1-year delay to ViDA: Why you can’t afford to relax

Put your hands up if you breathed a huge sigh of relief when you heard about the potential 12-month extension to the implementation timeline for VAT in the Digital Age (ViDAViDA or 'VAT in the Digital Age', is an EU initiative proposed by the European Commission that seeks to modernise and harmonise VAT processes for member states, by embracing new technologies. It is aimed at updating processes for the management of VAT, and reduce the VAT gap and fraud. The proposal also aims to address challenges in the area of VAT raised by the development of the platform economy.)!

The proposal to delay might have come about after a deep scan by the EU Parliament’s Committee on Economic and Monetary Affairs (ECON) and industry feedback, but the truth is it’s likely the tip of the iceberg with many businesses simply unable to meet the new requirements in time for the current start date of 2024.

We know from experience that too many organisations only start to take even major legislative updates seriously a matter of weeks before they arrive. But there is so much you can do now to prepare and protect your business so you are ready when the ViDA regulations are introduced – whether that’s in 2024 or 2025.

One-year delay under consideration

In early July, ECON discussed the possibility of calling for a two-year delay to the implementation of ViDA.

It has since shortened this to 12 months; a timeframe set out in the latest proposed amendment to the European Commission’s ViDA plan.

As it stands, ViDA is due to be rolled out between 2024 and 2028 – a timeframe that can only be met if it is signed off by finance ministers at the ECOFIN summit set to take place in December.

However, prior to that, the committee will meet on 24^th October to decide whether to approve the amendment for a one-year delay to its implementation. If this is passed, ViDA’s arrival will be pushed back to 2025.

What is ViDA?

The ever-increasing role of digital platforms and marketplaces has created new and significant challenges and inequalities among traditional VAT systems.

In recent years, the EU has been looking at ways to address these challenges and ensure a fair and efficient system of VAT collection for companies that sell goods or services online.

VAT in the Digital Age was the culmination of its efforts. The scheme was proposed by the European Commission in December 2022 and is based upon three core pillars of VAT reforms. These are:

• Single VAT registration (due 2025)

Businesses will only have to register once for VAT across the entire EU, with a wider number of in-scope transactions covered under this single registration. This is designed to reduce VAT administration costs and time.

• Platform economy (due 2025)

Up to 70% of suppliers using online platforms are not VAT-registered. Under ViDA, short-term accommodation rental and passenger transport platforms that are not registered for VAT will find a new deemed supplier regime applies to their activities, meaning they will be liable for the tax.

• Digital reporting requirements (due 2028)

ViDA will place mandatory digital reporting requirements on VAT taxable persons and businesses. Data will be submitted to tax authorities in a digital way on the vast majority of transactions, including by e-invoicingElectronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing..

Who is affected by ViDA?

ViDA applies to anybody who sells goods or services digitally to customers in the EU, regardless of where they are based. This includes online marketplaces, platforms and intermediaries.

Why you can’t afford to relax

On the face of it, having an extra 12 months to prepare for the introduction of ViDA regulations takes the pressure of you and your tax team. It might be tempting to think you no longer need to act with urgency.

But the truth is that ViDA extends across so many of your day-to-day tax activities, is of considerable complexity and requires immense preparation if you are to comply. With that in mind, our advice is to start planning for ViDA immediately.

Many of the challenges of ViDA are not ones that can be embraced and overcome in a matter of weeks; they require months or even years for the necessary infrastructure to be built and processes put in place.

All aspects of your tax set-up will need to be explored and evaluated if you are to achieve seamless compliance with ViDA, but as a priority we recommend focusing on two areas:

1. Master data

Clean and complete master data is critical because poor quality data will yield inaccurate or non-compliant results, regardless of how strong your technology is. Tackling data quality at source is the only solution.

Under ViDA, you will need to include additional information in electronic submissions – such as e-invoices – so having a solution with the capability to extract relevant data from source systems is also essential.

2. Tax determination

Businesses that use online platforms and marketplaces to sell goods or services will be required to determine the correct tax and apply it to each transaction so that the relevant duties are collected. In some cases, this will be the first time businesses have been expected to determine and collect VAT.

If your business does not already have an automated tax solution in place to determine tax in any country, get in touch with us to find out about the options available to you.