EU Commission welcomes new VAT regulations for digital economy

Brussels (Brussels Morning Newspaper) – The EU Commission supports the Council’s approach to modernize VAT, enhance fraud prevention, and improve digital reporting.

As for the Commission’s proposals on VAT in the Digital Age, the European Commission welcomes the general approach announced by the Council. The Commission stated that by embracing and encouraging digitalisation, this package drives the EU’s VAT system more business-friendly and more resilient to fraud. The new regulations also mark the first step to address the challenges presented by the development of the platform economy and help level the playing field between online and traditional short-term lodging and transport services.

How will new VAT measures enhance business resilience?

According to the EU Commission, this package raises 3 measures including a new system that presents uniform real-time digital reporting for VAT purposes based on e-invoicing for cross-border transactions, which will deliver Member States timely with the valuable information they need to step up the wrangle against VAT fraud. 

Moreover, platform economy operators in the passenger transport and short-term accommodation rental sectors will become liable for collecting and remitting VAT to tax authorities, where the underlying supplier does not levy VAT. This action will contribute to a better level playing field between online and traditional services and will make life more comfortable for the underlying hosts and drivers, who will not be liable for the VAT. 

Ultimately, this initiative will additionally reduce the need for multiple VAT registrations in different Member States, developing the already existing ‘VAT One Stop Shop’ model for shopping-commerce companies.

How much revenue did member states lose in VAT in 2021?

Generally, VAT is one of the most significant revenue streams for Member State authorities. However, according to the latest VAT GAP Report 2023, Member States failed about €61 billion in VAT revenues in 2021. To address these failures and respond to the increasing digitisation of the economy, in December 2022 the Commission submitted to update VAT obligations by enabling the digital transition. This legislative package was reported in the 2020 Action Plan for fair and simple taxation helping the recovery strategy.