The current VAT system in the EU has been in existence for 30 years and is no longer responsive to technological developments, digitalization, changes in business models or globalization. In this context, on December 8, 2022, EE proposed a series of measures to modernize the VAT system through digitalization. The new package follows EU legislative initiatives. for e-commerce and VAT (effective from 1.7.2021), based on the general action plan drawn up in 2020. All these initiatives are part of the overall EU strategy. for the “Digital Single Market”, facilitating the imposition and collection of VAT on online purchases.

The new package (Proposal for a Directive on VAT Rules in the Digital Age and two Regulations on Administrative Cooperation and Declaration Obligations) aims to address VAT challenges arising from the development of new business models and, in particular, the use of electronic platforms for sales. It is worth noting that member states lost €93 billion in VAT revenue in 2020, according to the EU VAT Gap Report 2022. In addition, according to the said report, a quarter of the VAT gap could be directly related to tax evasion observed in cross-border transactions. The proposals will help member states raise up to €18 billion in additional VAT revenue by combating tax evasion.

In particular, the proposals of E.E. are analyzed as follows:

Real-time digital reporting based on e-invoicing for companies operating abroad in the EU.

The new system introduces real-time digital reporting for VAT purposes based on e-invoicing, which will provide Member States with the information they need to strengthen their fight against tax evasion, in particular carousel fraud. The transition to e-invoicing will help reduce VAT fraud by €11 billion per year and lower administrative and compliance costs by more than €4.1 billion over the next decade. In addition, in subsequent years, the convergence of the national systems of the Member States is ensured.

Updated VAT rules for the platform economy

Under the new rules, platform operators in the passenger transportation and short-term rental industry (Airbnb) will be responsible for the collection and transfer of VAT, but service providers will not. This approach will mainly make it easier for SMEs who, under existing rules, have to comply with different VAT rules in all Member States where they operate, with all the ensuing consequences in terms of compliance and administrative costs. Finally, this proposal will strengthen the harmonization of rules and the creation of a level playing field between digital and traditional service providers.

In 2020 alone, the states of the European Union lost 93 billion euros in VAT revenue.

Creation of a single VAT register and a single registration for VAT purposes in the EU.

Building on the already existing Single Window model for companies operating in online electronic markets, the proposals will allow businesses selling goods to consumers in another Member State to register only once for VAT purposes throughout the EU. (in a Member State) and fulfill their obligations through a single online portal. The proposals also include measures to improve VAT collection, such as a commitment to use a “single import window” for platforms that facilitate sales to consumers in the EU.

Improving existing VAT rules for e-commerce

Amendments to the current structure are envisaged, such as extending the special OSS regime to profit margin regimes (eg travel agencies), for which the place of taxation is determined by the location of the consumer. It also becomes mandatory for Member States to apply a reverse charge in transactions between taxable persons (B2B) where the supplier/supplier is not registered in the Member State to which the VAT is due. In these cases, the taxpayer will be given the option of how to refund VAT and generally comply.

Upgrading the way businesses calculate and pay VAT in the EU. tax barriers are removed and relevant procedures are simplified. The new system ensures that member state authorities are fully informed about transactions in real time, allowing them to deal with tax fraud cases almost immediately. With regard to our country, it is expected that with the implementation of new proposals, work to combat tax evasion in the field of VAT will be further strengthened. However, in any case, this will also affect the national system (eg declaration, registration of entities) used for domestic transactions. Recall that based on the study of E.E. on the VAT deficit, the significant progress made in strengthening the efficiency of the VAT system was recognized, with an observed reduction in the deficit for our country by 3.7% (from 25.8% in 2019 to 22.1% in 2020). The implementation of the proposals is estimated to have a significant impact on digitalization, revenues, increasing tax awareness, increasing the competitiveness of businesses and, above all, providing conditions for further reducing the tax burden on labor.

Ms. Athena Kaliva (Ph.D.) is the Head of the Finance Department of the Permanent Mission of Greece to the EU, formerly G.K. tax policy and public property finance.