VAT in the Digital Age: Part II – VAT Reporting and E-invoicing

The European Commission’s “VAT in the Digital Age” initiative reflects on how tax authorities can use technology to fight tax fraud and, at the same time, modernise processes to the benefit of businesses.

A public consultation was launched earlier this year, in which the Commission welcomes feedback on policy options for VAT rules and processes in a digitized economic EU. In an earlier blog post, Sovos explored the aspects of a single EU VAT registration.  It’s one of the main initiatives proposed by the Commission to adapt the EU VAT framework to the digital age. Another critical issue is VAT reporting obligations and e-invoicing, discussed in this blog.

Digital Reporting Requirements

The Commission sees a need for modernising VAT reporting obligations and is considering the possibility of further extending e-invoicing. The term Digital Reporting Requirements was introduced by the Commission for any obligation to report transactional data other than the obligation to submit a VAT return, i.e. reporting transaction by transaction. This means that Digital Reporting Requirements include various types of transactional reporting requirements (e.g. VAT listing, Standard Audit File/SAF-T, real-time reporting) and mandatory e-invoicing requirements.

These measures have been implemented in various fashions in different EU Member States over the past couple of years resulting in diverse rules and requirements for VAT reporting and e-invoicing across the EU. The current Commission initiative is an opportunity for the EU to obtain harmonisation in this area. Its public consultation is asking for input as to which road to take.

The route to harmonisation

The public consultation contains several policy options to consider. One would be to leave things as they currently stand with no harmonisation and the continued need for Member States to request a derogation if they wanted to introduce mandatory e-invoicing. At the other end of the scale, a further option would be to introduce full harmonisation of transactional reporting for VAT for both intra-EU and all domestic transactions.

And sitting between these extremes, are several other routes. Instead of making a harmonised solution mandatory such a solution could be simply recommended and voluntary, coupled with the removal of the need to request a derogation ahead of introducing B2B e-invoicing mandates. Another way is to have taxpayers keep all transactional data and make it available on request by the authorities. And one final option could be to adopt partial harmonisation where the VAT reporting for all intra-EU supplies is aligned and mandatory but where domestically it remains optional.

While these policy options formally remain open to public consultation until 5 May here, they must now be viewed in the light of the European Parliament resolution of 10 March 2022 with recommendations to the Commission on fair and simple taxation supporting the recovery strategy.

In its resolution, the European Parliament calls upon the Commission to take actions regarding e-invoicing and reporting, to reduce the tax gap and compliance costs. Among the measures recommended are to set up a harmonised common standard for e-invoicing across the EU without delay and establish the role of e-invoicing in real-time reporting. Furthermore, the European Parliament proposes that the Commission explore the possibility of a gradual introduction of obligatory e-invoicing by 2023, where state-operated or certified systems should administrate the invoice issuance. In both cases focus should be on a significant reduction of costs of compliance, especially for SMEs.

It remains to be seen how the Commission will manage to align the European Parliament’s recommendations with their policy options and Member States where in several cases solutions have already been implemented.