In a context where tax fraud and evasion weigh heavily on European tax revenues, the ViDA (VAT in the Digital Age) directive is a major VAT reform for European Union member states. Like the reform of electronic invoicing in France, the project aims not only to push European member countries to modernize the current invoicing system, but also to provide member states with the tools they need to effectively combat VAT discrepancies. This article presents ViDA, the expected benefits of this Directive, and the implementation of a provisional timetable that is taking shape following the agreement signed on November 5 at the meeting of the Economic and Financial Affairs Council (Ecofin), which brought together the ministers of economy and finance of all member states.
What is the ViDA Directive and what is its purpose?
The ViDA Directive, or "VAT in the Digital Age," is an ambitious project initiated by the European Union to modernize VAT collection. It is part of a broader reform aimed at making the VAT declaration and payment process more transparent, secure, and efficient. In 2023, VAT discrepancies will reach colossal sums: more than €9.5 billion in France, €2.5 billion in Belgium, and around €14.6 billion in Italy, for a total of €61 billion in lost revenue in Europe.
ViDA is based on three main pillars:
Electronic invoicing : ViDA plans to make electronic invoicing mandatory within the European Union, replacing the current PDF formats with structured invoices in accordance with the EN16931 standard. This system should allow for increased transparency and facilitate controls. The idea is to generalize e-invoicing and also to introduce e-reporting obligations to limit VAT fraud.
Real-time digital reporting (DRR): commercial transactions will be recorded digitally and in real time, which should enable optimal traceability of intra-EU transactions.
The One-Stop Shop (OSS-IOSS): This system simplifies VAT registration for companies operating in several EU countries. Thanks to the one-stop shop, they will only have to register once, regardless of the number of countries with which they conduct business transactions.
The special case of networking platforms
The ViDA Directive is intended to be a proactive response to the challenges posed by international networking platforms that facilitate commercial transactions between individuals. Today, many online providers of accommodation and passenger transport services are exempt from VAT. This is largely because these providers are often individuals (such as drivers or private individuals renting out their homes) or small businesses. They are generally not subject to VAT registration requirements, or are often unaware of the tax rules in force in other Member States. This results in a significant loss of VAT revenue and sometimes creates unfair competition between traditional accommodation and transport services and those offered via online platforms.
Consequently, one of the key points of the ViDA Directive aims to make online platforms responsible for the purchase and resale of certain goods and services. Their involvement in VAT management will therefore be strengthened.
In addition, marketplaces will have to use the IOSS one-stop shop, thereby facilitating tax procedures for online sellers and ensuring compliance with tax obligations. In addition, the directive ends the warehousing regime, a measure aimed at limiting the misuse of VAT identification numbers.
What benefits are expected from the ViDA Directive?
In addition to VAT fraud, which represents a significant loss for EU Member States and which we have already mentioned, ViDA brings essential modernization to VAT management at the European level, with several major advantages:
Administrative simplification: Businesses will benefit from streamlined procedures thanks to the introduction of electronic invoicing and e-reporting. The One-Stop Shop (OSS) will enable them to declare VAT in all Member States via a single registration, thereby reducing administrative procedures.
Adapting to the digital economy: Taking into account the specific characteristics of e-commerce platforms, ViDA makes these players responsible for collecting VAT. This update ensures a tax framework that is adapted to new forms of digital transactions.
Facilitating cross-border trade: The directive aims to harmonize tax rules and make systems interoperable between EU countries. This simplifies international transactions and improves the transmission of information between tax administrations, thereby reducing complexities for businesses operating in multiple countries.
With ViDA, the European Union has equipped itself with a modern tool to respond to the challenges of taxation in the digital age.
The decisions of November 5, 2024: a historic agreement
The ECOFIN Council meeting on November 5, 2024 marked a crucial milestone for the ViDA Directive. After several postponements and adjustments, EU Member States finally reached a political consensus on all provisions of the Directive. This consensus marks a significant step forward for VAT reform and sets out the broad outlines of an implementation schedule. Here are the three main areas covered by the directive to remember:
1. Widespread adoption of electronic invoicing and e-reporting in Member States:
- 2025 (20e day following the publication of the directive): from this date, Member States will be free to impose electronic invoicing without having to seek prior approval from the European Union, which encourages countries to accelerate the transition to electronic invoicing.
