VAT in the Digital Age: Mandatory e-reporting and e-invoicing for EU Intra-Community Transactions

Anna Nordén
December 8, 2022

The European Commission has announced its long-awaited proposal for legislative changes in relation to the VAT in the Digital Age (ViDA) initiative. This is one of the most important developments in the history of European VAT, and affects not only European businesses, but also non-EU companies whose businesses trade with the EU.

The proposal requires amending the VAT Directive 2006/112, its Implementing Regulation 282/2011, and Regulation 904/2010 on Administrative Cooperation on the combat of fraud in the field of VAT. They cover three distinct areas:

  1. VAT digital reporting obligations and e-invoicing
  2. VAT treatment of the platform economy
  3. Single EU VAT registration

This regulatory change proposal will still need formal adoption by the Council of the European Union and the European Parliament under ordinary legislative procedures before it can come into force. In tax matters such as these, the process requires unanimity among all Member States.

This blog focuses on VAT digital reporting obligations and e-invoicing, whereas future updates from Sovos will address the other two areas.

VAT digital reporting obligations and e-invoicing – an overview

Intra-EU B2B transaction data will need reporting to a central database:

  • Digital Reporting Requirements (DRR) will be introduced for intra-EU (B2B) transactions: All suppliers and customers (no thresholds or exemptions) in an intra-Community B2B transaction will need to submit data to their local tax administration no later than two working days after the issuance of the invoice. Each Member State’s tax authority will channel the data to a central database
  • The EU Standard for Electronic Invoicing (EN16931) will be used for the data elements and reporting format; only a sub-set of the invoice will be reported
  • The DRR will be coupled with mandatory e-invoicing for B2B intra-EU transactions
  • The reporting requirement will replace the current intra-Community listings (known also as recapitulative statements or EC Sales Lists)

Digital reporting requirements for domestic transactions will remain optional:

  • Implementing digital reporting requirements for domestic transactions will remain optional for Member States. This has been the competence area of the Member States until now, and following the principles of subsidiarity and proportionality, the Commission strives to align and harmonise without forcing Member States to introduce this requirement
  • If digital reporting requirements for domestic transactions are introduced in a Member State, e-invoicing will be mandatory for the transactions in scope
  • A local system will need to ensure interoperability with the intra-EU system on a data level; domestic e-reporting must use (a subset of) the European Norm EN16931; for newly introduced systems, this requirement will apply immediately while existing domestic systems must converge in the medium term
  • There is no requirement on Member States to provide pre-filled VAT returns

Changes will be made to facilitate and align e-invoicing:

  • Electronic invoicing will be the default system for the issuance of invoices
  • The need for derogation to introduce mandatory e-invoicing in a Member State will be removed
  • The need for customer acceptance of supplier e-invoicing will be removed
  • The definition of e-invoicing will be amended to align with Directive 2014/55 and will include only structured electronic files. Therefore, non-structured formats like PDF will not be deemed to represent electronic invoices from a VAT perspective
  • Payment data will be introduced as a new content requirement for invoices

“Transmission” will not be regulated:

The European Commission has, at this stage, chosen not to propose regulation regarding the transmission channel of the reported data to the tax authorities. This is currently left to Member States to decide on.

The reason for this decision is likely because it’s a technical issue, and that the discussion would have slowed down the process of publishing this proposal. The European Commission also appears ambiguous about whether it would want to regulate this in the future.

What does the future of VAT in the Digital Age look like?

Many countries primed to introduce continuous transaction controls (CTCs) have been waiting for EU regulators to provide an answer to what rules the individual Member State will need to abide by. It remains to be seen whether this proposal will embolden these Member States to move ahead with plans, despite the non-final status of the proposal. It’s noteworthy that Germany filed for a derogation from the current VAT Directive to be able to mandate e-invoicing just a few days before the original date that the Commission had planned to publish this proposal – 16 November 2022.

Speak to our tax experts to understand how these proposed changes will affect your company.

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Author

Anna Nordén

As Principal, Regulatory Affairs at Sovos, Anna Nordén pursues government relations and other public affairs work to anticipate new regulatory trends and laws. In tight collaboration with colleagues in both Strategy and Regulatory Analysis and Design, her long practice and expertise are instrumental in guiding both Sovos and legislators as new tax control reforms are rolled out across the globe.
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