ECOFIN fails to reach agreement on ViDA VAT reporting package

This means that the first implementation of the package, once agreed, is not expected to occur until 2027 at the earliest.

The ViDA package, first proposed by the European Commission in December 2022, aims to modernise reporting obligations for VAT purposes by standardising the information that needs to be submitted by businesses on their transaction and by imposing the use of e-invoicing for cross-border transactions. This is aimed, amongst other things, at combatting tax fraud.

In addition to introduction of digital reporting, the package seeks to enhance the role of platforms in the collection of VAT when they facilitate the supply of short-term accommodation rental or passenger transport services. It also aims to make it possible to register for VAT purposes only once for all EU member states.

“If approved, the ViDA will allow EU member states to impose a domestic e-invoicing regime without having to seek approval from the EU institutions”, said Robert Dever, a tax expert at Pinsent Masons. “Businesses in member states which opt to introduce such regimes will need to accept e-invoices, even without their agreement.”

The package consists of three proposals that seek to update existing EU VAT legislation: a proposal for a Council directive as regards VAT rules for the digital age; a proposal for a Council regulation as regards the VAT administrative cooperation arrangements required for the implementation of the new system; and a proposal for a Council implementing regulation as regards information requirements for certain VAT schemes.

The three proposals are subject to different procedures, but unanimity within the EU Council is required for each one.

Pillars 1 and 3 regarding digital reporting/e-invoicing and single EU VAT registration respectively had already been agreed by ECOFIN at its meeting in May. That leaves pillar 2 relating to VAT collection by digital platforms to be agreed which is where Estonia has raised concerns.  

Dever said: “Despite compromises being proposed by the Belgian Presidency - and before it the Spanish Presidency -  Estonia has continued to veto the proposed VAT package citing concerns around the second pillar regarding the role of platforms in accounting for VAT when facilitating the supply of short-term accommodation rental or passenger transport services.”

In earlier meetings, Estonia had raised concerns that the mandatory requirement for platforms to account for their third party traders would undermine neutrality and would be unfavourable for smaller traders operating below the VAT registration threshold.

A compromise was proposed to allay these concerns, allowing member states to exclude small and medium-sized enterprises (SMEs) from the new obligations. The compromise also provided for a database for platforms to manage SMEs under the proposed new regime. However, Estonia was not agreeable to the details of the compromise.

It is hoped that a new compromise led by the Hungarian Presidency will be found at the next ECOFIN meeting taking place in July so that the ViDA package can be finalised.