EU Council agrees legislative package on value added tax in digital age

EU Member States’ finance ministers, meeting in Council on Tuesday 5 November, reached a unanimous political agreement on the legislative package on value added tax (VAT) in the digital age (ViDA), after two years of discussions (see EUROPE 13517/8).

“This final agreement is an important step, reflecting our ongoing commitment to modernise the VAT framework and address the challenges posed by the digital economy”, said a delighted Mihály Varga, Hungary’s Minister of Finance, at the press conference.

“This is a significant advance in our fair taxation agenda that reflects the new digital realities; this package will make the EU taxation system more business-friendly and more resistant to fraud by embracing and promoting digitalisation”, commented Valdis Dombrovskis, Executive Vice-President of the European Commission.

The agreement covers three acts: a directive, a regulation and an implementing regulation. The new rules will make VAT reporting obligations for cross-border transactions fully digital by 2030. They also oblige digital platforms to pay VAT on short-term accommodation and passenger transport services in most cases where individual service providers do not charge VAT. They are also improving and expanding online one-stop VAT shops, so that businesses do not have to register for VAT in every Member State in which they operate, which is very costly.

Estonia’s veto on platforms has finally been lifted thanks to the additional implementation period (see EUROPE 13409/2, 13437/1). “We appreciate the results on the platform economy as well”, emphasised its minister, Jürgen Ligi, during the public debate.

During the debate, Mr Varga highlighted the fact that the use of platforms in our daily lives has raised new questions regarding VAT invoicing. Cross-border transactions are notoriously vulnerable to VAT collusion fraud. With the current system, fraudsters can take advantage of the difficulty the authorities have in rapidly detecting suspicious or fraudulent transactions, since the data is incomplete and not available in real time. “We will be able to better protect our revenues thanks to best practices”, said the minister.

Paolo Gentiloni, the European Commissioner for Economy, pointed out that “the Commission will have to closely monitor the SME exception is applied in practice, so that it does not jeopardise the general principle introduced by ViDA”.

The European Parliament was consulted and delivered its opinion in November 2023 (see EUROPE 13298/11). However, due to the substantial changes made to the directive by the Council, the European Parliament will be consulted again on the approved text. The text will then have to be formally adopted by the Council before being published in the Official Journal of the EU and entering into force.