FEDIL - The Voice of Luxembourg's Industry

RESPONSE TO THE CALL FOR FEEDBACK ON THE VAT IN THE DIGITAL AGE INITIATIVE FEDIL – The Voice of Luxembourg’s Industry 1 I. INTRODUCTION Founded in 1918, FEDIL – The Voice of Luxembourg’s Industry (hereinafter “FEDIL”), is a multi- sector business federation, giving a voice to nearly 700 industrial members, service providers and construction companies and fostering economic activity in Luxembourg. Today, FEDIL represents 95% of Luxembourg’s industrial production, 75% of Luxembourg’s private research activity, 25% of national employment and 35% of national GDP. FEDIL is a founding member of the European employers' association BusinessEurope and has a representative office in Brussels to ensure that its member companies’ voice is heard in European policymaking. To this end, FEDIL is registered in the EU Transparency Register (number 286194516022-33).

…in European policymaking. To this end, FEDIL is registered in the EU Transparency Register (number 286194516022-33). Through this document, FEDIL provides on behalf of its members a feedback to the European Commission’s VAT in the Digital Age proposal. II. FEDIL’S FEEDBACK We welcome the opportunity to provide our feedback on the VAT in the Digital Age proposal of the European Commission. We fully support the European Commission’s ambition to improve the VAT system through the use of digital tools, reducing VAT-related barriers for cross-border trade in the EU and making the VAT system better for businesses, while also more resilient to fraud. We believe the VAT in the Digital Age proposal is well placed to embrace digitalization, and effectively addresses the challenges faced by businesses (and in particular by SMEs) who trade, or have ambitions to trade, across EU borders.

…challenges faced by businesses (and in particular by SMEs) who trade, or have ambitions to trade, across EU borders. This is well reflected in the proposal through : • The expansion of the Union One Stop Shop (‘UOSS’) and the introduction of a transfer module allowing businesses to use one single VAT registration to report transfers of own inventory to locations across the EU, as well as the onward sales in those locations. We strongly encourage Member States to reach consensus on this pillar, as it would be a pivotal tool to reduce the need for costly, time- consuming, and often prohibitive need for businesses wanting to sell products across the EU to maintain multiple VAT registrations. Amendments to the text of the proposal should be in line with the ‘north star goal’ of reducing the VAT administrative burden for businesses.

…of the proposal should be in line with the ‘north star goal’ of reducing the VAT administrative burden for businesses. To achieve this, it is key that there is no (or extremely limited) negative VAT cash flow impact when businesses opt to report through the UOSS and the transfer module. Any newly introduced obligations for businesses and for electronic interfaces facilitating the transfer and/or the sale of goods should be proportional and ensure a level playing field. Ref. Ares(2023)2409369 - 03/04/2023 RESPONSE TO THE CALL FOR FEEDBACK ON THE VAT IN THE DIGITAL AGE INITIATIVE FEDIL – The Voice of Luxembourg’s Industry 2 • A shift to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU and a more harmonized framework for domestic transactions.

…for businesses that operate cross-border in the EU and a more harmonized framework for domestic transactions. We welcome the ambition to harmonize EU digital reporting requirements, as current fragmentation of digital reporting and e-invoicing standards around the EU is causing immense burden on businesses and is a threat to the Single Market. However, as the proposal focuses solely on creating a harmonised invoice format, it misses a key opportunity to harness the full business and economic benefits that could come from harmonization of transmission protocols and technical specifications for digital reporting. However, due to the ambition of the proposal, we opine that a more realistic timeframe must be considered. Some of the proposed rules are designed to take effect eight months after the finalisation of this public consultation (from 1 January 2024).

…are designed to take effect eight months after the finalisation of this public consultation (from 1 January 2024). Given the unanimous approval required from all Member States, we recommend a minimum of twenty-four months from the date ViDA is approved before the first measures start being implemented. Additional lead time will be needed for the introduction of the more complex proposals, such as the introduction of mandatory electronic invoicing (see below). It could also be worth examining the possibility of granting incentives to businesses, ensure their practical needs are considered and provide sufficient guidance and support. 1. EU single VAT ID We are strongly supportive of the EU single VAT registration, and we strongly encourage Member States to prioritize discussions on this pillar in order to reach consensus.

