Taxation: Embracing the digital transition to help fight VAT fraud and support EU businesses

This article is brought to you in association with the European Commission.

The European Commission today proposed a series of measures to modernise and make the EU’s Value-Added Tax (VAT) system work better for businesses and more resilient to fraud by embracing and promoting digitalisation. Today’s proposal also aims to address challenges in the area of VAT raised by the development of the platform economy.

Member States lost €93 billion in VAT revenues in 2020 according to the latest VAT Gap figures also published today. Conservative estimates suggest that one quarter of the missing revenues can be attributed directly to VAT fraud linked to intra-EU trade. These losses are clearly detrimental to overall public finances at a time when Member States are adjusting budgets to deal with the social and economic effects of recent energy price spikes and Russia’s war of aggression against Ukraine. In addition, VAT arrangements in the EU can still be burdensome for businesses, especially for SMEs, and other companies who operate or are looking to scale-up cross-border.

Key actions proposed todaywill help Member States collect up to €18 billion more in VAT revenues annually while helping businesses, including SMEs, to grow:

• 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 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.

• 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. .

• The introduction of a single VAT registration across the EU

Building on the already existing ‘VAT One Stop Shop’ model for online shopping companies, today’s proposal 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.

Next steps

Today’s package of proposals takes the form of amendments to three pieces of EU legislation: the VAT Directive (2006/112/EC), Council Implementing Regulation (EU 282/2011) and the Council Regulation on Administrative Cooperation (EU 904/2010).

The legislative proposals will be sent to the Council for agreement and to the European Parliament and the Economic and Social Committee for consultation.