EU to introduce e-invoicing for VAT

EU to introduce e-invoicing for VAT

After two years of debate and negotiations, the European Council has reached an agreement on new measures that will modernise the EU’s VAT rules.

The key changes will introduce a requirement for electronic invoices and real-time data reporting. There will also be new rules on VAT liability for bookings for online accommodation rental and passenger transport services carried out through digital platforms, such as Airbnb and Uber.

From 2030, businesses will have to issue e-invoices for cross-border business-to-business transactions and automatically report the data to their local tax administration.

Tax administrations will then share the data through a new IT system that will be capable of providing analyses of suspicious activities.

The new rules will affect all companies trading in the EU, regardless of their membership status.

It was agreed that the system ‘should be in place in 2030’ and ‘all existing national systems should become interoperable with the EU system by 2035’.

This new legislation is designed to ‘fight tax fraud, support businesses and promote digitalisation’.

The new rules will:

• make VAT reporting obligations for cross-border transactions fully digital by 2030;
• require online platforms to pay VAT on short-term accommodation and passenger transport services in most cases where individual service providers do not charge VAT; and
• improve and expand online VAT one-stop-shops so that businesses do not have to go through costly registrations for VAT in every member state in which they do business.

The decision was taken at the European Council and will mark a major overhaul of how business in conducted in the EU.

The Council has agreed to give EU member states greater flexibility by expanding the definition of short-term accommodation rental for tax purposes and each country will be able to exempt their local small and medium-sized enterprises (SMEs) from the deemed supplier rules. There will also be a short transition period for applying the deemed supplier rules, which will be confirmed ahead of the final directive. However, timing of the rollout is a key concern.

The VAT agreement is wide-ranging with confirmation that the liability for the payment of VAT in business-to-business transactions will be shifted from the supplier of goods or services to the buyer if that supplier is not established in the member state where the VAT is due (under the so-called ‘reverse charge mechanism’). This was already possible in some situations but will become mandatory in the future.