November 2024
ViDA proposal approved – a new era for VAT compliance
We are thrilled to announce that the ViDA (VAT in the Digital Age) proposal, has finally achieved assent this week. This package of reforms to Value Added Tax in the European Union has been a long time coming, having been revised and reviewed multiple times since it was originally put forward in December 2022.
This landmark development marks a significant step forward in the digital transformation of VAT compliance.
However, this has profound implications for multinational companies, who will be forced to comply with e-Invoicing mandates that follow in all 27 EU member states over the next five years.
The three pillars of ViDA
The ViDA proposal introduced three pivotal pillars aimed at modernizing VAT compliance:
- E-Invoicing and digital reporting requirements:
- Focuses on real-time digital reporting of VAT transactions.
- Ensures greater accuracy and reduces the risk of fraud.
- Mandates cross-border e-Invoicing to support the digital reporting requirements (DRR).
- Removes restrictions on e-Invoicing.
- Single VAT Registration in the EU:
- Simplifies VAT compliance by allowing businesses to register for VAT only once across the entire EU.
- Streamlines operations and reducing administrative burdens.
- Enhanced rules around digital platforms:
- Ensures VAT is correctly applied to transactions facilitated by online platforms.
- Makes platforms responsible for VAT collection and remittance.
E-Invoicing Obligations
The new obligations are set to revolutionize e-Invoicing. One of the main focuses of the proposal was to change the way businesses handle cross-border transactions. By requiring all cross-border transactions to be electronically invoiced and reported in near-real-time, this mandate aims to streamline VAT reporting and reduce fraud, benefiting both businesses and tax authorities.
Another key change introduced by ViDA is the removal the “buyer acceptance” principle. Currently, buyers can refuse to receive electronic invoices, hindering widespread adoption of e-Invoicing, and also has inhibited countries from mandating e-Invoicing nationally. Countries like Italy, Germany, France, Poland and others have all had to pause to apply to the EU for a “special derogation” from the VAT directive in order to pursue a national mandate
These restrictions will be lifted permanently by ViDA.
Timeline
There are still some steps to go through before ViDA is fully adopted, which is likely to take place in the first half of 2025.
The proposal includes both a directive and a regulation.
- Regulation: A binding rule that applies directly and uniformly across all member states without needing to be adapted into national law.
- Directive: Sets out goals that all members must achieve but allows each country to decide how to meet those goals.
The directive will cover the details around the three pillars, with a deadline of 30 June 2030 to fully integrate the e-Invoicing and DRR obligations into national legislation. However, countries are expected to implement these changes well before the deadline, given the clear benefits.
The result: national e-Invoicing mandates ahead
For multinationals operating in the European Union, this represents a significant shift.
Currently, around ten member states are already in the process of implementing their own e-Invoicing mandates, with the remaining 17 to follow at their own pace. Businesses can therefore expect to deal with on average 3-4 new e-Invoicing mandates per year until mid-2030.
Our experience dealing with these mandates is that it can take enterprises up to two years to prepare and implement e-Invoicing to meet a single mandate, so the planning of such a huge number of mandates will represent an incredible burden on already strapped resources across tax, finance and IT.
OpenText’s commitment to ViDA
As a leading provider of global e-Invoicing services, OpenText is committed to supporting our customers through these changes. Our OpenText Trading Grid e-Invoicing solution is already equipped to handle e-Invoicing regulations in over 50 countries, and we are dedicated to ensuring that our solution remains compliant with any new mandates introduced as a result of the ViDA legislation.
The OpenText approach differs from many of our competitors, providing a white glove “managed service” approach to e-Invoicing, with an end-to-end solution that helps you to prepare for each mandate by first evaluating your readiness, and then supporting you through the necessary integrations both to your internal systems, external stakeholders, and national e-Invoicing portals.
Conclusion
The approval of the ViDA report is a monumental step towards a more efficient and transparent VAT system. At OpenText, we are excited about the opportunities this presents and are fully prepared to support our customers in navigating these changes. Stay tuned for more updates as we continue to enhance our solutions to meet the evolving needs of the digital age.
June 2024
ViDA proposal rejected once again
Despite renewed efforts during the Belgian presidency, the recent ECOFIN meeting (21.6.2024) did not result in a political agreement on ViDA. The vote went against continuing with ViDA in its current form. However, discussions are ongoing, and stakeholders remain committed to finding a viable solution.
