VAT rules for certain ‘virtual services’ in the EU are about to change. This will affect services such as live-streamed cultural events and paid webcam sessions, for example. The new rules to determine the place of supply take effect as of 1 January 2025. Our Baker Tilly International network partners in the Netherlands explain exactly what these changes mean and how they will affect entrepreneurs. They also give pointers to prepare properly.

 

VAT within the EU: rules for services and cross-border transactions

Many aspects of VAT are regulated centrally in the European Union (EU). For example, the rules about which country may levy VAT on cross-border transactions. For services, the rules are designed to prevent double taxation.

VAT is usually levied in the country of consumption. This also aligns with the underlying idea of VAT: we prefer to charge VAT where the goods or services are consumed. That makes determining the place of supply crucial to determine which VAT rules apply.

Compared to most supplies of goods, it is more complex to determine the place of supply for services. The nature of a service is not always easy to determine. There are also many special rules and exceptions that apply to services.

 

Specific rules for cultural services

The VAT system has specific rules to determine the place of supply of cultural services. This includes (access to) cultural, artistic, sporting, scientific, educational or entertainment services.

Under the current rules, the country where the event or activity actually takes place is entitled to levy VAT. In the case of cultural services offered virtually, it is more difficult to apply this rule: how do you determine exactly where an online event takes place? There is a lot of ambiguity around such questions. This has previously been litigated as far as the European Court of Justice.

 

New approach for virtual services

The new rules, which take effect as of 1 January 2025, include a separate approach for cultural services that are streamed or made available virtually. In essence, this approach seeks alignment with the place where the buyer is established or resides. As a result, the levy takes place in the country of consumption. This also prevents complex technical issues regarding the location of a supply.

 

Who will be affected by the changes?

The changes affect the VAT treatment of specific virtual services, primarily within the e-commerce sector. Companies in that sector need to assess the impact properly. But take note: even in other sectors, companies offering virtual services should pay close attention to the changed rules.

In some cases, it may turn out that the virtual service takes place in another country for VAT purposes. This can sometimes mean that local VAT must be charged and other obligations apply. Determining the place of supply is crucial for a correct calculation of VAT. Incorrectly charging VAT (in the wrong country) can lead to additional obligations, additional assessment, and fines.

 

Make sure your company is properly prepared

We advise companies to consider the impact of the new legislation on VAT administration and compliance (filing processes) in good time. In many cases, providers of virtual services will have to adjust their ERP configurations and invoicing processes. Our advisors would be happy to help you assess whether this new legislation has consequences for your company.

The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.

Source: https://www.bakertilly.nl/en/inzichten/kennisartikel/virtual-services-and-vat-new-rules-as-of-1-january-2025

On 5 November 2024, ECOFIN (the European Council on Economic and Financial Affairs) adopted the proposal ‘VAT in the Digital Age’. The new rules are intended to make the levy of VAT in the EU simpler and more resistant to fraud. In this article, our Baker Tilly International network partners in the Netherlands discuss ECOFIN’s decision and the practical consequences of the new rules.

 

Agreement finally reached after repeated delays due to political disagreement

The ‘VAT in the Digital Age’ proposal (also known as ViDA) dates back to 2022. However, political disagreement led to multiple changes and repeated delays. This is striking because there is broad agreement in Europe about the weaknesses of the current VAT system, which have been the subject of debate for decades.

VAT fraud in particular is a thorn in the European Commission’s side: every year, cross-border tax evasion structures (including ‘carousel fraud’) result in billions in losses for the treasuries of the EU and its member states. Furthermore, the current rules are complex and confront companies with a relatively high administrative burden.

With the package of new policies, the EU now aims to overhaul the VAT system to solve these problems. Although the policy package still has to be presented to the European Parliament for consultation, this ECOFIN decision marks the most important step. We therefore expect final adoption of the proposed measures soon.

 

Core of the new VAT rules

The new VAT rules will be phased in, meaning that they will come into force in stages. The proposal has been adjusted several times in the past few years. Following the latest changes and the recent consultation, the main elements of the proposal are as follows:

• ‘Deemed supplier regime’ for the platform economy: (online) platforms such as Airbnb and Uber will be required to charge VAT to the end consumer if the service provider (accommodation, transport) does not do so itself. This change will take effect on 1 July 2028, but member states have the option to postpone this date to 1 January 2030.
• E-Invoicing: from 1 July 2030, electronic invoicing will become the general rule in the EU. However, Member States may choose to continue to allow paper invoices, with the exception of a few specific (primarily cross-border) situations. Additionally, the (electronic) invoice for certain transaction types (including intra-Community supplies) must be issued no later than 10 days after the taxable event.
• Digital Reporting: new reporting and invoicing rules to make the VAT system more fraud-resistant will apply from 1 July 2030. In short, from that date onwards, business owners will have to send transaction data to the government, among other things for intra-Community supplies of goods, intra-Community acquisitions and transactions subject to certain reverse charge mechanisms (e.g. intra-Community B2B services).
• Single VAT Registration: to simplify the system, the number of VAT registrations required from businesses is to be reduced. For example, there will be a mandatory reverse charge mechanism for domestic B2B deliveries by suppliers not established and registered in the EU member state of supply to customers registered there for VAT purposes. Additionally, the One-Stop Shop will be expanded to include installation supplies and intra-Community transfers of own goods by businesses. These changes will in principle take effect on 1 July 2028, but member states have the option to postpone this to 1 January 2030.

Aside from these main points, the adjusted proposal contains a number of other changes. Your Baker Tilly advisor can tell you more about this.

 

Prepare your business for ViDA in time

The most far-reaching changes will not take effect until 1 July 2028 at the earliest. That may seem far away, but don’t underestimate the preparation required. We recommend that (internationally operating) businesses begin preparations early on. For instance, in many cases business processes such as invoicing and ERP configuration will have to be adjusted to comply with the new e-invoicing rules. The new digital reporting requirements will also quite a few business challenges. Implementing the changes properly will often be an expensive and time-consuming matter.

 

The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.

Source: https://www.bakertilly.nl/en/inzichten/kennisartikel/vat-in-the-digital-age-the-new-vida-rules-are-coming