→ And: the issuance of electronic invoices will no longer be subject to customer approval: as a result, companies will have to be able to accept electronic invoices according to the schedule set in each country. In France, the DGFiP has set the date of January 1September 1, September 2026 as the date by which all companies must be able to receive invoices in electronic format.
- July 1, 2030 : Mandatory e-invoicing and e-reporting for intra-Community transactions (B2B and B2G);
- January 2035: harmonization of national e-invoicing and e-reporting systems with the EU standard
A new digital reporting system (e-reporting) will be introduced at European level, replacing the former European summary statements for goods (DEB) and services (DES). This system will require taxpayers to submit electronic data for the following transactions:
→ intra-Community supplies and acquisitions of goods;
→ transfers of personal property between EU Member States (not declared via the future "one-stop shop" provided for in this reform);
→ the supply and acquisition of goods and services subject to the domestic reverse charge mechanism, when they are not exempt from VAT.
This data must be reported on a transaction-by-transaction basis, as soon as the electronic invoice is issued or should have been issued, except in specific cases.
Member States may, under certain conditions, allow businesses not to report data relating to their intra-Community acquisitions of goods or purchases of goods and services subject to the domestic reverse charge mechanism. In addition, they will also have the option of imposing an e-reporting obligation for transactions not covered by the European framework, provided that certain rules are complied with.
2. Framework for VAT rules applicable to networking platforms
For intermediation services provided by a taxable person to non-business customers (B2C) via an electronic platform or interface, the place of VAT taxation will correspond to that of the underlying transaction.
→ Application of the "presumed supplier" mechanism to platforms facilitating contact between a service provider and customers, in particular with regard to short-term accommodation rentals (maximum 30 nights) or passenger transport services (road). The service deemed to be provided by the underlying supplier to the platform operator will be exempt from VAT. The service deemed to be provided by the platform operator to the end customer will, in principle, be subject to VAT.
The introduction of the "presumed supplier" rule:
- optional as of July 1, 2028;
- mandatory as of January 1, 2030.
3. Expansion of the one-stop shop & simplification of VAT reporting obligations
- 1January January 2028 : the One Stop Shop (OSS) scheme will be expanded to include the following B2C supplies of goods :
→ transfers of own goods (the consignment stock regime would be phased out over a period of 12 months);
→ deliveries of goods requiring installation or assembly;
→ sales of goods made on board ships, aircraft, or trains;
→ domestic deliveries of goods.
- 1January January 2028 : widespread adoption of the reverse charge mechanism.
The reverse charge mechanism, under the ViDA Directive, is a tax procedure that simplifies VAT payment in certain situations. It involves transferring the obligation to declare and pay VAT from the seller to the customer. This mechanism is already used in many specific cases, but the ViDA Directive aims to harmonize it and make it more widespread at the European level.
This mechanism generally applies in cases where the seller and buyer are located in different countries within the European Union, or for specific transactions such as purchases of goods and services subject to the domestic reverse charge mechanism.
→ For intra-Community sales of goods and services between businesses (B2B), the reverse charge mechanism means that the seller does not have to register for VAT in the customer's country. The taxable buyer calculates the applicable VAT themselves according to the rules of their own country and then pays it directly to their tax authorities.
→ The ViDA Directive provides for the integration and strengthening of the reverse charge mechanism for certain transactions, in particular:
- Intra-Community acquisitions of goods and services not exempt from VAT;
- Domestic purchases subject to the domestic reverse charge mechanism, if Member States choose to apply this measure.
Member States will also have the option, under certain conditions, to exempt certain taxpayers from the obligation to submit data via the new digital reporting system (e-reporting) for these transactions.
The ViDA Directive marks a turning point in VAT management in Europe. By adapting tax procedures to the digital age, the European Union is seeking to strengthen the fight against fraud and harmonize invoicing and reporting regimes for commercial transactions. The decisions taken at the ECOFIN Council meeting on November 5 represent a major step towards the adoption of this directive, which will be implemented between 2025 and 2035.
For businesses, ViDA represents a technological and administrative challenge, but it also paves the way for greater transparency and more efficient processes. With this directive, the European Union is focusing on a modern VAT system that is adapted to the challenges of digital commerce and is equipping itself with the means to close tax gaps.
