Estonia blocks proposal for VAT on platforms (ViDA)

On May 14th 2024, during a meeting of the Economic and Financial Affairs Council (ECOFIN), the 27 EU Member States did not reach an agreement on the proposal for VAT in the Digital Age (ViDA). The main disagreement for the proposal was surrounding the VAT rules for the platform economy, which will also have a big effect on short-term leasing.

One disputed point in particular surrounds the proposal that, until July of 2027, platforms will be liable for VAT as a “deemed supplier” on short-term rentals that host guests up to 30 days, as well as for road passenger transport services.

Estonia however, opposed the proposal mainly due to concerns about the new “deemed supplier” status. The Estonian Finance Minister expressed three main concerns:

• If a service provided is subject to VAT, the current general VAT principle allows the supplier to deduct this VAT charge where applicable. However, under the “deemed suppliers” proposal, platforms will apply VAT to services provided regardless of whether the supplier is eligible or not, meaning many suppliers will not be able to deduct VAT under the new proposal.
• The implementation of the new rules is expected to impose additional costs on small and medium-sized enterprises (SMEs) and consumers.
• The proposed change in VAT will distort the competition between providers offering services through a platform, and those operating independently which could fragment the market even further.

As a compromise, Estonia proposed an opt-in system instead, which would allow member states to choose whether or not to implement the “deemed supplier” rule in their national VAT legislation. This counter proposal was not supported by the Assembly.

It is likely that a compromise will be discussed on June 21st 2024 at the next ECOFIN meeting, however with the Belgian presidency ending on June 30th 2024 they are particularly keen to negotiate a compromise before this deadline.

ViDA Proposal

The European Commission published its initial proposal for the ViDA package on 8th December 2022 and it has been the subject of much discussion between member states since then. The EU Council unveiled a revised text on 9th May 2024, that was to form the basis of the new agreement. The draft is a compromise text developed by the Belgian Presidency, it takes into account different views expressed over the last year and a half and differs from the original proposal in many respects.

The ViDA proposal contains the European Commission’s ambitious vision of how VAT reporting should embrace digital opportunities. It includes proposed changes to applicable VAT on platform and e-commerce economies, and it presents the steps needed to improve and expand existing systems by reducing VAT compliance, which is an increasing burden on businesses. The proposed solution lies in a single EU VAT registration.

The latest updated draft of the amending directive can be found here: ST-9681-2024-INIT_en.

The ViDA proposal includes three key pillars in the European Commission’s ambitious vision for a future VAT system in this Digital Age. These pillars are:

Pillar 1 – how VAT reporting should include digital opportunities (DRR)

Pillar 2 – recommended changes to the VAT rules applicable to the platform economy and e-commerce

Pillar 3 – current steps to improve and extend existing systems that reduce the VAT compliance burden for businesses through a single EU VAT registration.

In order for tax payers and tax authorities to have sufficient time to comply, some EU member states have postponed the implementation dates of all three pillars of the proposal.

(i.e. doc. 9681/24 (amending directive), doc. 9683/24 (amending regulation) and doc. 9684/24 (amending implementing regulation)