VAT in the Digital Age: Proposals Published by the European Commission

In the framework of the VAT in the Digital Age initiative, aiming to modernise the European Union (EU) VAT system, the European Commission published recently its proposals.

This package of proposals has three main objectives:

1. Modernising VAT reporting obligations, by introducing Digital Reporting Requirements, which will standardise the information that needs to be submitted by taxable persons on each transaction to the tax authorities in an electronic format. At the same time, it will impose the use of e-invoicing for cross-border transactions.
2. Addressing the challenges of the platform economy, by updating the VAT rules applicable to the platform economy to address the issue of equal treatment, clarifying the place of supply rules applicable to these transactions, and enhancing the role of the platforms in the collection of VAT when they facilitate the supply of short-term accommodation rental or passenger transport services.
3. Avoiding the need for multiple VAT registrations in the EU and improving the functioning of the tool implemented to declare and pay the VAT due on distance sales of goods, by introducing Single VAT Registration (SVR). That is, improving and expanding the existing systems of One-Stop Shop (OSS)/Import One-Stop Shop (IOSS) and reverse charge to minimise the instances for which a taxable person is required to register in another member state.

This package of proposals is currently under discussion and, if adopted, is expected to have a significant impact.

European Court of Justice, Case C-247/21, “Luxury Trust Automobil”: Failure to Include Reverse Charge Reference in the Invoice Issued by the Intermediary for Triangular Transactions

The European Court of Justice (ECJ) has ruled that Article 42(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of VAT, as amended by Council Directive 2010/45/EU of 13 July 2010, read in conjunction with Article 197(1)(c) of Directive 2006/112, must be interpreted as meaning that, in a triangular transaction, the final customer has not been validly designated as liable for the VAT where the invoice issued by the intermediary acquiring the goods does not contain the words “Reverse Charge,” referred to in Article 226(11a) of Directive 2006/112, as amended.

Additionally, Article 226(11a) of Directive 2006/112, as amended by Directive 2010/45, must be interpreted as meaning that the omission, on an invoice, of the words “Reverse Charge,” required under that provision, may not subsequently be corrected by adding a statement that that invoice relates to an intracommunity triangular transaction and that the tax liability is transferred to the person to whom the supply is made.

ECJ Preliminary Ruling Request (VAT): Case C-533/22, “Adient”: Fixed Establishment Based on Commercial Relationship with a Non-Resident

A preliminary ruling was requested to the ECJ, concerning case C-533/22, about the possibility to consider a company as a fixed establishment in Romania of a non-resident German entity only on the basis that the two companies belong to the same group.

Poland Authorised to Extend the Restriction on the Right to Deduct Input VAT on the Purchase of Certain Vehicles

The EU authorised Poland to continue restricting to 50% the right to deduct input VAT concerning certain vehicles, until 31 December 2025.

Italy Authorised to Extend the Restriction on the Right to Deduct Input VAT on the Purchase of Certain Motorised Vehicles

The Council of the European Union has authorised Italy to extend the restriction to 40% on the right to deduct VAT on purchase, intracommunity acquisition, importation, hire or leasing of certain motorised road vehicles, and expenditure related thereto, until 31 December 2025.

Netherlands Authorised to Keep VAT Exemption Threshold

The European Council has authorised Netherlands to continue to exempt from VAT taxable persons whose annual turnover does not exceed EUR 25,000. This measure will be in effect until 31 December 2024.