by Renee

3 min reading time

VAT in the Digital Age: E-Invoicing & Digital Reporting Requirements

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e invoicing

 

On December 8, 2022, the European Commission presented their plan called ‘VAT in the Digital Age‘ (ViDA), which includes three proposals. One of these proposals pertains to e-invoicing and digital reporting by businesses. Starting from January 1, 2028, these new Digital Reporting Requirements (DRR) of the European Union will come into effect. What does this mean for businesses?

What does the digital reporting requirement (e-invoicing) entail?

Starting from the beginning of 2028, the European Union will enforce its Digital Reporting Requirement. All businesses engaged in commercial transactions within the EU must now generate and accept digital invoices. Furthermore, these transactions must be reported within two days of creating the VAT invoice.

The primary goal of this initiative is to harmonize standards within the EU, ensure better data consistency, improved accessibility, and emphasize the importance of standards. Countries like Hungary and Spain, which currently have e-invoicing mandates, must align their systems with this broader EU vision.

In the long term, the DRR is intended to replace other reports, such as the EC sales lists.

EU Proposal for Cross-Border B2B Transactions

The EU proposal suggests that e-invoicing will become the standard for EU trade transactions. Businesses must issue these invoices within two days of delivering the service or goods. This means that companies can no longer use ‘summary invoices’ covering a month’s worth of deliveries, as this contradicts the goal of almost immediate digital reporting.

In a B2B transaction between two EU countries:

  1. A supplier from Country A sends an e-invoice to a buyer in Country B.
  2. Within two days of issuance, the supplier from Country A must report the transaction to their local tax authority.
  3. The buyer in Country B must also report the transaction to their respective tax authorities within two days of receipt.
  4. The tax authority of Country A shares the transaction details with the EU VIES system.
  5. Similarly, the tax authority of Country B shares the details with the EU VIES system for verification and validation.

Challenges for Businesses

While the changes bring many benefits, they also introduce several potential challenges for businesses:

Adapting to changing and complex reporting standards. Managing multiple reporting tools across different regions, which can be both complex and costly. Potential reputation and financial risks due to non-compliance and resulting sanctions and/or fines. Selecting the e-invoicing system that aligns with the current and future needs of the business. Adapting existing business processes to the new e-invoicing and reporting requirements.

What’s Next?

The EU proposal is still pending approval from the EU Council. It will also be reviewed by the European Parliament and the Economic and Social Committee. Once approved, detailed guidelines and technical information will be released to assist businesses in implementing the new e-invoicing rules by 2028.

Current e-invoicing Systems and the EU Plan

Every EU country will need to adhere to the new guidelines. Businesses that have existing e-invoicing regulations must ensure that they are up to date with the EU’s Digital Reporting Requirements. However, individual EU countries can still establish their local Digital Reporting rules, as long as they align with the EU’s Reporting Requirements.

For example, two countries, Italy and France, have distinct approaches to e-invoicing:

Italian model:

  • The supplier sends the e-invoice to the government.
  • After verification, the government approves the transaction.
  • Subsequently, the government provides the e-invoice to the buyer.

French proposed model (effective in 2024):

  • Suppliers send transaction data to a certified third party (TPS).
  • This TPS manages data validation, formatting, conversion, and digital signatures.
  • The TPS then submits the e-document to a central platform, receives an approval notification, and sends the e-invoice to the buyer’s TPS.
  • The buyer’s TPS coordinates with the central platform for validation and ultimately delivers the approved e-invoice to the buyer.

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Yonis Brander

VAT consultant

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