The European Parliament has approved a significant reform of VAT standards, adapting them to the digital reality and fighting competitive inequalities. This measure, approved with 589 votes in favor, 42 against, and 10 abstentions, aims to eliminate market distortions and reinforce the fight against tax fraud. The reform is a crucial step towards creating a more level playing field for businesses operating in the digital era.
Key Changes
One of the main changes provides that, until 2030, online platforms are responsible for paying VAT for the services offered through them, in cases where individual suppliers do not charge it. This measure seeks to correct an inequality that has favored digital services compared to traditional ones, especially in the short-term accommodation sectors and passenger transport. Nevertheless, Member States may exempt SMEs from this obligation, a proposal that had the support of Parliament.
Another fundamental axis of the reform is the total digitalization of VAT declaration obligations for cross-border transactions. By 2030, companies must issue electronic invoices and automatically communicate the data to the tax authorities, allowing a more effective struggle against tax fraud and increasing the transparency of the system. This digitalization will also help reduce bureaucracy and simplify the life of companies.
Simplification and Efficiency
To reduce bureaucracy and simplify the life of companies, the reform also expands the unique VAT online window system. Thus, a greater number of companies that operate internationally can comply with their tax obligations through a single portal and in a single language, reducing administrative costs and making the process more efficient. This review of VAT standards has been planned for more than two years, and according to estimates of the Commission, the new legislation will allow Member States to recover up to 11,000 million euros annually in lost VAT revenues.
Companies will also benefit from the reform, saving around 4,100 million euros per year in compliance costs and 8,700 million euros in administrative and registration costs over a decade. The European Commission presented the “VAT in the digital era” package in December 2022, which included three proposals, including the update of the 2006 VAT Directive. With this reform, the European Parliament is taking a significant step towards creating a more modern and efficient VAT system that is fit for the digital age.
