Explanatory Memorandum to COM(2009)21 - Amendment of the VAT Directive as regards the rules on invoicing - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2009)21 - Amendment of the VAT Directive as regards the rules on invoicing. |
|---|---|
| source | COM(2009)21  |
| date | 28-01-2009 |
Grounds for and objectives of the proposal Council Directive 2001/115/EC (‘the Invoicing Directive’) introduced common EU rules on VAT invoices, deemed necessary for the internal market to function properly. However, the aim of simplifying, modernising and harmonising the rules on VAT invoices was not fully met: the many options currently available to the Member States have led to a less than harmonised set of invoicing rules. This can clearly be seen in relation to the different rules in place for e-invoicing, and is generally regarded as one of the barriers to increased use of e-invoicing. The Invoicing Directive, now incorporated in Council Directive 2006/112/EC (‘the VAT Directive’), required the Commission to report to Council by 31 December 2008 on technological developments in e-invoicing and to present a proposal if appropriate. As the Invoicing Directive did not fully meet its stated objectives, the proposal accompanying the report to Council has been widened to address the shortcomings of provisions on invoicing.
General context Unnecessary administrative burdens hamper growth and inhibit innovation. The rules on invoicing in the VAT Directive impose information obligations on nearly all businesses in Europe. A simplification of these rules has therefore a considerable potential to reduce the administrative burden on businesses. Moreover, compliance with the VAT requirements hinders the take up of e-invoicing, with the result that businesses are losing out on potentially large cost savings. If business is to be encouraged to become more efficient, barriers to using new technologies need to be removed. Together with introducing a more simplified and harmonised set of modern rules, consideration also needs to be given to the issue of VAT fraud. Significant work has been done to tackle VAT fraud and any changes to the invoicing rules should not undermine that work but seek to complement it.
Consistency with the other policies and objectives of the Union The overriding aim of the proposal on invoicing is to create a modern set of harmonised rules that simplifies the invoicing requirements for businesses whilst allowing tax administrations effective means of ensuring that tax is paid. This can be seen as supporting four key aspects of the Commission’s programme. Reducing burdens on business In January 2007, the Commission presented an ambitious Action Programme aimed at reducing administrative burdens on business in the EU by 25% by 2012. The Action Programme was endorsed by the Spring European Council in March 2007. The VAT Directive is among the 42 legal acts in the scope of the Action Programme. Within this directive the invoicing rules represent a key area where information obligations are imposed on businesses. The present proposal aims at reducing the burdens stemming from these rules. In particular it aims to ensure the acceptance by tax authorities of electronic invoices under the same conditions as applied for paper invoices. Furthermore, the present proposal aims at creating a set of harmonised rules on invoicing by reducing the options allowed for Member States. Businesses regard a common set of standard rules on invoicing as crucial to reducing the burdens placed on them. In its opinion of 22 October 2008, the High Level Group of Independent Stakeholders on Administrative Burdens pointed to the large potential for administrative burden reduction in the area of invoicing and endorsed the principle of equal treatment of electronic and paper invoices by tax authorities. Promoting SMEs The Small Business Act (SBA) was adopted by the Commission on 25 June 2008. It sets out a list of measures to be taken both by Member States and by the Commission with the common aim of promoting SMEs. This proposal complements the SBA by extending the scope for using simplified invoices, including those for smaller amounts which are particularly important to SMEs, and by giving all Member States the opportunity to allow SMEs to account for VAT on a cash basis under a cash accounting scheme. Increasing the use of e-invoicing The Lisbon Agenda, focusing on growth and jobs, is a key priority for the Commission. Encouraging the use of e-invoicing by removing legal obstacles to the transmission and storage of e-invoices can help businesses reduce costs and increase efficiency, and so play a part in helping to meet the targets set out in the Lisbon Agenda. An expert group on e-invoicing, set up by a Commission Decision, has highlighted the VAT Directive as a key piece of legislation with a direct bearing on the up-take of e-invoicing, although by no means the only one. Also, the Single European Payment Area, which was launched in the beginning of 2008 in order to harmonise electronic payment processes across Europe, and the aim of promoting e-invoicing can be of mutual benefit to each other given the inherent links between invoices and payments. To promote e-invoicing this proposal aims to eliminate the barriers to e-invoicing in the VAT Directive by removing the differences between invoices sent by electronic means and those sent on paper, thereby ensuring the method of transmission is neutral. Helping to tackle fraud The Commission published a communication on 31 May 2006 on the need to develop a coordinated strategy to improve the fight against fiscal fraud (COM(2006) 254). Certain forms of VAT fraud mentioned in the communication, such as unauthorised deductions and carousel fraud, rely on the invoice in order to perpetrate the fraud. While an invoice can be used to commit fraud, it is in many cases the main document used by the tax authorities to check that tax is paid. With this is mind, in his oral report to ECOFIN in the meeting of 14 May 2008, Commissioner Kovacs stated that ‘when updating the invoicing rules, the aspect of improving the possibility for the tax authorities to control the taxable persons should be taken into account’. This proposal includes measures to help tax authorities better tackle VAT fraud. These measures include tightening up the rules on the role of the invoice in VAT deduction and enabling speedier exchange of information on intra-Community supplies. The latter measure complements the Commission proposal to cut the time limit for exchanging information between Member States on recapitulative statements.
