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In 2021, the European Union was confronted with a VAT imbalance of 69 billion euros. While this marked an improvement on previous years, it still highlights the massive challenges for governments across Europe. A large chunk of this shortfall is attributed to international VAT fraud. Other contributors to the gap are company liquidations, inefficiencies in tax administration, and legal sales tax structures within corporate organizations.
To close the VAT gap, the EU has been working on an initiative aiming at modernizing and simplifying the current VAT structure across 27 member states. While the goals of this initiative, called ViDA (VAT in the Digital Age), are admirable, the path to its implementation is full of complexities.
Let’s have a closer look at some of these complexities:
Platform Economy Challenges: The rise of the platform economy, including everything from e-commerce giants to travel or rent economy platforms, presents unique VAT challenges. These platforms often facilitate cross-border transactions, making VAT collection and compliance a complex affair. ViDA’s one-size-fits-all approach might not comply with the difficulties of each platform, potentially leading to loopholes and further VAT discrepancies..
Uniform Adoption Hurdles:
For the ViDA to be effective, it requires unanimous adoption across all EU member states. This remains a monumental task, given that each country has its own established tax systems and VAT regulations. The need for uniformity might force countries to overhaul their existing infrastructures, incurring significant costs and administrative challenges. One other hurdle might be the timeframe.
On 14 May 2024, the latest ViDA proposal was put to a vote by the EU governments (ECOFIN), but it failed to gain approval. One member state opposed the deemed supplier rules for platforms, stalling progress.
In response, the three central pillars of the ViDA proposal—Digital Reporting Requirements (DRR), Extension of the One-Stop-Shop (OSS), and Extended VAT obligations for the platform economy—have been postponed to give governments and taxpayers more time to prepare. While the overall implementation has been delayed from 2028 to 2030, some argue that even with the additional two years, the timeline remains overly ambitious.
High Implementation Costs: Beyond the member states, large corporations, especially those operating across multiple EU countries, would face substantial costs. Adapting to ViDA would mean revamping their VAT reporting systems, training personnel, and ensuring compliance across the board. For many, this could mean diverting significant resources and time, with no immediate return on investment.
In conclusion, while ViDA promises a streamlined VAT future, its road to implementation is full of challenges. For businesses engaged in international invoicing, navigating this diverse regulatory landscape can be daunting. As there is no European uniformity, you can imagine that there are hundreds of sources available to check the status of each country. A time-consuming exercise if you are delivering goods or services internationally.
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