The new VAT in the Digital Age (ViDA) package: changes and challenges in the EU tax system

Beatriz Magalhães Sousa (master’s student in European Union Law at the School of Law of University of Minho)

1. Preliminary considerations

Digital transformation, which initially affected only part of the industrial sectors, now acts as a wondrous influence on global economic development in today’s economy. A new paradigm has emerged, based on the digital economy that is taking shape – the “hyperconnectivity” that characterises this new reality transforms the relation between people and organisations, rendering notions of business models, interactions between companies and the way consumers move in the economy itself feel extremely arcaic.

From the explosion of e-commerce (in 2018, 94% of Portuguese people with Internet access had already made at least one online purchase),[1] we witnessed a democratisation of market’s access, which has paved the way not only for the elimination of geographical boundaries, but also for a certain equality on competition conditions between small enterprises and big corporate machines.[2]

These modifications came at the cost of the EU tax system, which become inadequate and insufficient. Once designed for an economy marked by businesses physically set in a sole Member State, the tax system is now challenged with a different reality: through the evolution of the Information and communications technology (ICT), businesses became transnational, characterised by the physical absence of suppliers, making it difficult to monitor and control the digital platform’s compliance.[3]

To tackle these challenges, the Organisation for Economic Co-operation and Development (OECD) implemented a two-pillar solution settled on the inclusive framework on base erosion and profit shifting (BEPS).[4] Addressing similar concerns, the EU outlined three main problems in the Communication on Business Taxation for the 21st Century: i) an inadequate international tax system, in light of the contemporary economy; ii) a clear discrepancy on tax rules from Member State to Member State, which creates a disproportionate complexity for the businesses operating in the single market, and iii) an array of increasingly international business models, which generate considerable compliance costs and increase the risks of double taxation, as well as allowing legal loopholes to be exploited.[5]

While taxation must facilitate the digital transition, allowing businesses to thrive in the digital environment, it must also be aware of the obstacles that come with it, making sure that the tax framework develops in the same direction and, hopefully, at the same speed as this transition. With this in mind, the EU opted for reformulating the Directive on administrative cooperation in the field of taxation – reporting obligations extend to platform operators (“better placed to collect and verify the necessary information of all sellers operating on and making use of a specific digital platform”)[6] and national tax authorities are required to automatically share information collected by those platform operators (DAC7), information on operations that involve crypto-assets (DAC8), and, more recently, information about minimum effective corporate taxation (DAC9).[7] Furthermore, amendments to the VAT Directive were introduced by Council Directive (EU) 2017/2455 of 5 December 2017 and Council Directive (EU) 2019/1955 of 21 November 2019, in which new e-commerce rules arise, fortifying the destination principle; clarifying the definitions of “intra-community distance sales” and “distance sales of imported goods”; expanding the One Stop Shop (OSS) to intra-community distance sales, and introducing the Import One Stop Shop (IOSS).[8]

These amendments were still insufficient, and so discussions were initiated to create the ViDA Package, which is a broader project.

2. VAT in the Digital Age (ViDA) Package

The ViDA Package is the biggest reform of the VAT system since the establishment of the single market. [9]  Its main objective is to act as a barrier to some of the threats that characterise the digital economy, making VAT less complicated for businesses and less susceptible to fraudulent activities. [10] It also tackles two major problems: i) insufficient VAT collection and control, which reflects the inadequacy of the legal framework in the digital environment, ultimately increasing the risk of fraud, and ii) excessive compliance costs, as the digital economy, driven by new business models, creates new challenges and burdens for tax administrations.[11]

To address these issues, the EU considered it necessary to harmonise and simplify tax procedures, reducing the administrative burden on businesses operating in more than one Member State and facilitating intra-Community operations. [12]  To this end, the proposed alterations – now officially approved and adopted – are based on three key pillars: i) Digital Reporting Requirements (DRR) and e-invoicing; ii) VAT treatment in the Platform Economy; and iii) a single VAT registration across the EU,[13] which will be implemented progressively by January 2035. This corresponds to amendments to Council Directive 2006/112/EC, Implementing Regulation (EU) 282/2011 and to Regulation (EU) 904/2010 on administrative cooperation and combating fraud.

