Taxation: Adoption of digital reporting to combat VAT fraud


The EU aims to make the system more efficient for businesses and more resistant to fraud by adopting and promoting digitization

A series of measures to modernize the EU’s value added tax (VAT) system was proposed by the European Commission today.

The aim is to make the system more efficient for businesses and more resistant to fraud by adopting and promoting digitalisation. Today’s proposal also aims to address the challenges posed by the development of the platform economy in terms of VAT.

According to the latest VAT deficit figures also published today, in 2020 Member States lost €93 billion in VAT revenue. Based on conservative estimates, a quarter of lost revenue can be directly attributed to VAT fraud linked to intra-EU trade. These losses are clearly damaging to public finances overall at a time when member states are adjusting their budgets to deal with the social and economic impact of recent energy price spikes and Russia’s war of aggression against Ukraine. In addition, VAT regimes in the EU can still be burdensome for businesses, especially SMEs and other businesses that operate cross-border or intend to expand into such activities.

The main actions proposed today will help Member States secure up to €18 billion in additional VAT revenue per year, while helping businesses, including SMEs, to grow:

Move to real-time digital reporting based on e-invoicing for businesses operating cross-border in the EU
The new system introduces real-time digital reporting for VAT purposes based on electronic invoicing. This will provide Member States with the valuable information they need to strengthen the fight against VAT fraud, especially chain fraud. The move to e-invoicing will help reduce VAT fraud by €11 billion per year and reduce administrative and compliance costs for EU traders by more than €4.1 billion per year over the next decade. It also ensures that existing national systems converge across the EU and paves the way for Member States wishing to set up national digital reporting systems for domestic trade in the coming years.

Updated VAT rules for passenger transport and platforms for short-term accommodation
Under the new rules, platform economy operators in these sectors will become responsible for collecting and remitting VAT to the tax authorities when service providers do not, for example because they are small businesses or individual providers. This approach, together with other clarifications, will ensure harmonization across Member States and help create a more level playing field between online and traditional short-term transport and accommodation services. It will also make it easier for SMEs, who would otherwise have to understand and comply with VAT rules in all the Member States where they operate. .

Establishing a single entry in the VAT register across the EU
Building on the ‘one-stop shop for VAT’ model that already exists for online shopping companies, today’s proposal will allow businesses selling to consumers in another Member State to only register once across the EU for VAT and fulfill the their VAT obligations through a single online portal in a single language. According to estimates, businesses, and especially SMEs, could thus save around €8.7 billion in VAT registration and administrative costs over ten years. Other measures aimed at improving VAT collection include the obligation to use the “import window of one stop” for certain platforms that facilitate sales to EU consumers.

Next steps

Today’s package of proposals takes the form of amendments to three pieces of EU legislation: the VAT Directive (2006/112/EC), Council Implementing Regulation (EU) 282/2011 and Council Regulation on Administrative Cooperation (EU) 904 /2010.

The legislative proposals will be forwarded to the Council for approval and to the European Parliament and the Economic and Social Committee for consultation.

Lena Flitzani

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