VAT in the Digital Age: What does it mean for your business?

Embracing the future of VAT: Key changes and business implications

The Economic and Financial Affairs Council (ECOFIN) recently approved a groundbreaking package of measures aimed at modernising VAT rules to better align with the digital age. Known as VAT in the Digital Age (ViDA), this initiative represents the most significant VAT reform in decades. As businesses navigate the complexities of the digital economy, understanding and preparing for these changes is crucial. In this article, we will explore the key aspects of ViDA, the implications for your business and the critical actions you can take today to ensure a smooth transition to the new VAT landscape.

VAT and digital reporting

The significant changes to modernise VAT rules for the digital age as part of the ViDA initiative will transform how VAT is administered and collected across the EU.

Electronic invoicing

Electronic invoicing will become the default system for issuing invoices in respect of intra-EU transactions between taxable persons. Holding an electronic invoice issued in compliance with the required standard may become a condition for VAT deduction or reclaim. Member States can authorise other invoice formats for domestic supplies. Electronic invoices must comply with the European standard and cannot require additional data to avoid administrative burdens. Summary invoices will be allowed, but Member States may exclude this in certain fraud-sensitive sectors. For cross-border transactions, electronic invoices must be issued within ten days of the chargeable event.

Digital reporting requirements

The current recapitulative statements will be replaced with digital reporting requirements (DRR) for cross-border supplies of goods and services. Suppliers must report invoice data in real-time. In self-billing or buyer-reporting situations, the buyer must transmit the information within five days of the invoice being issued. While real-time reporting of domestic transactions is not required, Member States that implement such systems must align with the digital reporting requirements for cross-border supplies.

Implementation timeline

These requirements will apply from 1 July 2030. Member States with existing or announced domestic digital real-time transaction-based reporting obligations by 1 January 2024 must align their systems with the EU model by 1 January 2035.

VAT treatment of the platform economy

Starting from 1 July 2028, a significant proposal under ViDA will impact platforms facilitating short-term accommodation rentals (up to 30 nights) and passenger transport by road. These platforms will be deemed the suppliers of the underlying service unless the service provider communicates their local VAT ID or a special scheme ID and declares that they will charge any VAT due on the supply.

Implementation timeline

Member States must enforce these rules by 1 January 2030, allowing a long lead-in time. Special schemes for small enterprises and travel agents are excluded. Platforms can opt to leave VAT collection to the underlying sellers. Not all platforms will be affected; exceptions include those that process payments, list or advertise, or redirect customers.

Flexibility and global context

Concerns about the platform rules led to a preference for an ‘opt-out’ model due to potential costs and administrative burdens on small and medium-sized entities (SMEs). The latest rules offer more flexibility. However, globally, there is inconsistency as some countries outside the EU are not adopting a full liability model for platforms providing similar services.

Single VAT registration and reverse charge

From 1 July 2028, the European Commission will simplify VAT registration for businesses operating across different EU Member States. This will be achieved by expanding the One Stop Shop (OSS) to cover more types of supplies, including domestic business-to-consumer (B2C) supplies of goods by taxable persons not established in the Member State of consumption. Some supplies, such as B2C supplies of electricity and natural gas, will be covered from 1 January 2027. Although there was discussion about making the import OSS mandatory for platforms under ViDA, this will now be addressed in future customs reform.

The expansion also introduces a special scheme for transfers of own goods and applies a mandatory reverse charge mechanism. This mechanism will be used when suppliers are not established and not identified for VAT purposes in the member state where VAT is due, but their business-to-business (B2B) customer is.

Next steps

Due to the significant differences between the European Commission's proposal and the compromise text, the European Parliament will need to be reconsulted through a simplified written procedure. This approval is expected to be forthcoming, as the start dates are well into the future and the compromise text balances various factors effectively.

Key actions businesses can take today

ViDA represents the most significant VAT reform in decades, marking a new era for VAT in the digital economy. This reform applies to all businesses selling goods or services in the EU, regardless of their location. ViDA will bring substantial changes for Irish businesses, requiring careful assessment, strategic planning and additional resources.

To transition successfully to digital reporting and electronic invoicing, businesses should focus on these critical areas:

• Assess current processes: Evaluate existing tax and invoicing processes to understand the impact of transitioning to digital reporting and e-invoicing. Identify the resources needed to manage this change effectively.

• Prepare for early adoption: Although the application date is 1 July 2030, many EU and non-EU countries are already implementing unilateral digital reporting and e-invoicing measures. Incorporate these changes into strategic planning to stay ahead.

• Perform a gap analysis: Review current end-to-end invoicing and digital reporting processes against ViDA’s requirements and other unilateral legislative requirements. Identify gaps in systems, processes, data and personnel.

• Understand Irish Revenue’s impact: Analyse how the Irish Revenue’s VAT modernisation, based on digital reporting, will affect domestic VAT rules and processes. Outcomes from ongoing consultations are expected during 2025.

• Align e-invoicing with business operations: Ensure new e-invoicing obligations are integrated with existing commercial processes, such as credit notes, intercompany transactions, cash flow management and procurement. Update tax governance policies to reflect these changes and ensure all stakeholders are aware of the new processes and obligations.

• Leverage technology: Invest in advanced technology and data strategies to streamline tax processes, improve data quality and ensure compliance. Tools like artificial intelligence (AI) and Generative AI (GenAI) can automate tasks, reduce errors and provide valuable insights, leading to more efficient and accurate tax management.

For simpler VAT registration and mandatory reverse charge (B2B) measures across the EU, businesses should:

• Assess benefits and costs: Evaluate the benefits of the simpler VAT registration regime and potential compliance cost savings. Determine whether maintaining foreign VAT registration is necessary for local VAT recovery.

• Understand new obligations: Assess the impact of the new reverse charge obligations. The VAT simplification measures aim to reduce compliance burdens and deliver benefits, but VAT registration may still be necessary in some cases.

Sector-specific rules and guidance may be released over time, particularly for financial services, leasing, digital assets and construction sectors. Businesses in these sectors should stay informed and consider these rules in their planning.

We are here to help you

PwC Ireland offers strategic planning advice for managing indirect tax functions and adapting to e-invoicing changes. Our end-to-end solutions for digital reporting and electronic invoicing enable you to manage financial transactions seamlessly while complying with local and international regulations.

Our dedicated VAT and tax policy team collaborates with PwC’s tax technology experts, the global PwC network and external software providers. We provide up-to-date advice and optimal preparation strategies for global VAT changes, tailored to your specific needs. Contact us today to ensure your business is prepared for the future of VAT in the digital age.