VAT in Digital Age (ViDA): digital reporting and e-invoicing
The draft ViDA Directive modernises the indirect tax system across the European Union, aiming to increase EU tax revenues, digitalise reporting, defend against tax fraud more effectively, and move towards a definitive VAT system that will view cross-border transactions similarly as domestic ones. In this article, we summarise the issue of digital reporting and electronic invoicing (e-invoicing).
The draft ViDA Directive has experienced some legislative delays and it is highly unlikely that it will be transposed (in whole or in part) into Czech legislation from 1 January 2024. The October ECOFIN session of finance ministers is expected to shed more light on the legislative process. The first milestone of the draft is the introduction of the possibility for EU member states to implement mandatory electronic invoicing for intra-community supplies. At the same time, electronic and traditional physical documents will be put on an equal footing.
Electronic documents
Currently, any information carrier converted into digital form (e.g., a scan of a tax document in PDF format) is considered an electronic document. To implement digital reporting, the directive needs to reformulate the definition of electronic documents: only a machine-readable document in the proposed XML or UBL format will be considered an electronic document. At the same time, the draft envisages a greater number of mandatory essentials of electronic documents, such as the counterparty's bank account to which the consideration will be paid.
Digital reporting
Over the last few decades, around half of the EU member states have adopted different measures for national digital reporting, with different control mechanisms to combat tax fraud. Some countries have implemented into their legislation VAT ledger statements, some SAF-T reporting, and others real-time invoicing or clearance e-invoicing with, which is the highest possible control mechanism.
The draft ViDA Directive also anticipates the introduction of e-invoicing on a general basis. This is the most effective but costly solution.
E-invoicing
E-invoicing should be introduced at the intra-community level. This is currently prevented by Article 232 of the directive on the common system of value added tax, which requires the counterparty's consent to the exchange of electronic documents. This article will be deleted from the VAT Directive and consent will no longer be required.
The main subject of the comment procedures on the draft are the implementation costs. A central VIES (VAT Information Exchange System) register, should be established to process, evaluate, and cross-check the reported data. This automatic clearance will be a control mechanism that will verify in real time all essentials and the format of the digital tax document. If these essentials are correct, the system will automatically approve the document. The automatic clearance option is costly, thus it is possible that it will not be implemented. In such cases, it will be the tax administrator who will upload the data to the VIES within a one-day deadline. Taxpayers will be obligated to issue a tax document within two days of the date of supply.
Electronic invoicing would ultimately promote automation and reduce the administrative burden for taxpayers. It may in fact introduce the automatic pre-filling of VAT reports based on the data that taxpayers continuously submit to the tax authorities. The draft also proposes to abolish EC Sales Lists and the possibility to issue summary tax documents.