The ViDA Failure, and How Your Company Can Turn it into a Powerful Opportunity

It’s official: The spaghetti of e-invoicing regulations has too many cooks in the kitchen.

At a recent meeting of the Economic and Financial Affairs Council (ECOFIN) of the European Union, member nations failed to agree on the latest VAT in the digital age proposal, better known as ViDA. While they were able to push forward some changes to the proposal – a step in the right direction – agreement on the overall proposal remains elusive, at least until the next ECOFIN meeting at the end of June.

Given the inability of EU member states to come to a compromise on ViDA, it is tempting for companies to adopt a wait-and-see approach – to delay preparation until the proposal is unanimously approved across the board. However, history has taught us that waiting and seeing is rarely the right strategy – particularly when it comes to broad-based regulations that will fundamentally shift your operations and create opportunities for risk mitigation, efficiency, and cost savings.

But before we get into all that, let’s break down the specifics of ViDA and what it looks like now.

What is ViDA?

ViDA is a set of regulations introduced by the EU Commission that relates to the value-added tax, a goods-and-services tax that has been adopted by over 140 countries. In fact, the VAT is one of the biggest sources of tax revenue in the world, according to the International Monetary Fund.

The problem with the VAT is that it was designed for traditional businesses, making it ill-equipped to respond to the demands, challenges, and opportunities of the digital age. It runs slow and is prone to fraud. It also makes it difficult for member states to keep up with tax evasion, creating a system that supports neither businesses nor the countries in which they operate.

ViDA is an effort to address the disconnect between the old system and the modern business environment. It applies to any business that sells goods or services online to customers in the EU, whether they are based in the European Union or elsewhere, and it is intended to ensure fairness and efficiency in the VAT collection process.

ViDA will require that businesses make a number of updates to their current systems and processes, and it can feel like just another expense. However, there are distinct advantages for companies, as well, most of which are tied to the benefits of digitalization: Companies can reduce instances of VAT fraud, improve operational efficiency, increase productivity, and reduce expenses. And the faster businesses embrace this shift, the sooner they can begin to reap those benefits across their entire organizations.

The problem is, many companies are waiting for ViDA to become official before taking the first steps in this direction. And that has yet to happen.

The latest on ViDA

The ViDA proposal includes three core pillars: the Digital Reporting Requirements (DRR), which is the portion of the proposal that will affect most businesses, as well as the Platforms pillar and the Single VAT Registration pillar. Here are a few specific requirements divided by those pillars.

DRR

• Einvoices must follow a standard, but exceptions will be allowed for domestic transactions.
• Einvoicing will be mandatory for all intra-EU supplies of goods and services by July 1, 2030.
• Both the issuer and the recipient of the invoice are required to report invoice data to national tax authorities, but member states could opt out of the requirement for the invoice recipient.
• Einvoices for cross-border transactions are to be issued within 10 days from the chargeable event, compared to two days in the initial proposal.
• “Hybrid invoices” – or those that combine data in a structured format with data included in a PDF – will be considered einvoices, as long as they include all necessary data, until July 1, 2030.
• Real-time reporting is only required for cross-border transactions.
• Existing einvoicing and real-time reporting requirements in EU member states must be updated to the European standard by 2035.

Platforms

• The deemed supplier is the party required to fulfill the VAT requirements. According to the revised proposal, deemed supplier rules require that platforms charge and collect VAT.
• Member states will be allowed to exclude taxable persons using the special small to medium-sized enterprises (SME) scheme.
• Under the most recent proposed changes, platforms would be considered the deemed supplier for short-term accommodation rentals and passenger transport by road and would therefore be liable for VAT. Short-term is defined as 30 days maximum, and member states will be allowed exceptions.
• Deemed supplier platforms will not be in scope of TOMS (a special VAT accounting scheme designed to apply to businesses that purchase and resell travel services as part of a tour package).

Single VAT registration

• The €10k, EU-wide threshold for registration for B2C transactions doesn’t include sales from a stock in member state other than that of establishment.
• The One-Stop-Shop (OSS) scheme, which enables sellers to avoid VAT registration in multiple countries, will be expanded.
• Call-off stock simplification will not be allowed for goods moved to another member state after June 30, 2027, meaning that by July 1, 2028 all “old” arrangements should have been phased out.

Next steps

While it is possible that approval of the ViDA proposal could happen at the end of June, the time for businesses to act is not on the heels of approval; instead, the time is now. Businesses that are proactive in digitalizing invoicing and VAT processes will have a competitive advantage in the marketplace, and the sooner your company evolves to meet the digital era, the faster you can reap the benefits of lowered risk exposure, increased efficiency, and cost savings.

Want to understand more about ViDA and how it stands to impact your business? Contact us today to learn what to expect and how you can take a proactive approach to digital transformation.