VAT in the Digital Age: A Single EU VAT Registration

In 2020, the European Commission (EC) adopted a four-year plan to develop a fairer and simpler taxation framework. The Action Plan aspires to tighten up the tax system, ensure that digital platforms are made to follow transparency rules and utilise data better, reducing tax fraud and evasion.

In 2021, the Commission implemented e-commerce changes – another step in the modernisation process. Beginning in July of 2021, the Mini One Stop Shop (MOSS) system was expanded to the One Stop Shop (OSS) and Import One Stop Shop (IOSS).

The implementation of OSS expanded the use of the union and non-union schemes. This allows European and non-European business-to-consumer sellers of digital services and goods to simplify their reporting practices. Meanwhile, IOSS allows businesses to register and import goods into the EU with a value not exceeding €150.

In 2022, there are plans to release legislation under the “VAT in the digital age” Action Plan. Much like its predecessors in 2020 and 2021, the core purpose of this plan is to tackle the issue of fraud and improve the way businesses engage with the VAT system. The Commission has announced three points it seeks to address in its legislation:

• How VAT treats the platform economy
• E-invoicing and VAT reporting obligations
• Single EU VAT registration

Specifically, one point of interest is the single EU VAT registration point, which aims to facilitate compliance among Member States. With this, the European Commission is requesting feedback on how businesses think the I/OSS implementation has gone and on other potential legislative options for the future, including:

• Extension of OSS to:
  • Cover all B2C supplies of goods and services by non-established suppliers
  • Enable intra-Community supplies and acquisitions of goods, thereby avoiding VAT registration when transferring own goods cross-border
  • Include B2B supplies of goods and services while leaving in place the current VAT refund mechanism
  • Include B2B supplies of goods and services while also introducing a deduction mechanism for OSS
• Reverse charge made available for all B2B supplies carried out by non-established suppliers
• Removing the €150 threshold for IOSS so that it applies to distance sales of goods of any value
• Making IOSS mandatory for:
  • All distance sales of imported goods
  • All distance sales of imported goods above an EU turnover threshold (e.g. €10,000)
  • Marketplaces only

The European Commission began a period of public consultation on 21 January regarding adapting VAT rules in a digital economic landscape. They are seeking feedback on how the EC should adapt VAT tax processes and how they can incorporate technology to solve principal issues in tax, such as fraud and the complexity of its systems. The Commission is accepting feedback in this public consultation period until 15 April 2022 – submissions can be made here.

Sovos will continue to monitor the development of this legislation throughout the year as more information about its structure and impact is released, as these changes are sure to be impactful upon the European VAT landscape.

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