will continue to watch the developments and will keep you informed on further steps in the digitisation of the EU’s VAT system.