As had been announced in the Minister for Finance’s Budget Day speech, the Revenue Commissioners have opened a public consultation on VAT Modernisation, which seeks input on how digital advances can be used to modernise Ireland’s VAT invoicing and reporting system. David Duffy of our VAT team explains the background and implications below.
The consultation opened on Friday 13 October and will remain open until Friday, 12 January 2024. The consultation can be accessed here.
What does the consultation address?
Revenue is seeking input on the proposed introduction of real-time (or close to real-time) digital transaction-level reporting for domestic business-to-business (“B2B”) and business-to-government (“B2G”) trade, supported by mandatory e-invoicing for such transactions. Changes to business-to-consumer (“B2C”) transactions, VAT payments/repayments and methods of accounting for VAT are not included in this consultation but may be the subject of later consultations.
Why is the consultation happening?
The digitalisation of tax collection and data is increasingly a feature of tax administration in Ireland and abroad. A recent example of this in Ireland is the PAYE modernisation programme. Elsewhere, we have seen tax authorities introduce, or plan to introduce, digital reporting and/or mandatory e-invoicing in relation to VAT.
These aim to improve the accuracy and transparency of VAT reporting and allow tax authorities better and quicker access to data to help combat evasion and fraud. Digitalisation also has the potential to reduce compliance costs and improve accuracy for businesses, although some initial investment in upgrading invoicing and finance systems is likely to be required.
The other significant driver of the Revenue consultation is the European Commission’s VAT in the Digital Age (ViDA) proposals which were announced last December 2022 and remain under discussion at the EU Council.
ViDA includes a proposal for mandatory e-invoicing for cross-border supplies of goods and services within the EU, together with an obligation for suppliers and customers to report transaction-level data from such transactions within a timeframe of 2 days of the invoice date. ViDA also seeks to harmonise the e-invoicing and digital reporting framework based on a common EU standard.
What could VAT modernisation mean for Irish business?
If Revenue were to follow a similar approach to the ViDA proposals, businesses engaged in B2B or B2G transactions would become obliged to issue and receive e-invoices in accordance with a common EU standard, and to digitally report a subset of data from that e-invoice to Revenue in real time or a ‘near real-time’ basis.
This would have a significant impact, not only for businesses VAT compliance systems and processes but their wider finance, accounts payable and accounts receivable systems and processes.
When might changes be introduced?
The consultation document does not set out any timeframe for potential VAT modernisation changes. However, the EU’s ViDA proposals for mandatory e-invoicing and digital reporting for cross-border transactions are proposed to be effective from 1 January 2028 and it would not be surprising if Revenue sought to align domestic changes in Ireland with the introduction of EU wide changes.
However, as the ViDA proposals remain subject to negotiation and unanimous approval at the EU Council, we do not yet have certainty of the timing or final shape of those changes. In addition, we have seen other EU Member States move ahead with proposals to introduce mandatory e-invoicing for certain transactions prior to 2028.
Queries? Get in touch
The consultation is an important first step on the journey towards the digitalisation and modernisation of Ireland’s VAT system. It is therefore crucially important that businesses take the opportunity to make their views known to Revenue.
We are happy to assist in this regard. If you have any queries or would like to discuss, please contact our team below. We would be delighted to hear from you.
