To provide insights into how organisations can prepare for these changes and remain compliant, we spoke with Gunjan Tripathi, EMEA Director, Solutions Marketing at Vertex Inc. In the following interview, Gunjan shares her expert perspective on the impact of digitalisation on VAT compliance, the challenges posed by real-time reporting requirements, and what businesses must prioritise to stay ahead of regulatory developments.

————————————————————————

How has the global movement towards digitalisation impacted businesses’ VAT compliance and reporting requirements?

In recent years, governments have made a conscious effort to upgrade their technological capabilities in order to collect, analyse, and compare taxpayer data more efficiently and accurately. In the European Union, Member States now consolidate and analyse tax data, meaning businesses are required to provide more detailed information more frequently. The shift from paper-based VAT returns to online submissions and API-driven processes reflects this evolution, with a growing emphasis on improving data quality, transparency and security.

Processes that previously allowed for extended preparation times now demand near real-time data reporting with upfront accuracy and granular transactional information. This has compressed compliance & reporting timelines, increased complexity, and necessitated updates to current systems and workflows to ensure data is clean, accurate, and compliant from the outset.

How do you see VAT regulations evolving over the next few years?

Over the coming years we’re likely to see a continuation of the current trend towards digitalisation and transparency. We’re also already seeing a greater focus on cross-border regulations as governments seek to eliminate opportunities for Missing Trader Intra-Community (MTIC) fraud, with initiatives like VAT in the Digital Age (ViDA) bringing more cross-border transactions under scope of local VAT reporting. Enabled by technology, tax authorities will soon be capable of collecting, sharing, and analysing data across jurisdictions, providing greater visibility into business operations and allowing for benchmarking against industry standards.

While tax authorities have historically been focussed solely on theoretical and legal frameworks, modern legislation now also mandates specific IT processes for data reporting and compliance. This trend towards a more detailed “show your working” approach reflects tax authorities’ growing appetite for visibility of how businesses derive and report their VAT calculations.

As supply chains become more complex and commerce accelerates, technology is transforming compliance from a reactive process into a real-time – sometimes even predictive – activity, allowing businesses and tax authorities to track and allocate tax obligations seamlessly.

How do you see VAT regulations influencing business decisions?

As VAT is inextricably tied to a business’s bottom line, having a proper understanding of VAT requirements is essential for developing pricing strategies and fostering smoother interactions with customers and partners. Proactively addressing VAT considerations with business partners can also reduce friction, improve cash flow, and minimise delays in payments, ensuring that tax compliance doesn’t become a barrier to successful commercial transactions or international expansion.

What should companies prioritise in their VAT compliance strategy to stay ahead of potential regulatory changes?

For me, the key priority should be data integrity. Ensuring clean, traceable data that originates from a single source of truth is critical for accurate and efficient reporting. Good data integrity enables businesses to adapt data for varying requirements across tax authorities while maintaining a consolidated and centralised view of operations.

Tax should also never be treated as an afterthought. It needs to be a central component during planning. By integrating tax compliance into operational and technological frameworks from the outset, businesses enable direct, real-time access to accurate data, reducing the need for retrospective corrections and building resilience against future regulatory changes.

What are the primary ways businesses can optimise their VAT processes to remain competitive?

I would recommend that businesses focus on standardising their processes across jurisdictions wherever possible. A unified approach to VAT reporting, with minimal reliance on country-specific solutions, allows for better oversight, reduced resource dependency, and improved efficiency. Investing in holistic systems or partners that cater to multiple requirements will streamline operations and maximise the return on technology and personnel investments. While some edge cases may require tailored solutions, maintaining a centralised, flexible framework is key to sustainable and continuous VAT compliance, while staying competitive for business operations.

As tax authorities adopt new digital reporting tools, what compliance issues should companies anticipate?

Tax audits today are not simply concerned with whether or not you have interpreted the law correctly. Increasingly, auditors are analysing data trails and identifying anomalies through statistical testing and regressions. In order to withstand this increased technical scrutiny, businesses should ensure data is as clean and consistent as possible.

How do you anticipate the EU’s VAT in the Digital Age (ViDA) initiative will impact VAT compliance and reporting for businesses?

In a nutshell, ViDA’s goal is to streamline cross-border transactions and enhance transparency by introducing uniform e-invoicing standards for even domestic transactions across Member States. This harmonisation will require businesses to adopt invoicing systems that comply with the new EU-wide standards, moving away from disparate national regulations. Consequently, companies must invest in technology and training to ensure their invoicing processes align with these forthcoming requirements.

