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Brussels, 8 December 2022

The European Commission today proposed a series of measures to modernise and make the EU’s Value-Added Tax (VAT) system work better for businesses and more resilient to fraud by embracing and promoting digitalisation. Today’s proposal also aims to address challenges in the area of VAT raised by the development of the platform economy.

Member States lost €93 billion in VAT revenues in 2020 according to the latest VAT Gap figures also published today. Conservative estimates suggest that one quarter of the missing revenues can be attributed directly to VAT fraud linked to intra-EU trade. These losses are clearly detrimental to overall public finances at a time when Member States are adjusting budgets to deal with the social and economic effects of recent energy price spikes and Russia’s war of aggression against Ukraine. In addition, VAT arrangements in the EU can still be burdensome for businesses, especially for SMEs, and other companies who operate or are looking to scale-up cross-border.

Key actions proposed today will help Member States collect up to €18 billion more in VAT revenues annually while helping businesses, including SMEs, to grow:

A move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU

The new system introduces real-time digital reporting for VAT purposes based on e-invoicing that will give Member States valuable information they need to step up the fight against VAT fraud, especially carousel fraud. The move 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. It also makes sure that existing national systems converge across the EU and paves the way for Member States that wish to set up national digital reporting systems for domestic trade in the coming years.

Updated VAT rules for passenger transport and short-term accommodation platforms

Under the new rules, platform economy operators in those sectors will become responsible for collecting and remitting VAT to tax authorities when service providers do not, for example because they are a small business or individual provider. Together with other clarifications, this will ensure a uniform approach across all Member States and contribute to a more level playing field between online and traditional short-term accommodation and transport services. It will also make life easier for SMEs who would otherwise need to understand and comply with the VAT rules in all Member States where they do business. .

The introduction of a single VAT registration across the EU

Building on the already existing ‘VAT One Stop Shop’ model for online shopping companies, today’s proposal would allow businesses selling to consumers in another Member State to register only once for VAT purposes 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. Further measures to improve the collection of VAT include making the ‘Import One Stop Shop’ mandatory for certain platforms facilitating sales to consumers in the EU.

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 the Council Regulation on Administrative Cooperation (EU 904/2010).

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

For more information

Questions and Answers: VAT in the Digital Age

Questions and Answers: VAT GAP 2022 report

Factsheet on VAT in the Digital Age proposals

Factsheet on the VAT Gap 2022 report

More information on the DG TAXUD website on the VAT in the Digital Age proposals (including legislative texts)

More information on the DG TAXUD website on the 2022 VAT Gap report


Remarks by Commissioner Gentiloni at the press conference on VAT in the Digital Age and the Directive on Administrative Cooperation (DAC8)

Today we are launching two major new initiatives to help to align our tax system with the digital world, to support the fight against tax fraud and evasion and to increase fairness in certain sectors.

Why is this action needed?Firstly, because the rapid digitalisation of our economies poses challenges for our tax systems, like how to treat new business models such as the platform economy, and new digital transactions, notably in the crypto-asset market.

Secondly, because we need to reduce tax fraud and tax evasion. Today we have published new VAT Gap figures which show that Member States in 2020 lost €93 billion in VAT revenues, one quarter of which can be conservatively attributed to fraud. €93 billion, which was less than in the previous year, for more efficiency but also less activity In 2020 in relation to 2019.

Thirdly, because technological advancements can help to deliver innovative solutions to act on such activity and redirect these sums to where they belong: funding our public services and the mountain of investments we face.

And lastly, because it remains vital to continue working to make our tax systems fairer and more equitable and to make it easier for companies in the EU, in particular SMEs, to take advantage of our Single Market and to scale up their businesses.

Let me start with the VAT in the Digital Age proposal. VAT is one of the most important sources of revenue for our Member States.  And our continuous efforts to improve the EU’s VAT system have started to pay off.

Last year we had a landmark deal – not a short discussion – to modernise the VAT rates framework, bringing it into line with EU priorities and giving Member States more flexibility.

Our new rules for VAT for e-commerce have also seen considerable success since their entry into force in July 2021. They have simplified cross-border online shopping for businesses and consumers alike, while making it easier for Member States to collect VAT due on online sales.

