VAT in the Digital Age: E-invoicing and Real-time reporting (part 2)
Electronic invoicing has an important role to play in the European Commission's proposals on VAT in the Digital Age. In this blog, we discuss the current state of e-invoicing, the changes in the coming years, and the need to record and report transactions in a different way than you are used to now.
E-invoicing is the fully electronic exchange of invoice data with suppliers or customers. Whereas paper invoices contain printed or written data, e-invoice information is sent as an electronic 'package', with 1s and 0s (code). One of the major advantages of an e-invoice is that the data is always 100% recognized, and no mistakes can be made when (manually) copying the information from the invoice, or that an invoice is unreadable if something goes wrong with scanning.
There is a difference between electronic invoicing (e-invoicing) and digital invoicing (d-invoicing). D-invoicing involves a digitized invoice. This can be, for example, a PDF file, or a scan or photo of a paper invoice. In the proposals of the European Commission there is no room (anymore) for a digital invoice. Only a real electronic invoice is still allowed.
What is required to invoice electronically?
There are 3 main concerns with electronic invoicing:
- Processing; and
The EU VAT Directive sets out the VAT invoice requirements. Every invoice must meet these requirements. With ViDA, these requirements are extended a little further. For example, in addition to current requirements such as the name and address of the supplier and customer, bank details and payment terms must also be included in the invoice information. This information must be formatted, transmitted and received in a "structured electronic format" that enables automatic and electronic processing.
To ensure that not every EU member state makes its own rules, the European Commission is aligning with the already existing European standard for e-invoicing (EN 16931) for this structured electronic format, based on EU Directive 2014/55/EU in the context of B2G e-invoicing (the "European Standard").
Sending and receiving electronic invoices requires companies to take action to set up their systems and processes so that invoices are shared with suppliers and buyers via a direct connection, or platform. A commonly used way is PEPPOL, which allows electronic invoices to be exchanged via various platforms, securely and quickly.
In short, it involves sending the billing information from the supplier to the buyer via an electronic file over a secure connection.
It is of course necessary for both the supplier and the buyer to be able to send and receive the electronic invoice, and for it to be processed in the accounts. The European Commission's proposal now states that buyers may no longer reject electronic invoices as early as 1 January 2024.
It is therefore advisable to check now whether your organization is prepared for this. From 1 January 2028, it will be mandatory to always issue an electronic invoice, at least for intra-community transactions. It is expected that EU member states will use the implementation of the ViDA proposals to extend this obligation to local transactions as well.
Ideally, the software you use can not only receive and recognize the electronic invoices, but also approve them, possibly match them and forward them to the ERP system. The latter is important for the preparation and submission of VAT returns and EC Sales Listings.
The latter reporting is going to change dramatically. The current "European Sales Listing" will be replaced by a digital reporting requirement (DRR) system for intra-community transactions. This reporting system will be based on electronic invoices to be issued.
This invoice must be issued within 2 business days after the transaction has taken place. So that is a lot earlier than it is now. Thereafter, the transaction-by-transaction information must be transmitted through the new reporting system, using a deadline of 2 business days after the invoice was issued, or after the date the invoice should have been issued.
This is a form of real-time reporting, which ensures that tax authorities have faster access to information that helps detect potential VAT fraud. For the business owner, however, this means creating and sending an invoice much sooner, and reporting to the tax authorities immediately afterwards.
According to the European Commission, there is a trade-off between the different goals of the new rules, namely the fight against fraud and the reduction of administrative burdens for entrepreneurs. It seems that, at least initially, the obligation to issue (and receive) an electronic invoice and (near) real-time reporting is a considerable drain on the IT setup and capacity of entrepreneurs.
The further digitization of administrative obligations in VAT is not new. In fact, the European Commission has looked at initiatives already being developed and implemented by several countries. Several EU member states already have a system in place where invoices must be reported digitally, or where the VAT return must be supplemented by a digital report linked to the entrepreneur's accounting system. It is therefore not surprising that the European Commission is using these initiatives to implement a European system.
Of course, there are plenty of snags that business owners have to deal with. For example, what happens if corrections need to be made? What other information and documents will be needed besides the electronic invoice? Will entrepreneurs soon have to take into account a European system for intra-community transactions and a national system for local reporting?
In any case, it is clear that the path taken by the European Commission is irreversible. The ViDA proposals are specific and will not be easily modified by EU member states.
Tax Control Framework
It is therefore important for business owners to be well prepared and start adjusting and setting up their accounting, IT systems and processes on time. It is also important to update the current Tax Control Framework.
After all, because the invoices must be issued earlier, and a report is immediately shared with the tax authorities, there is (even) less room for making and correcting possible errors. In fact, the bottom line is that there is much more pressure on the sales or purchase order, because at that point the correct data must be shared with the supplier or customer based on which the invoice is created.
For example, checking the VAT number: in practice, this sometimes happens afterwards, when the delivery has already taken place, but the invoice has yet to be sent. This will have to be done much earlier and more often. Actually, it is necessary to review the entire Master Data and the logic of the accounting/ERP system to ensure that all transactions are billed and reported correctly.
And of course, we can help you do that.
Want to know more?
We can help you with all your VAT questions. Please feel free to contact us, for example by booking an appointment directly through our website.
At Less Grey, we have the knowledge and experience to help you with VAT Advice, Compliance and Refunds. And if you are interested in IOSS, it is good to know that Less Grey is one of the largest VAT intermediaries in the Netherlands.