Regulatory updates - EU

Up until December 31 2024, it has only been possible for small businesses to be exempt from VAT obligations in their country of establishment. Following the introduction of the cross-border SME scheme, starting January 1 2025, the EU now enables small enterprises to exempt themselves from charging Value-Added Tax (VAT) on goods and services across several member states. The SME scheme is optional and allows the business to:  

• Not charge VAT on the sale of goods and services (VAT exemption); and 

• Alleviate VAT compliance obligations. 

VAT compliance obligations are alleviated through the possibility to issue simplified invoices and reducing VAT reporting requirements to one single quarterly report for the turnover of the SME in all the 27 Member States. The report only needs to be submitted once to the member state of establishment. 

Which businesses are eligible for the scheme? 

The scheme can be opted for by businesses who: 

• Are established in a member state;  

• Have an annual turnover in all member states amounting to maximally EUR 100 000; 

• Stay within domestic thresholds for VAT exemption in member states where the business opts for the scheme. 

How businesses may apply the cross-border scheme 

The regime enables small businesses to operate under the scheme in any member state that has adopted it. Businesses can furthermore freely choose to operate under the standard tax regime in one country (including its country of establishment) and to opt for the SME scheme in another member state, provided the member state has adopted the scheme.  

Businesses apply for the scheme by filing one prior notification to its member state of establishment, which will act as a contact point with the other member states. Upon approval, the business receives an EX number within 35 working days which can be used in the chosen member states.  

Timeline 

From January 1 2025 the member states have been able to implement the scheme in their jurisdiction. Once the scheme has been adopted on a national level, the small enterprise will be able to opt for the regime in that member state. 

The EU Parliament has, within the draft report, approved the EU Council’s draft directive regarding VAT rules for the digital age.

Furthermore, the remaining matters addressed in the parliament’s draft report include:

• The request that the parliament be notified if there are any expected changes to the approved edition of the proposal;
• The request that the parliament be notified of significant changes to the proposal; and
• Instruction from the parliament’s presidents to forward its position to the EU Council, Commission, and National Parliaments.

The report closes by stating that the rapporteur, Ľudovít Ódor, believes that a simplified procedure without amendments is the best path forward regarding the proposal and implementation deadlines.

Per the ViDA proposal, cross-border e-invoicing and DRRs will become mandatory. The pilot’s objective is to showcase the use of the 5-corner model for complying with Intra-community e-invoicing requirements. This also entails showcasing the Peppol Network’s capabilities at not only addressing ViDA-related DRRs and related requirements but also complementing existing continuous transaction controls (CTCs).

101 parties participate in the pilot, including various tax administrations, Peppol authorities, service providers, and businesses. All parties are responsible for defining the e-invoicing and DRR architecture that will satisfy the obligations, define specifications, and ultimately architect a sustainable testing environment.

The pilot launched in December 2024 and is expected to continue into Q2 2026. Pagero is an active member and contributor to the Peppol ViDA pilot. Stay tuned as we monitor its developments.

On 10 December 2024, the EU commission published a press release announcing the EU agreements of a new directive, setting the stage for the introduction of an electronic tax certificate for VAT exemptions. The directive will provide for an electronic certificate to replace the existing paper certificate that is used when goods are to be exempt from VAT.  

Timelines are aligned with ViDA adoption  

In a transitional period, member states will be able to use both electronic and paper versions. The Council shortened the transition period, originally planned to last 4 years (2026-2030), to just 1 year (2031-2032). The delayed starting date should help tax authorities spread in time the necessary IT developments, which will coincide with the significant investments needed to implement the VIDA packages. 

Scope: 

The scope of the mandatory use of the electronic VAT exemption certificate will be limited to situations where two member states are involved, and the exemption is not granted by way of a refund. 

Next steps 

The EU agreements will now go through a technical and linguistic check before being presented to the Council for formal adoption. The texts will then be published in the EU’s Official Journal and enter into force. The exact electronic format of the certificates, including the necessary IT specifications, will be discussed in expert groups and determined later in Commission implementing acts.  

