EU, Council gives green light to digital VAT

BRUSSELS - After almost two years of heated negotiations, EU finance ministers today, Tuesday 5 November, reached political agreement on a long-awaited reform that should enable a modernisation of the application of value added tax (VAT) in Europe. The measure, which among other things digitalises intra-European invoices, will now have to go through consultation with the European Parliament.

"The arrangement makes life easier for taxpayers, combats fraud and promotes fair competition," commented Economic Affairs Commissioner Paolo Gentiloni. "EU Member States lose around EUR 60 billion in VAT every year: unified electronic invoicing is a key step to reduce this. A single VAT registration will ease the administrative burden for European businesses, helping SMEs to expand across borders".

In essence, the measure will first of all impose real-time electronic invoicing. Secondly, operators of digital platforms in the passenger transport and short-term accommodation rental sectors will become responsible for collecting and transmitting VAT to tax authorities, if the underlying supplier does not charge tax. Finally, the initiative will further reduce the need for multiple VAT registrations in different Member States.

The EU finance ministers should adopt the reform after consulting the European Parliament (Strasbourg has no co-decision powers in the tax field). The proposal was presented by Brussels in 2022 (see Il Sole/24 Ore of 6 December 2022). The difficulties in finding an agreement depended on Estonia's position on the possibility for the platform to collect VAT. In order to reach an agreement, a long transition period expiring in 2030 was agreed upon.