European Union

Strategic agenda EU Council published EU Member States take turns to host the EU presidency and oversee the smooth functioning and operations of the organisation.   Spain, Belgium and Hungary, who will hold the EU Presidency consecutively for the next 18 months, have now published their joint programme of priorities.   Unsurprisingly, one of the priorities will be to modernise and simplify the common VAT system by embracing digitalisation, and on work aimed at closing the VAT gap, for the benefit of both the national and EU budgets.  The following link from the Council of the European Union outlines the main aims of these countries, and the strategies whereby the realisation of these goals can be fulfilled:  https://data.consilium.europa.eu/doc/document/ST-10597-2023-INIT/en/pdf?mc_cid=b9c55a3f02&mc_eid=ceb0344f84 

Commission initiative to amend administrative cooperation Combatting VAT fraud is a major concern for EU Member States, but also the European Commission who oversees and administers e-invoicing policy.  To this effect, the Commission plans to amend existing EU rules on administrative cooperation and combating fraud in this field, with the aim to equip tax administrations with adequate tools to strengthen their capability in this department. It has requested feedback until 3 August 2023 via the following link:  https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13685-VAT-amendments-to-legislation-on-administrative-cooperation_en 

VAT in the Digital Age (ViDA) potential implementation delay Last month, the ECOFIN conference exposed various concerns around the VAT in the Digital Age (ViDA) proposal.One of the enduring contentious points relates specifically to the timing of the proposal.   The European Parliament has issued a proposal to the European Commission, outlining its intention to delay each pillar of ViDA by 2 years.   This is supplemented by other concerns raised in response to the proposal. In total, the European Parliament has proposed 251 amendments in a draft report.  More information on the proposed amendments are available on the EU website:  https://www.europarl.europa.eu/doceo/document/ECON-AM-749001_EN.pdf  The European Commission will, in turn, need to consider the proposed revision to its original schedule.  The ViDA proposal will have radical implications for e-invoicing and e-reporting (BLOG LINK INSERT) over the next decade. Its significance cannot be underestimated. To this effect, Kofax is closely monitoring developments in respect of the ViDA proposal and will keep you informed of the same. 

Proposal for reduced rates for recyclable products Last month saw the Czech Republic approach the European Commission to reduce the VAT rate on recycled products. While the European Commission has afforded EU Member States increased freedom to dictate some VAT rates, notably, this still eluded recyclable products.   In line with much of the domestic legislation established by EU Member States, this initiative showcases the European Commission’s intention to endorse policies that can benefit wider environmental concerns. The draft is currently only at proposal stage, but growing environmental consciousness strongly suggests there will be support for the motion.   Kofax will closely monitor any reduced rates introduced in direct response to the proposal and ensure if not already present that they are incorporated as part of our e-invoicing solution.  

European Data Protection Supervisor (EDPS) ViDA opinion summary published The European Data Protection Supervisor (EDPS) holds a prominent role within the wider European Commission’s infrastructure. As the name suggests, it monitors and helps to regulate the protection of personal data in the EU. It is unsurprising that the European Commission has sought the expertise of the EDPS in relation to the VAT in the Digital Age (ViDA) proposal. The ViDA proposal, in imposing additional e-reporting obligations on Member States, will immediately raise questions about the security and safekeeping of personal data. This becomes even more critical as the spotlight on data quality is set to intensify with yet further mandatory requirements for invoice data content in line with the proposal. Further to the EDPS’ review of the ViDA proposal, the European Commission has now published the summary of the previously published EDPS opinions concerning ViDA.  The EDPS recommendations focus predominantly on the issue of data security and safekeeping to ensure the European data protection rules of individuals. These recommendations include, but are not limited, to the following: 

• The ViDA proposal should confirm all instances where data pertaining to an individual will be subject to further processing 
• The ViDA proposal should specify the specific obligations which will merit access to the personal data included in the central directory 
• The ViDA proposal should specify in a provision how long data can be retained and if so, how the data should be deleted after it is no longer required. 

