Back in June, we wrote about how Italy has declared its intention to make e-invoicing fully mandatory – not only for B2G but also now for B2B transactions. This isn’t a bad thing. Adoption in Europe is lagging embarrassingly far behind many countries such as Mexico, Chile, and Turkey who all introduced e-invoicing much later. There’s a level of market inertia in many EU Member States that a good number of observers agree on calls for bold regulatory steps. Whereas this project has attracted (well-deserved) attention from specialized media, very little has been reported on the difficulties associated with successfully implementing compulsory e-invoicing in the European Union.
Italy’s e-invoicing challenge
For some readers, the question as to whether a tax administration can make e-invoicing mandatory may sound surprising – why wouldn’t they? Here’s why: the EU VAT Directive (in particular, article 232 as amended through Directive 2010/45) states that e-invoices can be exchanged in electronic form, subject to the acceptance of the recipient. All EU Member States were required to transpose this principle into national law, which means that all across the EU suppliers can’t force their buyers to switch from paper invoices to electronic invoices. The only exception to this is B2G e-invoicing, where governments actually must force the public sector buyers to accept e-invoices. Some Member States, of course, go further and have made it obligatory also for the suppliers to only issue e-invoices to the public sector.
In order for Italy to be able to make B2B e-invoicing fully mandatory by law, effectively removing the buyers’ possibility to refuse the exchange of e-invoices, the Italian government would need to delete or otherwise neutralize this provision from national legislation. Deleting is legally impossible without some authority granting permission in a way that is consistent with EU law.
How is Italy preparing for mandatory B2B e-invoicing?
The Italian government already announced last spring that they were going to go down the ‘permission’ path and negotiating this topic with Brussels, with the ambition of becoming the first EU Member State to obtain a derogation from the principle of buyer acceptance. More than six months have passed since then – so what has happened during that time?
The Italian government is steaming ahead with full speed as if the negotiations with the EU Commission had already successfully resulted in a derogation. A draft of the 2018 Budget Law (Legge di stabilità) has already incorporated most of the necessary legal changes for the introduction of the obligation, and further legal amendments are expected. The timeline for entry into force of the mandate is also quite ambitious: B2B e-invoicing through the public SDI platform (Sistema di Interscambio) will continue to be voluntary until 01 July 2018, at which point trading parties performing certain types of transactions must switch to e-invoicing. However, the big date to keep in mind is 01 January 2019, when the full entry into force for all B2B transactions is intended to take place.
What’s the EU Commission saying about all of this?
Officially not much. From the Commission’s side so far there has only been silence. We have not seen any official comments on the status of the negotiations or on the likelihood of the request being accepted, so at this point, it’s simply a matter of guessing which way the wind blows. In the end, it all boils down to balancing two separate interests:
- This is a BIG deviation from a well-established EU principle and as such it’s typically facing an uphill battle.
- Italy has one of Europe’s highest VAT gaps and as such is entitled to introduce measures to combat that VAT gap.
What’s next for Italy and the EU Commission?
Well, we’re first of all curious to see what will come of the negotiations: will Brussels agree? What will the Italian government do if the necessary derogation isn’t provided? Would it be feasible to expect Italy to explore a clearance-style approach whereby the government obliges the supplier to issue e-invoices but allows the buyer to choose which form/format it receives the invoices in (be it one of several electronic formats or in paper form)? If so, it wouldn’t be surprising if such an approach were based on an extension of the SDI platform – which would set a very, very interesting precedent for European Union Member States like France whose circumstances aren’t dissimilar: a functioning B2G e-invoicing platform and a strong desire to accelerate the adoption of B2B e-invoicing.
But here’s a curveball: the Italian general elections are taking place in March 2018. While nobody is claiming that e-invoicing typically is a hot topic come election time, it does add an element of uncertainty to the timeline ahead.