ViDA for EU businesses: key considerations and actions for achieving tax compliance

Towards the end of 2022, the European Commission proposed a series of measures for modernising the EU’s value added tax (VAT) collection system. Why? Because, according to the Commission, EU countries collectively missed out on €99 billion of due VAT revenues in 2020. Conservative estimates suggest that one-quarter of this can be attributed directly to VAT fraud linked to intra-EU trade.

The proposed solution is a directive known as ViDA, which stands for Value Added Taxation in the Digital Age. In addition to helping EU countries collect the +/- €18 billion in VAT they’re currently losing to VAT fraud each year, ViDA will help businesses who operate across borders by simplifying their VAT administration.

On 26 September 2024, Finextra and Flowin joined forces to present a webinar discussing the implications of ViDA for businesses, in terms of preparing for its introduction.

The panel

• Paul Simons – e-invoicing advisor and Peppol Post Award Community Leader, Flowin

• Nazar Paradivskyy – VP Regulatory Affairs, Pagero, CTC Community Leader – OpenPeppol, PPCWG Member – GENA

• Anna Nordén – Principal Regulatory Affairs, Sovos

• Scott Hamilton (moderator) – Global Payments & Liquidity Expert, Contributing Editor, Finextra

What Is ViDA? Definition and implementation timeline

The session began with describing what ViDA involves, and the timeline for its implementation.

ViDA mandates the use of electronic invoices (e-invoices) that comply with the European standard, EN 16931, for cross-border transactions. This is complemented with a digital reporting requirement (DRR), which is a construct on top of e-invoicing whereby VAT information is automatically reported in real-time to the relevant tax authorities.

At the time of discussion, ViDA is due to come into force for all cross-border transactions involving EU countries in 2030. This implementation date is dependent on all 27 member states agreeing the proposal during the Ecofin meeting in November 2024.

However, as all three panellists pointed out, as soon as ViDA is agreed and the formalities for adopting it are complete, which could be within a matter of months, every individual EU country will be at liberty to immediately mandate e-invoicing domestically.

Up to this point, countries had to get permission from the European Commission, in the form of a derogation to the existing directive, to implement national mandates. Belgium, Italy, France and Germany have already done so, and introduced their own legislation for mandatory in-country e-invoicing for B2G and/or B2B transactions. But once ViDA gets the go-ahead, the other 24 member states can choose to do so at any time.   

Anna: “People mistakenly focus on 2030, but directly from the moment ViDA is adopted, member states will no longer need to request a derogation in order to implement a B2B mandate in their jurisdiction. The floodgates could be open within six months, not in six years. This is why it’s important to start preparing now.”

Nazar: “On a more positive note, this won’t happen the very next day after adoption, as governments will still need to prepare. They need to transpose the ViDA directive into their own legislation. And this will create opportunities for businesses who get on board sooner rather than later.”

Paul: “Back in 2014, Directive 2014/55 mandated public services to accept electronic invoices that comply with the same European standard as will be used for ViDA. This means that companies who invoice to public services are already using the ViDA standard. So they are ahead of the game.”

Scott noted: “The one message I’ve got from this is that people shouldn’t be focusing so much on exact dates for ViDA adoption, but more on making their preparations, so they’ll be ready to meet requirements on whatever date these come into force.”

Learn more: ViDA e-invoicing explained, what it is and why it matters

Preparing for ViDA involves multiple tasks, departments and business associates

Paul stressed the fact that compliance with ViDA impacts many aspects of business administration, both internally and externally. “E-invoices are not just documents to comply with legislation. They are a process that circulates through multiple departments within an organisation as they go through validation etc. So you have to get everybody on the same page, and that takes time.

“It will be easier for medium to large enterprises who have already adopted electronic invoicing. But for the very many SMEs who still use Word, Excel and even paper invoices, this will be a brand-new process which will require them to buy new software and get used to working with it. Internally, they have to make sure the document flow still works. For example, many e-invoicing workflows only accept PDFs, which is no good if you’re currently using XML files.

“It’s also important to make sure that all stakeholders, both internal and external, are on the same page and can deal with this new administrative flow. This extends to customers, suppliers and accountants. We’ve seen many examples of accountants promoting certain software or solutions that are compatible with their own systems, which automate document import and communication with their clients. But you also need to consider how you’d forward invoices to the bank when applying for a loan, or if working with a factoring company. So, it’s not only a question of how documents are routed internally, but also whether this is compatible with external parties’ systems.”

Anna expressed concern over larger corporations’ preparedness. “Most of them already do e-invoicing, but this will be different because it will require a totally different level of control over internal processes and data quality. Larger corporations do take this quite seriously, but I think they still have a lot of work to do to get their internal processes in order. They need to run this as a project that doesn’t only involve the IT department. This isn’t just a finance matter either. It needs to involve many different departments, and that means it will be complex, and progress will therefore be slower.

