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E-Invoicing & E-Reporting developments in the news in week 45/2024

9 months ago
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11 min read

Click HERE for the PODCAST version discussing ”E-Invoicing & E-Reporting developments in the news in week 45/2024”

Follow the latest updates on E-Invoicing and Real Time Reporting on www.vatupdate.com and the LinkedIn pages on E-Invoicing/Real Time Reporting and ViDA.

HIGHLIGHTS

ECOFIN Approves the VAT in the Digital Age (ViDA) Act – Compromise Has Been Reached

In a landmark development for the European Union’s taxation landscape, the Economic and Financial Affairs Council (ECOFIN) has officially approved the VAT in the Digital Age (ViDA) Act. This groundbreaking legislation aims to modernize and streamline VAT systems across the EU, addressing the unique challenges posed by the digital economy and cross-border e-commerce. The approval represents a significant milestone in the ongoing effort to enhance VAT compliance, ensure fair taxation, and combat fraud, all while simplifying processes for businesses operating within the EU.

The Need for Reform

As the global economy becomes increasingly digitalized, traditional VAT systems have struggled to keep pace. The rapid growth of e-commerce, digital services, and platform economies has exposed gaps and inefficiencies in existing VAT regulations. Recognizing these challenges, the European Commission proposed the ViDA Act to revamp the VAT framework established under the consolidated version of the EU VAT Directive 2006/112/EC. The ViDA Act aims to create a more cohesive and efficient VAT landscape that aligns with contemporary business practices and technological advancements.

Key Pillars of the ViDA Act

The ViDA Act encompasses several key pillars designed to address the complexities of the digital economy:

  1. Digital Reporting Requirements (DRR): One of the most significant aspects of the ViDA Act is the introduction of mandatory Digital Reporting Requirements for intra-community transactions. Starting July 1, 2030, businesses will be required to use structured e-invoices based on the EU’s EN16931 standard for B2B transactions. This shift to digital reporting is expected to strengthen compliance, enhance transparency, and reduce the annual VAT gap, estimated at €61 billion.
  2. Platform Economy Reforms: The ViDA Act also introduces measures targeting the platform economy, specifically short-term accommodation and ride-sharing services. These businesses will be designated as VAT taxable persons, ensuring tax parity with traditional businesses. However, the implementation of these “deemed supplier” rules has been postponed to January 2030, with a voluntary phase beginning in July 2028.
  3. Single VAT Registration (SVR): Another vital reform under the ViDA Act is the Single VAT Registration system. Initially scheduled for earlier implementation, the SVR will now commence in July 2028. This initiative aims to simplify VAT registration for e-commerce businesses, allowing them to register in one Member State instead of multiple jurisdictions, significantly reducing compliance burdens for SMEs.
  4. E-Invoicing Harmonization: The harmonization of e-invoicing standards is a critical component of the ViDA Act. While the deadline for aligning domestic e-invoicing systems with ViDA standards was initially set for 2027, it has now been extended to January 2035. This extension acknowledges the investments already made by countries like Italy and France in their existing e-invoicing systems, allowing for a smoother transition.
  5. Central Database and Transparency Measures: To enhance transparency and combat VAT fraud, the ViDA Act establishes a new central database managed by the European Commission. This database, referred to as Central VIES, will track Digital Reporting Requirements transactions, taxpayer identification, and VAT numbers. This system will enable customers to view intra-EU transactions related to their VAT numbers, thereby reducing the risk of unintended involvement in VAT fraud.

Compromise Reached

The approval of the ViDA Act comes after extensive negotiations among EU Member States, reflecting a careful balance between the urgency of reform and the need for flexibility in implementation. Member States expressed concerns about the feasibility of some measures, leading to compromises on implementation timelines and exemptions for small businesses. For instance, optional ten-year exemptions for suppliers with a VAT ID or small businesses under a new SME VAT scheme were introduced to alleviate the burden on these entities.

Impact on Businesses

The ViDA Act represents a transformative shift in the EU’s approach to VAT, particularly for businesses operating in the digital space. By simplifying compliance processes and standardizing reporting requirements, the Act is expected to facilitate smoother operations for businesses across the EU. E-commerce companies, in particular, stand to benefit from the Single VAT Registration system, allowing them to streamline their VAT obligations and reduce administrative costs.

Moreover, the mandatory adoption of structured e-invoices is poised to enhance efficiency and accuracy in invoicing processes, ultimately leading to improved cash flow management. Businesses that adapt to these changes early will likely gain a competitive advantage in the evolving digital marketplace.

Next Steps and Future Outlook

With the ECOFIN approval secured, the ViDA Act will now return to the European Parliament for formal approval, followed by adoption by the Council in early 2025. While the timelines for implementation are gradual, businesses are encouraged to prepare for the upcoming changes, particularly the mandatory Digital Reporting Requirements set to take effect in July 2030.

The EU iTx organization and other stakeholders will continue to monitor developments related to the ViDA Act, providing guidance and support to businesses navigating the transition. As the EU embarks on this new chapter in VAT regulation, the focus will remain on fostering a fair and efficient tax environment that accommodates the realities of the digital economy.

Conclusion

The approval of the VAT in the Digital Age (ViDA) Act marks a significant step forward in the EU’s efforts to modernize its VAT systems. By addressing the challenges posed by the digital economy and cross-border e-commerce, the ViDA Act aims to simplify compliance, enhance transparency, and combat VAT fraud. As businesses prepare for the changes ahead, the ViDA Act promises to reshape the VAT landscape in the EU, ultimately contributing to a more equitable and efficient taxation system in the digital age. The journey toward implementation will require collaboration and adaptation, but the potential benefits for businesses and consumers alike are substantial. With the ViDA Act in place, the EU is poised to navigate the complexities of the digital economy with renewed vigor and clarity.

Other highlights

  • Latvian Parliament Approves E-Invoicing Law: B2G as of 2025, B2B as of 2026
    • Mandatory e-Invoicing Law Passed: The Latvian Parliament has approved a law mandating e-invoicing for businesses, set to take effect in 2025, with the aim of modernizing financial transactions.
    • Implementation Timeline: The e-invoicing requirements will be implemented in two phases: Business-to-Government (B2G) transactions will start in 2025, followed by Business-to-Business (B2B) transactions beginning in 2026.
  • Poland – Final Consultations on Mandatory National e-Invoice System (KSeF)
    • KSeF Implementation Timeline: Poland’s National e-Invoicing System (KSeF) is set to be mandatory starting February 2026, with a draft law currently under final consultations by the Polish government to facilitate the rollout and address taxpayer concerns.
    • Draft Law and Schema Release: The Polish Ministry of Finance has published the assumptions for the VAT draft law concerning KSeF, including the FA_VAT schema, aimed at providing legal solutions for the mandatory implementation of the e-invoicing system.
    • Phased Implementation and Support: The KSeF amendment includes a phased approach to e-invoicing implementation, allowing for an offline mode until 2026, while also outlining key business solutions to ensure a seamless transition for Polish entrepreneurs and compliance with future European harmonization of e-invoices expected by 2035.

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