Digital Reporting Requirements and eInvoicing in the framework of the VAT in the Digital Age initiative.
VAT in the Digital Age (ViDA): DRRs and eInvoicing
As summarized in our previous blog, on 8 December 2022 the EU Commission published one of the biggest VAT law change proposals. The implementation of these changes will have an impact on all taxpayers doing business in the EU irrespectively of size and industry.
In this blog we are focusing on the first pillar of the proposals, namely on the Digital Reporting Requirements (‘DRRs’).
What are Digital Reporting Requirements (DRRs)?
DRR is any obligation for VAT taxable persons to periodically or continuously submit data in a digital way on all (or most of) their transactions, including by means of mandatory e-invoicing, to the tax authority. DRRs can be distinguished into Periodic Transaction Controls (e.g.. SAF-T) or Continuous Transaction Controls (e.g. real-time reporting or mandatory e-invoicing). When it comes to e-invoicing the solution can be built either with or without clearance. Clearance is defined in terms of the role of the central IT platforms set up by the tax authority. In a non-clearance e-invoicing system, the supplier is able to send the e-invoice directly to its customer without having to request any confirmation (e.g. token) from the tax authority.
VAT reporting obligations – why the changes are required?
The VAT Directive dates from the 1970s and, as such, the default reporting requirements are not digital. However, the global trend shows a move from traditional VAT compliance towards real-time sharing of transaction-based data with tax administrations, often based on e-invoicing. This trend is also visible in the EU and many Member States have already introduced or are planning to implement different digital reporting obligations domestically. However, the individual, uncoordinated approaches of Member States in reporting obligations created substantial new compliance burdens for businesses operating across the EU and increases the risk of fragmentation, hindering the operation of the single market.
What Policy proposals we have now?
On 8 December 2022 the European Commission published the following proposals with regards to the digital reporting requirements and e-Invoicing.
Digital Reporting Requirement on cross-border B2B transactions
The outdated European Sales Listing (aka “recapitulative statement”) will be replaced with a digital reporting requirements system for intra-Community transactions (with cancellation on the call-off stock reporting, as this regime will cease to exist). This information will feed into the risk analysis systems of the Member States to help them counter the VAT fraud linked with the intra-Community trade, in particular Missing Trader Intra-Community fraud.
The information has to be transmitted on a transaction-by-transaction basis, and 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.
Member states furthermore have the option to extend such DRR to local supplier, however according to the EU DRR standardized requirements.
Electronic invoices per default
The proposal changes the current situation, providing that electronic invoicing (without a clearing system and only structured electronic files) will be the default system for the issuance of invoices. Taxable persons will always be allowed to issue electronic invoices according to the European standard. Furthermore, taxable persons will not depend on the authorization of the recipient anymore. The use of paper invoices will be limited to exception cases authorized by the relevant Member State.
Deadline to issue an invoice for cross-border and reverse charge supplies
Another development is to establish an almost real-time based data exchange system on the cross-border transactions and transaction subject to reverse charge by reducing the currently existing (maximum) 45 days deadline to 2 days when it comes to the issuance of the invoice (Article 222).
No more summary invoices
There will be no possibility to continue issuing summary invoices for a calendar month as it goes against the aim of the almost real-time reporting system.
Content of e-Invoices
In order to minimizing the administrative burden for taxable persons, the reporting system will take advantage of the issuance of an electronic invoice to automate the process of reporting. In order to include in the invoice all the information required by the tax administrations there are additional data elements added to the required content of the invoice, such as (a) the identifier of bank account, (b) detailed payment data, (c) identification of the initial invoice for invoice corrections.
In summarizing the above
- Digital Reporting Requirements will be introduced for at least intra-EU (B2B) transactions, replacing the European Sales Listings
- Almost real-time reporting will be the norm, with a reporting deadline of two working days after the issuance of the invoice
- Mandatory e-invoicing for B2B intra-EU transactions according to a new common standard. Summary invoices will be history.
- Implementing digital reporting requirements for domestic transactions will remain optional for Member States