The summary of the EDPS opinion can be found here:  https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.C_.2023.199.01.0005.01.ENG&toc=OJ%3AC%3A2023%3A199%3ATOC   The full opinion can be found here:  https://edps.europa.eu/data-protection/our-work/publications/opinions/2023-04-03-edps-opinion-council-directive-amending-directive-201116eu-administrative-cooperation-field-taxation_en  

Economic and Financial Affairs Council (ECOFIN) – VAT in the Digital Age (ViDA) feedback The VAT in the Digital Age (ViDA) proposal has – understandably - spawned much debate about the effectiveness, feasibility and practicality of its application. Our previous post commented on the much-anticipated Economic and Financial Affairs Council (ECOFIN) conference which laid a platform to debate the ViDA proposals.   Overall, ViDA has been applauded by EU Member States to nurture a less fragmented and harmonised e-invoicing topography. However, the convention did raise some concerns in respect of the proposal.  While the overall sentiment of working towards a harmonised e-invoicing / e-reporting framework is encouraged, certain Member States felt that greater flexibility regarding domestic e-reporting should be considered.   Pre-clearance remains a contentious issue, and the Commission will need to address whether basic, sparse checks- which can be viewed as synonymous with e-invoicing – are permitted.  Finally, doubts were expressed around the 1 January 2028 date by certain Member States- which was deemed too soon to implement, given cost and development considerations.  The convention, while wholly supporting the ViDA proposal, also unearthed some significant questions that the European Commission will need to address.  The ECOFIN is expected to meet on 17 October 2023, with the aim of putting some finality with respect to some of the questions raised.  

Carbon Border Adjustment Mechanism (CBAM) draft law Kofax has been following progress relating to the Carbon Border Adjustment Mechanism (or CBAM). You can read more about how the intended legislation works, and the motivations behind it, in our recent post here.   Progress with regards to implementation appears to be on schedule. The European Commission to this effect issued the draft version of the Implementing regulation with respect to CBAM.  The draft law includes extensive information, including: 

• Reporting obligations in respect of CBAM 
• Specific obligations during the transitional period  
• Guidance relating to specific materials subject to reporting obligations 

The report is detailed and comprehensive. Further information can be sought via the following link:   EUR-Lex - Ares(2023)4079551 - EN - EUR-Lex (europa.eu) 

Economic and Financial Affairs Council (ECOFIN) VAT in the Digital Age (ViDA) discussions The VAT in the Digital Age (ViDA) proposal is still stimulating discussion across the continent with its significant e-invoicing and e-reporting plans, which will dictate the trajectory of the same over the next few years.    The Economic and Financial Affairs Council (ECOFIN) will convene to discuss the ViDA proposal on 16 June 2023. Consensus appears to support aligning the e-invoicing and e-reporting procedures, although concerns around timelines have been raised from a practical perspective.     The following document outlined by the Council of the European Union provides an outline to steer the main points to be addressed in the meeting:   https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CONSIL:ST_9749_2023_INIT    Kofax will follow any meaningful conclusions derived from the meeting.   

Member of European Parliament (MEP) VAT in the Digital Age (ViDA) discussions On 25 May 2023, the European Parliament’s Economic and Monetary Affairs Committee (ECON) met to discuss the proposals of the VAT in the Digital Age package (ViDA).    The discussion unearthed some conflicting views with respect to the deadlines proposed by the Commission for e-invoicing. Specific Members of the European Parliament (MEPs) raised the following propositions:    

• postponement of the deadlines by a year to allow a greater adaptation period  
• extension of the deadline for electronic invoicing to 10 working days instead of the 2 working days outlined by the Commission, as this seems more realistic and viable  
• deletion and / or adaptation of the new IBAN requirements.  

 The deadline for political groups to table amendments was 14 June 2023, with an ECON vote scheduled for October 2023.       

Commission survey requesting e-invoicing feedback The European Commission has announced the launch of a survey to collect additional feedback in the context of miscellaneous topics relating to the e-invoicing directive. The survey intends to cover all e-invoicing stakeholders’ views on various groups from a diverse range of groups, including small and medium-sized enterprises (SMEs), accountants and large corporations. By requesting this diverse feedback, it aims to furnish a solution that caters for all taxpayers, irrespective of differentiating factors such as size, processing capabilities, technical infrastructure, etc.   Specifically, feedback is requested in respect of the following:  

• synergies with other EU initiatives  
• uptake of e-invoicing in public procurement  
• effects of the directive on the internal market  
• efficiency of the directive in meeting its objectives  
• future needs of e-invoicing in Europe.  