2.1. Digital Reporting Requirements (DRR) and e-invoicing

The VAT Directive is a tool which, although it establishes a common VAT system (Article 1 of Directive 2006/112/EC), whose uniform application is essential, still allows some discretion (within reasonable limits) and freedom for Member States to adopt their own measures to combat fraud and tax evasion. [14] As a result, obligations relating to e-invoicing vary between Member States, creating greater fragmentation of the VAT system and increasing compliance costs for companies operating in the intra-community market, which is an obstacle to the development of the single market. Similarly, concerns have been raised about the lack of efficiency shown by the reporting system for intra-community operations – defined in Article 262 of Directive 2006/112/EC as “recapitulative statements”. This reporting, besides being based on each taxable person (rather than on each transaction), is too periodic (“the recapitulative statements shall be drawn up for each calendar quarter” or “Member States may, however, provide that recapitulative statements are to be submitted on a monthly basis”),[15] making it hard to detect fraudulent behaviour.

To get rid of the systemic discrepancies, Directive (EU) 2025/516 introduced digital reporting and e-invoicing obligations into Directive 2006/112/EC: taking effect from 1 July 2030, it becomes necessary for the taxable person or a third person on their behalf to transmit data for “each individual transaction” and, depending on the transaction at hand, that communication has to be conducted “no later than 5 days after the invoices is issued or should have been issued” or “no later than 5 days after the invoice is received”;[16] besides that, electronic invoicing becomes the default system,[17] no longer dependent on the recipient’s acceptance (criterion which slowed down the development of e-invoicing, since it forced the presence at all times of two invoicing systems). Lastly, from 1 July 2028, invoices must be issued by the fifteenth day of the month following that in which the taxable transaction took place, with this deadline subsequently being reduced to the tenth day from 1 July 2030.[18]

These changes force the subsequent alterations of the way tax authorities cooperate: Regulation (EU) 2025/517 introduces into Regulation (EU) 904/2010 an electronic central VAT information exchange system (central VIES), entrusting Member States with the creation of national electronic systems capable of automatically transmitting the necessary, up-to-date, complete and exact information. [19]  This allows for automatic cross-checking of data, facilitating its analysis and processing.

2.2. VAT treatment of the platform economy

The biggest problem debated in the context of the platform economy is the definition of taxable person. For VAT effects, a taxable person is “any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.”[20] From that definition are excluded people operating at a private capacity or small enterprises eligible for the special scheme presented in Article 281 and following. However, due to certain characteristics of the platform economy, this is now being called into question: the fact that it is now possible to provide services through digital platforms puts individuals and small and medium-sized enterprises in direct competition with larger companies, which are subject to and registered for VAT. This distorts competition and threatens the principle of equity.

The identification of the “underlying supplier” is particularly distressing, since, although the platforms are allowed to make use of the OSS and the VAT self-assessment mechanism even if the supplier is based in a Member State different from the one where the platform is based, the truth is that platforms do not retain sufficient information for this identification. Similarly, the platform’s obligations are yet to be clearly determined – they are required to conserve certain data necessary for tax authorities to control the VAT collection, but the rules about that conservation are not harmonised.[21]

To combat distortion of competition in the short-term accommodation rental sector (i.e., Booking, Airbnb) and in the road passenger transport sector (e.g., Uber, Bolt) – which is more heavily affected[22]  – digital platforms play the role of “deemed supplier” in VAT collection, becoming required to charge VAT when the underlying suppliers are not registered (“non-taxable person or taxable persons availing themselves of the special scheme for small enterprises”).[23] It is important to note that the concept of the deemed supplier already existed in general terms in Article 28 of Directive 2006/112/EC, but it has now been extended to digital platforms, putting an end to a hidden exemption for these electronic intermediaries. Finally, from July 2028 onwards, the place of supply taken into account when a “facilitation service is provided to a non-taxable person through the use of an electronic interface”, that means, the place where the deemed supplier operates, is the “place where the underlying transaction is supplied.”[24]

2.3. Single VAT registration

The OSS is a system that has been progressively introduced in the European VAT system since July 2003[25] and aims to simplify VAT obligations. The OSS is essentially divided in two categories: the OSS destined to non-imported goods, and the IOSS destined to imported goods.

