The European Commission’s VAT proposals can be divided into three main areas:
- Digital reporting based on e-invoicing
- New VAT rules for platform economy and e-commerce
- An extension of OSS
Following our preceding general article about VIDA, this article gives a more detailed overview of the proposed changes in the area of the DRR based on e-invoicing and briefly comments on the impact on businesses. More details about other areas will be described in our other articles which will be published in the following weeks.
Changes in e-invoicing from 2024
New rules for e-invoicing
- E-invoices will not be subject to the acceptance of the recipient.
- E-invoicing will be the default system for the issuance of invoices.
- A new definition of e-invoices will be introduced.
An ‘e-invoice’ will mean an invoice that contains the required information and which has been issued, transmitted, and received in a structured electronic format that allows for its automatic and electronic processing.
Comment: It is not clear from the proposal on what conditions invoices issued in pdf format would comply with the new definition. If a widely used pdf format is not accepted, then all businesses currently issuing invoices in a pdf format and sharing them by an e-mail or a weblink should switch to the new software required to issue structured invoices already by 1 January 2024.
Domestic e-invoicing should allow the European standard
From 2024, EU Member States (MSs) can impose domestic DRR without a prior approval of the EU. MSs may oblige specific e-invoicing rules, but they should allow e-invoices that comply with the European standard on e-invoicing (EN 16931) adopted by the Commission Implementing Decision (EU) 2017/187055 and the Directive 2014/55/EU in the context of the B2G e-invoicing (the ‘European standard’). A domestic DRR introduced in the future cannot require pre-approval of the e-invoices, the existing DRRs are allowed to require pre-clearance until 2028. See more details under “Harmonization of the domestic DRRs” below.
Common system for EU DRR from 2028
The proposed EU DRR system (e-invoicing and digital transaction-based reporting (DTBR) would not only apply to all intra-Community supplies and acquisitions of goods and services, but also to all business-to-business (B2B) supplies of goods and services that are taxed in a MS other than that in which the supplier is established. The domestic reverse charge would become mandatory for all B2B transactions by non-established suppliers from 1 January 2025 (see more details in a separate article “ViDA – extension of OSS” under “Extended domestic reverse charge”). The transactions which will be subject to this extended domestic reverse charge will also be part of the e-invoicing and DTBR.
There will be an obligation to issue structured e-invoices and to transmit data from these invoices to the relevant national VAT authorities’ electronic portal, in near real-time (within two working days).
The EU DRR (e-invoicing and DTBR) would cover:
- intra-Community supplies of goods,
- ‘general’ B2B services rendered between taxpayers established in different MSs,
- supplies of other services subject to the domestic reverse charge for non-established suppliers, and
- supplies of goods subject to the domestic reverse charge for non-established suppliers.
The e-invoicing requirements will not only apply to all intra-EU supplies of goods and services but also to all supplies by non-established suppliers that are subject to the domestic reverse charge.
Following new data elements should be included on e-invoices from 2028:
- mandatory payment details (the identifier of the bank account in which the payment for the invoice will be credited, the due date(s) for the payment, and the amount of each payment related to a concrete transaction).
- in the case of an invoice that corrects the initial invoice, the corrected/initial invoice’s sequential number.
The possibility to issue summary invoices (covering multiple supplies made during the same calendar month) will be eliminated from 2028 since invoices would need to be issued on a transactional basis under the EU DDR.
Digital transaction-based reporting (DTBR)
From 2028, the European Sales Lists (and Purchase Lists which are obligatory in a few MSs) will be abolished and replaced with the DTBR.
The DTBR for intra-EU transactions will cover the same transactions that are currently covered by the European Sales Lists (ESLs) except for the call-off stocks which will cease to exist from 2026. In addition, supplies of goods and services subject to the extended domestic reverse charge will be included in the ESLs from 2025 and in the DTBR from 2028.
The data containing most of the mandatory VAT invoice details would need to be transmitted on a transaction level.
