Laying the foundations for closing the tax-gap
The situation around e-invoicing mandates is complex. Legislation gradually being introduced all around the world means that, sooner or later, every business will have to comply. The same applies within Europe, where different countries are individually introducing their own mandates. Some mandates are already in force, while others are either imminent or still under discussion.
How and when these mandates affect each individual country, and those who do cross-border business, is a very complicated subject. In addition to differing timelines, the requirements within each country’s mandate are also very different. Across Europe, there is a notable lack of consistency between everything from technical specifications and communication platforms to which authorities need to be kept in the loop.
To cut a long story short, if you want to know how and when your business is (to be) affected, you need to stay on top of the news. One recently published guide to e-invoicing mandates in Europe can be found here. However, because the specifications and timelines are constantly being revised, further checks should be made to establish up-to-date information.
Preparing for a European e-invoicing standard
However, this unruly situation will eventually be resolved through EU-wide legislation that will dictate common standards and procedures. The best way to prepare, is to get on board with an existing facility that is already approved across Europe and very likely to remain so when standardisation is determined: Peppol.
Peppol is an international e-delivery network approved across Europe and many other countries around the world for e-invoicing to both companies and governments. Using Peppol eliminates the need to deal with different national e-invoicing standards within the EU, which is why it will almost certainly prevail into the future.
For organisations that want to future-proof their administration for whatever shape the EU e-invoicing mandate takes, setting up a direct API connection into Peppol creates a solid foundation on which any eventual features can be added.
An e-invoicing API that integrates organisations’ ERP systems and accounting software with Peppol makes space for software companies to build whatever supporting functionality their customers need for sending and receiving e-invoices. This sets them up for achieving seamless compliance, while allowing flexibility in how e-invoicing is presented within each individual organisation.
E-invoicing today, tax compliance tomorrow
E-invoicing actually benefits organisations in many ways. The direct, cannot-be-intercepted exchange of documents, together with stringent checks on all parties is highly effective for eliminating invoicing fraud, reducing errors and streamlining administration. While this is obviously a good move for any economy, this still leaves the question of why governments are so keen to make e-invoicing compulsory. The answer lies in a need to close the so-called VAT-gap.
What is the VAT-gap?
The VAT-gap, or tax-gap, is the difference between what governments expect to receive in VAT revenues and the amount of VAT actually collected. These discrepancies can occur for a number of reasons, from tax fraud to financial insolvencies and unintended reporting errors. To give an idea of how much money is involved, in 2020, the VAT-gap within the EU was an estimated EUR 93 billion (representing 9.1% of total expected VAT).
How will mandatory e-invoicing close the VAT-gap?
Once e-invoicing is in place, governments can introduce digital reporting requirements (DRRs) by adding a layer that loops in tax authorities as each invoice is issued. The e-invoicing mandates currently being rolled out are to lay the foundations for direct tax reporting.
Countries that have already implemented DRRs for tax reporting have seen a notable increase in VAT collection, giving weight to the case.
Digital reporting requirements can take various forms, from pre-registration and approval of invoices before they can be released for issuance to creditors, to real-time reporting, whereby tax authorities instantaneously receive invoicing information at the same time invoices are issued to creditors.
Will tax reporting become mandatory as part of the e-invoicing process?
Similarly to how e-invoicing is becoming compulsory at different times, tax reporting mandates are being rolled out in different ways, at different times, by different countries around the world. Within Europe, some countries have already introduced digital reporting requirements for tax, and this is affecting cross-border transactions.
The lack of consistency between different countries’ mandatory procedures for tax reporting is problematic. The ViDA proposal was issued by the European Commission in December 2022. At the time of writing, there is no date set for implementation. It should be noted that although the proposal is to introduce a single central system, each country will still set their own rules for how organisations will communicate with their local tax authority.
ViDA will benefit pan-European business
Similarly to e-invoicing, At the same time, ViDA will mean those active in multiple EU countries will no longer need to be VAT-registered in each different country, which will significantly simplify the administrative burden.
Preparing for ViDA
Given that ViDA, in whatever form it takes, will in some way be layered onto e-invoicing requirements, the most beneficial way to start preparing is, again, to establish an API connection into Peppol. As well as supporting flexibility in how internal administration is presented, this solution can be implemented in a short amount of time for a relatively low cost.