On 8 December, 2022 the European Commission (EC) published the VAT in the Digital Age proposal (ViDA). The proposal includes measures to modernize the VAT system to avoid fraudulent activities, primarily through digitalization. It also aims to address the VAT problems created by the growth of the platform economy.
ViDA's series of far-reaching VAT measures, which aim to reduce the €93b VAT gap in the EU and to make the VAT system more efficient for businesses, revolve around three pillars: e-invoicing and digital reporting, the single VAT return for trading across the EU, and the platform economy. One of the key proposals is the move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU.
ViDA is "a complete game changer at the European scale," says Gwenaëlle Bernier, International Tax Partner at Ernst & Young Société d'Avocats – France.
ViDA will drive fundamental change within organizations. The tax function will play a critical role, but the interdisciplinary impact is significant, as are the opportunities it creates. It is a powerful potential lever that tax teams should use to improve their processes, data, and quality issues. "One of the great things about e-invoicing is its business-wide impact. It is not just tax-led, nor IT-led. It will touch finance, operation, procurement, IT and tax. It impacts the vast majority of the business because before being a tax process, it's a business process," says Pierre Arman, EY Global Tax SaaS Go-to-Market Leader.
This shift towards digital invoices has been in development by Italy and France for a few years, and it is expected to become the norm in every Member State. This means that all businesses operating in the EU will have to transition to digital invoices.
The advantages of e-invoicing and real-time VAT data for tax authorities are clear. It can assist in closing VAT gaps, prevent unintended errors, enhance risk management capabilities and early detection of fraud schemes. Near real-time availability offers even greater possibilities for quicker and more in-depth analysis of economic developments and forecasts. While businesses can incur high implementation costs, electronic invoicing can, over time, reduce business spending and stimulate the broader digitalization of taxation-related processes.