…and we strongly encourage Member States to prioritize discussions on this pillar in order to reach consensus. We strongly encourage Member States to ensure that any amendments to the proposal are in line with the ‘north star goal’ to reduce the administrative burden on businesses. The One- Stop Shop (OSS) in place since 1 July 2021 has already been a great step forward in simplifying VAT compliance for cross-border scenarios for B2C businesses. However, neither movements of retail inventory across EU countries for storage, nor the onward sale of that inventory are eligible for the OSS system. As such, businesses still face the burden of VAT registration requirements in every EU country of storage.

OSS system. As such, businesses still face the burden of VAT registration requirements in every EU country of storage. As indicated in the Commission’s Impact Assessment, the extension of the OSS as detailed in the proposal is hence a great improvement, as it will reduce burdens on hundreds of thousands of businesses operating across many industries throughout the EU, allowing them to store inventory1 closer to their customers, enabling faster and more sustainable delivery, without the requirement to VAT register outside their home country. This simplification will allow businesses and especially SMEs to take full advantage of the Single Market. National governments will also benefit from a more competitive EU market, leading to a boost for tax revenues at a time where Member States are dealing with the social and economic effects of recent energy price spikes and geo-political tensions.

States are dealing with the social and economic effects of recent energy price spikes and geo-political tensions. Simpler VAT obligations also leads to higher levels of VAT compliance and level the playing field across all sizes of businesses. We would also expect that the simplification of EU VAT obligations will encourage businesses to onshore inventory within the EU prior to sale, instead of 1 We understand and appreciate that capital goods are excluded due to the necessity for Member States to monitor the VAT deduction. However, we note that there is no harmonized and precise definition of capital goods for VAT. This could lead to some difficulties of application. One solution could be to introduce such a definition, but it could be difficult and will certainly lead to lengthy discussions.

…could be to introduce such a definition, but it could be difficult and will certainly lead to lengthy discussions. Another solution could be to refer to international accounting standards, but they are also subject to some interpretation difficulties. A pragmatic solution could be to consider the qualification of the Member State of origin of the capital good and ensure that other Member States are obliged to accept this definition. RESPONSE TO THE CALL FOR FEEDBACK ON THE VAT IN THE DIGITAL AGE INITIATIVE FEDIL – The Voice of Luxembourg’s Industry 3 shipping directly from non-EU locations – as well as reducing pressure on customs authorities, this should enhance tax authorities’ ability to audit and enforce.

…as well as reducing pressure on customs authorities, this should enhance tax authorities’ ability to audit and enforce. The fact that the local VAT could not be deducted via the OSS is a major drawback and we understand and accept that there are several reasons making currently this impossible or at least extremely difficult. Indeed, because of its design with a single point of contact authority, the OSS is less fit for including transactions which would allow recovery of VAT (other than self-assessed VAT, e.g., on intra-EU acquisitions of goods for resale), given the need for controlling tax refunds from tax authorities’ perspective. Nevertheless, we would suggest: a) To foresee that studies will be conducted, and solutions will be proposed by the Commission to solve this in the future.

…foresee that studies will be conducted, and solutions will be proposed by the Commission to solve this in the future. b) In the meantime, and in parallel, it could be worth to investigate possibilities to create a link between the OSS and the VAT refund portal to allow a more automated processing of VAT credits (e.g. upload of OSS data in the refund portal, simultaneous filing periods, etc.) for taxpayers registered in the OSS. This could be done at EU level or in a first step between voluntary Member States via bilateral agreements which will improve the conditions their businesses operate. If this alternative succeeds and if solutions investigated under a) appear to be complex and/or costly, they could be abandoned if this alternative appears to be satisfactory.

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