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VAT in the Digital Age (ViDA): Not So Fast

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The dog days of summer seem an appropriate time to assess progress on the European Union’s (EU) VAT in the Digital Age (ViDA) proposal. This starts with EU Finance Ministers at ECOFIN in Luxemburg providing broad support for the proposal earlier this year in June, while also raising some concerns. 

The meeting was designed for the council to solicit feedback on ViDA, which covers three broad areas: VAT reporting obligations and e-invoicing, VAT treatment of the platform economy and a single EU VAT registration. (If you need a quick rundown on the proposal, here’s the first of three introductory posts on ViDA). Especially around e-invoicing, Finance ministers from member countries emphasized two points during the meeting:

  1. Current timelines are very ambitious. The first phase of the regulation is scheduled to take effect starting in January 2024; subsequent phases would take effect through 2028. Implementation within these tight deadlines will be costly and impractical, both for tax administrations and taxpayers. 
  2. Full harmonization requires a rethink. The proposal calls for the harmonization of e-invoicing across the EU. Some countries, including Italy and Poland, with e-invoicing rules already on the books are hesitant to change those mandates to align with yet-to-be-finalized EU rules. In addition, many countries want more flexibility when designing domestic reporting processes. And also, around pre-clearance of e-invoices there is no full alignment between the countries.

Later during the summer, the EU Parliament Committee on Economic and Monetary Affairs discussed the ViDA proposal, likely resulting in a proposal to delay the overall roll-out by one year. However, the Committee also calls for less harmonization, allowing countries to retain existing clearance systems and making the proposed EN16931 standard optional instead of mandatory. This proposed lack of harmonization may provide EU member states with more flexibility, but at the same time result in a more scattered compliance landscape, adding to the compliance burden for businesses.

Despite this generic call to slow down the ViDA implementation, indirect tax leaders shouldn’t wait for additional policy clarity before implementing an e-invoicing strategy. Instead, they should keep the following in mind as they develop and refine e-invoicing capabilities:

  • E-invoicing is a global trend that is accelerating. Beyond the EU, a growing number of global tax authorities have finalized, are finalizing or are considering e-invoicing requirements. 
  • E-invoicing can improve efficiency in the tax department – and beyond. While compliance is necessary, e-invoicing can also generate efficiency gains in accounts receivable, accounts payable and procurement departments. This qualifies e-invoicing capabilities as a larger, business initiative – one that requires ample cross-functional collaboration to succeed.
  • New technology, and new processes, are needed: While advanced tax technology can help, optimizing an investment in a new solution often requires process improvements. 

I’ll keep you posted on ViDA as the effort evolves. In the meantime, here’s a more detailed discussion on e-invoicing-related process improvements. 

Disclaimer

Please remember that the Vertex blog provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in the Vertex blog are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.

Blog Author

Peter Boerhof, VAT Director at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Peter Boerhof

Senior Director, VAT

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Peter Boerhof is the Senior VAT Director for Vertex. In his role, he provides insight and thought leadership regarding the impact of tax regulations, policy, enforcement, and emerging technology trends in global tax. Peter has extensive experience in international transactions, business restructuring, tax process optimization, and tax automation. Prior to joining Vertex, Peter was responsible for leading the indirect tax function at AkzoNobel, where he designed and implemented a tax control framework, optimized VAT, and managed the transition to a centralized tax operating model for global tax processes.

He was also responsible for indirect tax planning and compliance for merger and acquisition, supply chain, and ERP projects, as well as the implementation of tax automation initiatives like tax engines and robotics. Boerhof also worked at KPN Royal Dutch Telecom managing VAT, as well as Big Four accounting firms Deloitte and Ernst & Young (EY) advising on VAT compliance and optimization processes. Boerhof holds an MBA from the Rotterdam School of Management and a master’s in tax law from the University of Groningen.