Legal Alerts/8 Nov 2024

European Council Approves VAT in the Digital Age Package

Overview

On 5 November 2024, the Council of the European Union agreed on the "VAT in the Digital Age" package. This package aims to update the EU's VAT rules to better fit the digital economy, reduce VAT fraud, support businesses, and encourage digitalisation.

Key implications

1. E-invoicing and digital reporting for cross-border sales

Starting July 2030, VAT reporting for cross-border transactions will be fully digital.

Businesses must issue electronic invoices for cross-border B2B transactions, following the European standard set by Commission Implementing Decision (EU) 2017/1870.

Member States can also require electronic invoicing for domestic transactions.

Cross-border transactions will be automatically reported to tax authorities, abolishing the current EC Sales Listings.

Invoices for cross-border transactions must be issued within 10 days of the transaction.

Both the supplier and purchaser are responsible for reporting cross-border transactions, but Member States can exempt the purchaser from this obligation.

2. VAT for the platform economy

Online platforms will be required to collect and remit VAT on short-term accommodation and passenger transport services if the individual service providers do not charge VAT (deemed supplier regime).

Member States have flexibility in defining what qualifies as short-term accommodation and may allow exemptions for small and medium-sized enterprises (SMEs) from the deemed supplier rules.

3. One-Stop Shop and VAT registration

From 1 January 2027, the one-stop shop will include the supply of gas, electricity, heat, and cooling through systems.

From 1 July 2028, the one-stop shop will also cover domestic and installation supplies of goods by suppliers not established or registered for VAT in the Member State where VAT is due.

Companies can report EU cross-border transfers of their own goods in the OSS return, including subsequent domestic sales.

From 1 July 2028, a mandatory reverse charge mechanism will apply to all supplies of goods and services where the supplier is not established or registered for VAT in the Member State where VAT is due, but the customer is VAT registered in that Member State.

Next steps

As a next step, the European Parliament will be reconsulted due to changes made by the Council. After this, the text must be formally adopted by the Council before being published in the EU's Official Journal and coming into effect. No changes are expected to the agreed text during the consultation and formal adoption. The changes to the VAT Directive also need to be implemented into national legislation by the Member States.

If you have any questions about this Legal Alert, please feel free to contact the undersigned or your regular Borenius contact.