VAT in the Digital Age (“ViDA”): prepare your business with Bird & Bird – 10 key insights for success

1. What is ViDA? 

ViDA is a set of tax reforms that will change how VAT works in the EU.

2. Why is this important?

ViDA is the biggest change to the EU VAT rules since the introduction of the EU’s single market in 1993. It aims to combat EU VAT revenue loss and to modernize the EU VAT system by making it simpler, more efficient and fit for the digital age. 

3. How are businesses affected? 

ViDA will change how businesses operating in the EU need to charge, invoice, report, and manage VAT. Businesses will need to share data with customers and EU tax authorities in (almost) real-time. It will reshape how businesses will be audited by the EU tax authorities. It will impact many business operations, processes and controls; ERP systems; tax, customs and legal positions; and potentially even judicial protection and tax litigation.

4. When will this go live? 

ViDA will go live in stages from 2025 to 2035.

5. What are the key changes?

ViDA introduces various detailed changes, structured around three pillars, which in summary are:

1. E-invoicing and digital reporting: businesses must issue a machine-readable structured file (“e-invoice”) to B2B and B2G customers. The e-invoice should in principle be issued within 10 days after the supply and in accordance with the European e-invoice standard EN16931, allowing for automatic processing in ERP systems. The e-invoice data should in principle be reported digitally by the supplier and the customer to the EU tax authorities in (almost) real-time. This allows the EU tax authorities to cross-check transactional data, to identify potential VAT non-compliance and VAT fraud in (almost) real-time.
   
   
2. Platform economy: in addition to existing deemed supplier rules for platforms facilitating certain B2C supplies of digital services and e-commerce supplies of goods, ViDA introduces new deemed supplier rules for platforms facilitating short-term accommodation rentals and for platforms facilitating passenger transport services. These platforms will also be deemed suppliers under conditions, making them responsible for charging, collecting and remitting VAT.
   
   
3. Single VAT Registration (“SVR”): the goal of SVR is allowing businesses to VAT register in only one EU Member State and to manage their VAT obligations across the EU through a single portal. To achieve this goal, a series of measures will be introduced. The measures include expanding the VAT reverse charge mechanism for B2B transactions. It also includes expanding the current One Stop Shop (“OSS”), covering more B2C supplies, such as EV-charging, and covering the movement of stock by businesses, for example for marketplace fulfilment use cases.

6. What are the exact timelines?

• Early 2025 (expected): EU Member States may allow businesses to start issuing e-invoices for domestic supplies (without further EU approvals or derogations). Additionally, the EU is expected to adopt special measures to prevent VAT non-compliance and VAT fraud for the Import One Stop Shop (“IOSS”), covering certain imports of B2C parcels from non-EU countries.
  
• 1 January 2027: the first extension of OSS, including EV-charging, goes live along with certain updates to the e-commerce VAT rules.
  
• 1 July 2028: SVR goes live and EU Member States may optionally implement the platform economy changes.
  
• 1 January 2030: the platform economy changes must be implemented by this date.
  
• 1 July 2030: e-invoicing and digital reporting will go live.
  
• 1 January 2035: full harmonization of e-invoicing and digital reporting across the EU. Member States with existing measures or authorizations as of 1 January 2024 must comply with the EU standard by this date.

7. What key challenges are expected?

In the short term, a major challenge will be implementing e-invoicing and digital reporting mandates that are already live or soon will be live in multiple EU Member States. Managing these different EU mandates until 1 January 2035, along with non-EU e-invoicing and digital reporting requirements, will be a significant task.

In the mid term, ViDA will require businesses to redesign and re-implement their end-to-end VAT governance. This includes revisiting VAT positions and VAT requirements of business operations, amending VAT control frameworks, updating VAT controls in operational processes and embedding new VAT logic into ERP systems.

These challenges will require cooperation beyond the in-house VAT function, involving tax, legal, finance, logistics, IT, and business teams. For example, businesses will need to address data protection and regulation requirements when exchanging transactional data, ensuring this continuous data flow is secure, including through third-party solutions. Additionally, businesses, especially platform operators, must review and possibly update trading practices and contracts with sellers and buyers to comply with new VAT changes and avoid potential liability.

 8. How does ViDA fit in the big picture of tax, customs and legal reforms?

ViDA is part of global policy efforts to combat tax revenue loss and modernize regulatory frameworks. In the EU, addressing VAT revenue loss is also being tackled through initiatives like CESOP, DAC7 and customs reforms. Globally, e-invoicing and digital reporting are increasingly becoming standard practice, and the OECD’s Pillar 2 initiative aims to set a global minimum tax to address corporate tax revenue loss. Beyond tax and customs, the EU has introduced other legislation to regulate the digital age, including the General Data Protection Regulation (“GDPR”), the AI Act, the Digital Markets Act (“DMA”) and the Digital Services Act (“DSA”). 

As ViDA is not an isolated initiative, businesses should consider leveraging best practices and lessons learned from other reforms to prepare for and implement ViDA.

9. How should businesses prepare for ViDA?

We recommend the following 5-step approach to prepare your business:

1. Kick-off workshop: organize a kick-off workshop to understand the potential impact on your business, identify immediate areas of attention and recognize quick wins or best practices from other tax, customs or legal reforms that may be useful.
   
2. Impact assessment: identify the top inherent VAT risks to prioritize high-impact areas like e-invoicing and digital reporting.
   
3. Gap analysis: define the strategy and redesign your VAT governance, control, and technology requirements, including e-invoicing and digital reporting.
   
4. Business case: prepare a business case to make the value proposition clear to stakeholders, to select the right tax technology support, and secure buy-in.
   
5. Implementation and monitoring: implement the changes, continuously monitor and improve, and address new VAT risks as prioritized or as they arise.

10. Why partner with Bird & Bird to prepare for ViDA?

Bird & Bird offers a unique blend of expertise to act as your strategic partner for preparation and implementation of ViDA. Our VAT team has extensive knowledge and experience with VAT policy, VAT law and VAT technology in the EU. We provide the right tax advisory support to understand ViDA’s impact on your business and what needs to be done for successful implementation.

We also work closely with other teams of our firm, such as our data protection & data regulation team and our commercial regulation team, to make sure that ViDA is approached in a non-siloed manner and impact for your business beyond VAT is also taken care of.

Additionally, we can support you as virtual team member in selecting the right e-invoice and digital reporting solution from the many options available in the market. We help define your needs and requirements to choose a solution that fits within your overall tax, legal, finance, and business framework.

Get in touch

If you wish to discuss ViDA for your business and how Bird & Bird can support you, please contact Andy van Esdonk or your regular Bird & Bird contact.