Additionally, ViDA’s emphasis on real-time or near real-time reporting will mean that businesses will have to maintain up-to-date and accurate transaction records. This shift is designed to improve VAT collection efficiency and reduce fraud. However, it also means that companies will need to enhance their data management practices and ensure seamless integration between their accounting systems and tax authorities’ platforms. While these changes may present initial challenges, they should ultimately lead to a more efficient and transparent VAT system across the EU.

What steps should companies start taking now to prepare for the upcoming changes associated with the ViDA initiative?

There are two clear things that companies should be doing to prepare for ViDA. First, as we’ve already mentioned, companies must prioritise data quality and consistency, as without good data all optimisation initiatives are doomed to fail. Secondly, businesses should consider transitioning from a point solution approach to a centralised process and technology solution. Given the complexity of new reporting regulations and the speed at which country-specific legislation is being introduced, attempting to handle changes manually would be unfeasible. By contrast, enlisting the help of a dedicated solution provider offers an efficient and cost-effective way to ensure compliance and audit-readiness moving forward.

What are the top three pieces of advice you would give businesses to prepare for future VAT and tax policy shifts?

Firstly, it would be advisable to establish a centralised tax policy and operational methodology to maintain consistency across jurisdictions. Secondly, businesses should conduct a thorough supply chain analysis to understand and manage tax exposures effectively. And last, but not least, businesses should get IT and finance teams to implement standardised and compliant processes, as standardisation is a prerequisite for optimisation. 

But these steps take time, so it’s important not to put them off!

Der Beitrag ecosio Insights: VAT Compliance erschien zuerst auf ecosio.

This progressive move toward e-invoicing not only demonstrates Germany’s commitment to leveraging technology for economic rejuvenation, but also positions German businesses at the forefront of digital financial practices.

What does the Growth Opportunities Act aim to achieve?

The act aims to provide tax relief measures to facilitate growth in an economy that has struggled in recent times, with Gross Domestic Product (GDP) having fallen by 0.3% in 2023. In short, by passing this act, the German government hopes to make the country’s economic landscape more efficient, transparent and resilient moving forward.

What changes will the Growth Opportunities Act bring?

A pivotal component of the Growth Opportunities Act is the introduction of a new e-invoicing mandate for domestic business-to-business (B2B) transactions. This development represents a drive to streamline financial operations and reduce the administrative overhead associated with traditional paper invoicing processes. Although debates within the Bundesrat in November 2023 suggested a potential postponement, which would have extended the timeline for adopting electronic invoicing until 2027 for receivers, the initial schedule set forth by the German Ministry of Finance (BMF) will proceed as planned.

What is the timeline?

The timeline for the phased implementation of the e-invoicing mandate is as follows:

• 1 January 2025: All German businesses must be able to receive and process electronic invoices
• 1 January 2027: German businesses with an annual turnover exceeding €800k must issue their invoices electronically for domestic B2B transactions
• 1 January 2028: All German businesses must issue invoices electronically for domestic B2B transactions

What are the technical requirements?

To ensure a seamless transition, electronic invoices must adhere to the EN 16931 standard. However, businesses retain the capacity to negotiate the Electronic Data Interchange (EDI) standards used, provided mutual agreement is reached between invoice issuers and recipients.

Whilst Germany will eventually need to comply with the digital reporting requirement (DRR), as outlined in the European Commission’s VAT in the Digital Age (VIDA) proposal, the mandate is specific to invoice exchange between supplier and buyer and does not include a Continuous Transaction Controls (CTC) / centralised model.

How ecosio can help

For organisations preparing to navigate this change, understanding the specifics of the mandate and beginning the transition early can significantly mitigate the challenges associated with adopting new technological frameworks. Thankfully ecosio’s e-invoicing experts are able to support you as Germany embarks on this journey toward digitalisation.

ecosio.invoicing makes meeting country-specific regulations easy. Our state-of-the-art Integration Hub acts as a single gateway to connect your business to customers, tax administrations and other government platforms all over the world; enhancing automation, driving down costs and helping you to achieve compliance.

Find out more

For more information on ecosio’s unique EDI solution, please contact us at edi@ecosio.com or talk to our Sales team.

Der Beitrag Germany Commits to Making B2B E-invoicing Mandatory erschien zuerst auf ecosio.

• ViDA (VAT in the Digital Age) is an EU initiative to modernise VAT with standardised protocols, new digital technologies, and streamlined compliance
• Goals include reducing VAT fraud by up to €11 billion annually and increasing efficiency via simplified VAT registration, real-time reporting, and mandatory e-invoicing
• It affects all businesses trading with EU customers, especially those without e-invoicing, and targets full adoption by 2030
• Deadlines include EN16931-compliant e-invoices and Digital Reporting Requirements by 2030, harmonised domestic reporting by 2035, with possible delays beyond 2030

In today’s ever-evolving digital landscape, the need for streamlined tax compliance has never been more critical. Enter ViDA – short for “VAT in the Digital Age” – an initiative that promises to revolutionise the way organisations handle Value Added Tax (VAT) and other related transactions. Designed to simplify, standardise, and secure tax processes, ViDA is set to transform the tax compliance landscape and how invoices are handled. 