“Getting started early is important. Delay risks landing in a situation where you cannot be compliant when you need to be, or ending up in a time-squeeze for evaluating how you want to solve the various problems, such as choice of service provider. You may have to make hasty decisions. And that’s never good.”

On the other hand, Anna feels the transition may not be quite as challenging for SMEs. “They will be able to find service providers that can hopefully help them in a relatively simple manner, and relatively cost-effectively too, because smaller companies don’t have such complex systems of internal processes.”

“What is your organisation’s current level of readiness for mandatory e-invoicing?”

During the webinar, attendees were asked “What is your organisation’s current level of readiness for mandatory e-invoicing?” The result was:

• *In progress* 50%
• *Just beginning preparations* 50%
• *Fully prepared* 0%

(Note, there were no voting options for *Not yet started* or * In an advanced state of preparation*.)

For Paul, these results were pretty much as he expected. “Although I would have liked to have seen more progress, with a better score for *Fully prepared*. People think ‘2030 is a long way off so who cares?, and before we get there the requirements will change and the legislation will be further delayed’. In this sense, I’m not surprised that nobody is fully prepared. It is positive to see that people are either in progress or just beginning, which means they are aware it is coming. Even if they’ve only just got started, it’s better than starting next year. Even though 2030 seems a long way off, it will take some time to adapt all the systems.”

Nazar had a different view. “I’m actually happy there’s zero on *Fully prepared* because I think the person who says ‘I’m fully prepared for ViDA’ may be fooling themselves. This subject of preparation is so important and often misjudged. When our clients ask ‘How long does it take to implement your solution?’, our response is ‘It can be deployed in a couple of days. But are you ready, as a client?’

“And this is the part most businesses underestimate, because implementation of an e-invoicing solution is just the very final step to achieving compliance and getting all the benefits of going fully digital. The preparation phase can be quite lengthy, and one of the biggest mistakes I believe businesses could make is to fail at the requirements-gathering step by not getting all the relevant stakeholders involved. So often, companies put either the tax team or the IT team in charge of the project. But when you start unpeeling it and asking questions like ‘But have you thought about how this change will impact your business relationship with your trading partners? Is your support team involved? Have you considered how this might impact your liquidity position? Is your finance team involved in it?’, you realise it’s a much broader matter.

“So when it comes to preparation, I would like to really stress the importance of bringing in all your relevant stakeholders. It commonly happens that when you get people in a room and ask ‘Who owns invoicing in your company?’, you either get zero hands or everyone raising their hands. And that’s so telling.”

Cross-border vs. domestic e-invoicing under ViDA

The fact that ViDA will enable every individual EU country to introduce their own national e-invoicing and DRR legislation, in tandem with the cross-border directive, means that enterprises who operate domestically have to pay just as much attention. A webinar attendee raised the question of whether it would be necessary to operate two different systems to comply with both.

Paul: “In some countries, a national platform might be mandatory, while in others it won’t. The good news is that, in the examples we’ve seen from various tax authorities, they plan to make their DRR the same for both national and intra-community transactions. We cannot guarantee this, but indications point this way. So, in that sense, you will not have to run two systems in parallel. Although you might send invoices to another country differently from when sending domestically, software providers are aware of the situation and will make sure it can be accommodated.

“The other good news is that using the Peppol network can be an answer for all of this.”

Scott: “The message I keep hearing is ‘manage to the rule and handle the exception’, not the other way around. You might have to handle occasional exceptions to manage national requirements, but in general, it shouldn’t be too much of a bind.”

Nazar, however, disagreed. “I get the impression that a good number of member states will have quite varying DRR requirements, at least from a content perspective. I think different local tax authorities will require different data.”

Best practices for choosing a reliable partner to ensure ongoing Vida compliance

Turning to the practicalities of implementing ViDA-suitable IT systems, Paul had some important advice with regard to selecting software partners and service providers.

“You have to make sure they are both reliable and viable. As well as being reliable commercially and financially in the short term, you need to be sure their businesses will still be there tomorrow, because you don’t want to have to switch software if they disappear, and you need ongoing support to remain compliant going forward.”

Nazar stressed the importance of advance preparation before approaching potential software providers. “The process goes so much quicker and smoother if a company already knows their exact requirements and what to focus on. Which countries need to be covered? What is our back-end system? Where is our data? Which teams will be working with the new system on a daily basis? Approaching a software provider with nothing more than ‘Hey, we need an invoicing solution. Can we start tomorrow?’ won’t get you very far.

“I would focus on selecting a software partner who’ll be good from the e-invoicing perspective, and can deal with the DRR as and when it becomes necessary. This will allow you to go digital quicker and start benefitting from it sooner. In whatever form ViDA and DRR eventually take, whether for intra-community or domestic transactions, the data involved will only be the data that resides in an invoice anyway. So don’t go looking for separate solutions for e-invoicing and for DRR. Find a partner who can provide both, who can get the e-invoicing ready now and just enable the additional DRR capabilities when necessary.”