The CEN Technical Committee 434 (CEN/TC 434) is an EU body (team of technical specialists) within the European Committee for Standardization (CEN) developing e-invoice standards, such as the European Standard on Electronic Invoicing (EN 16931–1).

The story behind the EN 16931-1 standard

The EN 16931-1 was originally developed for B2G invoicing and not for CTC, tax reporting or e-invoicing in the business sector. The upcoming legislative requirements such as ViDA and the German B2B mandate starting on 1 January 2025 will both be based on the EN 16931-1 norm. Hence, CEN/TC 434 are performing a revision of the EN 16931-1 standard and what new functionalities will be needed based on the ViDA proposal.

What changes are planned?

Some of the changes suggested in the revision draft of to the EN 16931-1 are:

• Addition of new functionalities following ViDA requirements, for example: making IBAN mandatory, support for margin scheme, adding a goods/services indicator and adding base amount in accounting and reporting currency;

• Introduction of new functionalities for business e-invoicing, such as: support for multiple orders and deliveries, allowing xml attachments as attached documents, classifying entries of invoice type codes;

• New functionalities for B2B VAT handling, for instance: adding additional VAT category code for national special VAT schemes, including national VAT exemption reasons and an addition of VAT category codes;

• New functionalities for businesses in terms of invoice handling, namely, allowing invoice issue time, supporting early payment discount and late payment penalty specification, allowing more detailed information in paid amounts, such as VAT amount, payment date, payment reference, and allowing multiple buyer IDs.

After much anticipation, many revisions, and much deliberation, the latest edition of the ViDA proposal has been agreed upon. The latest edition does not imply many drastic changes from previous revisions, barring a few timeline changes. The agreed-upon proposal edition makes implications and future impact a bit clearer.

The proposal’s core is still focused on its three Pillars: single VAT Registration, The Platform Economy, and Digital Reporting Requirements (DRR). Changes to the former two pillars include postponement of requirements associated with OSS (One-stop shop) and reverse charge mechanisms to 2028. Further changes to the proposal are related to the platform economy, more specifically, platforms offering hospitality and transport services, which have been pushed to 2030.

Crucial aspects pertinent to electronic invoicing and digital reporting requirements within the proposal include:

• Removal of derogation requirements for Member States implementing electronic invoicing;
• The introduction of Digital Reporting Requirements (DRR) for domestic and cross-border transactions;
• Revision of the definition of an electronic invoice;
• Changes to invoice issuance timeframes and data reporting requirements;
• The future of existing CTC mandates; and more.
  
  

The removal of the requirement for Member States to request a derogation for implementing obligatory e-invoicing is an imminent change expected once the proposal is approved.

As of 2030, the introduction of obligatory DRRs for cross-border transactions will come into force. For domestic transactions, Member States will have the option to implement DRRs if they choose. Markets with already existing CTC models commenced before 1 January 2024 will have to adapt these models to the proposal’s requirements by 2035.

The ECOFIN meeting concluded with agreement on the proposal, as announced by representatives of several Member States, who remarked on its great lengths and importance. The proposal will proceed with the next steps in the hands of the European Parliament.

This regulation represents a significant step toward ensuring that products sold within the EU market are more sustainable, durable, and resource-efficient.

Key highlights of the ESPR

• Objective: The ESPR is designed to make products more environmentally friendly by setting clear guidelines for manufacturers. Products must be durable, reusable, repairable, recyclable, and energy-efficient. The overarching goal is to reduce environmental harm throughout the entire product lifecycle.
• Scope: Unlike previous regulations that focused primarily on energy-consuming products, the ESPR applies to a much broader range of items. It covers everything from textiles and furniture to electronics, all aiming to extend their lifespan and reduce their environmental footprint.
• Requirements: Products must meet specific sustainability criteria, such as minimizing waste, using recycled materials, and reducing energy consumption. An essential feature of this regulation is the introduction of Digital Product Passports (DPP).
• Digital Product Passport (DPP): The DPP will create a digital system to track essential product information throughout its entire lifecycle. While technical details are still being developed, the DPP is expected to increase transparency, enabling consumers and businesses to make more informed decisions about the sustainability of their purchases.

