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December 9, 2022

European Commission publishes proposals for VAT in the Digital Age

  • The European Commission has issued proposals to amend the European Union (EU) value-added tax (VAT) system to respond to digitalization.
  • They include a series of measures aimed at modernizing the VAT system and making it resilient to fraud and to address challenges in the area of VAT for the platform economy.
  • Key proposals are: (i) introducing standardized Digital Reporting Requirements (DRRs) across the EU in an electronic format and imposing e-invoicing on cross-border EU transactions; (ii) addressing the challenges of the platform economy in short-term accommodation rental and passenger transport services by clarifying existing rules and enhancing the role of platforms in VAT collection; and (iii) reducing registration requirements in the EU by expanding the scope of the One Stop Shop (OSS) and use of reverse charge for business-to-business (B2B) transactions.

Executive summary

On 8 December 2022, the European Commission (the Commission) proposed its VAT in the Digital Age Package.1 This follows consultation earlier this year.

The changes aim to reduce the VAT Gap in the EU (€93 billion in VAT revenues in 2020 according to the latest VAT Gap figures) and to make the VAT system efficient for businesses. The Commission's proposals cover three topics as summarized below.

Detailed discussion

A move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU and a harmonized framework for domestic transactions

The new system introduces digital reporting for VAT purposes for intra-community transactions to provide Member States with information on a real-time basis. Businesses will also be obliged to follow e-invoicing for intra-community supplies based on a European standard. The information reported would be shared between tax authorities for a joint analysis.

The Commission believes that the real time availability of information about cross-border trade of goods/services will help in addressing missing trader fraud. The Member States will also have the option to introduce mandatory e-invoicing for domestic B2B transactions which should comply with the same European standard as cross-border e-invoicing. The Commission expects that the existing digital reporting requirements in various Member States should converge with the proposed requirements by 2028.

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

The Commission acknowledges that the current system of VAT in this sector creates inequality where private individuals and small enterprises can supply services to a larger customer base without VAT via the platform economy. Another issue in this sector has been to determine the correct VAT treatment due to either lack of availability of information about the status of underlying suppliers or based on differing interpretation adopted by Member States on the taxability of "facilitation services" by platforms.

The Commission is of the view that these issues can be addressed by introducing a deemed supplier model which involves making platforms 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. The proposals also call for standardizing the format and timeframe for submitting information to tax authorities and including both B2B and business-to-consumer (B2C) supplies in the information reporting.

Introduction of a single VAT registration across the EU

Building on the already existing "VAT One Stop Shop" (OSS) model for online shopping companies, the proposals expand the scope of the OSS to include additional transactions within its scope, including movement of stock from one Member State to another during the course of sales to consumers. This would effectively mean in some cases allowing businesses selling to consumers to register only once for VAT purposes for the entire EU. The proposals also allow for use of the reverse charge mechanism by a B2B customer when sales are made in a Member State where the supplier is not established.

Additionally, the proposals seek to make changes for online platforms facilitating the sale of goods in the EU:

  • It would be mandatory for platforms to use the Import One Stop Shop (IOSS) Scheme when facilitating the sale of goods from non-EU (third countries) to consumers in the EU. However, it is not proposed at this stage to increase or remove the threshold for using IOSS (€150).
  • Making them a deemed supplier for VAT purposes for the transfer of underlying suppliers' goods to other Member States for storage prior to sale to consumers in the EU.

Next steps

The 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.

Businesses operating in the EU should start to consider their readiness for the changes should they come into force, particularly in respect of the systems changes that would be required for standardized e-invoicing. The simplification regime (OSS) if implemented offers opportunities for businesses to streamline their reporting obligations.


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United Kingdom), London

Ernst & Young LLP (United States), New York



1 Please refer to the Proposal for a Council Directive amending Directive 2006/112/EC and the Q&A: VAT in the Age.