These are viewed as drivers that can positively nurture e-invoicing growth.   A deadline of 30 June 2023 has been provided for feedback. The survey can be accessed via the following link:   https://ec.europa.eu/eusurvey/runner/eInvoicingFeedbackCollection  

Carbon border adjustment mechanism – CBAM (other taxes) Our post in December 2022 commented on the Carbon Border Adjustment Mechanism (otherwise referred to as CBAM), which expresses a markedly environmental agenda by taxing carbon emissions of specific goods. The CBAM implementation timeline is now taking pace, with the European Parliament adopting legislative rules in respect of the CBAM in April 2023. A transitional phase is expected to begin from 1 October 2023. The transition phase will impose some specific obligations on EU importers- specifically, EU importers of goods covered in the scope of the CBAM regulations will be required to submit quarterly reports of any emission to the European Commission. Currently, carbon-intensive sectors such as aluminium, cement, iron and steel, fertilizers, hydrogen and electricity are covered by CBAM. It is however forecast that CBAM will be extended in the coming years to all products covered by the EU Emissions Trading System (ETS), vastly extending its scope. The effects of CBAM have the potential to be profound. It will be intriguing to see whether increased costs associated with carbon usage will dictate more conventional fuel usage in an era where environment and conservation awareness continues to expand.

Summary of VAT Expert Group meeting (with a focus on ViDA) The VAT expert group convened in March 2023, and, unsurprisingly, the main topic discussed was the VAT in the Digital Age (ViDA) proposal. It was acknowledged that overall, the reception from all Member States has been positive, with limited major cause for concern.   The proposal focuses on 3 main areas: Digital Reporting Requirements (DRRs), the platform economy and single place of registration. Again, it was noted that the major cause of concern rests with the latter two elements of the proposal. Despite concerns being raised, the feedback has been positive and constructive.   A summary of the minutes of the minutes can be accessed below:   https://circabc.europa.eu/ui/group/cb1eaff7-eedd-413d-ab88-94f761f9773b/library/7290a16a-84f5-4f0c-bc98-3f60151b22be   

Opinion of the European Data Protection Supervisor (EDPS) on VAT in the Digital Age (ViDA) proposal The European Data Protection Supervisor (EDPS) issued its opinion on the EU VAT in the Digital Age (ViDA) proposal. EDPS is largely advocating and in agreement with the objectives pursued by these proposals and re-asserting that any processing of personal data must comply with the EU data protection Regulations, including the principle of purpose limitation and data minimization.  With preoccupations around EU Regulations and principles on data protection, the EDPS made the following recommendations in its opinion: 

• To add a recital highlighting that the Proposal for a Council Directive amending Directive 2006/112/EC regarding VAT rules for the digital age ensures full respect for the fundamental rights to privacy and to the protection of personal data, as well as the applicability of the EU Regulations to the processing of personal data in the context of the proposal; 
• Specify that the information collected may only be processed for the purpose of fighting VAT fraud by the competent tax administration; and 
• To delete in recital 24 of the Proposal for a Council Regulation Amending Regulation 904/2010 regarding the VAT administrative cooperation arrangements needed for the digital age the words "seeks to", to indicate clearly that this Regulation ensures the full respect for the right of protection of personal data. 

Finally, the EDPS also stressed that the setting up of a centralized information system may entail higher risks for data protection purposes due to the large volume of intra-Community transactions information which can lead to potential cyberattacks and data breaches. Thus, the EDPS considers it essential that an adequate level of security is guaranteed in the exchange of information between national tax authorities and the central VAT Information Exchange System (VIES).  The opinion has raised the critical awareness of security concerns and protocols associated with the proposal. You can read the full opinion here on the EDPS website:  https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CONSIL:ST_7071_2023_INIT&qid=1678102312771&from=EN 

European Commission consultation regarding the approach of ViDA reforms The VAT in the Digital Age Proposal (ViDA) has referred to the common European standard on e-invoicing (also known as EN16931) and advocated it as a necessary medium of data exchange between businesses. This common standard is contained within the e-invoicing Directive 2014/55/EU and defines invoice contents, format and language. The ViDA proposal, however, would extend the e-invoicing standard with the intra-community supply of goods and services. The European Commission currently is holding a consultation of this respective Directive which commenced on 17 March 2023 and will end on 14 April 2023.  The link for feedback can be accessed below:  https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13669-Public-procurement-EU-rules-on-electronic-invoicing-in-public-procurement-evaluation-_en  File format and transmission form an integral part of the ViDA proposal, and Tungsten will follow developments in respect of the same.  

