The dog days of summer seem an appropriate time to assess progress on the European Union’s (EU) VAT in the Digital Age (ViDA) proposal. This starts with EU Finance Ministers at ECOFIN in Luxemburg providing broad support for the proposal earlier this year in June, while also raising some concerns.
The meeting was designed for the council to solicit feedback on ViDA, which covers three broad areas: VAT reporting obligations and e-invoicing, VAT treatment of the platform economy and a single EU VAT registration. (If you need a quick rundown on the proposal, here’s the first of three introductory posts on ViDA.) Especially around e-invoicing, Finance ministers from member countries emphasised two points during the meeting:
- Current timelines are very ambitious. The first phase of the regulation is scheduled to take effect starting in January 2024; subsequent phases would take effect until 2028. Implementation within these tight deadlines will be costly and impractical, both for tax administrations and taxpayers.
- Full harmonisation requires a rethink. The proposal calls for the harmonisation of e-invoicing across the EU. Some countries, including Italy and Poland, with e-invoicing rules already on the books are hesitant to change those mandates to align with yet-to-be-finalised EU rules. In addition, many countries want more flexibility when designing domestic reporting processes. And also, around pre-clearance of e-invoices, there is no full alignment between the countries.
Later during the summer, the EU Parliament Committee on Economic and Monetary Affairs discussed the ViDA proposal, likely resulting in a proposal to delay the overall rollout by one year. However, the Committee also calls for less harmonisation, allowing countries to retain existing clearance systems and making the proposed EN16931 standard optional instead of mandatory. This proposed lack of harmonization may provide EU member states with more flexibility, but at the same time result in a more scattered compliance landscape, adding to the compliance burden for businesses.
Despite this generic call to slow down the ViDA implementation, indirect tax leaders shouldn’t wait for additional policy clarity before implementing an e-invoicing strategy. Instead, they should keep the following in mind as they develop and refine e-invoicing capabilities:
- E-invoicing is a global trend that is accelerating. Beyond the EU, a growing number of global tax authorities have finalised, are finalising or are considering e-invoicing requirements.
- E-invoicing can improve efficiency in the tax department – and beyond. While compliance is necessary, e-invoicing can also generate efficiency gains in accounts receivable, accounts payable and procurement departments. This qualifies e-invoicing capabilities as a larger, business initiative – one that requires ample cross-functional collaboration to succeed.
- New technology, and new processes, are needed: While advanced tax technology can help, optimising an investment in a new solution often requires process improvements.
I’ll keep you posted on ViDA as the effort evolves. In the meantime, here’s a more detailed discussion on e-invoicing-related process improvements.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.