VAT in the Digital Age (ViDA)

VAT in the Digital Age, or ViDA for short, is a legislative proposal by the European Commission and was published on December 8, 2022. The bill includes a set of measures aimed at modernizing the VAT system in the European Union. 

What is the ViDA bill? (VAT in the Digital Age)

The ViDA Act introduces new systems for digital reporting and e-invoicing, adapts VAT rules for the platform economy, and seeks to implement uniform VAT registration for intra-EU trade. Through these initiatives, VAT in the Digital Age promises a more streamlined, transparent and fair VAT in the digital age. 

Why ViDA?

The European Commission launched VAT in the Digital Age with several goals in mind, mainly aimed at improving the existing VAT system within the European Union.

One of the primary objectives of the ViDA law is to prevent VAT fraud. Indeed, this is a significant problem within the EU, with billions of euros of VAT revenue lost every year. The European Commission's 2022 VAT Gap Report shows that the VAT gap in 2020 was as high as 93 billion euros. The VAT gap is the difference between the expected VAT revenue and the VAT actually collected.

A major cause of this VAT gap is fraud: according to the report, as much as 25% of missed VAT revenue is due to this. This means that by 2022, VAT fraud in the European Union will be worth around €23 billion. With VAT in the Digital Age, the Commission wants to implement a more robust and transparent system that can effectively tackle this fraud.

Moreover, increasing the effectiveness of the VAT system is an important part of ViDA. The current system has been in place for decades and is not optimized for today's digital economy. The digitization of compliance is therefore a key aspect of ViDA. This includes facilitating e-invoicing and real-time digital reporting, making it easier for companies to meet their VAT obligations while reducing administrative burdens.

In summary, the main goals of ViDA are :

• Making the VAT system more effective and fair;
• Preventing VAT fraud;
• Ensuring the proper functioning of the internal market;
• Adapting the VAT system so that it responds to the new digital world;
• Digitize compliance.

 

What will change because of ViDA?

With the introduction of the ViDA law, businesses in the European Union face significant changes to the VAT system. The measures proposed by the European Commission can be roughly divided under three pillars. Namely: 

• Digital reporting and e-invoicing;
• Adapt VAT rules to the platform economy;
• Working towards a single VAT registration in the European Union.
  
  

Digital reporting and e-invoicing becomes mandatory

Perhaps the most important change for businesses that this bill sets in motion is the way companies send invoices to each other and receiving. E-billing will in fact become mandatory for B2B transactions across Europe. Every e-invoice with a VAT component will soon have to go through the tax authorities, so that it will be possible to check at invoice level whether everyone complies with the VAT obligation. There will then be Continuous Transaction Control.

This aims to reduce VAT fraud and lower administrative costs for EU traders. For businesses, it means adapting their systems to send e-invoices and receiving, and to comply with the new digital reporting requirements.

Platform companies get (larger) role in VAT deduction

Another important change under ViDA are the updated VAT rules for the platform economy. These rules mean that operators of platforms for passenger transport and short-term accommodation, for example, will become responsible for collecting and remitting VAT on behalf of their users. Platforms will therefore be more closely involved in VAT matters

This change is intended to ensure a uniform approach across member states and create a fairer playing field between online and traditional providers. 

One VAT registration in the European Union

Finally, ViDA enables the introduction of a single VAT registration for businesses selling to consumers in different EU countries. This reduces the need for multiple VAT registrations in the EU and simplifies VAT returns for businesses. It will significantly reduce the administrative burden for businesses operating in multiple EU member states, and make it easier for new and smaller businesses to expand into markets in different EU countries.