22. February 2024 Thanks to the European Commission’s proposal of 8 December 2022 called ViDA, “VAT in the digital age”, the topic of “e-invoicing” is gaining new momentum in Austria.
This proposal provides for the gradual introduction of an obligation to digitally report e-invoices by 2028. In addition, platform operators are to be included in the collection of VAT and measures are to be taken to prevent double registrations.
In many EU countries, digital invoicing is common practice in the B2B sector. The introduction of e-invoicing could help to drive forward the digitalisation of the economy and at the same time use the opportunity for automation for both the tax authorities and companies.
In Austria, too, e-invoicing was made mandatory a few years ago as part of invoicing to the public administration.
The implementation of these proposals requires extensive technical adjustments to the processes for companies to comply with VAT regulations. It is important to consider these adjustments now.
Status Quo
The foundations of EU VAT law were developed before the digitalisation and globalisation of the economy picked up speed. Although the existing rules are being reconsidered in a digital economy, the procedural rules are still lagging behind today’s possibilities.
The fight against fraud poses major difficulties for financial authorities, as the existing rules are not sufficient. Some EU member states such as Italy, Hungary, Poland and Germany have already introduced or are considering introducing stricter national reporting obligations. These national regulations vary in detail, but have some commonalities. These include the digital exchange of structured data with local tax authorities, the timely reporting of sales transactions and sometimes the need for official authorisation or verification.
In 2019, Italy was one of the first European countries to introduce the obligation to use electronic invoices for sales within the country, both for B2B and B2C invoices. At the same time, a so-called “clearing system” was introduced in Italy. This means that electronic invoices in a structured format must first be sent to a central national platform of the tax authority. Only after the tax authority has authorised the invoice is it forwarded to the business partner.
VAT in the digital Age
The European Union is facing different, inconsistent situations with regard to VAT and at the same time is struggling with the problem of the “VAT Gap”.
The “VAT Gap” refers to the difference between the expected VAT that should be collected by the tax authorities and the VAT actually paid.
This difference is caused by various factors such as VAT fraud, tax evasion, errors in tax returns and ineffective tax collection. The purpose of measuring the VAT GAP is to quantify the extent of unpaid or uncollected VAT and to identify measures to improve tax efficiency.
With the help of ViDA, the EU’s VAT system is to be modernised and companies are to be made more resistant to fraud with the help of digitalisation measures. This is to be achieved through the introduction of digital reporting obligations based on electronic invoices, the updating of rules for the digital platform economy and the creation of a standardised and single VAT registration for companies with B2C sales within the EU.
The plan is to implement these changes gradually from 1 January 2024 to 1 January 2028.
With the introduction of the digital reporting obligations, it is planned to replace the recapitulative statement with a standardised report for all cross-border transactions within the EU from this date. This is referred to as “transactional tax reporting” and will take place in a joint electronic report.
With these measures, reportable data in connection with intra-Community deliveries by taxable persons is to be transmitted to the tax office almost in real time. The aim of this harmonisation and standardisation is to quickly uncover VAT fraud and abolish the previous recapitulative statement, as stipulated in Article 21 (3) of the VAT Act.
However, neither the introduction of the e-invoice nor a reporting obligation at individual invoice level is planned for purely national or third-country transactions.
There are also plans to change the definition of an e-invoice from 1 January 2024. An invoice will then be considered electronic if it is created in a structured data format and the consent of the invoice recipient will be abolished.
What does this mean for Austria?
With the ViDA proposal, the EU Commission has made it clear that it is in favour of the introduction of digital reporting obligations for cross-border B2B transactions within the EU.
For Austria, the introduction of e-invoicing for B2B domestic transactions offers an opportunity to further advance digitalisation in the country and to digitalise the economy more strongly.
The introduction of e-invoicing not only brings advantages for the tax authorities in combating the VAT gap, but also for companies. It enables cost reductions, increased efficiency in the processing of payments, the automation of business processes and contributes to environmental protection.
Particularly in the area of internal control processes, e-invoices can help to automate many tasks and save time and effort. In addition, e-invoices enable companies to better monitor their internal processes.
There is also potential for checking invoices, automatically integrating data into the accounting system and reconciling payments and transfers more easily.
When introducing and implementing ViDA, the involvement of small and medium-sized enterprises (SMEs) in particular will be of central importance. According to a study conducted by the Austrian Federal Economic Chamber in 2018, 60% of companies in Austria did not have accounting or ERP systems that enabled the electronic exchange of data both with business partners and within the company.
In Austria, a large proportion of companies still work with “paper invoices” that are created in “office systems”. One reason why e-invoicing has not yet gained popularity could simply be a lack of knowledge about e-invoicing and a lack of B2C options available on the market.
Recommendation for practice
Over the next few years, there will be extensive changes in the area of VAT throughout the EU due to technological progress and continuous changes in work processes.
Although the implementation of these changes in Austria will only take place gradually over the next few years, we recommend that companies that generate B2B sales that are subject to VAT should already start looking more closely at the issue of electronic invoices.
It is advisable to make preparations to ensure that ERP systems are adapted in good time.
Conclusion
The Commission’s proposal is at an early stage and further information from the European Commission is awaited.
In any case, ViDA is intended to digitalise and drive the market forward and create mechanisms from which not only the tax authorities but also companies can benefit.
If you have any questions, please contact ARTUS (info@artus.at).
