In the previous article, we explored the challenges of taxation in the digital economy and the need to adapt tax frameworks to cross-border digital services. This article focuses on specific reforms in the field of value-added tax (VAT), introduced through the VAT in the Digital Age Package (ViDA).
Presented by the European Commission, the package aims to modernize the VAT system through digitalization, harmonization of electronic invoicing rules, and enhanced administrative cooperation between tax authorities within the EU.
On November 5, 2024, the Economic and Financial Affairs Council (ECOFIN) reached a political agreement on the key elements of the ViDA package, and on March 11, 2025, the Council of the EU officially adopted the package, paving the way for its implementation.
I. EU-level Legal Framework
The VAT in the Digital Age Package is part of the EU’s efforts to modernize and harmonize the VAT system in response to the challenges of the digital economy and cross-border trade.
The current VAT framework, based on Council Directive 2006/112/EC (VAT Directive), governs the taxation of goods and services. Despite multiple amendments, the directive remains built on a system that does not fully account for digital business models, automated processes, and the growing role of platform economies. In this context, the European Commission has identified three key issues:
– Fragmented electronic invoicing and digital reporting systems – National differences increase business costs and administrative burdens.
– Complex VAT registration and reporting procedures – Despite the One-Stop Shop (OSS) mechanism, many companies still face complicated registration requirements across multiple Member States.
– VAT fraud and lack of transparency – The VAT gap remains a serious issue, with €60 billion in VAT losses across the EU in 2021.
II. Existing Initiatives and the ViDA Connection
Before the introduction of ViDA, the EU implemented several measures to improve the VAT system, forming the foundation for the new reform:
– VAT Action Plan (2016) – Aimed at creating a simpler, more efficient, and sustainable VAT system that better reflects the digital economy.
– Directive (EU) 2017/2455 and Directive (EU) 2019/1995 – Introduced the One-Stop Shop (OSS) mechanism, simplifying VAT reporting for companies operating across multiple EU Member States.
– Directive (EU) 2020/284 – Imposed specific obligations on digital platforms, requiring them to report trader activities.
Despite these reforms, the European Commission acknowledged that the need for further harmonization remains pressing, which led to the proposal of the ViDA legislative package.
In this context, on December 8, 2022, the European Commission introduced three key legislative proposals under ViDA:
1. COM(2022) 701 final – Proposal to amend the VAT Directive (2006/112/EC), including:
– Expansion of the One-Stop Shop (OSS) to cover more businesses.
– New VAT rules for digital platforms, making them responsible for collecting and reporting VAT.
2. COM(2022) 703 final – Proposal to amend Council Regulation (EU) No 904/2010, on administrative cooperation in the field of VAT. The main objective is:
– Strengthen data exchange between tax administrations to prevent VAT fraud.
– Create an EU-wide digital platform for monitoring intra-EU transactions.
– Introduce joint tax audits to detect cross-border VAT evasion schemes.
3. COM(2022) 704 final – Proposal to amend Council Regulation (EU) No 282/2011, establishing:
– Standardized technical requirements for electronic invoices.
– Harmonization of national e-invoicing systems to align with EU rules.
– Automated exchange of invoice data for improved VAT oversight.
Following the political agreement reached on November 5, 2024, the Council of the EU officially adopted ViDA on March 11, 2025, requiring Member States to begin the process of transposing and implementing the new rules.
III. Key Components of the VAT in the Digital Age Package
1. Mandatory Electronic Invoicing
COM(2022) 704 final introduces common rules for e-invoicing across all Member States, facilitating tax authority oversight and reducing administrative burdens for businesses. Standardized technical requirements will enable faster data processing but will require significant digital infrastructure upgrades.
In parallel, a Digital Reporting Requirements (DRR) mechanism is introduced, mandating the automatic submission of cross-border transaction data to tax authorities. This aims to reduce fraud and enhance real-time VAT monitoring.
2. New VAT Reporting and Data Exchange Mechanisms
COM(2022) 703 final amends Regulation (EU) No 904/2010, enhancing data exchange between tax authorities, including information on intra-EU supplies, B2C transactions, and e-commerce platforms.
Centralized information portals will be established, allowing businesses to submit data on cross-border transactions in a single system rather than interacting separately with each national authority.
