VATupdate Newsletter Week 45 2025

BACKWARDS

It’s been another great week in the world of indirect tax, and the spotlight is once again on digitalisation, deduction rights, and a dash of AI. From Brussels to Nairobi, here are the top three stories that shaped the week:

ECJ Says No Deduction, But Yes Refund (C-640/23 – Greentech)
The ECJ confirmed that VAT that was not legally due cannot be deducted. However, if you paid VAT that shouldn’t have been charged, you can still claim it back directly from the tax authorities.
Italy Trains Its New VAT Enforcer: Artificial Intelligence
Italy’s 2026 Budget Law introduces AI-assisted VAT assessment and refund processing. The algorithms will help flag anomalies and speed up compliance checks. It’s the first large-scale EU move toward algorithmic tax administration.
Europe’s E-Invoicing Engine Shifts Up a Gear
The EU approved the revised EN 16931-1 e-invoicing standard, laying the groundwork for ViDA’s digital reporting regime. Italy, France, and Poland are already rolling out national mandates for 2025–2026.

To stick with the latter: e-invoicing seems a fantastic solution and is broadly embraced by tax authorities, because it tells them the story of the business in real time. At least, that’s what they think (or hope).

For businesses, however, it can become a nightmare.

Right now, invoices are usually created after a transaction has occurred. Before that invoice is issued, the logistics team, the trader, perhaps legal, and the finance department all have a chance to review it before it’s sent to the customer. With e-invoicing, the invoice is generated automatically, based on the parameters clicked during the order, logistics, and finance processes. If something goes wrong, it may only be discovered after the fact.

And that can be tricky. Because by then, the tax authorities have already received the invoice and may already have started looking into it.

When a tax auditor opens a file, they start at the end of the story: a set of invoices, VAT returns, and reconciliations that seem to speak for themselves. But behind every figure lies a trail of choices. Some deliberate, some unconscious, some made under pressure and time.

VAT, more than any other tax, is shaped by these choices.

A procurement officer chooses a supplier abroad.

A logistics manager decides to ship directly to the customer.

An accountant books a service under the wrong GL code because the system wouldn’t allow a split entry.

And suddenly, a supply chain becomes a chain of taxable events.

The beauty (and the frustration) of VAT is that it doesn’t wait for the CFO’s strategy or the lawyer’s memo. It reacts instantly to operational decisions: those small, everyday actions that keep a business running. The tax follows the flow of goods and services, not the hierarchy of an organisation chart.

When auditors reconstruct what happened, they often see the decision (“VAT was not charged,” “input tax was deducted”) but not the choice that led there (“We had to deliver quickly,” “the contract wording was old,” “we assumed the customer was registered”). And yet, that’s where the real story lies: in the moment when someone made a call without realising, they were also shaping a VAT consequence.

That’s why VAT sits at the heart of every business. It is not a mere compliance afterthought, but a mirror of how the business actually works. If you want to understand an organisation, look at its VAT: it shows who decides, who acts, and who follows.

So, the next time someone asks why VAT matters, the answer is simple: Because every invoice tells a story, and every audit is an attempt to read it backwards.

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