VAT Talks - Roland Ismer

Ismer Image: WiSo Nürnberg, FAU


In this episode of VAT talks, we speak with Roland Ismer, tax law professor at the university of Erlangen-Nuremberg and one of the most prominent VAT specialists in Germany. With Roland, we analyse the latest developments connected to VAT and real-time reporting in Europe and Germany, where the new government coalition led by chancellor Olaf Scholz is planning to introduce a VAT reporting system. Come discover with us his view on data protection and the concept of balance between the interests of a functioning tax administration and those of the taxpayers.

Could you tell us a bit more about yourself, for how long you have been working in Taxation and how you ended up in this field of work?

“I have been working on tax for a good 20 years now. I studied in Constance, Geneva, Munich, and London. I completed my Ph.D. at the University of Munich on taxation and went to practise tax law in an American law firm in Munich. Then I turned to academia. First, I completed my habilitation, which was on climate change mitigation, but contained many aspects of tax law. Then I was asked to become the chair of Tax Law and Public Law at the University of Erlangen-Nuremberg in 2009. So, that’s how I ended up in tax and in Nuremberg. I was lucky to have a very nice predecessor, professor Wolfram Reiß, who is well known in Germany for VAT. He introduced me to the importance of that field. So, I have been doing research on VAT for 13 years now.

When we are talking specifically about my interest in tax law and technology, that started during a research visit to Oxford in 2015. People were discussing the impact of technology, not so much the impact on tax, but more generally: What would be technology’s impact on the world? That stimulated my interest, and I came into contact with some people doing tax on IT so that we ended up doing work on technology and VAT.”

You work as a Tax and Public Law professor at the university of Nuremberg-Erlangen, what is your research focus?

“I work on three different aspects of taxation. One is international tax, where I mainly focus on double taxation conventions, where I serve as the general editor of a commentary book on the topic, which is called Doppelbesteuerungsabkommen. Second, I work on climate change mitigation, in particular on border adjustment measures. And third, as I said, I also work on VAT and we’ve been working a lot on VAT and digitization for a couple of years now.”

More and more countries are becoming interested in real-time reporting, would you say this is a positive sign of their will to digitalise?

“We see a great deal of interest in real-time reporting, at least across the Member States of the European Union (EU). I think that interest in real-time reporting certainly reflects technological developments and the increased desire to effectively levy VAT. Technological developments, in my perspective, have been a game changer. Possibilities which did not exist 10 or even 5 years ago, are now a reality. Fast internet connection, for instance. That means that real-time reporting can be effectively real-time, rather than just near-time. So, the world has changed. Of course, the need for revenue has also increased. In the aftermath of the 2008-2011 financial crisis, countries became more sensitive towards revenue losses from fraud. The VAT gap, which is also in part reflecting fraud, has been large. The sensitivities will likely increase over the next few years after we have left the COVID pandemic mode and start to make an inventory of public offers. So, the governments are and must be looking for more revenue. And of course, it’s politically more acceptable to levy existing taxes properly, than just to introduce new taxes.

So, coming to your question, real-time reporting is one of the promising tools to reduce the VAT gap through digital technologies. Whether there is a wide-ranging willingness on the part of governments to digitalise, this really depends on the country you are looking at. Some countries are clearly advanced in this respect, and some countries lag a bit behind. If you ask me personally, Italy is clearly in the first group while I would put Germany in the second category. Finally, there is the wider question of whether I see the interest in real-time reporting as a positive development. I would answer that the interest is certainly to be welcomed. However, I am less certain that real-time reporting should be adopted without any modifications or caveats.”

Discussions around real-time reporting have also started in Germany with the legislative proposal of the FDP, do you think more will come with the new government?

“It’s an interesting point in time you’re asking this question. The negotiations for the coalition agreement were terminated last night. So the details will be published probably in the course of this day. I am quite hopeful that the new government will commit to digitalisation. The Liberal Democrats, the FDP, have already stated that they are in favour of the digitalisation of VAT. The Green Party has also in the past made statements in that direction. So, I would expect a political willingness to do something about it. What exactly this something will be is not quite clear yet.

Moreover, in addition to political will, you also need administrative and IT capabilities to implement that technologically. I am hopeful because as an academic I am optimistic almost by nature. Nevertheless there might be reasons to doubt that things will move very quickly. And finally, I think that we need something that is coordinated on a European level, so I hope that the new government will be aware of the European context they are discussing things in.”

Addendum 9 December 2021: “Now, after the publication of the coalition agreement and the forming of the new government, it is warranted to give a little more detail about what can be anticipated in Germany. The FDP and the Green Party are both part of the government, with the FDP even heading the Ministry of Finance. This could give new momentum to the digitalisation approaches. Furthermore, there is a paragraph on combating VAT fraud in the coalition agreement. It vows to introduce a nationwide uniform solution for the creation, verification and transmission of invoices. The efforts seem to go beyond mere reporting. Especially the creation and forwarding of invoices immediately evokes associations with the Italian central exchange model. However, the French decentralised transmission model (Y-Model) would also meet these requirements. There are many conceivable designs; time will tell which one Germany will choose.”

