What do the EU ViDA rules mean for accommodation and transport OTAs and other agents?
posted 12th November 2024
Viva la ViDA?
After a long wait, the EU has finally reached an agreement on the VAT in the Digital Age (ViDA) proposals. This will be really important for UK businesses which trade with the EU, and/or provide accommodation or transport services taking place within the EU. Luckily, there is some time until the regulations are implemented, but we would encourage all affected business to start considering how this may impact them and take measures to ensure compliance by commencement date.
The ViDA proposals contain three “pillars” - e-invoicing and digital reporting, the platform economy, and the single VAT registration. Whereas all three are, I’m sure, equally important, we will be focusing on the platform economy rules here because this is something that many of our clients will need to consider.
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What are the three pillars?
In brief, the three pillars are as follows:
- 1. Digital Reporting and mandatory e-invoicing: This pillar has been postponed to 2030 with earlier adoption optional for member states, but will then be mandatory for certain EU supplies, including those for services for which the reverse charge is applied. E-invoicing will be the default position and will be mandatory for all transactions within the Digital Reporting rules. The Digital Reporting Rules include intracommunity supplies of and acquisitions of goods, transfer of own goods (other than OSS supplies), goods and services subject to the (domestic – see below) reverse charge mechanism. This means that many UK businesses will be affected and must ensure that they have the technology available to comply on a per-member state basis by the time at which the member state seeks to apply the rules. There will be some exceptions and some discretion for member states, such as certain allowances for reverse charge supplies. However, any businesses which trade with EU member states should ensure that they evaluate their position and the rules in those member states.
- 2. “Deemed supplies” by “platforms” acting as disclosed agent for supplies of hotel (and other short term) accommodation and transport: We wrote about this at length back when the proposals were first introduced, and now we have the detailed proposals we have set this out in more detail below. I would urge any businesses involved in the supply of accommodation or transport in the EU to review these comments.
- 3. Single EU VAT registration (and expansion of the OSS/IOSS): From 1 July 2028, the One Stop Shop (OSS) will be expanded for various types of goods and services. Key to the content in the remainder of this article is that it will include deemed supplies made by platforms under the new ViDA rules for online platforms (see below). It will also include various types of B2C goods including supply of goods with installation/assembly, goods on board of ships, aircrafts or trains, domestic supplies and transfer of own goods. The OSS regime is a useful tool allowing businesses to make supplies in several EU member states without having 27 different VAT registrations, instead completing one single VAT registration and return per quarter. This will I'm sure be a lifesaver for many businesses affected by the online platform rules below.
There will also be a mandatory domestic reverse charge provision whereby if a business who is not registered for VAT in one country supplies something with a place of supply in that country to someone else who is already VAT registered there, the VAT-registered customer must apply the reverse charge. At present, this is applied optionally and not fully, and we welcome this change as this avoids potential unnecessary VAT registrations. This may also be interesting as a simplification when viewed alongside the proposed EU TOMS reforms, if the result of the reform is that TOMS no longer applies to non-EU businesses.
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Deemed supplies of accommodation and transport by online platforms
The proposal is that online platforms located anywhere in the world, including the UK, will be required to pay EU VAT when:
- They are a platform which uses an "electronic interface" to facilitate sales;
- They provide or “facilitate” the means to sell “short-term” (up to 30 days sold to the same person) accommodation rental or passenger road transport;
- The platform acts as disclosed agent;
- The accommodation/transport service is in the EU; and
- The service provider (or principal supplier) itself has not: confirmed to the facilitator that they will account for VAT due; and provided the facilitator with their local VAT number in the country in which the accommodation/transport takes place (or that they are exempt under the small enterprise scheme).
This should be optional for member states as of 1 July 2028, and compulsory from 1 January 2030, so we have good time here to plan ahead. There is talk that some member states are considering earlier adoption, but whether that is possible or not remains to be seen.
The key point here is that it applies where the underlying supplier is not registered for VAT…but should be (or, to be generous, “non-taxable persons or taxable persons availing themselves of the special scheme for small enterprises”). As the VAT threshold in most EU countries are practically non-existent, this means most suppliers of accommodation and transport should be registered and it is the non-compliance of many that has given rise to this rule. So, although ideally, we would just go round all small suppliers of accommodation and transport and get them to register for VAT, this is realistically not possible, and it is much more practical for the EU to ask platforms to do the work!
I think its fair to say that this regime is not being welcomed by OTAs and other online travel agents, as this will at the very least create an admin burden in collecting VAT numbers from suppliers, and at the more extreme end mean a large amount of extra VAT to pay that will be a real VAT cost either for itself or suppliers.
Anyway, in these cases, the platforms acting as disclosed agent will be treated as making a deemed supply of the accommodation or transport and so will be required to account for VAT as if they were themselves the service provider. The EU has confirmed that the platform will not be allowed to account for VAT within TOMS and so would need to instead account for local VAT to each member state, assuming that country requires payment for that service (some, for example, have exemptions for short term lettings at the moment, although it is proposed that this exemption be withdrawn). As the “deemed supply” from the underlying supplier to the facilitator will be exempt from VAT, the platform would not have any VAT to recover on its purchase by definition, so this would be a considerable dent to its profits unless it reduced its payments to the underlying supplier by the amount of tax due.
The measures allow EU member states the option of excusing platforms from this regime if the supplies are made under the special scheme for small enterprises. I have seen this is a lot of guidance notes this week without much commentary on this, but we understand that actually this could be a great help for businesses. The EU small enterprise scheme is not something we have ever had in the UK (instead, we just have a much more generous VAT registration threshold). However, we understand that it exempts some small enterprises for certain types of supplies from VAT. As such, it may be that in some member states accommodation sold by many of the typical one-property villa-owners may be excused.