Recap – what is ViDA?
ViDA stands for “VAT in the Digital Age.” It encompasses a set of proposals and regulations designed to harmonize and modernize the Value Added Tax (VAT) system within the European Union (EU). The goal is to create a level playing field for both traditional and digital businesses while ensuring efficient tax collection.
The European Commission (EC) proposed the ViDA package in December 2022, aiming to modernize EU VAT rules. The package covered three key areas or pillars:
- Expanding VAT digital platform rules to include platforms facilitating passenger transport and short-term accommodation
- Enhancing the single VAT registration and compliance mechanism under the One Stop Shop (OSS)
- Introducing a real-time digital reporting system based on electronic invoicing (e-invoicing) for cross-border businesses within the EU
Since the initial proposal, member states engaged in discussions, considering various concerns. These discussions led to an updated draft that reflects compromises and amendments based on different positions.
The Economic and Financial Affairs Council (ECOFIN) discussed the updated proposal in May 2024, but was unable to achieve political agreement. One member state, Estonia, disagreed specifically on expanding the VAT digital platform rules. They argue that the proposal introduces an unfair disparity between traditional businesses offering services and individuals who offer similar services through digital platforms (for example, AirBnB).
Why was it rejected?
The proposal is presented as a single legislative item and requires unanimous assent. There is clear agreement with regard to the e-Invoicing proposal and the single VAT registration. However, Estonia continues to disagree with the proposal around the updated VAT digital platform rules which they feel disadvantages SMEs operating in their nation. As a result, they have once again voted against the proposal.
The result is disappointing for those of us focused on the e-Invoicing elements. But there remains a firm agreement to work through the remaining disagreements, find an acceptable compromise, and overcome Estonia’s veto.
The Presidency now passes from Belgium to Hungary and let’s hope they have an appetite to shepherd these discussions through and gain consensus.
February 2023
VAT in the Digital Age (ViDA) now available in different languages
The European Union finally provided translations of the VAT in the Digital Age proposal for all EU languages, a key milestone in commencing the formal feedback process, which will run until 4 April 2023.
The local language versions of the proposal can all be found here.
The EU Commission (‘EC’) has been looking at ways to modernize and simplify VAT legislation, leveraging digital technology, including e-Invoicing mandates, to improve VAT collection and reduce tax fraud while at the same time seeking to minimize the burden on businesses in terms of maintaining compliance.
The specific objectives of the ViDA initiative include improving tax reporting and unlocking the opportunities provided by digitalization. Some of these changes focus on simplifying VAT registrations for businesses trading in multiple EU jurisdictions, and others will update rules for the platform economy. Most importantly, there are some significant changes proposed with respect to both e-invoicing and e-reporting requirements which we will focus on in this newsletter.
January 2023
e-Invoicing amendments proposed by ViDA
Firstly, as from 2024, mandatory e-invoicing will become possible without the need for prior EU approval. At present, countries who have chosen to push for e-Invoicing mandates – such as Italy, France, Poland and so on – have had to first obtain a special derogation from the EU VAT Directive.
Member States would be able to switch to e-Invoicing without consulting the EU as long as their invoices comply with the European Norm – the standard for electronic invoices which was developed initially for use in B2G e-invoicing. A further condition is that the issuance and transmission of e-invoices cannot be subject to a prior mandatory authorization or verification by the tax authorities. So what does that mean in practice?
This proposed change would effectively signal the end of the “clearance model” in the EU such as has been implemented in Italy and is widely used in Latin America. Member States, such as Italy, that already have this type of system in place would need to align with the new rules by 1 January 2028 and adapt the existing SdI model to remove the obligation for authorization of invoices by the platform prior to issuance/transmission. This will have significant benefits for businesses who may already be exchanging invoices electronically with key trading partners since it means they should not have to completely change their existing process and will be able to simply setup new flows to meet the government e-Reporting requirements (see below).
Secondly, e-invoicing will ultimately become the de facto standard for almost all invoices rather than an exception. The proposal would see issuance and reception of structured electronic invoices become the default from 1 January 2028.
