European Parliament approves change to VAT rules ‘to make them fit for digital times’

The European Parliament has voted to approve changes to the rules that European Union member states indicated in November they wanted to make to the VAT Directive.

MEPs approved the rules with 589 votes in favour, 42 against and 10 abstentions in the February 12 vote.

These changes will require that by 2030 online platforms must pay VAT for services provided through them in most of the cases where the individual service providers do not charge VAT.

A statement by the European Parliament said that this will put an end to a distortion of the market because similar services provided in the traditional economy are already subject to VAT.

This distortion has been most significant in the short-term accommodation rental sector and the road passenger transport sector, the statement said.

EU member states will have the possibility of exempting SMEs from this rule, an idea which the European Parliament had also pushed.

The update will also fully digitalise VAT reporting obligations for cross-border transactions by 2030 with businesses issuing e-invoices for cross-border business-to-business transactions and automatically reporting the data to their tax administration. With this, tax authorities should be in a better position to tackle VAT fraud, the European Parliament said.

To simplify the administrative burden for businesses, the rules beef-up online VAT one-stop-shops so that even more businesses with cross-border activity will be able to meet their VAT obligations through a single online portal and in one language.

This update to the VAT rules has been over two years in the making. On December 8 2022, the European Commission presented the ‘VAT in the digital age’ package (ViDA package) which consisted of three proposals. One of these was the update to the VAT directive of 2006.

The Commission has calculated that EU member states will recoup up to 11 billion euro in lost VAT revenues every year for the next 10 years.

Businesses will save 4.1 billion euro a year over the next 10 years in compliance costs, and 8.7 billion euro in registration and administrative costs over a 10-year period, the European Parliament said.