What is ViDA? VAT in the Digital Age initiative Q&A

VAT in the digital age (ViDA) is a set of regulations introduced by the EU Commission to update the current VAT system to adapt it for the digital age. It aims to ensure that VAT is collected fairly and efficiently for businesses that sell goods or services online to customers in the EU, regardless of whether they are based within or outside the EU.

The current VAT system was designed for traditional businesses and does not adequately address the challenges of the digital economy. Moreover, VAT return reports are currently prone to criminal VAT fraud, as the data for the intra-EU trade transactions is inspected months after their occurrence, which makes it too slow for Member States to keep up with tax evasion. ViDA seeks to ensure fair and efficient VAT collection within the EU.

The proposal focuses on 3 pillars. They are:

Although all aspects are woven into the proposal with equal amounts of importance, this article will focus on the latter pillar. We will focus on the intricacies surrounding Digital Reporting Requirements are a crucial element within the proposal and encompass requirements in the realm of the growing use of electronic invoices.

ViDA applies to businesses that sell goods or services to customers in the European Union, regardless of whether they are based within or outside the EU. This includes online marketplaces, platforms, and intermediaries that facilitate sales between sellers and buyers.

The proposal reshapes the definition of an electronic invoice (e-invoice) within the Union as granted by the Public Procurement Directive 2014/55/EU. Per the proposal’s latest edition, the definition of e-invoice changes to strictly structured e-invoices, including hybrid invoices, upholding EN-compliant syntaxes.

Taxpayers should further know, especially in comparison to common practices surrounding CTCs (continuous transaction controls), that impacts on e-invoicing will also include transitioning from the possibility of invoice data being validated by tax authorities exclusively. The future will bestow the ability to validate invoice content and data to taxpayers and third parties acting on their behalf. MSs will, however, be able to provide optional portals for validation. 

As one of the pillars, DRRs are reasonably a point of high focus in the context of the proposal. They stand to impact operations both domestically and or intra-community trade simultaneously, given the timeframes proposed in ViDA latest edition.

Intra-community trade will mandatorily require the implementation of DRRs across the union. However, member states will be allowed to implement DRRs domestically if they wish.

Intra-community and domestic implementations of DRRs will vary in certain aspects. Certain matters are optional for domestic implementations, such as which invoice (sales, purchase, or both) will be in scope, which market participants will be in scope, and more, but other aspects are more universal. Another constant in the context of ViDA is the preservation and use of EN-syntaxes and making their use obligatory per e-invoicing and DRRs.

Per their definitions, the concepts of e-invoicing and DRRs are closely related but they do not necessarily equate. On the one hand, e-invoices are documents issued/transmitted between taxpayers, while DRRs are monitoring requirements usually administered by governments to keep tabs on transactions in each jurisdiction.

DRRs rely on e-invoices being transmitted, but e-invoicing can exist without DRRs. The relationship between the 2 is more symbiotic than synonymous. Where the two work in complete symbiosis, continuous transaction controls exist and thrive.

No, ViDA applies to all sales of goods or services to customers in the EU, whether they are cross-border or not. This means that businesses that are based in the EU and sell to customers in their own country will also be affected by the new regulations.

Member States will be given the option to introduce DRR for transactions not covered by the intra-Community DRR (i.e., domestic supplies of goods and services). Domestic DRR systems’ features should be aligned with this for intra-Community DRR. As each Member State will have to implement a DRR system for intra-Community transactions, we anticipate that many, if not all, will want to leverage this investment and extend its applicability to domestic transactions, too.

The short answer is yes, but it will depend on the current status and implementation of e-invoicing/DRR. Each Member State must ensure that the implementation aligns with the ViDA proposal.

Here are some key milestones and important dates related to the ViDA initiative:

By the year 2025, predictions indicate that nearly 80% of organizations across the globe will need to switch to electronic invoicing, either due to legislative mandates or as necessitated by their business partners. With the forthcoming mandates in countries like France, Poland, and Spain, this trend is evident.

But where does ViDA fit into this evolving landscape, and what implications does it have for businesses both in the immediate and distant future?

A closer look at the ViDA specifications reveals three primary advantages for businesses:

It's crucial for businesses to weave the ViDA proposal into their digital evolution plans. Otherwise, they might find themselves lagging and facing challenges in staying competitive when the proposal takes effect.

After a series of vetoes and postponements, the Economic & Financial Affairs Council (ECOFIN) unanimously agreed on the package on November 5, 2024. The proposal is now pending the final approval from The European Parliament, which is likely to happen in 2025.

As the ViDA-driven changes loom on the horizon, businesses can adopt multiple strategies. Yet, the most significant benefits likely come from collaborating with a service provider proficient in supporting their clients in all impacted regions using adaptable technology. This not only ensures operational consistency but also leverages expertise in global regulatory compliance.

Thus, key financial decision-makers, be it CFOs, Heads of Finance, or Tax Managers, should ponder: is there a single service provider adept at navigating the intricate requirements of ViDA and other global mandates?

Through Pagero’s open network, we’ve helped businesses streamline their order-to-cash, purchase-to-pay and transport management processes while ensuring we meet global requirements when it comes to compliant transactions of documents, unlocking the full potential of accurate and reliable business data. This is achieved regardless of location, industry, size or ERP landscape through a single, scalable connection.

For businesses keen on understanding how to align with ViDA requirements and ensuring preparedness against a surge in global e-invoicing mandates, we invite you to connect with us. If you're in the midst of strategizing a transformational project, our team of in-house experts is here to guide.

In conclusion, the ViDA initiative is a crucial step towards adapting the current VAT system for the digital age. By ensuring that VAT is collected fairly and efficiently, the initiative helps to level the playing field for businesses and prevent revenue loss for governments. It is important for businesses that sell goods or services online to customers in the EU to understand the implications of VAT in the Digital Age and ensure compliance to avoid potential penalties.

This text was originally published 11 April 2023 and last updated 8 January 2025.

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