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EU VAT Digital Reporting Requirements (DRR) e-invoice harmonisation update

European Commission seeks to harmonise digital Continuous Transaction Controls ‘CTC’ options for VAT e-invoice and real-time reporting. VAT Directive Amendments by 16 November 2022

The European Commission (EC) is undertaking a review to introduce harmonised Digital Reporting Requirements (DRR) (previously known as ‘Transaction Based Reporting’) across the 27 member states. A public consultation finished in May 2022, contributing to VAT Directive amendments 16 November 2022.  Following this, a number of questions on e-invoicing standards have to be answered. There are five parts to this evaluation:

  1. Of the original four choices on reform, the EC is down to two options:
    1. Full harmonisation with combined EU intra-community and domestic e-invoicing system; or
    2. Partial harmonisation with only EU intra-community live reporting with member states left to introduce (or not!) their own regimes.
  2. Whether transactions will have to be first cleared with the tax authorities, and what method would be used if not Continuous Transaction Controls;
  3. Scope of transactions – B2G, B2B, B2C, exempted etc.; and
  4. Taxpayer issues – including the use of pre-filled VAT returns.

Watch our VAT TV episode on Digital Reporting Requirements.

Implementation by 2024?

The aim of the DRR review is to understand what data could be collected, how it could be shared between tax authorities  to help build on VIES and produce reliable live transaction data that could immediately highlight VAT fraud. The EC is hoping to issue VAT Directive amending legislation by mid November 2022. This could then by implemented by 2024 or 2025.

Digital Reporting Requirements (DRR) is one of three parts of the VAT in the Digital Age, reforms (see below) part of the 2020 EU Tax Action Plan announced in 2020.  Check VAT Calc’s global live VAT invoice transaction and e-invoice reporting tracker to see where European and other countries are on their journey to adopt transactional reporting.

1. DRR – Full or Partial Harmonisation?

Following the public consultation, further outstanding questions beyond the choice of Partial or Total harmonisation include the following:

Pan-EU harmonisation

  • Should member states’ tax authorities be given the option to first validate e-invoices before the customer must accept as in Italy SdI? Or is this not necessary as in Spain SII and Hungary live reporting?
  • Can just a subset of invoice data be sent to the tax authorities, with mandatory levels of information for intra-community transactions to help the fight against fraud?

Questions on Voluntary standard

  • Would adopting a voluntary Partial Harmonisation system undermine the objectives of reducing fraud, simplifying reporting and making the administration of VAT easier and cheaper?
  • If Partial Harmonisation for member states, what should happen for companies performing intra-community supplies? Should these be mandated to conform with EU-level e-invoicing.

Common standard for e-invoicing

  • Should the European Commission seek to impose an e-invoicing standard to ensure free exchange – interoperability – between different countries’ systems?
  • If yes, is the current EU e-invoicing EN 16931 standard adequate as a common scheme?  And should this be the exclusive standard or are other existing standards acceptable, too?

Obligations on customers accepting e-invoices

  • Should the customer be given the option to accept the e-invoice before it becomes a valid VAT invoice?
  • Alternatively, it is left to the customer to identify and report any errors or data miss-match?

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2. Continuous Transaction Control (CTC) pre-clearance by government?

Even when adopting mandatory e-invoicing, member states and the EC will have to decide whether to include a government pre-clearance model. This would mean first electronically transmitting the invoice to the government for validation. This is termed Continuous Transaction Control CTC such as Italy SdI

Where the data is not first sent to the tax authorities, consideration will have to be given to how information is going to be exchanged and submitted to the tax authorities. The use of certified service providers, a delivery network such as Peppol, or the creation of public platforms that provide those services could be options to deal with this issue.

Linked to this is whether only a basic data set needs to be sent to the authorities; or just a subset with suffiencent data to track transactions and identify fraud.

3. Scope of Transactions

Member states will lastly have to decide the type of transactions to be included: B2G, B2B, B2C, exempted etc.  Many countries have started the DRR path by taking each type of transaction in separate phases. This enables constant evaluation of teething issues and recalibration.  Any final solution is likely to put B2C at least into a second implementation phase.

4. Taxpayer questions

  • Should a reporting threshold be set for small and medium sized companies to reduce any disproportionate costs;
  • Could any other taxpayers or sectors be exempted, and should this be a member state choice?
  • How could pre-filled VAT returns and other benefits (such as speedy credit refunds) be included as a benefit. Should this be left to member states to decide on implementation.
  • What other obligations could be withdrawn, including Recapitulative Statements and Intrastat.

Next steps VAT in the Digital Age

The EU’s VAT in the Digital Age Directive amendments for November 2022 release will look into this reform and more: VAT treatment of platform economy; and Single VAT registration in the EU which covers extension of OSS to all B2C transactions and to B2B for the first time.

Tax Engine and VAT reporting with CTC

VAT Calc’s tax engine, ‘VAT Calculator’, has been developed with the EU’s VAT in the Digital Age reforms in full focus, including Continuous Transactions Controls agility to live calculate and report invoice data. And since VAT Calculator is built on the same single platform as our VAT Filer product, there is full reconciliation on VAT return reporting.

CTC e-invoicing and real-time models

Invoice reporting model Examples Features
1. Real time invoice reporting Spain, Hungary, South Korea Invoice listing submitted immediately after invoice issued
No acceptance or regulation of invoice by tax authorities
2. Central platform exchange Italy, Turkey Platform responsible for invoice forwarding to customer
Customer or receiver may review and reject invoice
3. Central clearance Govt platform accepts invoices, validates, and buyer acknowledges invoice
Brazil, Colombia Pre-clearance variation - clearance before invoice exchange
Chile, Costa Rica Post-clearance - clearance short time after exchange
Document types not regulated and therefore inconsistent and may resort to email and similar
4. Decentralised clearance Mexico, Guatemala, Peru, France Certified e-invoice agent (PAC) submitts inoices
Document types not regulated and therefore inconsistent and may resort to email and similar

EU VAT in the Digital Age reforms

EU VAT in the Digital Age
3 reforms to improve efficiency of VAT for all and reduce fraud
1. Single VAT registration in the EU; extension of OSS to all B2C and certain B2B Following the 1 July 2021 introduction of the One Stop-Shop (OSS), can this be extended to cover further cross-border B2C and all / any B2B transactions (e.g. movement of own stock across borders) to reduce the foreign, non-resident VAT registrations and returns burden
More details on Single VAT Registration in the EU
2. Digital Reporting Requirements; e-invoicing What options are there to harmonise the digitisation of transaction reporting amongst the member states. The EU is looking at: Continuous Transaction Control (CTC) e-invoicing, live reporting; or Periodic Transaction Controls (PTC) invoice listings. Also if at a country, EU or hybrid-level.
Read more about EU Digital Reporting Requirements (DRR)
3. VAT treatment of the platform economy How can EU member states adapt their tax systems to reflect the new role taken on by Electronic Interfaces - platforms and marketplaces which have enabled millions of private individuals to provide services and goods for the first time. How should the VAT Directive be modified to capture the new dynamics created in the gig and sharing economies, including imposing full deemed supplier VAT obligations on platforms as with 2021 e-commerce package for goods.
EU VAT Treatment of Platform Economy update

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