Extended by the VAT e-commerce rules of 2021, the OSS encompasses not only the suppliance of goods, but also the provision of services to final EU consumers,[26] ruling out consumers registered for VAT purposes (that is, taxable persons). It is important to understand that inside the OSS category there are two separate regimes: the Union scheme and the non-Union scheme. The latter is applicable to economic operators that, while not being registered in the EU, provide services to final consumers that belong to the community. This scheme is exclusively applied to the provision of services, being that intra-community distance sales are included in the Union scheme. The truth here, however, is that, even after its expansion, it continues to not suffice – it leaves certain supplies out, still subject to costly requirements in some Member States. This, combined with the optional character of the IOSS, creates a picture in which the single registration does not have the complexity-reducing effect that it theoretically could have.

The ViDA package proposes the extension of the OSS to purely internal operations (i.e., within the same Member State), allowing companies to benefit from a simplified system of VAT declaration.[27] Besides that, it expands the OSS to B2C operations that were not previously included: the supply of gas, electricity, heat or cooling energy; the supply and install with assembly, and the supply of goods on board of ships, aircrafts and trains.[28] In addition to that, in situations in which digital platforms or electronic interfaces act as deemed suppliers, they may make use of the OSS to declare internal deliveries, preventing companies established outside of the consumer Member State from having to be registered in all States in which they operate.[29]

This new approach, although complex, will permit a significant rise of compliance levels, since it simplifies VAT collection by eliminating country specific registration, reducing administrative complexity and operational costs, while allowing companies to focus on their own development.

Final considerations

As an ambitious reform of the VAT system that seeks to bring it into line with the fast-moving development of the digital economy, the ViDA Package seems to be a step in the right direction, but it is not without its critics.

On the one hand, it represents a reduction in administrative burdens, a simplification of the bureaucratic process, and a quest for harmonisation and international cooperation, all of which allows for the existence of coherent rules that make it possible to avoid double taxation and promote a fairer VAT system – fraud detection becomes increasingly faster, the equity principle progressively more rigorous and, as a plus, the package works towards carbon neutrality. [30] On the other hand, while tax administrations will likely start to enjoy a clearer, wider and timely point of view of the transactions, they will also have to install a series of systems that will enable international cooperation and that, logically, will demand investment and active training of the involved agents. The lack of clarity in relation to the future data transmission protocols constitutes a big concern, since it can put the expected harmonisation and simplification at risk.[31]

The personal data treatment was initially debated but, before the approval of the reform, a solution was found. The European Data Protection Supervisor (EDPS) had alerted to the threats that could come from a more centralised information system,[32] considering wise to add a recital that garners attention to the necessity of establishing guarantees of respect towards the protection of personal data and a provision that specified that the treatment of this kind of data shall be destined exclusively to combating fraud by the competing tax administration. These suggestions were followed; however, it is still urgent to implement them de facto and, in parallel, create advanced responses for fighting against cyber attacks.

Some other concerns rise, especially about the “deemed supplier” regime. The changes introduced create an intrinsic complexity in Article 28-A: the notions of platform, interface and portal are still ambiguous (lightly explained in soft law instruments), opening the door to confusion and obscurity regarding, among other things, how to deal with platforms that provide both transport and accommodation services. Furthermore, it is unclear in the directive how situations where the information provided by the supplier is false should be handled. It is arguable that the platform should be given the opportunity to prove that it was unaware of this falsehood, but the rules for such proof are never formally addressed. It would therefore be important for all Member States to agree on the verifications that platforms should carry out to corroborate the information.[33] Finally, the effective ability to level the playing field between the traditional sector and the platform sector is also questioned – there is a concern that the opposite could happen with disparities rising, boosted by the difficulty of articulating these new rules with the special regime for small enterprises.