ViDA legislative process framework With the public consultation now underway, plans for the progression of the VAT in the Digital Age (ViDA) proposal are accelerating.   The European Parliament has now further mapped out the legislative process of the ViDA proposals. The Council will need to unanimously approve the proposal, but the European Parliament and the European Economic and Social Committee (EESC) should be consulted in respect of it. Further to our previous post, the proposal has now been translated into all applicable languages and is currently being debated in the national parliaments of EU member states.  The following document provides further information in respect of the background to the proposal, including its objectives and wider implications:   https://www.europarl.europa.eu/RegData/etudes/BRIE/2023/739371/EPRS_BRI%282023%29739371_EN.pdf 

VAT in the Digital Age proposals available in all languages Last month, we informed you that the VAT in the Digital Age (ViDA) proposal had to be published in all EU languages before the period for feedback could commence.  The proposal has now been translated into all EU languages, which effectively means that feedback (Consultation Period) for a period of 8 weeks, until 4 April 2023, has now commenced. 

EU and Singapore – Digital Partnership The focus in recent weeks, from a European perspective, has been centred internally in Europe, what with the publication of the VAT in the Digital Age (ViDA) proposal. However, other initiatives are being launched which shed insight into the global outreach of e-invoicing.   On 1 February 2023, the EU and Singapore announced the commencement of a new Digital partnership. Among other things, this digital partnership endeavours to promote co-operation in specific areas, with a focus on paperless trading and electronic e-invoicing.   Tungsten will follow developments in respect of the Digital Partnership  and monitor any significant issues that arise as a result of this joint venture.  

VAT in the digital age – extension of feedback period The eight-week feedback period for the public consultation relating to the VAT in the Digital Age proposal (ViDA) is being extended every day until the adopted proposal is available in local language - extension for the feedback period now already exists until 21 March 2023. Feedback can be submitted via the following link: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13186-VAT-in-the-digital-age_en

VAT in the Digital Age (ViDA) proposal Tungsten has previously communicated on the VAT in the Digital Age initiative, where we relayed the European Commission’s intention to introduce harmonisation across Europe with respect to its fiscal operations.   The rapid acceleration of digitisation permeating all facets of society has led the European Union to review its own fiscal policies and consider how the processing of these fiscal measures can be aligned with these increasingly high standards of digitisation.   This, coupled with the need to combat fraud and alleviate multiple cumbersome compliance processes, has propelled the EU to conduct a high-scale review of its fiscal operations and propose a radical overhaul of the VAT system as we know it.   To this effect, the European commission published the VAT in the Digital Age (ViDA) proposal. The proposal has colossal implications for the future of e-invoicing and e-reporting in the coming years.    The below is a high-level summary only of the most significant changes, from the proposal:  Proposed Digital reporting requirements  

• From 1 January 2024, PDFs will no longer come under the definition of an e-invoice. Paper invoices will still be permitted, but if opting for e-invoicing, structured invoices only can be issued.  

• The requirement for buyers to accept e-invoices will be removed, thus acting as a major catalyst to compel e-invoicing and ultimately contribute to its proliferation. 
• EU Member States are free to impose their own e-invoicing obligations- but this crucially excludes clearance models. Clearance models typically require verification via an e-invoicing platform before e-invoices can be issued to the buyer. Italy is one such country which has adopted a clearance e-invoicing model, amongst others, and Poland, to date, has been advancing a similar clearance model. Clearance models which have previously been approved by the European Commission, such as Italy, can continue to operate as per their current process until 1 January 2028. The current process to request derogations to mandate e-invoicing will become obsolete from 1 January 2024. 
• Invoices must comply with a European standard, rather than utilise country-specific variations. 
• 1 January 2028: E-invoicing is expected become the default standard for invoice issuance. Paper invoices will need to be specified for certain transactions.  

Real-time reporting obligations 

• From 1 January 2028, a real-time reporting obligation will be introduced for all EU B2B intra-community transactions. The reporting requirement must be completed within 2 working days after the invoice date.  