Timelines of ESPR next steps

• Q3 2024: The Ecodesign Forum will be established, calling for membership applications.
• Q4 2024: The Forum will hold its first meeting to discuss the draft working plan.
• Q2 2025: The first ESPR Working Plan will be adopted and published.

Potential impact on CTC and e-invoicing

While the ESPR does not explicitly mention e-invoicing or Continuous Transaction Control (CTC) models at this stage, the regulation will likely have implications for supply chain and invoicing practices. As the Digital Product Passport (DPP) evolves, businesses may be required to integrate product tracking information, such as a QR code or barcode, within the product accompanying documents like invoices, dispatch advice, or even as a standalone label.

Although it’s too early to predict exactly how the DPP will function, the ongoing digitalization trends, including the ViDA initiative, suggest that the DPP will eventually align with CTC and e-invoicing systems. This alignment will likely streamline compliance, tracking, and reporting processes, adding further value to businesses that embrace these digital advancements.

In conclusion, while the full scope of the ESPR’s impact is still unfolding, it represents a forward-thinking move towards greater sustainability and transparency in product manufacturing and supply chains. As the regulation develops, it’s expected to influence various aspects of business operations, including invoicing and supply chain management.

On 24 July 2024, the European Parliament approved 3 legislative resolutions. The resolutions include the following:

• Resolution C/2024/4246 – VAT: rules for the digital age (related to ViDA)
• Resolution C/2024/4247 – VAT: administrative cooperation arrangements for the digital age
• Resolution C/2024/4248 – Special scheme and arrangements relating to distance sales of imported goods

The resolutions approve many aspects of the ViDA proposal, including amendments to the text, which the European Commission must acknowledge and address. The European Parliament and Council will deliberate the measures amended in the proposal by the resolutions.

Further progress, after deliberation, includes the Parliament notifying the EU Commission, EU Council, and remaining legislative bodies across the Union of their stance.

The European electronic invoicing standard, introduced by Directive 2014/55/EU, requires contracting public entities within its scope to handle e-invoices adhering to the semantic model defined in the EN 16931 invoice standard. The format has now been adopted not only in the public sector, but it is also widely used in B2B transactions.

In July, the EU Commission published the first version of Technical guidance for tax codes in EN 16931 describing how use cases for VAT should be recorded into an e-invoice and to improve consistency in how tax codes are used for specific scenarios. The use cases include:

• General cases for exceptions
• Intracommunity supply
• Reverse charge
• Exports from the EU to countries outside the EU and to EEA countries
• VAT in financial services
• Margin VAT for travel services

Those use cases contain guidance on UBL and CII.

Users of the document can suggest additional use cases via the DIGITAL Service Desk

There were high hopes until the last minutes that the VAT in the Digital Age (ViDA) proposal would be approved under the Belgian presidency of the EU Council. Overall, the Member States agree on Pillar 1 - E-invoicing and Digital Reporting Requirements (DRR) and Pillar 3 - Single VAT registration of the ViDA proposal.

However, once again, Estonia vetoed the proposal due to reservations about Pillar 2 - Platform Economy. This is the second vote under the Belgian presidency on the bill; the last vote on 14 May 2024 yielded the same results.

Unfortunately, a compromise that all Member States could agree upon was not found in the interim period leading to last week's vote on 21 June 2024. Now, the presidency will move from Belgium to Hungary.

Hungary has signalled that they will continue working to find a compromise on the proposal and aim to have it approved during their 6-months term. Furthermore, with the recently held elections to the European Parliament, there might be a need for the newly elected Parliament to be consulted again on the VIDA proposal since the bill has undergone many changes since its first publication.

As such, there will probably be new negotiations on the proposal during summer and autumn before a decision is expected at the end of 2024.