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The European Parliament will require online platforms to pay VAT on third-party services, thereby eliminating unfair competition and fraud. This reform could recover up to €11 billion per year and simplify the tax management for businesses.
Rebalancing competition
As part of an ambitious reform aimed at modernizing the European Union’s VAT system, the European Parliament has approved an update to the VAT directive from 2006, which imposes new tax obligations on online platforms. This reform seeks to address a persistent distortion of competition and combat VAT fraud, a recurring issue affecting several economic sectors.
The new rules, approved by a large majority of parliamentarians, will come into effect by 2030. They will require online platforms to collect and submit VAT on services provided by third-party suppliers who fail to do so.
This measure is particularly relevant for sectors where competition appears unfair due to the absence of VAT on certain online services, such as short-term rental housing and passenger transport. Online platforms will now have to comply with the same tax obligations as traditional businesses, thereby restoring fair competition. Member states will be able to exempt small and medium-sized enterprises (SMEs) from these obligations, a provision supported by Parliament to avoid administrative overload.
Digital and taxation
One of the other major developments of the reform is the introduction of a digitized VAT reporting system for cross-border transactions. Businesses will be required to issue electronic invoices and automatically transmit tax data to their national authorities. This will enhance efforts to combat VAT fraud by providing real-time information to tax administrations to verify cross-border services, among other things.
The one-stop shop (OSS) for VAT will also be strengthened, allowing businesses to fulfill their tax obligations through a single online portal, thereby reducing administrative complexity and the costs of VAT registration in different member states.
A major reform
Adopted on February 12, 2025, this reform is part of the “VAT in the Digital Age” (ViDA) initiative presented by the European Commission in 2022. It aims to enable member states to recover up to 11 billion euros in lost tax revenues each year over the next ten years. It is also expected to allow businesses to save 4.1 billion euros annually in compliance costs and 8.7 billion euros in registration and administrative fees.
This revision of VAT rules is like upgrading a car engine to navigate the new digital highways. As the economic landscape evolves rapidly, this reform fine-tunes the mechanisms of the European tax system to ensure a smooth and fair ride, where every economic player adheres to the same rules and fraud is effectively addressed. The European Union is thus making a decisive turn to modernize its “tax engine” and meet the challenges of the 21st century.
Summary
The European Parliament has approved a significant reform to the VAT directive, requiring online platforms to pay VAT on third-party services to eliminate unfair competition and combat VAT fraud. Set to take effect by 2030, this reform aims to recover up to €11 billion annually while simplifying tax management for businesses through a digitized VAT reporting system and a strengthened one-stop shop for VAT compliance. By ensuring that online platforms adhere to the same tax obligations as traditional businesses, the initiative seeks to create a fairer economic landscape in the digital age.
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