Single VAT registration and other e-commerce implications  

• From 1 January 2025, the EU proposes to introduce a single VAT registration number, effective abolishing the concept of foreign VAT registration, for certain transactions.  
• A mandatory reverse-charge mechanism will be introduced for B2B supplies of goods and services where the supplier is not established in the country where VAT applies and the customer does have a VAT identification number in that country. 
• The existing deemed supplier rule for marketplaces facilitating B2C supplies of goods will be extended. All supplies of goods (B2C and B2B) within the EU facilitated by marketplaces will be subject to the extended deemed supplier rule. This means that the marketplace will need to collect and account for VAT in the place the services/goods are delivered. This will have a profound impact for several businesses, as this implies that the requirement to collect VAT will not be passed to local entities.  

• The Import One Stop Shop (IOSS) scheme for the importation of low-value consignments into the EU will be mandatory for marketplace operators. The IOSS was initially introduced as a fiscal measure to simply VAT-related processes, by allowing taxpayers to register in a single European state and pay European Union import VAT. 
• Further implementing rules will be introduced for the secure use of the IOSS scheme, e.g. by linking the unique consignment number to the IOSS number.  

Tungsten acknowledges that these are radical changes which will have a profound effect on e-invoicing mandates and e-reporting in the next few years. By extension, Tungsten will also need to consider how the ViDA proposals impact the way Tungsten operates as a service provider. The published consultation has additionally raised some further questions we are working to obtain clarity on and we are collaborating with other EESPA members to respond to the proposal during the Public Consultation We are analysing these changes and are also in contact with our compliance partner, PwC, to discuss the implication of these changes.   The proposal is ambitious and radical with multiple implications and will require the unanimous consent of all Member States. We are assimilating the changes and will update you further with the development of the proposals, and how we plan to accommodate these, if confirmed.   The VAT in the Digital Age proposal published by the commission can be found here:  https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD%3A2022%3A394%3AFIN&qid=1670500532473  There is an 8 week public consultation period, which can be accessed as per the following:  https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13186-VAT-in-the-digital-age_en 

Carbon border adjustment mechanism Multiple countries internationally have been reviewing their fiscal policies with a view to advancing specific environmental agendas. This has been an evident global trend during 2022 and we expect this to continue in 2023.   Europe is no exception.   On 13 December 2022, a provisional agreement to implement an EU Carbon Adjustment Mechanism, which would be effective from 1 October 2023, with plans for a transition period, was proposed. The European Commission will look to spearhead the programme.   The mechanism would operate by applying a price on emissions relating to a wide range of goods. The underlying aim behind the proposal appears to be to reduce carbon leakage.   Tungsten will follow any developments in relation to the implementation of the proposed carbon border mechanism.  

OECD – tax administration 3.0 and electronic invoicing The Organisation for Economic Co-operation and Development (OECD) has published its initial findings report "Tax Administration 3.0 and Electronic invoicing". The overall aim of the report was to examine the growing use of Value Added Tax (VAT)-related continuous transaction reporting systems relying on electronic invoices produced by business, and to analyse how these could be aligned with the concepts outlined in the OECD’s Tax Administration 3.0: The Digital Transformation of Tax Administration. The report concludes that global standardisation interoperability is not a realistic aim in the short-term, due to individual Member States pursuing various avenues based on specific domestic considerations. There are also a multitude of growing standards available, leading to further disparity. The current fragmentation of certain e-invoicing systems was also placed under the spotlight, with the implementation costs of these systems also exposed. The report also includes a set of considerations that tax administrations may want to consider when exploring the possible introduction of electronic invoicing. The full report can be accessed via the link below: https://read.oecd-ilibrary.org/taxation/tax-administration-3-0-and-electronic-invoicing_2ffc88ed-en#page1

Digital Reporting Requirements Digital Reporting requirements (DRR) encompass measures such as mandatory e-invoicing and e-invoicing obligations. EU Member States often instigate these measures to generate tax revenue. Notably, however, the EU has not implemented a specific EU-wide agenda relation to DRRs, leading to individual countries to actively pursue their own fiscal agendas in relation to DRRs. From a broader perspective, this means there is greater uncertainty in the e-invoicing landscape around a uniform, universal standard. To address these challenges, with a means to increase the effectiveness of the measures takes by Member States, the European Commission will publish its proposal on the future of DRRs on 16 November 2022 as part of its wider VAT in the Digital Age Initiative.

