© Institute for Digitalization in Tax Law
The current EU VAT system is increasingly complex and susceptible to fraud for businesses and tax administrations. This is partly because it has not kept pace with the challenges and opportunities presented by new digital technologies. Against this background, the European Commission has taken the initiative to adapt the EU VAT framework to the digital world.
As part of the consultation “VAT in the Digital Age” concluded in May this year, IDSt Expert Committee III “Standardization of Transactional Information Requirements” submitted a detailed statement to the European Commission, in particular on Part 1 – Digital Reporting Requirements (“DRRs”). The statement was drafted on the basis of its members’ extensive experience with transaction-based VAT reporting obligations in several EU member states as well as in third countries. Our team of experts is convinced that the DRRs, if properly implemented, can unleash significant potential to safeguard the VAT revenues of the European Union and the Member States, as well as improve the smooth functioning of the internal market. At the same time, this would provide an opportunity for further digitization of business processes, especially electronic invoicing and the integration of this process into ERP systems. This could create a win-win situation for financial administrations and companies.
Now the EU Commission has published its final version of the report “VAT in the Digital Age”. It is gratifying that some suggestions from the IDSt statement have been taken up. The report, as well as oral information, indicates that the EU Commission plans to propose mandatory e-invoicing, at least for intra-EU invoices. Summary reporting would then be replaced by single invoice reporting. CEN standard 16391 is planned as the standard, although EDI can be continued if both business partners so wish. The transmission path is not predefined, but can be freely selected, e.g. by mail, EDI or via external providers. With regard to domestic transactions, no obligation is to be established for member states to introduce an e-invoicing system. However, if a Member State intends to introduce a new DRR, this may only be done in accordance with the requirements for intra-EU invoices. Existing national systems can continue for a transition period of 5-10 years.
From the IDSt’s point of view, it is particularly important that smaller companies are not overburdened by the new regulations, and that they can even achieve efficiency gains through the digitalization of the invoicing process – for example, through a pre-filled VAT return. Therefore, from IDSt’s point of view, it is gratifying that at least the (VAT) small entrepreneurs are to be exempted from the e-invoicing obligation.
