Last week, the EU Economic and Financial Affairs Council(ECOFIN) convened to discuss the VAT in the Digital Age reform, a topic of significant importance for businesses. The national Ministries of Finance, representing various sectors, were optimistic about the potential for a consensus. The latest draft of the ViDA proposal, after several amendments, was presented for further review.
After several amendments and roadblocks, the draft version of the ViDA regulatory framework adopted on May 8, 2024, was considered to be the one that will pass the ECOFIN voting and move into the next phase of the regulatory EU mechanism.
Regrettably, the voting outcome before ECOFIN needed to align with the expectations of many cross-border businesses. This decision has far-reaching implications, from establishing new operating frameworks to searching for new partners and service providers. These are crucial aspects that keep businesses in line with regulations.
Simply put, stakeholders from the public and private sectors were waiting for the “positive” outcome of the voting based on the latest advances in adopting the reform by the EU institutions. On the other hand, some stakeholders hoped that some parts of the proposed version’s pillars would be “reshaped” to make their compliance operations less burdensome.
The Estonian representative at ECOFIN, i.e., the Minister of Finance, vetoed the adoption of the ViDA package submitted for the members’ voting. His refusal to give a positive vote to the regulatory framework presented was based on a “different” view of what new tax liabilities transferred to digital platform operators will mean for the digital economy.
In his note to respected colleagues, he explained that the introduction of the deemed supplier role for the DPO within the passenger transport services and short-term accommodation rental services will not make VAT compliance more accessible for SMEs and will make the DPO’s business operations more complicated, more costly, and unfair in comparison with traditional business models.
The Minister of Finance of Estonia’s conclusion is as follows: Digital Platform Operators operating in the respective fields will face inequality in their competition with traditional taxable persons operating in these sectors, while SMEs operating through the platform will face similar difficulties, among other losses.
Political Climate
The ECOFIN voting has shown that the opinions shared by the Ministers of Finances of their respective Member States are primarily aligned with two pillars on which the ViDA framework is founded: Single VAT Registration and Digital Reporting Requirements.
However, the stumbling block is the Platform Economy, which blocked the agreement between the Member States.
Next Steps
Belgium(the country currently holding the EU Council presidency) looks forward optimistically to new discussions with respective representatives of the Member States during its tenure. The constructive talks will move forward between the two ECOFIN meetings, the one held last week and the one fixed for June 21.
The EU institutions hope that during Belgium’s tenure, the respective Member States will find consensus on the Second Pillar, i.e., Platform Economy. At the last gathering at ECOFIN, introducing deemed supplier liability for digital platforms operating within two specific service sectors was the main roadblock.
However, when implementing a regulatory framework of this magnitude, we should always leave room for some “potential” new roadblocks that have yet to be identified.
Multiple stakeholders from the public and private sectors are very interested in the outcome of the following meeting, which could set the pace for the gradual introduction of significant changes to the present EU VAT regulatory landscape.
The VAT’s relevance in the Digital regulatory package is undoubtedly of substantial importance for both EU and non-EU-established businesses with operations under the EU VAT umbrella. The adoption of the new regulatory mechanism will “reshape” the tax compliance framework of many taxable persons operating cross-border when the place of supply is within the EU.
It’s just a matter of time before all the pillars are adopted by the EU institutions. It’s not debatable. There are just a few important parts on which consensus must be made between Member States.
The businesses that are under the scope of new regulatory mechanisms, should start preparing for future changes if they haven’t started already.
Aleksandar Delic
1stopVAT Senior Indirect Tax Researcher (Global Content)