The European Union's VAT in the Digital Age initiative ("ViDA") reached a political agreement on 5 November 2024. With major changes to the EU VAT rules coming soon, it's important for both EU and non-EU businesses to start preparing now. Here are 10 key insights on what you need to know, what you need to do and how Bird & Bird can help you succeed:

1. What is ViDA?

ViDA is a set of tax reforms that will change how VAT works in the EU.

2. Why is this important?

ViDA is the biggest change to the EU VAT rules since the introduction of the EU's single market in 1993. It aims to combat EU VAT revenue loss and to modernize the EU VAT system by making it simpler, more efficient and fit for the digital age.

3. How are businesses affected?

ViDA will change how businesses operating in the EU need to charge, invoice, report, and manage VAT. Businesses will need to share data with customers and EU tax authorities in (almost) real-time. It will reshape how businesses will be audited by the EU tax authorities. It will impact many business operations, processes and controls; ERP systems; tax, customs and legal positions; and potentially even judicial protection and tax litigation.

ViDA introduces various detailed changes, structured around three pillars, which in summary are:

In the short term, a major challenge will be implementing e-invoicing and digital reporting mandates that are already live or soon will be live in multiple EU Member States. Managing these different EU mandates until 1 January 2035, along with non-EU e-invoicing and digital reporting requirements, will be a significant task. In the mid term, ViDA will require businesses to redesign and re-implement their end-to-end VAT governance. This includes revisiting VAT positions and VAT requirements of business operations, amending VAT control frameworks, updating VAT controls in operational processes and embedding new VAT logic into ERP systems. These challenges will require cooperation beyond the in-house VAT function, involving tax, legal, finance, logistics, IT, and business teams. For example, businesses will need to address data protection and regulation requirements when exchanging transactional data, ensuring this continuous data flow is secure, including through third-party solutions. Additionally, businesses, especially platform operators, must review and possibly update trading practices and contracts with sellers and buyers to comply with new VAT changes and avoid potential liability.

8. How does ViDA fit in the big picture of tax, customs and legal reforms?

ViDA is part of global policy efforts to combat tax revenue loss and modernize regulatory frameworks. In the EU, addressing VAT revenue loss is also being tackled through initiatives like CESOP, DAC7 and customs reforms. Globally, e-invoicing and digital reporting are increasingly becoming standard practice, and the OECD's Pillar 2 initiative aims to set a global minimum tax to address corporate tax revenue loss. Beyond tax and customs, the EU has introduced other legislation to regulate the digital age, including the General Data Protection Regulation ("GDPR"), the AI Act, the Digital Markets Act ("DMA") and the Digital Services Act ("DSA"). As ViDA is not an isolated initiative, businesses should consider leveraging best practices and lessons learned from other reforms to prepare for and implement ViDA.

9. How should businesses prepare for ViDA?

We recommend the following 5-step approach to prepare your business: