European Commission - ViDA commentary on the (almost) published draft directive - The good, the bad and the ugly


During the IDSt event in Berlin on the 16th of November, Agustín Míguez Pérez presented the potential directive which is a result of the “VAT in the Digital Age” Initiative. It was meant to be the official presentation but unfortunately due to political circumstances it had to be postponed to next month. Although he could not share everything with us, he was kind enough to give us a good overview of what might come.

Let’s start with a statement: It is ambitious! As always in politics some will argue not ambitious enough and some say it will be impossible to implement. We are going to analyse the decisions taken and try to assess where we stand.

We will analyse the presentation with a focus on VAT MTIC fraud, that is our focus, so all comments regarding the implementation details should be seen in this light.

The good: cross checks leads to better data.

Let’s start with the “good” - if you want to combat fraud you need to 1) reduce the number of errors, so increase the quality of the data, 2) allow taxpayers to cross check data. There are more aspects of course but those are tackled by the draft. We were very pleased to hear that the counterparty in a transaction from a different Member State finally can check what is being “booked” on their VAT number. This should lead to better data and less shadow bookings on taxpayers’ numbers without their knowledge or consent. This is very good from the perspective of fighting fraud, not so much for the taxpayers though, as this will increase their compliance cost enormously, if not implemented wisely. Seeing that every registration system is going to be implemented by Member States themselves, this could potentially lead to 27 different systems which again will lead to fragmentation and very high cost for taxpayers. Not all is lost fortunately, the Commission is aware of it and hopefully will guide the Member States to stick to some template. So all in all, one might argue this will allow Member States to catch fraudsters faster. Also on the plus side, no centralized clearance and a form of near-time reporting!

The bad: the focus on e-Invoicing and not reporting

Leaving aside political considerations, one does not need e-Invoicing to combat VAT fraud. There is e-Invoicing and e-Reporting, only the latter improves the fight on VAT fraud, the former is not needed. Supposedly, e-Invoicing should improve the quality of reported invoice data. Why is that? Because companies are doing their VAT return not on a transactional basis. They send out invoices which of course have to have the right VAT amount but all of them have a cleaning and correction batch running right before submitting the return. This correction at the end of the period of course is now more difficult or even impossible when submitting data in real or near time. This is said to be improving the quality of the VAT data as companies will invest in their VAT determination. Although true, a simple e-Reporting requiring the data to be submitted in real time achieves exactly the same. Even more so, the Commission is planning not to require the whole invoice to be sent to the Member States system but only an extract, exactly proving the point that you don’t need the electronic invoice for reporting but only the extract. Ergo, only some tax data fields are required which are much easier to implement than an e-Invoicing standard.

The ugly: the mandatory recipient of an intra-community e-Invoice

Why do we think this is the “ugly” part of this proposal? It has nothing to do with fighting fraud. We would like to remind the reader that we focus only on fighting fraud efficiently and not political considerations. We are also aware of the push from many Member States to implement e-Invoicing. So one might argue that the relief of the required derogation plus the requirement of an EN16931 standard, would be enough to get the Member States started on their journey to implement it on their own.

A broad standard never covers all edge cases

However, it is very easy for the astute reader to see what data is supposed to be transmitted for fraud purposes: just an extract! By making e-Invoicing mandatory, every company in the EU would need to be able to receive e-Invoices from any other Member State. Where is the problem in that? The EU has been trying to implement e-Invoicing for ~20 years already. Having one e-Invoicing standard is difficult. Luckily there are Member States who are trying right now to do it or have already implemented a standard. In Italy one can see that as the standard does not cover all scenarios, businesses have started to have two invoice streams: one to satisfy the tax administration and the other to satisfy their business needs. This does not mean Italy did anything wrong with their standard, it just shows there are so many varieties in business processes that one standard cannot cover it all, yet alone for 27 different jurisdictions. Remember the harmonised VAT return fiasco? France is seeing that the EN16931 standard is very much focused on B2G and not at all on B2B. This can be changed of course, but what cannot be changed is the complexity of e-Invoicing in general. One problem we see is that practitioners throw around the term EN16931 and think it will solve all our e-Invoicing problems, but it is more complicated than that. It is going to take another blog post to dive into the reasons why it can’t but for now let’s agree that there is no technical implementation of an e-Invoicing standard that will work in all business transactions, not to mention for all 27 jurisdictions we need to cover (see also our blogpost about harmonising e-Invoicing in the EU). Still this is not impossible and one might argue it is still better to have a standardised invoice and maybe if businesses need to transmit more data we can make that work outside of the standard. What companies in Italy are doing is maybe exactly what you should do. Have an invoice as tax document and more information for the business process aside. Of course this is not what businesses want but probably closer to what reality looks like.

Another argument brought forward in support of mandatory e-Invoicing is that SMEs will have an easier time receiving e-invoices. Summitto is an SME and for us this actually does not help at all, we receive almost all our invoices digitally already, either just a PDF but more often also with an attached XML via email. Simple and it works. We also did not have to ask for the XML as most Dutch accounting software already sends this by default. We of course can only talk from a Dutch perspective but e-Invoicing will not reduce our costs! With the ongoing digitalisation of society, it is only a matter of time before most invoicing is digital even without legislation.


The coming VAT directive is a bold plan and we congratulate the Commission for it. The focus on fighting fraud should have been more in the centre of the directive but it is a good step forward with a lot of political support backing it. Having businesses provide more accurate data is always a plus, no matter how you got there. We do think some people need to be more realistic about the advantages of e-Invoicing and maybe accept that the complete standardisation of invoices is a pipe dream. We therefore want to leave the Commission with a word of caution and advice: the directive is a great first step but we need very technical descriptions, or better yet, software available for Member States for the intra-community registrations. If actual implementations are undefined or only described on a very high level, multinational companies will have to deal with even more fragmentation in the future for their compliance processes. We have been assured this is a top priority so we are certain the Commission will find a way. Finally, as advice, why not define both e-Invoicing and e-Reporting in parallel? E-Reporting is getting as input an extract from an invoice anyway, if based on e-Invoicing in the future or just simple extract from accounting books today makes technically no difference, but prevents the possible discussions around e-Invoicing delaying fighting fraud today. Let’s hope e-Invoicing is not distracting us from the actual goal to fight fraud. Still as we all know, it will be decided in Council what we actually do, so who knows what the end result will look like!

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