In 2022, The European Commission is inviting feedback on three proposed areas of reform in response to the digitalisation of the larger economy and the rise of ecommerce. The initiative, namely, ‘VAT in the Digital Age’, is intended to improve efficiency and overall equity for both EU and non-EU businesses trading within the 27 member states.
The commission covers three strands of indirect tax policy and seeks to reimagine how VAT and the growing digital economy intersect. They recognise that, although ecommerce affords international businesses new opportunities, it can increase compliance obligations. Therefore, the initiative aims to develop innovative technologies to improve VAT collection methods, cut down administration and simplify reporting for businesses.
The three proposed reforms to improve VAT efficiency and minimise fraud are:
Single EU VAT registration
To end the need for multiple VAT registrations across the EU, the European Commission is considering several options to allow businesses to operate within the Single Market using a single VAT registration. To To end the need for multiple VAT registrations across the EU, the European Commission is considering several options to allow businesses to operate within the Single Market using a single VAT registration. To achieve this goal, the Commission is proposing to extend the One Stop Shop (OSS) -introduced as of July 2021- to cover B2C and even certain B2B supplies not currently eligible for the scheme as well as a targeted use of the reverse charge mechanism for B2B transactions.
Digital reporting requirements
This considers what options there are to harmonise the reporting of VAT transactions across the EU. This may mean introducing Continuous Transaction Control (CTC), e-invoicing, live reporting or even Periodic Transaction Controls (PTC), and whether these measures should be introduced at a country or EU-wide level.
VAT treatment of the platform economy
This area contemplates how EU member states can adapt their established tax systems to convey the increasing prominence of electronic interfaces and the incidence of new business through online platforms and marketplaces. The initiative considers how these sellers can be accounted for when including the full ‘deemed-supplier’ VAT obligations as well as the VAT ecommerce package of 2021.
2022 VAT in the Digital Age schedule
- Stage 1: 20 Jan – 05 May, Public call for evidence through an impact assessment and questionnaire.
- Stage 2: 21 Jan – 15 April, Public consultation seeking to gauge stakeholder’s opinions on the current VAT rules, how these could be adapted into the digital landscape of 2022 and what technologies would be required to aid Member States to benefit businesses and reduce fraud.
- Stage 3: July 2022, A devised roadmap and impact assessments will be released with space for comments/amendments.
- Stage 4: Q3 2022, Proposed directive amendments will be applied to planned reforms.
What happens now
As it currently stands, after the talks at the beginning of this year, there are 4 options that are being considered as potential avenues for policy changes.
- Option 1 considers the continuation of the status quo with only minor changes, which would enable each Member State to decide their individual domestic policies.
- Option 2 would introduce an extension of the OSS to all B2C supplies of goods and services by non-established businesses in the EU. This would also see the removal of the IOSS threshold of EUR 150.
- Option 3 extends Option 2 and would additionally extend OSS even further to include all B2B transactions through one of three sub-options:
Option 3a: extension of intra-community acquisitions and intra-community supplies of goods where no VAT is due.
Option 3b: extension to all B2B supplies of both goods and services.
Option 3c: this would bring in a VAT deduction mechanism into the OSS.
Under Option 3 IOSS would also be made mandatory for deemed suppliers, sellers above a certain volume threshold, and all taxable persons making eligible distance sales.
- Option 4 would also include Option 2 and would add a mandatory reverse charge for B2B supplies by non-established suppliers.
Presently no options have been decided on, with feedback still being received and talks being held by the European Commission, the best course of action is still yet to be decided upon. Alongside the changes occurring now and as the initiative unfolds, our teams at SimplyVAT.com will be following closely and keeping you regularly updated on its potential effects for your business’s compliance obligations.