EU Ministers break the deadlock on new VAT rules

EU Financial Affairs Ministers found a common position on the ‘VAT in the digital age’ legislative package. Estonia’s veto obstructed the adoption of a general approach in the EU Council for a long time, and the consequent launch of interinstitutional negotiations with EU Parliament representatives.
Once the two regulations and the directive are applicable, fully digital VAT reporting will be an obligation for cross-border transactions by 2030.

In most cases where individual service providers do not charge VAT, online platforms will be required to pay VAT on short-term accommodation and passenger transport services, in line with the so-called “deemed supplier” model, which places the responsibility for collecting VAT on platforms that facilitate transactions rather than on the underlying suppliers.

The new rules expand online VAT one-stop-shops so businesses do not have to go through costly registrations for VAT in every Member State where they do business.

The proposed legislative package aims to reduce and simplify report obligations. It also contributes to face fraud since every year, Member States lose around 61 billion euros in VAT revenues.

The Council proposes to water down the European Commission initiative by allowing greater flexibility in the definition of short-term accommodation rental for tax purposes and giving Member States the possibility of exempting small and medium-sized enterprises (SMEs) from the deemed supplier rules.

Estonia desisted, as ministers agreed, to propose a three-year launch delay, from July 2027 to January 2030, for the mandated deemed supplier obligations on ride and accommodation sharing platforms and a 10-year Member State unquestionable opt-out derogation request option.

Ministers also approved in a final vote the new rules amending the Solvency II directive, which aims to boost the role of the insurance and reinsurance sector in providing long-term private sources of investment to European businesses.

The green light to the new insurance recovery and resolution directive (IRRD) will allow insurers and relevant authorities in the EU to be better prepared for situations of significant financial distress and to intervene early and quickly, including across borders.

When asked about the possibility of Germany receiving a particular treatment in terms of deadlines due to clashes in the coalition government on the 2025 budget, EU Commission Executive Vice President Valdis Dombrovskis said that the EU Commission “respects the principle of equal treatment applicable to all Member States.”

“We are constantly engaged with the German authorities; we hope to receive their medium-term structural budget plan by the end of the month,” he added by answering a question on how the issue could impact the implementation of the new macroeconomic governance rules.