During the past year, much has been said and many rumors have flourished about the direction of e-invoicing in Italy – and more specifically about whether or not Italy would (and could!) make the exchange of e-invoices mandatory for all supplies. We have repeatedly reported about these developments as they have unfolded and now we consider it safe to say that Europe is on the verge of a major VAT reform. With Italy, the EU Commission is about to open the gates to real-time VAT controls on a State-by-State-basis, which will turn Europe – historically the prime example of a region where the Post Audit style of e-invoicing has been unthreatened – into the next region to adopt the structure of a Clearance regime.
The Italian reform – what has happened?
Business-to-Government (B2G) e-invoicing has been fully mandatory for almost three years now – since March 2015 all invoices relating to supplies to public administrations must be issued using the mandatory FatturaPA XML format and transmitted through a government platform called the Sistema di Interscambio (Exchange System, commonly abbreviated to ‘SDI’). Failure to invoice in this way means that suppliers to the public administrations simply will not get paid.
Since 1 July 2016, the government went so far as to make the SDI available also for the issuance of Business-to-Business (B2B) e-invoices for all taxpayers – entirely free of charge. This possibility was also coupled with a range of additional incentives; the underlying rationale being that if the technical threshold was lowered, while at the same time other administrative burdens were removed, more companies would be inclined to switch from paper to e-invoices using the public platform, thereby giving the State access to large amounts of data which in turn would effectively fight VAT fraud. One of these incentives was that taxpayers who use the platform for all their invoices (B2B, B2G, and B2C) would not need to submit the quarterly e-report of a subset of invoice data.
Unfortunately, these incentives weren’t strong enough, and the uptake of e-invoicing for B2B transactions via the SDI platform has remained very low. It was not a surprise, then, that the Italian government in 2017 announced its plan to make the voluntary e-invoicing regime mandatory; and that they would seek the necessary derogation from the EU Commission in order to make that a reality.
What is the mandate all about?
The government e-invoicing project has progressed according to schedule: little over a month ago, the Italian parliament approved the much awaited Legge di Bilancio 2018, which introduced the obligation for all domestic B2B and B2C invoices to be issued in electronic form through the SDI platform.
As of 1 July 2018
The obligation will apply to certain types of supplies of goods and services that have been identified as prone to VAT fraud:
- Transactions involving the supply of petrol and diesel intended for use as motor fuel in cars and road vehicles, throughout the entire distribution chain, with the except of the fuel sold at roadside gas stations. The fuel sold at roadside gas stations will need to be compliant as of 1 January 2019.
- Supplies made by sub-contractors to the public sector, under a framework agreement in public procurement, provided that the main contractor has notified the public administration about the sub-contractor involved in the execution of the contract.
As of 1 September 2018
- E-invoices will be mandatory for the sale of all consumable goods to non-EU consumers under the tax-free scheme (amounts exceeding 155 EUR).
As of 1 January 2019
- The same obligation will be extended to all sectors for domestic supplies across the country; and not only for B2B supplies, but also for Business-to-Consumer (B2C) supplies. In other words, as soon as a taxpayer in Italy (defined as those who are an permeant established entity in Italy) is under the obligation to issue an invoice, that invoice must be electronic and issued through the SDI platform.”
- The format for the invoice exchange will continue to be the above mentioned FatturaPA XML format. Currently version 1.2. of this specification is in force, however, a new version is being developed. In the not too distant future, e-invoices in line with the European Norm (EN) developed by CEN will most likely also be accepted by the SDI platform.
Why is this a big deal?
The Legge di Bilancio 2018 is very clear about the consequences of non-compliance with the mandate:
An invoice that is issued in any other way than what has been established by law, is not considered as issued, and therefore subject to the penalties set out in art. 6 of the Legislative Decree no. 471/1997.
Put simply, if the invoice isn’t successfully issued through the SDI platform in the regulated format, as far as the Tax Authority is concerned – you didn’t issue anything at all. This one sentence changes everything; it is the reason why Italy no longer can be considered to belong in the category of what we call ‘Post Audit’ countries and why we say that it has transitioned into the ‘Clearance’ category: it is no longer the free exchange of an invoice between the trading parties that is the triggering factor for invoice issuance; instead, the successful prior registration of the invoice in a government platform is a precondition for the invoice to be recognized for VAT purposes.
So what’s next?
The EU derogation is on track: a draft proposal for a Council Implementing Decision has been published but is not yet approved, which means that at least from a legal perspective, everything seems to be coming together smoothly.
From an operational perspective, however, there are a number of open questions that need long-term solutions, and while new Technical Guidelines are in the works and will reportedly be published fairly soon, the big question is if the necessary long-term solutions will be published before or after entry into force of the mandate. The main reason for the uncertainties is the Italian general elections which will be held in a few weeks from now – and if one thing has become certain over the past couple of years, it is that come election time, all bets are off.