VAT modernization for the digital age

The proposals follow the concerns of companies engaged in cross-border trade, namely through digital platforms, but also of the tax authorities regarding the level of fraud and tax evasion in this segment.

Companies have manifested their concern and dissatisfaction with the fact that the VAT system remains complex, onerous, and outdated, given the new dynamics of the market.

Moreover, in 2020 the European Commission estimated that Member States failed to collect around € 93 billion in VAT revenue.

To respond to these needs, in July 2021, new VAT rules entered into force under the so-called “VAT e-commerce package”, with new taxation rules on distance sales of goods in the European Union.

Now, the European Commission presented the legislative package “VAT rules for the digital age”, which aims to modernize the VAT system for the digital trade of services, making it more user friendly user for operators, and, at the same time, more robust in combating fraud and tax evasion. It aims also to improve the rules introduced in 2021 regarding distance sale of second-hand goods, works of art, collectibles and antiques.

This new legislative package comprises three pillars:

• VAT declaration and digital reporting obligations:
  preparation of real-time digital reports based on electronic invoicing for companies engaged in intra-community trade;
• Platform economics:
  update of VAT rules for electronic platforms, specifically passenger transport and short-term accommodation platforms;
• VAT registration:
  introduction of a single registration for VAT purposes throughout the European Union.

In the next articles, we will analyse each of these pillars.

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Susana Claro
^{Indirect Tax Partner, PwC Portugal}