The ViDA proposal (VAT in the Digital Age) is a series of legislative measures proposed by the European Commission on 8 December 2022 aimed at modernising the workings of the common value-added tax system and reducing VAT fraud.
When drafting the ViDA proposal, the Commission took into account the 2022 VAT Gap report, which, among many other interesting things (such as how effectively Hungary has been able to reduce its VAT gap in recent years), shows that Member States lost around EUR 93 billion in VAT revenue in 2020 due to VAT evasion linked to intra-EU transactions (e.g. carousel fraud). In addition to lowering this amount, one important goal of the ViDA proposal is to bring the common value-added tax system into the digital age with regard to intra-EU transactions and the so-called platform economy, and to reduce the administrative burdens for taxpayers.
This is why the Commission set three main objectives:
- the introduction of digital reporting, mandatory e-invoicing for cross-border transactions;
- updated VAT rules to meet the challenges of the platform economy;
- the introduction of single VAT registration.
Digital reporting
This is not an alien term to Hungarian taxpayers, as Hungary has been operating its so-called online invoice data reporting system for some time now, which we have already discussed in detail in several articles. This system in Hungary, together with the EKAER (Electronic Public Road Transportation Control System), has made a great contribution to reducing VAT fraud and increasing VAT revenues. Hungary is not the only Member State to have introduced some form of digital invoice data reporting. The Commission estimates that in the Member States where some form of digital reporting is required, VAT receipts increased by 2.6% – 3.5% between 2014 and 2019.
This is why ViDA proposes that a common digital reporting system based on e-invoicing will need to be introduced, primarily for intra-EU transactions. At present, by submitting recapitulative statements, taxpayers only provide aggregate data on intra-EU trade, by Member State and tax number, not by transaction. Therefore, the Commission plans to introduce digital reporting that will require near real-time reporting of cross-border transactions within the EU on both sides of the transactions. In addition, in the longer term, there are plans to harmonise domestic reporting systems and create a single template.
VAT regulation of the platform economy
The platform economy is a modern business phenomenon (thinking in particular here about passenger transport, such as Uber, and short-term accommodation providers, such as Airbnb) where individuals and small taxpayers can sell their services with the help of, or via, the platform. Since these entrepreneurs conduct a taxable activity, in most cases they are compelled to register as taxpayers, which imposes an additional administrative burden on the service providers, or, they pursue their activities tax-free, but thereby distort competition. Another problem is that VAT rules on the platform economy differ, or are applied differently, in the various Member States.
It follows from the above that there is a need to create a simple and common system to reduce the administrative burden for platform providers and the taxpayers wishing to sell their services through them, and to simplify the collection of the tax. To achieve this, the so-called deemed supplier model will be introduced, where the tax is accounted for by the platform providers instead of the taxpayers actually providing the services. Uniform rules on the place of supply are also being introduced, as well as harmonising the reporting of data and transmission of information by platforms.
Single VAT registration
The changes that took effect on 1 July 2021 greatly reduced the administration imposed on e-traders with the roll-out of the One Stop Shop (OSS). The idea here is that cross-border sales to private individuals do not need to be registered in the country of the customer, but the tax payable in the destination country can be settled through the one-stop shop system. In addition, the so-called Import One Stop Shop (IOSS) – a one-stop shop system for sales from non-EU countries to intra-EU customers – was introduced, which is also the one-stop shop platform for imports of small consumer goods (up to EUR 150).
One stated intention of the ViDA proposal is to expand the scope of these one-stop shops, since in their current form, the OSS or IOSS do not provide an adequate solution or simplification for certain economic operators, mainly small and medium-sized enterprises, and thus generate additional administrative burdens for taxpayers because of the registration required in the Member States concerned.
The European Commission intends to implement these objectives gradually between 2024 and 2028 according to the ViDA proposal. We believe the Commission is on the right track: digitalisation and reducing administration are very important criteria, and implementing the proposals could indeed be effective in ensuring secure tax collection and reducing the VAT gap. The detailed rules are still being worked out, but we hope that the end result will be a truly modern VAT system with forward-looking solutions.
What does the ViDA proposal imply for Hungary?
There are also some questions on the Hungarian side. For example, what will happen to the Hungarian online invoice data reporting? Can it stay, or must the common regime be applied to domestic transactions? Or, with the EU’s transaction reporting system will the NAV’s dream finally come true and will it be able to prepare taxpayers’ VAT returns merged with reported domestic invoice data? (Third country items will still be missing of course.) These are all questions for the future. Of course, as soon as we have something to share, we’ll summarise the main points for you.
The VAT experts at WTS Klient Hungary with their decades of professional experience can effectively support their clients not only with Hungarian but also international VAT regulation. Do not hesitate to contact us if your company is involved in international, intra-EU transactions, and you have questions about what changes you need to prepare for under the new rules.