In this article, we’ll explore what ViDA is, why it was launched, the transactions it will affect, the timeline for its implementation, its potential impact, and how IT managers and supply chain executives should prepare.

What is ViDA?

ViDA is a European Commission initiative (published in December 2022) focussed on modernising and digitising the way organisations manage their Value Added Tax obligations. It aims to introduce standardised protocols and encourage the use of cutting-edge digital technologies to streamline tax compliance processes, reduce errors, enhance transparency, and ultimately make the VAT system more efficient for businesses.

Why was the ViDA initiative launched?

Although there are many reasons behind the initiative, the two most significant motivations are reducing losses due to VAT fraud and increasing VAT process efficiency.

Reducing losses

At present, VAT returns processes across the EU are open to manipulation, as transaction reports are typically inspected months after being filed. According to the 2023 VAT Gap Report, EU member states lost an astounding €99 billion in VAT revenues in 2020 alone, with VAT fraud from intra-EU trade thought to be responsible for around a quarter of this total.

The EU Commission has calculated that the transition to universal e-invoicing could reduce VAT fraud by “up to €11 billion” annually, while also shrinking compliance costs for EU traders by “over €4.1 billion per year over the next ten years”. 

Increasing efficiency

For businesses that conduct cross-border transactions, handling VAT via the current system can be frustrating and convoluted. By introducing a simplified VAT registration system, promoting real-time digital reporting and mandating e-invoicing, the European Commission hopes to streamline tax processes significantly and make things easier for all involved.

Which businesses and processes will be affected?

What businesses will ViDA affect?

ViDA will affect all businesses that do business with customers in the EU, including online marketplaces and intermediaries that facilitate transactions between others.

Businesses currently lacking the capacity to send and receive e-invoices will be the most affected and will need to adapt their systems quickly in order to gain compliance with upcoming regulations.

What processes will ViDA affect?

When discussing the changes that ViDA aims to instigate, most people refer to the so-called “three pillars of ViDA”, namely single VAT registration, e-invoicing and digital reporting, and the hard-to-define “platform economy”. As far as processes are concerned, however, it is more helpful to think in terms of invoicing, reporting, auditing and VAT registration.

Invoicing 

ViDA intends to accelerate the adoption of e-invoicing across all EU member states, resulting in widespread usage by 2030. This acceleration will be enabled by the introduction of e-invoicing mandates by the governments of the countries involved.

Reporting

In addition to increasing the usage and scope of e-invoicing, the ViDA proposal also outlines a plan to introduce Digital Reporting Requirements (DRRs) across all member states from 2030. These DRRs would remove any need for recapitulative statements, requiring businesses to report relevant transactions to a central VIES (VAT Information Exchange System) database instead. 

Auditing

If ViDA goes ahead as planned, tax authorities will have improved access to real-time transaction data, enabling more efficient and accurate audits.

VAT registration

ViDA proposals outline a desire to introduce a single VAT registration system. This would allow businesses conducting cross-border transactions in the EU to fulfill all VAT requirements via one portal in a single language. This single VAT registration system is referred to as the import one-stop-shop (IOSS) scheme.

What is the timeline?

ViDA’s implementation will occur in phases, with different regions and countries introducing regulations at varying speeds. Implementation is likely to follow the same path in all countries – namely a pilot program, followed by a staggered roll-out and tiered compliance deadlines based on company size or transaction amount. 

While the exact timeline has yet to be agreed by all states at time of writing, the expected timeline is likely to be similar to the below:

2024

• EU countries no longer have to get approval from the European Commission before being able to introduce mandatory e-invoicing.

2026

• At present, any EU business with yearly sales over €10,000 must charge VAT of the customer’s country during cross-border B2C transactions. If annual sales are under €10,000, businesses can collect VAT of their home country. In 2026 it is expected that the directive will be changed to state that only goods dispatched from the seller’s country will count toward this threshold.
• From 2026, cross-border supplies of energy/natural gas may be reported via the One Stop Shop (OSS).

2027

• Platforms offering passenger transport and short-term accommodation (the definition of which will change to <30 days) will be deemed as suppliers unless specifically exempted.
• The “place of supply” of consumer-facing service platforms will be where the transaction takes place.
• EU countries must apply a reverse charge when a non-registered/established seller completes a sale with a customer that has VAT registration in that country.
• The OSS will be expanded to cover cross-border movements of sellers’ own stock.

