Global Daily Tax News, Estonia Vetoes EU's VAT In The Digital Age Package, (May 15, 2024)

The Estonian Government elected to veto the Commission's proposed value-added tax law reform package, VAT in the Digital Age (VIDA), at the May 14 meeting of the Economic and Financial Affairs Council (ECOFIN).

The VIDA package looks to improve on how tax authorities use technology to fight tax fraud and modernize the bloc's VAT rules to respond to the digitalization of the economy.

It comprises three reforms: e-invoicing rules, platform economy VAT rules, and simplified value-added tax registration rules.

The Estonian Government has expressed concerns with the plans for the platform economy, while stating it does not object to the other elements.

The measure contested by Estonia provides that online platforms would be liable for the collection of VAT on sharing economy services, such as short-term accommodation and ride-hailing services, where the business user on their platform is not obligated to register for VAT.

Following the ECOFIN meeting, Finance Minister Mart Vorklaev said: "We cannot agree with such a solution; it does not in any way make the tax system fairer, but instead brings more injustice."

He argued that introducing the rules would distort competition between platforms' business users and those not operating through a platform where their turnover is below the registration threshold.

He said the introduction of value-added tax would be a double blow for platforms' business users, as VAT would be added to their services, on the one hand, and they would be unable to deduct input VAT, on the other. This is turn violates the principle of VAT neutrality, he said.

"As a compromise, we can support such a solution only if it would be voluntary for the countries, so that it would not entail additional costs or administrative burdens for those who do not want to unfairly tax their small businesses and individuals," said Vorklaev.

The Estonian Government said: "Starting from this year, the platforms also already have an obligation to transmit information to the tax office based on the automatic exchange of platform-related information (DAC7). On the basis of this information, the tax office can see if someone evades the VAT obligation, and therefore there is no real need to collect the tax through the platform."

It confirmed: "Estonia has no objections to the other two parts of the package, which include digital reporting and VAT registration in one place."