ViDA - still no compromise
On 21 June 2024, ECOFIN [1] held another meeting on the changes to the VAT system proposed as part of the 'VAT in the Digital Age' (ViDA) package.
Representatives of the Member States failed to reach unanimity on the solutions for digital platforms, thus there is no agreement on the ViDA package. Member States will continue their work in this respect under the Hungarian Presidency, which starts on 1 July 2024.
Estonia's objection upheld
During the meeting, Estonia maintained its position expressed at the May ECOFIN Council meeting. Estonia opposes the introduction of the deemed supplier regime for digital platforms. The Estonian representatives expressed their concerns about the excessive fiscal burden on SMEs, which would have to charge VAT on their services when they sell through digital platforms, which they could not do, in certain cases, when selling without them, as well as the administrative burden on both the entrepreneurs and the tax administration.
Estonia proposed a compromise on a voluntary model based on the deemed supplier regime, but this proposal was not accepted. The proposal was to allow each Member State to decide what best suits its interests and join this model voluntarily.
In Estonia's view, the proposed amendments to the ViDA package did not address all the doubts raised. Estonia expressed concerns that the application of the burden provided for by the ViDA package could distort competition in the market in Estonia and induce SMEs forced to pay VAT in relation to their operations on digital platforms to provide services in other ways, which could potentially lead to a shadow economy and the loss of transparency provided by digital platforms.
At the same time, Estonia stressed the importance of the tax information they had started receiving within DAC7, which was also a result of collective efforts of Member States.
The ECOFIN discussed the concerns expressed by Estonia regarding the deemed supplier regime and the potential impact on small businesses, but no final agreement was reached on these issues. The Member States support the joint efforts to reach a compromise and emphasize the importance of the solutions proposed under the ViDA in fighting tax frauds and increasing budget revenues.
Given the declarations of the Member States aiming to reach an agreement, we expect further work under the Hungarian Presidency in the coming weeks. We will share further news in this regard on our blog.
[1] ECOFIN Council (Economic and Financial Affairs Council).
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