On December 8, 2022. The European Commission has proposed a series of measures to modernize and make the EU’s value-added tax (VAT) system work better for businesses and more resistant to fraud by adopting and promoting digitization.
Member states lost €93 billion in VAT revenue in 2020, according to the 2022 VAT Gap report. A conservative estimate suggests that a quarter of the missing revenue is directly attributable to VAT fraud related to intra-EU trade. In addition, VAT arrangements in the EU may continue to be burdensome for businesses, especially SMEs, large-scale companies and other businesses with cross-border operations.
The key measures proposed will help member states collect up to €18 billion more in VAT revenue annually (€11 billion as a result of anti-fraud measures), while supporting the development of businesses, including SMEs:
Moving to real-time digital reporting based on electronic invoicing for businesses with cross-border operations in the EU.
The new system introduces real-time digital reporting for VAT purposes based on electronic invoicing, which will provide member states with valuable information needed to step up the fight against VAT fraud, especially carousel fraud. The move to electronic invoicing will help reduce VAT fraud by up to €11 billion a year and cut administrative and compliance costs for EU traders by more than €4.1 billion a year over the next ten years. It also ensures convergence of existing national systems across the EU and paves the way for member states that want to set up national digital reporting systems for domestic trade in the coming years.
Updated VAT regulations for passenger transport and short-term accommodation platforms
Under the new rules, platform operators in these sectors will become responsible for collecting and remitting VAT to the tax authorities when their users fail to do so, for example because they are a small business or individual service provider. Together with other clarifications, this will ensure a uniform approach across all member states and help create a more level playing field between online and traditional short-term accommodation and transportation services. It will also make life easier for SMEs that would need to understand and comply with VAT rules, often in other member states.
Introduction of uniform VAT registration across the EU
Building on the existing “VAT one-stop shop” model for online businesses, the proposals would allow businesses selling to consumers in another member state to register for VAT once across the EU and fulfill VAT obligations through a single online portal in a single language. Further measures to streamline VAT collection include making the “Import One Stop Shop” model mandatory for certain platforms that facilitate sales to consumers in the EU.