Member States would need to “opt in”, i.e., seek special derogation from the EU, if they wish to allow paper invoices for certain transactions. Cross-border invoices (B2B intra-EU supplies of goods and services) would always require an e-invoice.
Third, the proposal would redefine e-invoices such that only invoices transmitted and received in a structured electronic format suitable for automated electronic processing will be considered to be electronic invoices. This is proposed to take effect as early as 1 January 2024 and could effectively eliminate the use of hybrid PDF formats such as ZUGFeRD/Factur-X (see our April newsletter for more details about this format).
e-Reporting amendments proposed by ViDA
A major focus of the proposal is around electronic reporting of intra-EU transactions. The e-invoicing obligation described above will facilitate such digital reporting requirements (DRR) and this will replace the current EC sales listings for cross-border transactions within the EU as from 1 January 2028.
The prescribed data for this reporting will need to be transmitted electronically, on a transaction-by-transaction basis, within two working days from the issuance date of the invoice. Member states can either use the existing format referred to as the EN (European Norm or European Standard), although Member States will have the freedom to allow the use of a different format as long as they also allow the use of the EN.
Member States will in turn report the data collected using an enhanced version of the VIES return (the system by which companies today report zero rated intra-EU cross border transactions using the free online VAT Information Exchange System). This centrally reported data will be available for analysis for five years.
While cross-border transactions must be reported, the proposal includes the option for Member States to to introduce digital reporting requirements for other transactions (e.g. domestic supplies of goods and services). To ensure harmonization, any such reporting system will need to be similar to the one described above for Intra-EU transactions.
Member States which have already implemented an e-Reporting system for these transactions will have to adapt them to ensure harmonization with the centralized reporting system by 2028 at the latest.
ViDA – Key takeaways
At this point there is no action, this is in proposal stage and needs to be formally adopted by the European Union as an amendment to the existing EU VAT directive which will take some time.
Assuming the proposal is passed into law, it will begin to introduce some much-needed harmonization around both e-Invoicing and e-Reporting which can only be good news.
October 2023
OECD: Report published on e-Invoicing / e-Reporting and continuous controls
The OECD have been examining the increasing use of continuous transaction control based systems for VAT reporting in order to see how these fitted with the concepts they had outlined in their previously published “TAX Administration 3.0: The Digital Transformation of Tax Administration“.
A new report has been published which is a summary of discussions between officials from China, Canada, Chile, Hungary and Spain and based on responses from 71 tax administrations about their own current situation and plans.
The report, entitled “Tax Administration 3.0 and Electronic Invoicing – Initial Findings” can be found at the link provided.
EU VAT in the digital age– Detailed reports now available
In our newsletter of February this year we discussed an European Union initiative referred to as “Vat in the digital age”. The main documentation is available here.
The European Commission has now published more detailed related reports:
- 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
These reports can be downloaded from the links provided above.
April 2022
Recommendations to the European Commission on e-Invoicing harmonization
On 10 March 2022, the European Parliament (EP) voted in plenary on a Resolution to the Commission’s Action Plan on fair and simple taxation supporting the recovery strategy (2020/2254(INL), and provided several recommendations intended to assist in reducing the costs associated with compliance for taxpayers while increasing transparency and certainty when introducing endeavours to reduce the tax gap.
A clear focus was the potential costs for smaller businesses faced with compliance with requirements in up to 27 different tax systems.
The resolution highlighted the “unprecedented impact and magnitude of the Covid-19 crisis on the economy” and the resultant decrease in tax revenues and increase in government debt.
The recommendations related to the reduction of the tax gap and compliance costs focuses on e-invoicing and e-reporting and includes:
- Promptly establishing a harmonized common standard for e-invoicing across the EU – ideally within fiscal year 2022 – to reduce the cost of the creation of fragmented, disparate and divided systems across the Member States.
- Exploring the possibility of a gradual introduction of obligatory e-invoicing across the Union by 2023, focusing on a significant reduction of costs of compliance, especially for SMEs. Invoice issuance should be administered only via state-operated/certified “system(s)” with full data protection ensured.
- Examining the possibility that such a system would provide tax compliance data/documents for eligible taxpayers, meeting the responsibility for the compliance of these returns, especially – once again – from the point of view of reducing compliance costs and risk for SMEs.
The full text of the resolution can be found here.