3. Expansion of One-Stop Shop (OSS)
The OSS and Import One-Stop Shop (IOSS) mechanisms, introduced in the EU E-Commerce VAT Package (Directive (EU) 2017/2455 and Directive (EU) 2019/1995), may be further expanded to cover additional types of goods and services, allowing businesses to register in a single Member State and report VAT obligations across the entire EU.
IV. Implications for Bulgaria
1. Value-Added Tax Act (ZDDS)
Bulgaria has transposed the main requirements of Council Directive 2006/112/EC into its national legislation through the Value Added Tax Act. In light of the official adoption of ViDA by the Council of the EU, Bulgaria must adapt its legislation to the new requirements, including the implementation of mandatory e-invoicing and its technical standards, updates to the procedures for reporting intra-Community and remote sales, and the expansion of the OSS/IOSS framework within the national context.
The deadlines for transposing the new provisions into national legislation will be determined by the adopted implementation timeline for ViDA across the Member States.
2. Administrative Readiness and Oversight
The National Revenue Agency (NRA) and the Ministry of Finance will need to modernize real-time electronic data processing systems, enhance cooperation with EU tax administrations, and provide training for officials in big data analytics and VAT fraud detection.
3. Impact on Businesses
Small and medium-sized enterprises (SMEs) engaged in cross-border sales will benefit from simplified VAT reporting via a single portal but will need to adapt to e-invoicing requirements. Large enterprises operating in multiple countries will reduce compliance costs thanks to harmonized electronic reporting. The implementation of new e-invoicing software may pose an initial challenge, but it will contribute to greater transparency, fewer errors, and a reduced risk of fraud.
V. Challenges and Expectations
1. Legislative Process and Unanimity
After the official adoption of ViDA, Member States must initiate the transposition and implementation process of the new provisions. Although ViDA has already been adopted at the EU level, its successful application depends on the swift and effective adaptation into national legislation.
Delays in transposition could lead to misalignment with EU requirements and potential sanctions, making efficient preparation crucial.
2. Synchronization with Existing Practices
The transition to a unified e-invoicing platform and the expanded application of OSS/IOSS will require an adaptation period, particularly for companies with limited IT resources. The key challenges will include:
– Integration of new technical standards for e-invoicing with national IT systems;
– Training for businesses and accounting professionals, who will need to adopt the new reporting systems;
– Avoiding legal conflicts with other regulations, ensuring consistent harmonization with European directives and national tax requirements.
3. Fraud Prevention
One of the key objectives of the VAT in the Digital Agе package is to reduce VAT fraud, particularly in cross-border transactions, including Missing Trader Intra-Community (MTIC) fraud.
With the adoption of COM(2022) 703 final, administrative cooperation among tax authorities in the EU will be strengthened, enabling more efficient data exchange, enhanced VAT transaction tracking, and the possibility of joint tax audits.
Conclusion
With the official adoption of the “VAT in the Digital Age” package, the European Union is taking a key step towards modernizing the VAT system in line with the realities of the digital economy. The new provisions will facilitate cross-border transactions, enhance administrative cooperation, and reduce the risk of fraud through electronic invoicing and improved transaction traceability.
With the adoption of ViDA, Bulgaria faces the need to transpose the new rules into its national legislation and strengthen its administrative and technological capacity.
For Bulgarian businesses, the reforms offer a more transparent and simplified process, but they also impose requirements for timely adaptation to electronic invoicing and reporting. Timely preparation and effective communication with businesses will be key to the successful implementation of the new provisions.
Main Sources and Additional Information
Council of the European Union
– Council adopts VAT in the digital age package https://www.consilium.europa.eu/en/press/press-releases/2025/03/11/taxation-council-adopts-vat-in-the-digital-age-package/
– Digital Taxation / VAT https://www.consilium.europa.eu/en/policies/digital-taxation/#VAT
Council Directive 2006/112/EC of 28 November 2006 on the common system of value-added tax
Directive 2006/112/EC (VAT Directive)
“VAT in the Digital Age” (ViDA) Package (2022)
– COM(2022) 701 final https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022PC0701
– COM(2022) 703 final https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022PC0703
– COM(2022) 704 final https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022PC0704
Council Regulation (EU) No 904/2010 of 7 October 2010 on administrative cooperation and combating VAT fraud https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32010R0904
Value Added Tax Act (VAT Act – Bulgaria) https://old.nra.bg/en/document?id=423
National Revenue Agency (NRA) – Bulgaria https://nra.bg/