VAT in the Digital Age: Your Guide
VAT in the Digital Age (ViDA) will change how trade within the EU is conducted and reported forever.
This proposal will ultimately digitize the European VAT system. Details regarding the changes may be complex. This guide will help you:
Keep track of the latest updates
Understand the potential impacts
Evaluate and benefit from these changes
What is VAT in the Digital Age?
Simply put, ViDA is a proposal that will enable EU countries to use technology to improve the current VAT system and better prevent fraud. When enacted, this will mean significant changes to how you operate in these countries.
As expected, changes of this size and scope are generating a lot of questions among businesses that conduct operations in the EU. Everything from process costs to technology needs is being evaluated as more information on ViDA becomes available.
To assist your business in navigating the uncertainty surrounding VAT in the Digital Age, Sovos has created this HUB, which will serve as your comprehensive resource for everything ViDA. Bookmark this page and stay up to date.
We will be maintaining and updating this HUB frequently as new information and assets become available.
Timeline of VAT in the Digital Age
The EU Commission first proposed the VAT in the Digital Age plan for simple taxation in January of 2022. At that point, they issued a call for feedback, which ended in May of 2022. The Commission adopted the proposal on December 8, 2022, and have issued a follow-up feedback period which runs through April, 2023.
eBook: What is VAT in the Digital Age (ViDA)?
This eBook provides you with a high-level overview of all things ViDA.
VAT in the Digital Age for digital reporting and e-invoicing
Digital Reporting Requirements (DRR) will be introduced for all B2B transactions within the EU. This means that all suppliers and customers will need to submit data to their local tax administration no later than two working days after an invoice is issued. Each tax authority will channel the data to a central database.
ViDA for the single VAT registration
The EU has proposed changes that will reduce the VAT compliance burden for companies that conduct business internationally. This measure will allow them to only register once across all EU countries reducing the burden and administrative issues of having to file in each country independently.
The platform economy and VAT in the Digital Age
The increasing popularity of the platform economy business model has created a new set of challenges for the VAT system. The ‘VAT treatment of the platform economy’ only relates to the supply of certain services via a platform.
How VAT in the Digital Age affects your business?
All invoicing and related processes will be impacted. This includes any accounts payable and accounts receivable processes and the associated information systems that support them. You can read the full Q&A with Christiaan van der Valk on how businesses will be impacted here.
How Sovos can help you with ViDA
ViDA, at its core, is about data. The EU is saying that after the fact tax filings that only provide insight into aggregated data for a month or longer are no longer going to be acceptable. By leveraging technology, tax administrations can now receive authenticated transaction data detailing every sale and purchase straight from companies source systems. Tax is now an always on function, not an afterthought. For more, please speak with one of our experts.
Frequently Asked Questions
ViDA is the EU Commission’s action plan for fair and simple taxation. It emphasizes how tax authorities can use technology to fight tax fraud and benefit businesses while evaluating whether current VAT rules are appropriate for business in the digital age.
To control costs, protect revenue and shrink the VAT gap which has been a major issue of economic concern for all countries within the EU. The 2022 Report on the VAT Gap released by the European Commission estimates that EU Member States lost €93 billion in Value-Added Tax (VAT) revenues in 2020.
ViDA is broken down into three main coverage areas:
- VAT reporting obligations and e-invoicing
- VAT treatment of the platform economy
- Single EU VAT registration
KPMG has estimated that the overall savings in administrative cost currently borne by taxpayers is EUR 51 billion over a 10-year period between 2023 and 2032. The total cost of implementation for businesses and national administrations is estimated to be EUR 13.5 billion for the same period.
The EU Commission estimates that moving to e-invoicing will help reduce VAT fraud by up to €11 billion a year and bring down administrative and compliance costs for EU traders by over €4.1 billion per year over the next ten years.
The EU Commission announced that this will build on the already existing ‘VAT One Stop Shop’ model for online shopping companies, ViDA will allow businesses selling to consumers in other member states to register only once for the entire EU, and to fulfil their VAT obligations via a single online portal in one single language. Estimates show that this move could save businesses, especially SMEs, some €8.7bn in registration and administrative costs over ten years.
