Five Ways the EU’s ViDA Proposals Will Impact Your Business

Since the announcement of VAT in the Digital Age, or ViDA, businesses across Europe and the UK have been keen to understand how the European Commission’s proposals will impact them. Put forward in December last year, these measures have been designed to regulate and tighten tax digitization across the EU and create a system more compatible with today’s increasingly digital world.

For the commission, the central aim is to build a framework that is more resistant to fraud and non-compliance through a more unified digital approach. In 2020, the commission reported the loss of 93 billion euros ($99.7 billion) across member states due to the value-added tax gap.

For businesses, it will require an overhaul of current internal processes and a sizable initial administrative burden to ensure they remain compliant.

What Is ViDA Proposing?

The proposals can be broken down into three pillars:

The first focuses on digital reporting, aiming to introduce real-time reporting or continuous transaction controls, CTCs, coupled with e-invoicing. Changes can already be expected in 2024, but the main intra-community business-to-business supplies reporting mandate is due to come into force in 2028.

The second pillar looks at VAT treatment of the platform economy. The commission’s stated goal is to ensure that, from 2025, online businesses are subject to the same VAT regulation as other businesses.

The third pillar, that will also come into place from January 2025, aims to further remove the need for multiple VAT registration zones for companies with cross-border operations. ViDA will expand the scope of the single VAT registration zone or one-stop shop, and make the reverse charge mandatory for nonresident suppliers, so companies that operate across multiple EU states won’t need to register in multiple countries.

How exactly will these changes impact your business?

Stricter Digital Invoicing

The introduction of mandatory digital reporting of cross-border transactions in the EU, coupled with mandatory e-invoicing, will be one of the biggest changes. It can be expected that mandates based on the same requirements will be added by member states, starting earlier than 2028.

Invoicing and related processes will have to change. This includes any accounts payable and accounts receivable processes and the information system that supports them. Organizations will need to review all aspects of their businesses to ensure they’re ready.

While the EU has allowed a grace period to adjust to these changes and ensure compliance, we’ve seen that with other CTC mandates the adjustment period provided by governments doesn’t allow companies to take a relaxed attitude.

Businesses should be fully compliant by the time the mandate comes into place, as the digitization of all invoicing will likely alter the way compliance is judged. As tax authorities gain greater insight into transactions and other economic data, a more binary approach will probably be followed, whereby an invoice that doesn’t meet the technical and process specifications will simply be considered noncompliant.

New Demands

Inevitably, with digitization come new technological demands. Reporting processes and ensuring they meet the specific protocols will certainly require attention, but businesses also will need to examine how CTC mandates will impact their upstream processes and data.

Many companies will have multiple enterprise resource planning, billing, and accounts payable systems that feed into separate business lines and trading partners. Currently, many of these systems will rely on invoice data coming through by paper or PDF. New invoice regulation will transform these business processes, as they will need technology compliant with ViDA as well as with a growing number of business-to-government e-invoicing requirements.

ViDA also is going to impact a business’s technological partnerships. Business leaders shouldn’t assume their technology providers can work to ViDA’s proposed new standards. Companies currently using the likes of EDI systems and procure-to-pay or accounts payable automation software of SaaS services will have to re-examine this.

Businesses will need to contact vendors directly to check if they’re aware of the developments and whether their products will be able to handle the changes that follow the rollout of a new CTC regime.

Cross-border Transactions Within EU

With the single VAT registration, the good news is that ViDA hopefully will simplify cross-border transactions for European businesses. Cross-border transactions will be subject to a new real-time reporting regime, replacing the recapitulative statement that exists. Because of this, administrative costs and complexities for businesses likely will be reduced, as they only will have to report in the member state where they’re established, providing some short-term relief from the wider changes the proposals are implementing.

Non-EU Exporters

Although the UK is no longer a member state, ViDA will still have an impact. Businesses outside the EU will now have to comply with cross-border digital reporting regimes, carrying an additional administrative cost. However, they stand to benefit from the extension of the single VAT registration zone (the one-stop shop and proposed extension of the reverse charge), meaning the number of countries in which an exporting business will need to be registered will be reduced, with less risk of non-compliance.

Looking Forward

Although the administrative burden may be daunting, there are certainly some positives businesses can take away. The new reforms not only will provide tax administrations with more insight into businesses, but also businesses themselves will gain invaluable data insights into their own operations.

Businesses need to avoid complacency and ensure they’re fully prepared. Internal processes will be changing across the business, so ensure everyone involved is fully informed.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Anna Nordén is Principal of Regulatory Affairs at Sovos.

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