Several EU Member States have been introducing continuous transaction controls (CTCs), aiming to close their VAT gaps, increase revenue and have more control over the data of their economy. However, the CTC regimes adopted by those countries are far from uniform. So far, Italy is the only country that obtained a derogation from the VAT Directive to introduce mandatory e-invoicing in domestic flows. Other countries, such as Hungary and Spain, instead adopted an e-reporting approach, which avoids the need for a derogation from the European Council as it does not mandate e-invoicing.
These national movements towards CTCs have not passed unnoticed by the European Commission which commissioned a study to assess the current CTC landscape and analyse different scenarios involving new technologies and digitization of business processes. This project is broadly called “VAT in the Digital Age”. It includes the analysis of CTC regimes, the VAT treatment of the platform economy, and the creation of a single EU identification number.
Although the final study is yet to be published, preliminary findings have been discussed in some forums. The study has found that CTCs exist in Europe, with southern and central-eastern Europe at the forefront of local implementations. That also means that the Member States have implemented local flavours of CTCs in a non-uniform and non-standardised way, often creating a burden to multinational companies and cross-border commerce.
One of the study’s goals is to assess the cost-benefit for tax authorities and businesses trading under CTC rules. The study investigates a few approaches, including real-time reporting, mandatory e-invoicing, and periodical reporting (including SAF-T schemes). It is expected that the research will consider EU-wide standards/platforms for CTC models and analyse the possibility of leaving things as they are (but removing the need for the Member States to ask for a derogation before the implementation of mandatory e-invoicing schemes).
CTCs on the EU agenda
The “VAT in the Digital Age” initiative is not the sole CTC project on the EU’s agenda. Italy has also asked the European Council to extend the country’s derogation for its e-invoicing mandate. The ongoing discussion, which includes Italian data estimating an increase in public revenue of more than EUR 2 billion might considerably influence the conclusions of the “VAT in the Digital Age” initiative.
After the study’s publication, the European Commission is expected to open a public consultation to debate the future of CTCs in Europe, a single EU VAT registration, perhaps expanding the One-Stop-Shop (OSS) scheme for transactions and subjects currently out of scope and the VAT treatment of the platform economy. The public consultation is expected to open before the end of this quarter.
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