2030

• Electronic invoices must be issued in a structured format compliant with the European standard (EN16931). Hybrid invoice formats such as ZUGFeRD will be acceptable as long as all requisite data is included in a structured format.
• E-invoices will be mandatory for all transactions falling under the Digital Reporting Requirements (DRR).
• Customers will not be required to accept non-automated invoicing.
• Being able to accept electronic invoices may become a necessary condition in order to claim back VAT.
• E-invoices must be issued within ten days of DRR transactions.
• Summary invoices can be issued up to ten days after the end of the month in which the relevant sales were made.
• Recapitulative statements will be replaced with more effective anti-fraud measures.
• Invoices must include bank account numbers.
• Reporting will become mandatory for zero-rated sales, intra-EU acquisitions, and cross-border transactions under the reverse charge mechanism.
• EU-compliant DRR may be implemented by EU countries for domestic sales.
• It will no longer be necessary to submit EC sales lists (AKA ESLs) for intra-EU sales.

2035

• By 2035, all existing domestic e-reporting systems must be in-line with the EU standard.

For a full breakdown of ViDA’s proposed deadlines, see the EU Commission’s final report (four volumes).

Postponements

On 16 June 2023, the EU Parliament Committee on Economic and Monetary Affairs (ECON) voted on and approved a report proposing a one year delay for all of ViDA’s main three pillars (single VAT registration, e-invoicing and digital reporting, and the platform economy). However, following a recent meeting, it was confirmed that sign-off on the suggested reforms will not happen until 2024.

As a result, the proposed deadline for the EU-wide implementation of e-invoicing and digital reporting looks set to move back to at least 2030 (with some suggesting the deadline may be pushed back to 2032). Meanwhile, the postponement also throws doubt on the proposed deadlines relating to VAT registration processes.

On Tuesday 14 May 2024 updated ViDA proposals were discussed by the Economic and Financial Affairs Council configuration (ECOFIN). Unanimous agreement was not reached in the meeting, however, as Estonia expressed opposition towards the deemed supplier regime, asserting that further work would be required in order to safeguard SMEs and private consumers.

What impact will ViDA have?

For many businesses, ViDA will mean implementing new processes and software in order to comply with changing requirements. While this may initially be costly, it also presents an opportunity to step back, reassess your B2B strategy, and build a more resilient e-invoicing solution.

In fact, aside from complications associated with implementation, the impact of ViDA is expected to be extremely positive for businesses, governments, and the public alike.

For businesses, streamlined processes and reduced manual workloads will result in increased operational efficiency. Likewise, the digitisation of VAT processes will boost accuracy by minimising errors and discrepancies. Over time, too, reduced administrative overhead and fewer compliance-related errors should result in considerable cost savings.

For authorities the benefits will be much the same. With real-time access to transaction data, tax authorities will benefit from more efficient and transparent systems and should be able to massively reduce VAT fraud.

For the public the increase in VAT revenue should mean more money for governments to spend on public projects. For example, the amount of VAT revenue not collected by EU countries in 2020 alone could have funded a 1,700 km high speed railway line from Berlin to Bucharest!

But there’s no need to speculate. Thanks to research by the European Commission, it is already possible to see the impact that the recent increase in automated processes has had on VAT revenue across Europe. According to the latest report, in just one year between 2020 and 2021, the overall VAT gap decreased by around €38 billion thanks largely to the increase in automated invoicing processes!

What should you do to prepare?

As no two businesses are in the exact same position, there is no “one size fits all” approach when it comes to preparing for ViDA. However, there are are several things you can do to improve your preparedness:

• Stay informed: By staying on top of developments regarding ViDA’s implementation, you will have time to plan your strategy and will avoid the dangerous situation of rushing to update your system before an imminent deadline.
• Assess existing systems and resources: Take the time to fully evaluate your existing systems, processes and internal resources. Identify what is required to support ViDA’s digital requirements and where possible weak points may be before deciding on a solution.
• Consider all your options: Just because you have handled all B2B messaging in-house previously, this doesn’t mean you have to do so moving forward. For many businesses, the simplest and most cost-effective way to achieve compliance with ViDA requirements is to enlist the help of an external solution provider. At ecosio, for example, we take care of all e-invoicing tasks for our clients, leaving them free to focus on what they do best.

Conclusion

ViDA represents a significant transformation in VAT and tax compliance, and promises to streamline processes, reduce errors and enhance transparency. In order to be able to appreciate these benefits, however, it is important for businesses to prepare. By making sure your systems and processes align with ViDA’s digital requirements before mandatory regulations are introduced, you can enjoy stress-free compliance while maximising the advantages of automated processes for longer.

Der Beitrag ViDA: What Is It and How Will It Affect You? erschien zuerst auf ecosio.