In December 2022, the European Commission (EC) proposed a series of measures to modernize and make the EU's Value-Added Tax (VAT) system work better for businesses and more resilient to fraud by embracing and promoting digitalization. The proposal aims to address challenges in the area of VAT raised by the development of the platform economy.
The EC estimate that in 2022, EU Member states lost €93 billion in VAT revenues (known as the VAT Gap). They estimate one quarter of the missing revenues can be attributed to VAT fraud linked to intra-EU trade.
The EC are proposing actions to collect up to €18 billion more in VAT revenues annually. The main proposals are:
1. A move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU
The new system introduces real-time digital reporting for VAT purposes based on e-invoicing that will give Member States valuable information they need to step up the fight against VAT fraud, especially carousel fraud. The move to e-invoicing, the EC say, will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU traders by over €4.1 billion per year over the next ten years. It also makes sure that existing national systems converge across the EU and paves the way for Member States that wish to set up national digital reporting systems for domestic trade in the coming years.
2.Updated VAT rules for passenger transport and short-term accommodation platforms
Under the new rules, platform economy operators in those sectors will become responsible for collecting and remitting VAT to tax authorities when service providers do not, for example because they are a small business or individual provider. Together with other clarifications, this will ensure a uniform approach across all Member States and contribute to a more level playing field between online and traditional short-term accommodation and transport services. It will also make life easier for SMEs who would otherwise need to understand and comply with the VAT rules in all Member States where they do business.
3.The introduction of a single VAT registration across the EU
Building on the already existing ‘VAT One Stop Shop' model for online shopping companies, the proposals would allow businesses selling to consumers in another Member State to register only once for VAT purposes for the entire EU, and to fulfil their VAT obligations via a single online portal in one single language. Estimates show that this move could save businesses, especially SMEs, some €8.7bn in registration and administrative costs over ten years. 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.
Paolo Gentiloni, Commissioner for Economy says the proposals “ will introduce a new era for the EU’s VAT system, benefitting legitimate businesses, especially SMEs, as well as Member States at a time when public finances are under pressure and financing needs for investments and public services are immense. At the same time, we are introducing a more level playing field between traditional providers and digital platforms in sectors suffering the most from unequal tax treatment."
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People says "As we adapt to the digital age, we also need to update our VAT rules to new digital realities, such as the rapid growth of e-commerce and platform working. Digital technologies like e-invoicing are a powerful way to raise VAT revenues while helping our businesses to grow, especially small ones. They can help to fight fraud, saving many billions of euros lost in tax revenues every year and lessening the pressure on stretched public finances. [The] proposals will simplify and streamline our VAT rules, make life fairer for businesses and promote the digital transition across Europe."
For more information visit
The European Commission’s Press Release
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