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In today's digital era, the European Union is working to transform VAT with the “VAT in the Digital Age” (ViDA) initiative. ViDA's main goal is to adapt VAT to the digital age and, in particular, to combat tax fraud using technology. This fraud involves taxpayers failing to report and pay sales tax. The EU Commission published its first report on the ViDA initiative on July 21, 2022 and outlined promising changes at the EU level:

Digital reporting requirements and electronic invoicing: The ViDA initiative will introduce new VAT reporting requirements and the introduction of e-invoicing to digitize and simplify VAT declaration and collection.

Taxation of the platform economy: Platform economy taxation will be adjusted to ensure compliance and fairness.

Expansion of the One-Stop Shop (OSS): The OSS registration system is being expanded in the EU. The OSS simplifies VAT compliance for companies carrying out cross-border activities within the EU.

Adjustments at national level:

At the national level, several countries, including Germany, are taking measures to adapt their VAT systems to the digital age. The German government's coalition agreement provides for the rapid introduction of a nationwide electronic system for the creation, verification and transmission of invoices (mandatory e-invoicing). This is intended to significantly reduce the vulnerability of the German VAT system to fraud while modernizing and simplifying interactions between authorities and companies.

In November 2022, Germany submitted an application to the European Commission to authorize the introduction of e-invoicing at national level, possibly derogating from certain provisions of the VAT Directive. Although detailed national plans are not yet known, it is clear that the guidelines of the EU's ViDA initiative, particularly with regard to e-invoicing, will influence Germany's future steps in this regard.

Current status of e-invoicing:

The EU Commission's report on the ViDA initiative in July 2022 shed light on the Digital Reporting Requirements (DRR). These include obligations for companies to periodically or continuously transmit data in digital format to national tax authorities, possibly using mandatory e-invoicing. It is important to distinguish between national e-invoicing systems that exist in some EU Member States for domestic transactions and the ViDA initiative, which seeks to harmonize e-invoicing standards for cross-border transactions.

Italy has pioneered a mandatory e-invoicing system known as Interscambio system (SDI), introduced for all domestic transactions. As of September 2021, twelve EU member states had already introduced some form of digital VAT reporting requirement.

As part of the preparation for the ViDA initiative, several EU countries, including France, Poland, Spain and Belgium, plan to introduce e-invoicing systems with different schedules and thresholds in the coming years.

E-invoicing models and implementation:

E-invoicing models include structured electronic invoices that enable automated and digital processing without media disruption. Italy already implemented a mandatory e-invoicing system for all domestic transactions in 2019. E-invoices are based on XML formats that enable machine processing and are not suitable for human visual inspection. One challenge is to make the XML dataset human-readable.

The implementation of electronic invoicing can be done using various standards and technical specifications. The European standard DIN-16931 specifies the use of the structured data format XML for electronic invoice exchange.

Conclusion and recommendations for practice:

Companies should prepare now for the upcoming changes to e-invoicing models and the VAT regime. This includes the evaluation of data formats from ERP/IT systems, the necessary adjustments in the departments (e.g. tax, IT, accounting) and the identification of business transactions and special features. It is advisable to prepare for the technical requirements early on in order to optimize processes and meet legal requirements.

The introduction of e-invoicing and the implementation of the ViDA initiative have far-reaching effects on companies and their business processes. It is therefore very important to recognize these developments at an early stage and prepare accordingly.

Overall, the digital transformation of VAT and the introduction of e-invoicing at national and EU levels is a significant and complex issue that requires careful planning and preparation. Companies should start to look at the upcoming changes now and ensure that they are able to meet the new requirements.

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About usThe value added tax (VAT) regime in the digital age: Current developments at EU and national level