VAT in the Digital Age – public consultation published We previously communicated that the European Commission was busily engaged with a public consultation on the ‘VAT in the Digital Age’ initiative. The underlying aim of the initiative, as the name suggests, deals with how the EU’s fiscal, and specifically VAT rules, can be adapted alongside a more digitised working mechanism, and how technology can circumvent tax fraud, which in turn will reduce VAT gaps. It is hoped that a digitised platform can counter these problems and output a streamlined, automated and efficient working mechanism, coupled with cost benefits. The public consultation covered multiple facets of the vision to fully digitise VAT. On a high level, the following observations were collated during the public consultation:

• Most stakeholders negatively regard the current Digital Reporting Requirements (DRRs), implying that reform is a necessity
• Progress in the digitisation era is regarded slow, and EU intervention is paramount to accelerate progress in this area.

In terms of requisite action:

• Most stakeholders supported the introduction of EU level DRRs for intra-community transactions, with or without the inclusion of domestic transactions.

Clear consensus was not reached on the following issues:

• Recording data on VAT transactions in a standard digital format
• Adopting non-binding commission recommendations to introduce uniformity regarding reporting obligations across the EU
• Removing the requirement for Member States to request an explicit derogation for the introduction of B2B e-invoicing mandates.

The following specific issues were highlighted by respondents during the public consultation:

• Member States applying different VAT treatments, ranging from different rates, different treatment of electronically supplied and intermediary services, to different thresholds for the application of VAT to SMEs
• Problems with either double-taxation or non-taxation
• Problems concerning the definition of supplies, the status of the supplier and customer, and the place of supply
• Problems attributable to platform providers, for example, due to a lack of appropriate invoicing from their side, or the application of an erroneous VAT rate.
• Problems when dealing with non-EU counterparts, such as uncertainty over whether VAT should be applied, and if so, what rate this would be.

While the virtues of the One Stop Shop (OSS) and Import One Stop Shop (IOSS) were not extolled, it was acknowledged that these implementations have enjoyed moderate successes. OSS specifically allows online businesses to report certain B2C EU supplies in a single Member State. Similarly, the IOSS allows a taxable person to register in a single Member State and pay VAT on imported goods. Both schemes endeavour to reduce the compliance burden on taxpayers. The schemes were commended for the following:

• minimising the need for businesses to hold multiple VAT registrations
• simplifying and facilitating VAT compliance
• reducing fraud and increasing VAT revenue
• modernising the VAT rules.

In terms of policy options:

• The strongest agreement among stakeholders was for the option to extend the OSS to cover all B2C supplies of goods and services by non-established suppliers. Only slightly less respondents agreed with extending the OSS to intra-Community supplies and acquisitions of goods, and to B2B supplies of goods and services, together with the introduction of a deduction mechanism into the OSS.
• More than half of responses were in favour of making the reverse charge available for all B2B supplies conducted by non-established suppliers, and with removing the 150 Euros threshold for the IOSS.
• However, the option of making the IOSS mandatory, either for all distance sales of goods above a certain threshold or for marketplaces only, did not have majority agreement.

The Commission's summary report on the consultation can be accessed via the following link: https://circabc.europa.eu/ui/group/cb1eaff7-eedd-413d-ab88-94f761f9773b/library/caee6205-b1d0-4705-8f64-213f4050e06a A list of more detailed reports can be found below:

• Final report. Volume 1, Digital reporting requirements
• Final report. Volume 2, The VAT treatment of the platform economy
• Final report. Volume 3, Single place of VAT registration and import one stop shop
• Final report. Volume 4, Consultation activities.

All reports can be downloaded from the following website: https://op.europa.eu/en/publication-detail/-/publication/a07ffdc4-0966-11ed-b11c-01aa75ed71a1/language-en

Group on the future of VAT – e-invoicing and the need for EU standards and interoperability

The Group of the Future of VAT has discussed the "Working Paper on E-invoicing and the need for EU standards and interoperability" published by the European Commission. The study carried out on the Digital Reporting Requirements (DRR) part of the VAT in the Digital Age concludes that the policy options providing the most significant advantages are the partial and total harmonisation of DRRs across the EU.

More details around this can be found here.

Extension of fraud reverse charge measure An overriding objective relating to the implementation of e-invoicing has always been to reduce VAT fraud. A specific means to achieve this is through the reverse charge mechanism. The reverse charge mechanism is where liability to pay the VAT shifts to the buyer rather than the supplier. This is important, as cross-border transactions in theory, by virtue of intra-community supplies, should be subject to zero VAT. However, to exploit this, it is possible to sell goods / services domestically, charge and then pocket the VAT. The reverse charge counters this as responsibility to pay VAT lies with the buyer, and not the supplier. It has been proposed that this is extended until 31 December 2025.

