ViDA agreement eludes ECOFIN Council: Estonia's objection over 'deemed supplier' rules

With much expectation from businesses, the EU’s VAT in the Digital Age (ViDA) reform was presented on May 14 to the EU Economic and Financial Affairs Council (ECOFIN) that failed to reach a full agreement on the proposal. While Digital Reporting Requirements (DRR) and single VAT registration pillars were approved, Estonia's objection to the deemed supplier rules for the ride and accommodation platform economy created an impasse today. This setback could push the ViDA implementation timeline back by two to three years, increasing uncertainty for EU businesses.

Estonia's stance: VAT neutrality for small and medium enterprises

The Estonian finance minister maintained that the deemed supplier model could undermine VAT neutrality for SMEs working with platforms in the affected sectors. Estonia proposed an opt-in clause for member states, but this was met with resistance. Other EU member states are concerned that it would distort competition among traders. Despite this impasse, consensus has been reached on all other aspects of the amended ViDA proposal published on May 8, which will be included upon final approval. The two approved pillars are also conditional upon finding common ground with Estonia.

Revised ViDA proposal: key points and timelines

The revised proposal on May 8 introduced several significant changes, impacting the timeline and implementation of key reforms such:

• Electronic invoicing to be the default system for issuing invoices in the EU from 2030 onwards.
  • PDFs will not be considered invoices.  
  • Invoices will need to be on a structured format and comply with the European e-invoicing standard. 
  • Hybrid invoices (e.g. German ZUGFeRD) will be covered if they include all requisite data in a structured format. 
• Electronic invoices will become mandatory for transactions falling within the scope of the DRR.
  • They must be issued no later than the 10th day after the transaction (shorter than the current requirement of 15th day after the end of the month following the supply) and by 5th day for self-billing arrangements.
  • Other formats (e.g. paper invoices) can still be used for domestic supplies or supplies to third countries – but only if the customer accepts this format.
• Reduction of the limit of scope for the VAT deduction, as member states need to hold an electronic invoice as a substantive condition for these deductions. 
• Member states can implement ‘accreditation schemes’ to ensure that electronic invoices meet formal requirements. For example, sending invoices to a government platform for validation purposes is generally compatible with the new ViDA regime.
• Summary invoices will be permitted for sales made within the same calendar month if issued no later than 10 days after the month's end. This was key because if it was to be abolished (as was initially proposed) businesses would need to generate a larger number of invoices (increasing admin burden, errors, etc). Member states have the discretion to exclude certain sectors prone to fraud.
• Seller’s bank details on invoices would have to have been retained to provide tax administrations with more insight into financial flows. Multiple bank account numbers may now be provided, but no longer required to display the payment date. 
• Starting from 2030, there will be mandatory DRRs for the following types of transactions within the EU:
  • Zero-rated sales of goods to VAT-registered customers in other member states;
  • Intra-EU acquisitions of goods; and
  • Cross-border sales and purchases of goods and services where the customer is responsible for paying VAT under the reverse charge mechanism.

ViDA's path forward: next steps

Discussions will continue to resolve the outstanding issue concerning the deemed supplier rules. All eyes and ears will be on the next ECOFIN meeting on June 21, where Belgium (the current EU Council presidency) will try to reach an accord with Estonia. It is worth noting that the EU Council presidency rotates from Belgium to Hungary in July.

Preparing for the Digital Age: what businesses should do now

Businesses should remain proactive despite delays. Investing in tax technology and adopting e-invoicing systems ahead of the 2030 mandate will position companies to comply with ViDA requirements and provide benefits from streamlined VAT processes. The current version of the mandate proposes structural changes to the way businesses operate beyond tax. Invoices will need to be in a structured format and comply with the European e-invoicing standard (PDF versions will no longer be accepted), and electronic invoices will be mandatory for transactions under the DRR scope (with a much shorter issuing period than the current requirement).