The deadline for the transmission of the data is two working days after the issuance of the invoice, or after the date, the invoice should have been issued in case the business has not complied with its obligation to issue an invoice. The transmission of the data has to be carried out electronically, and MSs will provide the means for that transmission. Finally, the information can be submitted directly by the businesses themselves or by a third party on their behalf.
The transmission of the data can be done according to the European Standard. MSs can provide for the transmission of the data from e-invoices issued under a different format, as long as they also allow the use of the European Standard.
Reporting purchases of goods and services taking place in the EU
The person acquiring the goods and the recipient of the services will be required to report the data on their intra-Community transactions. Businesses will be obliged to transmit the e-invoice data on their intra-Community acquisitions of goods and services as well as on their acquisitions of the goods or services subject to the domestic reverse charge. The purpose is to compare the data declared by the supplier with the data declared by the customer to detect VAT fraud.
The current VIES will be replaced by the Central VIES system
The Central VIES will be able to store data transmitted on cross-border operations, cross-check information received on intra-EU supplies and acquisitions, aggregate data to make it available to national tax authorities by a VAT registration number, and augment the data from the intra-EU transaction reports with other data sources like the customs surveillance system or the future Central Electronic System of Payment information (CESOP). In addition to its reporting uses, the Central VIES system would also contain up-to-date taxpayer’s VAT registration data provided by the national tax authorities' databases.
Harmonization of the domestic DRRs
From 2024, the DRRs already in place in 12 MSs or legislated (e.g. in Poland and France), may remain in place, however, tax authorities should accept e-invoices based on the European standard.
The issuance of e-invoices will not be subject to prior mandatory authorization or verification by the tax authorities (‘pre-clearance'). MSs who already have e-invoicing in place are allowed to require pre-clearance until 2028, however, no new pre-clearance systems are allowed from 2024.
From 2028, the domestic DRRs (if made use of) should comply with the harmonized EU system for DRR (e.g., e-invoicing near-real-time reporting of data on a transaction-by-transaction basis (DTBR)) and the possibility to transmit the data according to the European Standard should be provided. MSs would have flexibility on other points, such as which data elements must be provided by taxpayers.
MSs that already have domestic DRRs will have to adapt them to the features of the EU DRR system by 2028 at the latest.
The proposed EU DRR is going to generate additional costs for taxpayers; however, the decreased fragmentation in the compliance requirements and complementary measures (e.g. the pre-filling of the VAT return and removal of other compliance obligations) can hopefully generate savings that would compensate for the new burdens.
The VAT in the Digital Age (ViDA) proposal includes the following changes:
- e-invoices will not be subject to the acceptance of the recipient
- only files with a specific structure will be considered e-invoices
- MSs may oblige e-invoicing but they should allow e-invoices that comply with the EU e-invoicing standard
- MSs who already have e-invoicing in place are allowed to require pre-clearance until 2028, however, no new pre-clearance systems are allowed
- extension of OSS to all B2C supplies, some B2B supplies, and stock movements
- no new transfers of stock under the EU call-off stock arrangements can be effected
- the Import One Stop Shop (IOSS) becomes obligatory for facilitating marketplaces
- the domestic reverse charge applies for B2B supplies of goods and services made by non-established taxable persons
- transactions subject to the new domestic reverse should be reported in ESLs
- platforms in passenger transport and short-term accommodation sectors become responsible for collecting and remitting VAT
- a deemed supplier rule will apply to all (both B2B and B2C) domestic and cross-border sales of goods in the EU via e-commerce platforms that facilitate those sales.
- the EU call-off stock simplification will cease to exist.
- the content of e-invoices will be extended with mandatory payment details and an ID number of corrected invoices
- the possibility to issue summary invoices will be eliminated
- e-invoicing becomes mandatory for intra-community supplies of goods and services and local supplies subject to the domestic reverse charge
- e-invoices should be issued within two days
- introduction of mandatory digital reporting for intra-community transactions (data to be sent within two days)
- withdrawal of ESLs since replaced by the above
- buyers should digitally report their intra-Community acquisitions of goods and services as well as purchases subject to the domestic reverse charge
- the domestic DRRs should ensure convergence with the EU DRR.