The European Commission is currently investigating real-time reporting for intra-Community transactions, what do you think of this eventuality?

“I very much appreciate the work that the European Commission is doing. I think we need a functioning internal market, which is one of the greatest achievements of the EU. The efficiency gains to be reaped from a common market are huge. Or, conversely, the losses from any fragmentation of the market are really to be avoided. So, what we see is that different Member States adopt different solutions to the problem of VAT fraud, developing their own standards. Therefore, compliance costs go through the roof. In particular the MTIC fraud relies on a VAT system that is fragmented across the border.

All this means we have to find a common solution for the EU, which also covers our intra-Community transactions. If you place it in a wider context, I do not see the EU making the step towards the comprehensive One-Stop Shop approach without such a common solution. So, action by the Commission is clearly warranted, as the problem will not simply go away, quite on the contrary. If we pursue the path we are on at the moment, there’s the danger of a lock-in effect: Countries introducing their own systems and sticking to that. So, I very much hope that the European Commission will be successful in that effort. It is something novel that is needed. I mean, if we look at the current real-time reporting systems that are in place, they do not cover intra-Community transactions because it is at the interface of two different Member States, it is off their jurisdictions. So, a national, single Member-State approach will not work.”

You wrote a paper on the Italian system as a model, what are the advantages and disadvantages of the SDI?

“First of all, I am deeply impressed by the Italian solution. If there were such a thing as the Nobel Prize for Tax Law, the Italians should get it. They have made a quantum leap and the system has many advantages. It has led to the digitization of the invoicing process, and it has significantly promoted the digitization of the economy as a whole. The tax administration and invoice exchange is more efficient, the payment period is reduced, the creditor can demonstrate that the debtor has actually received the invoice and this allows him to pursue his claims better than before. Apparently, VAT fraud has been detected on a large scale and this, of course, deters VAT fraud. The general acceptance of what the Italians have been doing is good . Therefore, there is quite high confidence in the invoice documents, but also the whole transition has been managed really well. There were a few problems on the way, but these obstacles have been efficiently removed. As you can see, the advantages are great.

When I now come to the disadvantages, I would say that there is a large amount of data being transferred, which is posing concerns on data security. There might also be problems associated with having a central point of interchange. So, the question is, how stable the system really is when you have a single point of failure. Then, private service providers are excluded. This does not only leave them out, but also limits innovation. The private sector is really strong at innovation. Having a system which involves private players who have proven themselves to be trustworthy would be a good idea. And finally, of course, this is what happens when you do something on a Member State level: You create a system that is a front runner, and then other countries do something, as well, and with that comes the risk of fragmentation.

Still, all this does not reduce the tremendous merit of the Italian achievements. I mean, it’s just great that they did it.”

What is the role of data protection in the development of such a system? Do you think it is extensively taken into account?

“There is both a normative and a technical side to the question. As a lawyer, I do not feel competent to speak about the technical side of the problem. From a legal perspective, you have to make sure that data protection and especially data security is safeguarded. When you implement these systems, a great deal of economically relevant data is exchanged and some of it is stored. Particularly, when you also include consumers, you are moving beyond merely economically relevant data to personally relevant data. Italy has introduced some safeguards ensuring that certain information will not be requested, which is reasonable. However, it is to be considered what to do about highly personal and sensitive data. Therefore, what we need is security and possibly limit what data is being stored and what data is being made available to the government.

We have been discussing the advantages of decentralized solutions before. If you transmit all the data from the government server, you have the disadvantage that all this data is concentrated in one spot, possibly creating the risk of data leakage. Also, you are making all that data accessible to the government. The question is whether the government should really have all that data or whether there are not intelligent ways of limiting the data available to the government to what the government really needs. That is the balancing act between a functioning tax administration on the one hand and, and the legitimate interest of the taxpayer, not to put too much information at the disposal of the government on the other. What has been done so far is not unreasonable, but could be improved.”

If you could give the European Commission or Member States implementing real-time reporting one piece of advice, what would it be?

“Find a common European solution that promotes business efficiency, as well as standards for mandatory e-invoicing with real-time information for tax authorities."

Lastly, what would you say to the readers to make them more enthusiastic about taxation and VAT?

“We are currently seeing a digital revolution in VAT – and staying abreast of these technological developments is a bit like exercising: it keeps you young.”

We would like to thank Roland again for his time and for giving his perspective on VAT. The opinions expressed in this article are personal. If you have any questions, suggestions or if you want to be our next interviewee, do not hesitate to contact us via