And while the overall VAT Gap is still of concern, we have seen it decrease in recent years due to efforts at EU and national level, such as better risk analysis and cooperation between countries and, of course, technology.

But inconsistencies remain.

The EPPO uncovered a vast VAT fraud network across the EU and beyond recently, which deprived national authorities and our public services of 2.2 billion euros in revenues.

The success of that investigation is great news, and I congratulate the EPPO on the results. But our aim must be to stop this criminality before it happens. That means better detection, to prevent the fraud happening in the first place.

At the same time, the VAT system has not kept pace with the platform economy and is still cumbersome to use for businesses that want to sell to consumers in multiple Member States.

For these reasons, we now need to go further, to bring the VAT system into the Digital Age.

The proposal consists of three pillars.

First,  real-time digital reporting.

Criminal VAT fraud is possible because current VAT reporting is simply too slow for Member States to keep up with intra-EU trade, with information sometimes arriving months after a transaction.

Our proposal will introduce an EU-wide standard for the real-time reporting of cross-border supplies, through transaction-based electronic invoicing.

This means that each intra-EU business-to-business transaction in goods will need to be accompanied by an e-invoice, submitted to national authorities through an EU wide database.

At a stroke, it will allow Member States to tackle fraud by giving them the real-time information they need to act on suspicious transactions. And by sharing this information, national authorities will be able to cooperate more efficiently.

We estimate that the move to the new e-invoicing system will help Member States recoup up to 11 billion euros in revenues a year over the next ten years: money that is currently lost to VAT fraud.

And it will alleviate the current heavy reporting requirements, saving businesses 4.1 billion euros a year over the same period. So it is a win-win proposal.

The second pillar is about VAT rules for the platform economy.

Current VAT rules lead to many transactions for short-term accommodation and passenger transport services supplied via a platform going untaxed, which means an unfair playing field for traditional hotels and taxis.

The proposal aims to eliminate this unequal treatment by making the platform accountable for collecting the VAT due where the supplier does not do so.

It will also simplify compliance for SMEs and individual users of these intermediaries, in that they will not have to worry about their VAT obligations going forward, because it will be the platform to do so.

And the third pillar is the single VAT registration.

Many businesses still find it difficult to sell to consumers in multiple Member States because of the administration and compliance hurdles involved in registering for VAT separately in each country.

So we want to extend the already successful new online system for VAT on e-commerce, which came into force in 2021, to other businesses that want to sell to consumers across the Single Market.

Today’s proposal would allow even more companies to register only once for VAT purposes for their activities across the EU and fulfil their VAT obligations in one language, via a single online portal.

This will save businesses, especially SMEs, some 8.7 billion euros over the next ten years.

The second initiative we are presenting is about crypto-asset transparency.

The fight against tax evasion and avoidance is also what prompted today’s other initiative, the latest amendment to the Directive on Administrative Cooperation, also known as DAC8. Today, we are proposing new tax transparency rules for all service providers facilitating transactions in crypto-currencies for customers who reside in the EU.

The cover of anonymity, the fact that there are more than 9,000 different crypto-assets currently available, and the inherent digital nature of the trade means that many crypto-asset users that are making huge profits fall under the radar of national tax authorities.

So our proposal will mean that Member States get the information they need to ensure that taxes are paid for gains made in trading or investing crypto-assets, as they would be for any other financial assets.

In practice, this means that crypto-asset service providers, irrespective of their size or location, will need to report transactions of clients residing in the EU, whether these transactions are domestic or cross-border.

We are also aligning the entry into force of DAC8 with the timing agreed for the implementation of the OECD crypto-assets reporting framework. Both DAC8 and the rules of this framework will enter into force on 1 January 2026. All jurisdictions that have agreed the OECD crypto-assets reporting framework, the United States included, will follow a similar calendar.

The DAC8 proposal aims, in addition, to further close loopholes and improve administrative cooperation among EU Member States in support of fair taxation, by requiring financial institutions to also report on e-money and on central bank digital currencies.

And to ensure that rules are followed, we are setting a common minimum level of penalties for the most serious non-compliant behaviours.

In these challenging times, public finances need sound and predictable tax revenues and citizens demand tax fairness and strong action against tax fraud and tax evasion. We believe that today’s proposals are a good step forward towards these common goals.

Thank you for your attention.

Source – EU Commission


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