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EU VAT Digital Reporting Requirements (DRR) e-invoice harmonisation 2024

European Commission seeks to harmonise digital Continuous Transaction Controls ‘CTC’ options for VAT e-invoice and real-time reporting

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 before the end of 2022.  Following this, a number of questions on e-invoicing standards have to be answered. There are five parts to this evaluation:

  1. Four choices on reform, from the status quo to full EU-level DRR;
  2. Continuous Transaction Control (CTC); or Periodic Transaction Control (PTC) invoice reporting if DRR is selected in 1.;
  3. Scope of transactions – B2G, B2B, B2C, exempted etc.;
  4. Taxpayer issues – including the use of pre-filled VAT returns; and
  5. The potential use of Blockchain.

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 and how it could be shared between tax authorities  so 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 the end of 2022. This might 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 – Four choices under consideration

A public consultation has just been launched looking at four alternatives routes:

  1. No change. The status quo however is unlikely to prove popular given the huge amounts in VAT fraud in the Single Market, put at €50billion per annum;
  2. Optional EU core designed DRR. This could be adopted voluntarily, state-by-state, and particularly in states with large VAT Gaps.
  3. Taxpayer transactional data storing obligations. The EU would set a schema for the recording and storage of transactional data. This could then be requested by the tax authorities e.g. prior to an audit. This would be similar to the existing on-demand model for many European SAF-T regimes.
  4. EU DRR scheme with further choice over partial or full harmonisation:
    • 4a. Partial harmonisation DRR. Two systems at EU and national level:
      • i) intra-community transactions and withdrawal of Intrastat and ESL (Recapitulative Statements);
      • ii) optional domestic transaction reporting system for domestic transactions. This could include existing domestic regimes (see Italy, Hungary etc), but they would have to converge with the i), the EU intra-community transaction system.
    • 4b Full harmonisation DRR, with all domestic and intra-community transactions being submitted at the EU level. Again, recapitulative statements would be withdrawn, and states with existing DRR systems would have to move over in the mid-term to the EU system.

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2. Continuous Transaction Control (CTC) or Periodic Transaction Control (PTC)?

When considering option 4. for DRR, a choice of system has next to be made. There are two alternatives for reporting sales and purchase VAT invoices being evaluated:

  1. Continuous Transaction Control (CTC) – including pre-clearance e-invoicing such as Italy SdI or live reporting including Spain SII, Hungary RTIR
    1. This is typically live or real-time reporting, or perhaps up to 5 days delay, with some basic invoice validation. A decision would have to be taken on pre-clearance approval by the government. And then the role of the customer – would they be sent the invoice by the government CTC portal etc.
  2. Periodic Transaction Control (PTC) – VAT listings or SAF-T) post-invoice issuance reporting model. This would likely be a monthly reporting cycle.

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.

Next steps in Autumn 2021 delayed into 2022 – VAT in the Digital Age

The EU’s VAT in the Digital Age Directive amendments for 2022 release will look into this reform and more: VAT treatment of platform economy; and single VAT identification and return which covers extension of OSS and IOSS to all B2C transactions and to B2B for the first time. The European Commission has now delayed a planned November 2021 consultation. The timetable towards draft VAT Directive changes for Autumn 2022.

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 are 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. Digital Reporting Requirements 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)
2. 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
3. Single EU VAT registration; 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 more B2C and all / any B2B transactions (e.g. movement of own stock across borders) to reduce the foreign, non-resident VAT registrations and reporting burden
More details on Single EU VAT Registration

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