What ViDA means for the rise of global e-invoicing

The recent European Commission’s VAT in the Digital Age (ViDA) proposal is a game changer for global businesses and their tax functions.

Three questions to ask

• Are EU businesses and those that trade in the EU prepared for the fundamental change that ViDA will bring?
• Data quality is the key to e-invoicing. How can businesses develop the relevant data capture processes that ensure high data quality?
• What internal opportunities and benefits will ViDA create, and how can tax functions take advantage of them?

New European Union (EU) rules, taking effect on 14 April 2025, that standardize digital reporting requirements will move VAT compliance closer to a real-time e-invoicing environment, fundamentally changing the way tax and finance functions operate.

The EU VAT in the Digital Age (ViDA) initiative, to be phased in over five years, is one of the most significant reforms to the EU’s VAT system in decades. It is intended to modernize VAT processes, reduce fraud and streamline cross-border trade.

ViDA represents a fundamental shift in how VAT is administered across the EU. It is the EU’s response to long-standing issues such as VAT fraud, inefficient tax collection, and administrative complexity. For the first time, businesses will have to adopt harmonized e-invoicing and near real-time reporting across all Member States, creating a more transparent and digital-first tax system.

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. ”E-invoicing is a business-wide process that involves many corporate functions, including finance, operations, procurement, IT and tax. It impacts the vast majority of the business because before being a tax process, it's a business process," says Chiu Ming Man, Transform and Operate Partner, Ernst & Young LLP.

This shift toward digital invoices has been in development by Italy and France. It’s been live in Italy since 2019, and France plans to implement it in 2026. With the adoption of VIDA, it is now due 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.

How ViDA will drive organizational change globally

ViDA and e-invoicing requirements will catalyze the work that many organizations need to do to better integrate tax and other business elements regarding data management and usage.

Larger organizations are using ViDA and the rise of e-invoicing as an opportunity to take a step back to consider a strategy, not just a solution. Technology is a key component of that strategy, whether a single provider or several regional platforms. Organizations need a strategy because of the cost of a vendor selection every time there is a change and rushing to implement each solution takes time and effort.

There needs to be internal alignment to tackle ViDA, and the tax function needs to play a critical role from the outset. Establish a matrix clearly establishing departmental responsibility (which is responsible, which is accountable, which is consulted and which is informed) and a governance model that underpins it. The key is ensuring nothing falls between the cracks. "What we are seeing with e-invoicing is that it often does not fall under tax, but the tax function must be part of those discussions. Otherwise, there will be challenges in implementation," says Maria Hevia Alvarez, EY Global Indirect Tax Deputy Leader.

Tax leaders need to ask: What are the key requirements within ViDA that will impact the business? Tax functions need to ensure they are at least facilitating and kicking off that discussion because, ultimately, they are responsible for informing the company of those new and evolving requirements across its country footprint.

Data quality is critical

"Businesses are probably spending more money than they need to. There is an opportunity here to look at the process and the data. Time will be better spent committing to a larger strategy, even if that strategy is only for the next two to three years," according to Ben Woodfield, UK&I Indirect Tax Partner, Ernst & Young LLP.

Data quality is the most critical factor in e-invoicing. Businesses need to have the relevant data capture processes and controls that ensure high data quality in place. That data is going to be subsequently relied upon not just by systems for e-invoicing submission solutions but possibly by subsequent indirect tax processes, such as traditional VAT return preparation processes and other downstream submission systems. "Data quality is where organizations will get caught out. Data is as critical as selecting your technology solution," adds Woodfield.

Businesses also need to be conscious of their ERP system's current functionalities and capabilities with regard to VAT. In the future, they may have to increase functionalities to reach that data quality level.

The global opportunities created by ViDA

Apart from compliance and preparation, there are obvious opportunities to be gained by the tax function and businesses. "Businesses should ask – is ViDA an opportunity to enhance what we are doing now and to set ourselves up for facing the future?’” Man says.

ViDA will give the tax and finance functions access to live granular transactional data. They should harness it to create key performance indicators (KPIs) and data analytics for the benefit of their business. To determine, for example, which clients pay on time or the type of product designs that sell best. Again, data quality is vital because when a business transmits data externally, notably to tax authorities, it has to be good. Up until now, many finance departments have been using aggregated data.

Another benefit is the management of cash. Businesses can determine when cash is paid more quickly and by whom, and organize their business development based on those figures. Ultimately, the most significant opportunity ViDA provides is a genuine shift to digital.

"It's a huge business and commercial challenge. Quite a lot of investment is going to be required. But if you flip that around and think about the potential upside, I think this is the single biggest potential lever that tax teams can use to improve the processes, data and quality issues they've been facing for years," says Liam Larke, UK&I Indirect Tax Partner, Ernst & Young LLP. "It is an opportunity to completely overhaul how they manage indirect tax reporting within the organization."

Businesses should use ViDA as the backbone of a business case for investment in a particular technology or as a reason to improve upstream finance processes or improve legacy ERP issues. Use a holistic approach, considering how the processes, data and technology all interact.

ViDA provides an opportunity for tax leaders to get the rest of the organization to stand up and realize that they need to make fundamental changes and build tax requirements into every stage of the process. "If you can successfully align that with other finance transformation initiatives, such as an ERP upgrade or implementation, which lots of our clients are also managing at the moment, that can potentially set your business up from a tax reporting perspective for the next 10 to 20 years," adds Larke.