Public consultation – VAT in the digital age The duration of the public consultation in the digital age has been extended until 5 May 2022.

European Parliament and the harmonisation of e-invoicing One of the underlying aims of the European Parliament has been the harmonisation of e-invoicing across Member States. This naturally will lead to increased automation, efficacy and reduced costs associated with the e-invoicing process. To this effect, the European Parliament has called on the European Commission to set up a common standard by 2022. In related objectives, there is also a request to consider the role of e-invoicing in real-time reporting. We have already seen some EU Member States such as Hungary successfully deploy this. Following the success of mandate in Italy in significantly reducing the VAT gap, the European Parliament has called for a gradual adoption of obligatory e-invoicing- with an emphasis on small and medium enterprises (SMEs). Considering the upcoming French mandate, there has also been renewed interest to consider the needs of this particular group of taxpayers, and it looks like this this is gaining traction in Europe, too. Furthermore, there is a call for invoices to only be administered via certified systems to ensure full data protection. By 2023, it is anticipated that the system will produce compliant documents for taxpayers, again with a focus on SMEs.

European parliament resolution: how to reduce the VAT gap On 16 February 2022, the European Parliament published a resolution on the implementation of the Sixth VAT Directive (2020/2263(INI), concerning how the VAT gap can be reduced. The main incentives behind the report were to make improvements to the current Directive and establish a more streamlined, simple, fraud-proof and effective VAT system. It is envisaged that digitalisation will be a means to achieve these aims. The website of the European Parliament provides further details around this.

VAT in the digital age – public consultation

The European Commission has launched the public consultation on the “VAT in the Digital Age” initiative. The underlying aims of this initiative include ensuring the proper functioning of the single market, reducing business compliance costs and promoting economic interests of the EU and Member States.
The Commission is seeking feedback on VAT reporting obligations and e-invoicing, VAT treatment in the digital age and single EU VAT registration. The Commission aims to put forward legislative proposal in the latter part of the year to this effect. It is clear that a major initiative of the consultation is to harmonise fiscal measures across Europe.
The public consultation is open for 12 weeks from 21 January 2022 – 15 April 2022.

Publication of the new VAT Gap report (2021)

EU Member States have lost an estimated 134 billion euros in VAT revenues in 2019 according to the 2021 Report on the VAT Gap released by the European Commission. The VAT Gap did decrease between 2015-2019, but remains very significant. The report can be found here.

EU Council reaches agreement on updated rules for VAT rates

On 7 December 2021, the EU Council received an agreement to update EU rules on VAT, the purpose of which was to ensure that member states are treated equally, with the bonus of allowing more flexibility to apply reduced and zero rates. There is also a ‘green’ initiative behind the rules, to phase out preferential treatments for environmentally harmful goods.

The EU Council also updated the list of goods and services for which reduced VAT rates are allowed (Annex 111 of the VAT Directive). The Council decided to limit the number of items to which reduced rates could be applied, recognising that these could accumulate.

Study on ways to reduce the VAT Gap

The European Parliament has been looking into ways of reducing the VAT gap- and has published a study to this effect. There was a particular focus on cross-border VAT fraud, which amounts to a colossal 50 billion Euros per year. The total VAT gap in Europe is estimated to be 165 billion Euros.
There have been a few measures which are seen as generally promising in reducing the VAT gap, including:

• Accelerating the adoption of EU mandatory electronic invoice ‘Generalised EU VAT number’; and
• Accelerating the move towards a central electronic system

A binding EU-wide mandate for electronic invoicing is part of one of two proposed scenarios.

EU Commission work program 2022

The EU has been working towards the modernisation of current VAT rules in the commission Work Programme 2022. This Programme highlighted the importance of taking the opportunity to use digital solutions as a means to achieve this. As part of their action plan, they have announced a legislative proposal for 2022, covering VAT obligations and e-invoicing.
Further details can be found on the report published on their website.

European Union VAT Directive 55

The European Union (EU) VAT Directive 55 obliges all EU public authorities to receive invoices electronically, or at least to have a defined for how they will do so, by 27 November 2018.