Learn more: How to choose the right e-invoicing API

“Which aspect of e-invoicing integration do you find most challenging?”

This second poll of webinar attendees produced the following result:

• *Integrating with existing systems* 63%
• *Selecting the right e-invoicing service provider* 25%
• *Understanding regulations* 13%

Earlier in the webinar, the panellists had all agreed that ViDA regulations are difficult to understand. The fact that only 13% of respondents selected it as their biggest challenge was therefore somewhat surprising. 

Anna expressed hope that this meant they are either on top of it or are working with service providers who are. Because the alternative explanation could be that they haven’t realised the extent of the complexity. Paul, who was the least surprised, was pretty convinced that the lack of concern was due to reliance on service providers to understand it.

With regard to the top answer *Integrating with existing systems*, Anna wondered whether the responses were in the context of difficulties in the actual operational integration process with a service provider, or the process of aligning internal ERP systems to get the right data. Paul suggested it could be the latter, as mid to large-sized organisations with many established workflows in place would need to make a lot of adjustments to comply with ViDA requirements.

Standardisation and interoperability. Is Peppol the key?

Paul was asked whether the Peppol e-delivery network would bring standardisation to ViDA. “We hope many countries will opt for Peppol for ViDA compliance, because that would not only standardise e-invoice content, but also standardise the way we send and receive e-invoices, and the network we use to do that in a secure and reliable way.

“As things stand today, ViDA does not mandate the use of Peppol. Many people wanted this to be the case, but reaching agreement between 27 countries with very different characteristics isn’t easy. Over time, there is an expectation of agreement to at least have Peppol as one option. Maybe the door will remain open to other national platforms, but with Peppol as a player in everyone’s systems.

“You could compare this situation to when mobile phones were first introduced. Once upon a time, certain mobile phone providers thought they could mandate their system for the whole world. But real life showed they were wrong, as the market went for an international network because it’s easier to use and doesn’t exclude people whose phones aren’t from a specific phone company.

“Interestingly, looking outside Europe, countries like Malaysia, Singapore, Australia, New Zealand and Japan have already chosen Peppol because they see the benefit of having one system for both national and international transactions. This is why I strongly believe that, over time, common sense will prevail and we will have one way of doing things. Although it might take a couple of steps to get there.”

Nazar continued the mobile phone comparison as he brought interoperability into the conversation. “Between my smartphone and my laptop, I have seven different applications for communicating with people. Facebook Messenger, WhatsApp, Skype, Telegram … you name it. They all work, but there is no interoperability between them. Each is locked into its own world.

“This is exactly the situation you want to avoid when setting up e-invoicing. You should have only one application, as in one e-invoicing provider. And that e-invoicing provider should be interoperable with all other e-invoicing providers. So you don’t need to work in six different interfaces and pay six different providers. You need one e-invoicing provider that’s open to send to and receive data from other systems. And Peppol is very good in that regard. It isn’t the only interoperable standard, but it is by far the most dominant standard today.

“And so, when searching for a service provider, organisations should work from a checklist to determine how interoperable a provider is. Do they have Peppol? Do they have Xena? Do they have bilateral interoperability agreements with other providers in countries that haven’t yet adopted Peppol? What’s needed is one, seamless interface.”

Learn more: A brief introduction to Peppol

Getting started on the journey to ViDA compliance

To conclude the webinar, Scott asked the panel what each of them would prioritise right now with regard to e-invoicing choices and system transformation decisions for ViDA preparation.

Anna: If I was a reasonably large company or corporation, I would start by ensuring my internal processes And I would make sure all stakeholders within the company are included. The other thing I would do is very carefully choose a service provider that can satisfy my needs. These needs have to include functional requirements, security and ongoing compliance. It’s not good enough to just look at a snapshot in time. The regulatory situation should be implemented as functional requirements. But compliance evolves, regulations change, and you need a service provider that constantly monitors and updates their services to remain compliant over time.”

Nazar: I can only echo what Anna said. Do your homework, gather your requirements and stakeholders, and aim for a solution that encompasses as many of your requirements as possible, in both a business sense and a compliance sense. Because you don’t want to end up with fifteen different applications. You want just one, so the process is seamless for everyone. Don’t get the modern-day equivalent of a Blackberry. We all know how it ended.”

Paul: “I can only agree with Anna and Nazar. Do your homework. This really matters. If things don’t run smoothly, your business will be jeopardised. So, start getting prepared today, not tomorrow. Because as we’ve said multiple times, it will take some time to do this and to get acquainted with this new way of working.”

Watch full session

Access our replay to discover essential considerations and actions for achieving ViDA tax compliance through e-invoicing and digital reporting requirements (DRR).