Luc Heylens
VAT Expert, Kreston-VDN BVBA
Luc works as a VAT expert at Kreston MDS in Beersel at Kreston VDN. He began his career as an inspector with the Belgian VAT Authorities. He provides VAT expertise and advice for the mid-market and SMEs. Luc has also worked within a large big 4 company as VAT director. He is specialised in EU VAT matters, cross border trade and real estate issues.
E-invoicing and VAT in the EU
May 19, 2022
The harmonisation of rules for e-invoicing to close the VAT gap throughout the EU is one of the major issues within the EU becoming more digital. Directive 2014/55/EU regulates e-Invoicing in public procurement and aims to reduce trade barriers arising from different national legal requirements and technical standards for e-Invoicing. Each EU member state has developed its own implementation of the law, adapting the electronic invoicing model to its own legislative framework. Currently, electronic invoicing is mandatory in public procurement, while its use is developing in business-to-business transactions but is not yet widespread. The European Commission initiated a public consultation on the topic on 20 January 2022.
EU Directive and requirements
This e-invoicing Directive explicitly imposes criteria of authenticity of origin and content integrity, which must be obtained in three possible ways :
- Through an EDI-based exchange.
- Through an advanced electronic signature.
- Through internal auditing processes that analyze invoice tracking.
“Authenticity of the origin” means the assurance of the identity of the supplier or the issuer of the invoice and “Integrity of content” means that the required invoice content has not been altered.
A paper invoice must be archived in its original format and consequently e-Invoices must also be stored in their original format. If the original e-Invoice is an integrated machine format, such as Edifact, Tradacoms or XML it must be presented in a legible (human-readable) format. If software renders an integrated machine format as a legible e-Invoice in real-time during an audit it should be possible to check the information between the original electronic file and the readable document presented has not changed.
Each Member State can determine the period throughout which the storage of e-Invoices within its territory and are allowed to ask for translation into their official languages. But in contradiction, Member States may not impose a general requirement that invoices be translated. For audit purposes, all supporting documents must be stored with the invoice.
Where invoices are stored by electronic means Member States can require that the data guaranteeing the authenticity of the origin, the integrity of the content and legibility of the invoice is also stored by electronic means.
If an advanced electronic signature or EDI is used, the data guaranteeing the authenticity of origin and integrity of content, will be that associated with those particular technologies. If business controls are used, which creates a reliable audit trail between the invoice and the supply of goods or services, the data referred to is that of any supporting documents.
VAT in the digital age : Increasing the use of e-invoicing across the EU
The European Commission’s “VAT in the Digital Age” initiative (and subject of a current public consultation) is looking at increasing the use of e-invoicing across the EU as well as looking to move towards a more harmonised set of requirements for e-invoicing and cross-border digital reporting. The policy options being considered include:
- A more widespread adoption of digital reporting and e-invoicing requirements across EU
- Fostering the adoption of digital reporting requirements that optimise the use of digital technologies
- Reducing the fragmentation of digital reporting requirements
- Issuing a non-binding recommendation providing a common design for reporting obligations across the EU
- EU member states no longer having to request an explicit derogation for introducing mandatory e-invoicing for B2B transactions
- The introduction of partial (limited to cross-border transactions) digital reporting and e-invoicing requirements
- The introduction of fully harmonised (covering domestic and cross-border transactions) digital reporting and e-invoicing requirements
- Requiring taxpayers to record data about their VAT transactions in a standard pre-determined digital format, which tax authorities can access upon request.
Hereafter, you can find a small overview of the implementation of the Directive in some EU member States and more specifically the e-invoicing rules for B2B transactions.
e-invoicing in Italy
Of the European Member States, Italy is one of the most committed to innovation and the digital transformation of its public administration. It was one of the first EU countries to introduce electronic invoicing and is currently the only one that requires its use in both the public and private sectors. This is unusual in the European legal context, since current EU legislation only requires electronic invoicing in the B2G sector. Italy obtained approval from the European Parliament to extend this requirement to the private sector.
e-invoicing in France
electronic invoices for B2B flows as from the 1st July 2024. France has recently announced that it will join Italy and will impose electronic invoicing. In France, the obligation to receive electronic invoices for B2B flows will come into force on 1 July 2024. The obligation to issue invoices will be imposed in successive steps.
In France, it’s estimated that 4 million businesses will need to get a new e-invoicing solution and be able to deal with receiving electronic invoicing.
France also organized a conference the 10th of February 2022 that has provided a forum for sharing implementation experience along with best practices in order to illustrate what the transition to e-invoicing entails and what businesses and government need to be successful in their endeavours.
e-invoicing in Belgium
The Belgian government has approved the Royal Decree of March 9 regarding the implementation of electronic invoicing with public administrations published in the Belgian Official Gazette on March 31, 2022.
The goal of the decree is to expand the obligation to issue electronic invoices to all the suppliers of public institutions of the country. The obligation will be expanded gradually based on the size of public contracts.
This obligation already exists for suppliers of the centralized entities of multiple regions (Brussels, Flanders, Wallonia). It will now be extended to the suppliers of public entities in all the regions
Belgium becomes another country in Europe like Italy and France that have decided to extend the mandatory use of the electronic invoice to public administration suppliers as mandated by European Directive 2014/55.
To ensure a sufficiently long transition period, companies would have until January 1, 2025 to adapt. Micro-enterprises would be exempted from the obligation.
e-invoicing in Spain
Spain is passing legislation to start bringing in mandatory e-invoicing on a B2B basis. Full details are not yet known, and the timeline is going to be very much driven by when that legislation is passed. It’s anticipated to be very similar to France and start to come into play in 2024.
e-invoicing in the Netherlands
The Netherlands use is mandatory for public administrations and voluntary for B2B transactions. Private companies can use electronic invoices as long as their clients agree, and the invoice meets the legal requirements.
e-Invoicing Poland
Poland is making progress in its project to massively introduce electronic invoicing between private companies. The use of B2B electronic invoicing is expected to be mandatory beginning in 2023.
e-invoicing in other countries
Many other countries within the EU are studying the subject to impose electronic invoicing for B2B flows of goods and services.
Conclusion and main benefits of the electronic invoice
In fact, electronic invoices also have a lot of benefits, such as :
- Digitalization of business relationships;
- Lower transaction costs;
- Greater visibility of commercial transaction flows;
- Faster commercial operations;
- Faster eletronic payments;
- Error reduction.
As the EU is really moving into the digital age, every member state will, soon or later, impose the obligation to issue electronic invoices for B2B transactions. Every business is involved in such a process and should be aware of the advantages of moving to issue electronic invoices.
Also, the reliable audit trail, which we spoke about earlier, between the invoice and the supply of goods or services, will be very important in the near future. Supporting documents will be necessary in all cases. So, it’s recommendable to study this issue and implement this possibility for all businesses.