Given that the stage of implementation is still embryonic, other questions may arise in the next couple of years, granting a clarification on whether this was the most adequate path to follow and what future adaptations might be needed. Notwithstanding, ViDA is not merely a tax reform; it is a mirror to the indisputable interconnection between various areas (the ascension of digital taxation), a reflection of the doors to innovation unbolted by the digital transformation, but also of the fundamental need to keep the tax system receptive to evolution.

[1] Autoridade da Concorrência, “Consulta ao mercado: ecossistemas digitais, Big Data e algoritmos”, 2 November 2021. Available at: https://www.concorrencia.pt/pt/consultas-publicas/consulta-ao-mercado-ecossistemas-digitais-big-data-e-algoritmos, accessed on 31 March 2025.

[2] Estefanía Harana Suano, “IVA y comercio electrónico: introducción al proyecto VAT in Digital Age (ViDA)”, Estudios de Derecho y Governanza, IBEROJUR and Universidad Rey Juan Carlos (2023): 95-110: 96.

[3] European Council and Council of the European Union, “Digital Taxation”. Available at: https://www.consilium.europa.eu/en/policies/digital-taxation/, accessed on 17 March 2025.

[4] OECD, “Statement on a two-pillar solution to address the tax challenges arising from the digitalisation of economy”, 8 October 2021. Available at: https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/beps/statement-on-a-two-pillar-solution-to-address-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2021.pdf, accessed on 4 August 2025.

[5] Directorate General for Taxation and Customs Union, “Communication on Business Taxation for the 21st Century”. Available at: https://taxation-customs.ec.europa.eu/communication-business-taxation-21st-century_en?prefLang=pt, accessed on 4 August 2025.

[6] Directorate General for Taxation and Customs Union, “DAC7”. Available at: https://taxation-customs.ec.europa.eu/taxation/tax-transparency-cooperation/administrative-co-operation-and-mutual-assistance/dac7_en, accessed on 4 August 2025.

[7] European Council and Council of the European Union, “Digital Taxation”. Available at: https://www.consilium.europa.eu/en/policies/digital-taxation/, accessed on 4 August 2025.

[8] See Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and distance sales of goods, AND Council Directive (EU) 2019/1995 of 21 November 2019 amending Directive 2006/112/EC as regards provisions relating to distance sales of goods and certain domestic supplies of goods.

[9] Maria Elena Scoppio, “Viva la ViDA! What does VAT in the Digital Age mean for business and Member States?”, European Commission: Directorate-General for taxation and Customs Union, Newsletter, 28 November 2024. Available at: https://taxation-customs.ec.europa.eu/news/viva-la-vida-2024-11-28_en?prefLang=pt&etrans=pt, accessed on 22 March 2025.

[10] European Commission, “VAT in the Digital Age (ViDA): a proposal to modernise and improve the EU’s VAT system”. Available at: https://taxation-customs.ec.europa.eu/taxation/vat/vat-digital-age-vida_en, accessed on 24 March 2025.

[11] European Commission, Commission staff working document: executive summary of the impact assessment report, SWD (2022) 394 final, Brussels, 8 December 2022.

[12] Estefanía Harana Suana, “IVA y comercio electrónico: introducción al proyecto VAT in Digital Age (ViDA)”, 97-98.

[13] European Commission, Proposal for a Council Directive amending Directive 2006/112/EC as regards VAT rules for the digital age, COM (2002) 701 Final, 8 December 2022. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52022PC0701

[14] See Recitals 27 and 59, Council Directive 2006/112/EC of November 2006 on the common system of value added tax, OJ L 347 of 11.12.2006, 1-118.

