ViDA - The European Union promotes B2B electronic invoicing
The European Commission has announced a series of measures to modernize the VAT system in the European Union to combat tax fraud. These measures include the implementation of a new tax reporting system through electronic invoicing between companies.
Modernization of the VAT system in Europe
VAT is a very important source of tax revenue for all member states of the European Union, and it represents a significant portion of the EU budget. However, the current VAT regulations are outdated and ineffective, making it difficult to properly control tax compliance and resulting in a significant loss of revenue. The European Commission's 2022 VAT Gap Report estimates that in 2020, approximately 93,000 billion euros in revenue was lost, of which a quarter can be attributed to cross-border transactions.
In light of the global nature of the market and the rise of e-commerce, the European Union has decided to update its policies on value-added tax. This will help to ensure that the EU can continue to compete in the global marketplace and provide consumers with the best possible experience.
This reform is designed to improve the efficiency of VAT declarations by harmonizing them in an electronic format. The new system will allow for real-time electronic declaration of tax information through the use of electronic invoices.
Objectives of the new European VAT system
The ViDA project is primarily aimed at modernizing the European VAT system and has set itself the following objectives:
- Guarantee an efficient and fair VAT system for the digital economy.
- Fight against fraud, especially intra-community fraud.
- To ensure the proper functioning of the Internal Market.
- Simplify and adapt VAT regulations to the new digital reality of the market to facilitate tax compliance and provide greater legal certainty.
- Optimize tax reporting requirements through digitalization.
Who will be affected by the new regulations?
The new system will have implications for both companies that are subject to Value Added Tax and for member states. They will need to transpose the new European measures into their tax systems and take measures to audit electronic invoices between companies.
With regard to electronic invoicing, the VAT in Digital Age - ViDA project describes this battery of measures:
- The electronic invoice will be the default method for electronic tax returns.
- The use of the electronic invoice will be the default method of issuing invoices.
- The exchange of electronic invoices will no longer be subject to acceptance by the recipient.
- Member states will be able to impose B2B e-invoicing without the need to request a derogation from the European Parliament.
- e-Invoicing will be mandatory for cross-border transactions.
- A common electronic invoicing standard will be established.
- The possibility of issuing summary invoices will be eliminated.
At the legislative level, there are proposed amendments to various legal texts to give effect to the measures. The European Commission has published these proposals to help ensure that the measures are properly implemented.
- Directive 2006/112/EC as regards VAT rules in the digital age.
- Regulation (EU) No. 904/2010 as regards the VAT administrative cooperation scheme necessary for the digital age.
- Implementing Regulation (EU) No. 282/2011 as regards the information requirements applicable to certain VAT schemes.
The legislative proposals will be submitted to the Council for approval, and to the European Parliament and the Economic and Social Committee for consultation.
Benefits of the new European VAT system
- Reduction of tax compliance costs. According to the ViDA report, an estimated saving of 4.3 million euros is expected thanks to pre-filing VAT.
- Savings in handling costs. The EC estimates that 1.9 billion euros will be saved in postal shipments alone.
- Acceleration of the digital transformation of companies by implementing automation technologies to report business data electronically.
- Increased efficiency of tax control thanks to improved risk analysis systems.
- Increased tax collection. According to the ViDA report, an estimated collection of between €135 billion to €177 billion.
- Reduction of tax fraud. Obtaining information in real time will make it much more difficult for fraudsters to operate.
- Faster introduction of digital reporting requirements (DDR) as there is a standardized model at European level.
- Improved cross-border trade as member states have to develop their tax reporting systems to ensure compatibility and interoperability within the Union.
- Improved environmental impact. The report quantifies that the reduction of carbon emissions would have an economic equivalent of between 0.01 billion and 500 million euros.
Although we are still in the early stages of these proposals, we can expect to see more information from the European Commission in the coming months. If these amendments are approved, most of the measures would go into effect in 2025. However, there are still some details that need to be ironed out, such as the technical specifications for making the tax information exchange systems interoperable between different EU countries, as well as the new B2B electronic invoicing standard.