According to the EU’s latest VAT gap figures published on 8 December 2022, EU member states lost €93bn in VAT revenues in 2020. This is a significant fall from 2019 (€134bn), due in part to the pandemic. It’s estimated that a quarter of lost VAT revenue can be directly attributed to VAT fraud linked to intra-EU trade.
The crucial elements of the EU Commission’s VAT in the Digital Age proposals, outlined below, aim to help member states collect up to €18bn more in VAT revenues while generating cost savings for business of €4.1bn per year over a 10-year period.
According to the EU Commission, these changes are the most important changes to VAT since 1993.
The three key interrelated proposals are as follows:
Real-time digital reporting
The new system will introduce real-time digital reporting for VAT purposes, based on e-invoicing. This will give member states more information to step up the fight against VAT fraud. It also ensures that national systems converge across the EU, paving the way for member states to set up national digital reporting systems for domestic trade.
Updated rules for platforms
The new rules will make digital platforms that ‘facilitate’ transactions in the passenger transport and short-term accommodation sectors responsible for collecting and remitting VAT to tax authorities when service providers do not. This will ensure a uniform approach across all member states to provide a level playing field between online and traditional short-term accommodation and transport services.
The rules will make it easier for small and medium-sized businesses, who would otherwise need to understand and comply with different rules in all member states where they provide services.
Single VAT registration
The EU will build on the existing ‘One Stop Shop’ for VAT. It proposes allowing businesses that sell to consumers in another member state to register once for VAT purposes for the entire EU. It will also be possible for businesses to fulfil their VAT obligations via an online portal in a single language.
Further measures to improve the collection of VAT include making the ‘Import One Stop Shop’ mandatory for certain platforms facilitating sales to consumers in the EU.
Reducing the number of VAT registrations required to trade in the EU was one of the ICAEW’s Tax Faculty’s main representations in its response to the EU consultation on the fight against fraud.
The proposals will amend three pieces of EU legislation:
- the VAT Directive (2006/112/EC)
- the Council Implementing Regulation (EU 282/2011); and
- the Council Regulation on Administrative Cooperation (EU 904/2010)
The legislative proposals will now be sent to the Council for unanimous adoption, then to the European Parliament and the Economic and Social Committee for consultation.
The proposals will be implemented in stages; some of the quicker fixes will come in as soon as the directive is formally adopted. It is anticipated that other changes will be implemented over the next five to six years.
The changes will impact UK businesses that trade with and within the EU. Businesses should take professional advice if this is likely to affect them. ICAEW is following these changes very closely and will keep members updated.
The Tax Faculty
ICAEW's Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
More from the Tax Faculty
Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly e-newsletter
Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.
Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.