[15] See Article 263 of Directive 2006/112/CE.

[16] See Article 5(16) of Directive (EU) 2025/516 of 11 March 2025 amending Directive 2006/112/EC as regards VAT rules for the Digital Age that alters Article 263 of Directive 2006/112/CE.

[17] See Article 5(4) and (5) of Directive (EU) 2025/516 that alters Article 218 of Directive 2006/112/EC.

[18] See Article 3(8) and Article 5(6) of Directive (EU) 2025/516 that alters Article 222 of Directive 2006/112/EC.

[19] See Article 4(3) of Council Regulation (EU) 2025/517 of 11 March 2025 amending Regulation (EU) 904/2010 as regards the VAT administrative cooperation arrangements needed for the digital age, that adds Article 24-G.

[20] See Article 9 of Directive 2006/112/EC.

[21] The deemed supplier is the “taxable person facilitating the supply of goods through the use of na electronic interface such as a marketplace, platform, portal or similar mean.” See Directorate General Taxation and Customs Union, “Explanatory Notes on VAT e-commerce rules”, September 2020. Available at: https://vat-one-stop-shop.ec.europa.eu/system/files/2021-07/vatecommerceexplanatory_notes_28102020_en.pdf, accessed on 7 August 2025. See also Article 242-A of Directive 2006/112/EC.

[22] See Recitals 25 and following of Directive (EU) 2025/516.

[23] See Recital 27 and Article 3(1) of Directive (EU) 2025/516 that introduces Article 28-A on Directive 2006/112/EC.

[24] See Article 3(2) of the Directive (EU) 2025/516 that introduces Article 46-A on Directive 2006/112/EC.

[25] Christian Amand, “VAT in the digital age proposals: critical views”, European Business Law Journal, 2 (2023): 25-37: 31. Available at: https://www.ceeol.com/search/article-detail?id=1254538

[26] This means business to consumer (B2C) relation – operations with people that are not registered for VAT purposes. See Anabela Santos, “Regimes de balcão único no âmbito do Pacote de Comércio Digital”, Vida Económica, 15 October 2021, 23. Available at: https://www.occ.pt/fotos/editor2/ve_anabelasantos15out2021.pdf

[27] Estefanía Harana Suano, “IVA y comercio electrónico: introducción al proyecto VAT in Digital Age (ViDA)”, 101.

[28] See Recital 38, articulated with Article 2(12) and 3(18) and following of Directive (EU) 2025/516. See also Christian Amand, “VAT in the digital age proposals: critical views”, 32.

[29] See Recital 39, articulated with Article 3(19) of Directive (EU) 2025/516 that alters Article 369-B of Directive 2006/112/EC.

[30] “ViDA (VAT in the Digital Age) – The Council of the European Union Approves the VAT in the Digital Age Package”, Edicom, 11 March 2025. Available at: https://edicomgroup.com/blog/vida-the-european-union-promotes-b2b-electronic-invoicing,  accessed on 11 August 2025.

[31] Alexandra Bal, “VAT in the digital age: impact of revised proposals on EU businesses”, Forbes, 12 May 2024. Available at: https://www.forbes.com/sites/aleksandrabal/2024/05/12/vat-in-the-digital-age-impact-of-revised-proposals-on-eu-businesses/, accessed on 11 August 2028.

[32] See Recital 9 of Opinion 7/2023 on the Package of Legislative proposals on VAT in the Digital Age, European Data Protection Supervisor (EDPS), 3 March 2023.

[33] Aisha N. Grin, “Analysing the efficiency of ViDA Proposal’s. Article two: a comprehensive assessment of challenges, implementation prospects and proposal for reforms” (Master’s Diss., Tilburg Law School, 2023/2024), 47-53. Available at: http://arno.uvt.nl/show.cgi?fid=174274

Picture credit: by Nataliya Vaitkevich on pexels.com.