VAT in the digital age [EU Legislation in Progress]

Written by Pieter Baert (2nd edition, updated on 16.11.2023).

Value added tax (VAT) is one of the key revenue raisers in national budgets, accounting on average for almost a fifth of all tax revenue collected in the EU. Yet, sizeable amounts of VAT revenue are lost to fraud. Moreover, VAT rules place a considerable administrative burden on businesses. Therefore, to help strengthen the fight against VAT fraud and reduce this burden, the European Commission tabled a three-part proposal for a directive on VAT in the digital age, on 8 December 2022.

The proposal has three main objectives. The first is to introduce an EU-wide reporting system on intra-EU business-to-business (B2B) transactions, whereby companies would share, in real-time, data drawn from electronic invoices with the authorities. This would allow Member States to keep a close eye on the trail of VAT collected and to intervene when there is suspicion of fraudulent practices. The second objective involves introducing a harmonised framework for charging VAT in passenger transport and short-term accommodation platforms. The third objective is to adopt measures lowering VAT compliance costs for businesses operating across borders.

For the proposal to become a directive, the Council needs to vote on it unanimously after having consulted the European Parliament and the European Economic and Social Committee.

Versions

• November 2023: VAT in the digital age (2nd edition)