We spoke about the proposals last year, at which time there were many unanswered questions. Although there is still much more detail to fill in, we have at least some news on answers to these:
- What is a “platform”? The EU Commission describes a platform as “an electronic interface such as a marketplace, platform, portal, or similar means”. The supporting documentation also extends this to say that “the term ‘facilitates’ means the use by a taxable person of an electronic interface to allow a customer and a supplier offering supplies, within the Union, of short-term accommodation rental or passenger transport services by road through the electronic interface to enter into contact, which results in a supply of those services through that electronic interface”. This encompasses a range of businesses who use online means to facilitate the sale of accommodation or transport, but it is fortunately perhaps more limited than we at first believed. For example, if a business advertises online and then deals with requests via email, I would not consider this description to be met as there is no interface involved in the sale itself. My interpretation here on the face of it is that there are some ways for some businesses to avoid this regime on this basis, but we of course note that member states may be free to add more detail here which may mean that there is a “grey” area on non-typical platforms and OTAs for the time being.
- What is accommodation and transport? I think this is fairly standard, but the text confirms that the accommodation rental services in question “the uninterrupted rental of accommodation to the same person for a maximum of 30 nights shall be regarded as having a similar function to the hotel sector subject to criteria, conditions and limitations to be laid down by Member States”, and that “Member States should have the possibility to make short-term accommodation rental services subject to certain criteria, conditions and limitations according to their national laws”. I would take this to mean serviced accommodation, villa rental and similar, but I wonder if there is a reason it does not appear to specifically mention actual hotels. I assume we will learn more in due course! It is also confirmed that “passenger transport services by road effected within the Union shall mean the section of the service effected between two points of the Union.” I think the definition of transport is quite clear here.
- What is a “facilitator”? The term facilitator intends to refer to what we in the UK would refer to as a disclosed agent. To explain this, the text confirms that the regime will not apply to businesses using TOMS and, in the EU, TOMS affects all business acting as principal or undisclosed agent who are not the underlying suppliers themselves). This is further confirmed in detail in the supporting documents which say that “a taxable person shall not be considered as facilitating a supply of short-term accommodation rental or passenger transport services by road where all of the following conditions are met: (a) that taxable person does not set, either directly or indirectly, any of the terms and conditions under which the supply is made; (b) that taxable person is not, either directly or indirectly, involved in authorising the charge to the customer in respect of the payments made; (c) that taxable person is not, either directly or indirectly, involved in the provision of those services” (i.e. act as principal or undisclosed agent). Unhelpfully, TOMS in the EU is called the “Special Scheme for Travel Agents” even though it of course does not apply to disclosed agents. As such, the statement that “it should be ensured that travel agents are not included in the ‘deemed supplier’ rule” applies actually to the exclusion of those acting as a principal.
- What is the price point? This is not discussed that I can see in the text, but logically if we have a deemed supply, I would expect that the valuation must be the price which the end customer pays for the accommodation. I assume that the platform will then still have its own supply of commission/fee to consider separately as per usual.
- How is VAT accounted? As above, TOMS is not possible and VAT will thus be due in each member state in which relevant accommodation/transport is supplied. However, the OSS expansion should include these services meaning that businesses affected will only be required to complete one EU VAT registration and return even if facilitating these services in multiple member states.
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How will this affect online platforms?
For online facilitators who are affected by these changes, it will mean:
- Platforms will need to factor in VAT payable on supplies of accommodation and transport in different countries. As there will, by definition, be no VAT for them to recover from their "suppliers" this could mean a huge cost and may erode profits substantially.
- Platforms are likely to have some admin work regardless of whether their suppliers are registered, as all platforms will be required to request registration details from all VAT registered suppliers to pass to the Commission as evidence.
- Platforms will need to ensure that they are ready to abide the reporting requirements by 1 July 2028 (of course many member states may wait until 2030 to introduce the changes, btu I would not advise relying on this). We of course still need more detail of the final practical arrangements, but I would encourage operators to keep up to date with news here.
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What can online platforms be doing now?
I re-read my comments from my advice on this area last year, and to be honest my advice remains quite similar:
For sales from 1 July 2028 onwards:
- Consider whether you are likely to be affected given the definition of a platform and facilitator above.
- If so, consider whether some or all suppliers are exempt under the special scheme for small enterprises.
- Start collecting the VAT numbers of all suppliers, as this will be required at the very least.
- Consider whether VAT needs to be factored in and make any necessary negotiations with suppliers, based on the VAT rates for each service within each relevant country.
- Consider whether your contracts with suppliers allow you to change the price based on VAT requirements and, if not, consider renegotiations of contracts.
- Keep up to date with releases from member states clarifying the rules in these countries.
- Consider whether an agency model is actually beneficial going forward or whether it may be better to move towards acting as principal (and relying on the TOMS rules, and the fact that currently registrations are not required in most cases in most member states for UK businesses whose sales fall under UK TOMS – this may of course change once the EU considers the TOMS Reform in more detail, so this may be a more detailed consideration).
In summary, this is something that all businesses acting as disclosed agents for sales of accommodation and transport online should consider. It may not affect everyone, and there may be ways for some businesses to alleviate the rules (for example, the small enterprise exemption for suppliers, changing to a principal model or changing the format of sales). However, for those that are affected, it is best to start preparations early, as this will include some large changes on price and compliance.
So, Viva la ViDA…? I’m not myself convinced!