Consultation of interested parties
Consultation methods, main sectors targeted and general profile of respondents Public consultation
Summary of responses and how they have been taken into account Based on a selection of recommendations from the study on invoicing, and general principles on e-invoicing developed by the Expert Group on E-invoicing, the general public were invited to comment. In general, business and business associations were strongly in favour of the recommendations put to the public consultation. Those recommendations are largely reflected in this proposal.
An open consultation was conducted over the internet from 24 July 2008 to 19 September 2008. The Commission received 64 responses. The results are available on ec.europa.eu/taxation_customs/common
Scientific/expertise domains concerned On 25 July 2007 the Commission launched an open call for tender for a study on invoicing. The closing date for tenders was 7 September 2007. The contract for the study was signed with the successful contractor on 17 December 2007.
Methodology used The aim of the study was threefold. Firstly, it was to identify the different rules in each of the 27 Member States in respect of the implementation of the Invoicing Directive and to provide data on the take up of e-invoicing in the EU. Secondly, it was to analyse the difficulties that businesses faced in meeting the various invoicing obligations, particularly in relation to e-invoicing, and to evaluate the importance of the invoicing obligations as a control measure for the national administrations. Thirdly, the study was to present recommendations for changes in the legislation in those areas where the Member States could adopt a more harmonised approach or where the legislation could be modernised.
Main organisations/experts consulted Tax consultants and VAT experts from the Member States.
Summary of advice received and used No potentially serious risks with irreversible consequences have been indicated.
The advice received came in the form of a study on invoicing, which was used as a basis for the public consultation. Member States were consulted in a Working Party No 1 meeting held on 25 September 2008. VAT experts from the Member States commented on a selection of measures to be included in this proposal.
Means used to make the expert advice publicly available The invoicing study was published on the Commission website and a selection of recommendations was used for the public consultation. The invoicing study is available on ec.europa.eu/taxation_customs/common/publications
Impact assessment Article 237 of the VAT Directive requires the Commission to present a report by 31 December 2008 at the latest and, if appropriate, a proposal amending the conditions for e-invoicing to reflect technological developments in the field. While no technological developments intrinsically require the Commission to present a proposal, the most appropriate option to remove the obstacles to e-invoicing is an amending Directive since the obstacles themselves are contained in the VAT Directive. Other policy goals of reducing burdens on business and helping SMEs equally can only be achieved by changing the rules set out in the VAT Directive. Whilst a full impact assessment has not been possible, bearing in mind the deadline contained in the VAT Directive, many of the features of an impact assessment are nevertheless contained in the proposal and accompanying communication. The measurement exercise under the Action Programme for Reducing Administrative Burdens in the EU (ec.europa.eu/enterprise/admin-burdens-reduction), using the EU standard cost model, estimates the maximum mid-term reduction potential in removing the VAT obstacles to e-invoicing as up to EUR 18 billion if all invoices were sent electronically. A more conservative approach to the cost difference between paper and e-invoices, taking into account the number of VAT invoices required to be issued and the actual rate of up-take of e-invoicing experienced in Member States that already have a similar treatment between paper and e-invoices, would result in businesses experiencing a lower, but still very significant saving.
Contents
Summary of the proposed action The proposed action is an amendment to the VAT Directive. The proposed legislative changes include the following measures. Chargeability to tax for intra-Community supplies This proposal complements the Commission proposal (COM(2008) 147) on the shortening of the timeframe for recapitulative statements by simplifying the rules on the chargeability to tax for intra-Community supplies. The aim is to create a single date on which the tax becomes chargeable, that of the date of the chargeable event as determined by the time of the supply. By requiring the invoice to be issued by the 15th day of the month following the chargeable event, the invoice will still remain the principle document evidencing the intra-Community supply. Furthermore, the date of the chargeability to tax for intra-Community acquisitions is amended so as to correspond with the intra-Community supply. Right of deduction Two measures have been proposed regarding changes to the rules on the right of deduction. Requirement to hold an invoice for deduction The proposal applies equal treatment between the requirements of the supplier to issue an invoice and the customer to hold an invoice in order to exercise his right of deduction. The current rules lead to a disparity because in certain cases, such as reverse charge transactions, the customer is not obliged to hold a valid invoice in order to exercise the right to deduct. However, as is the case now, the proposal still allows Member States to allow a right of deduction subject to other evidence when a valid invoice is not available. Cash accounting Certain Member States have authorisation for a derogation in respect of the time at which the right of deduction can be exercised for those taxable persons declaring the VAT under an optional cash accounting scheme that simplifies the tax payment for small businesses. This derogation delays the right of deduction for those taxable persons in the cash accounting scheme until the payment is made to their suppliers provided they are allowed to delay until receipt of payment the moment when the tax is due. It is proposed to extend this optional cash accounting simplification measure to all Member States. The scheme should be available to all micro enterprises having an annual turnover that does not exceed EUR 2 million as defined in Commission Recommendation 2003/361/EC concerning the definition of micro, small and medium-sized enterprises. In addition, where the supplier only accounts for VAT on receipt of payment, a concession should be made for the recipient of those supplies to nevertheless claim an immediate right of deduction. This proposal creates a legal basis for Member States to further support businesses operating a cash accounting system. There is also an amendment to the details required on a full VAT invoice which will oblige the supplier to state the date of the chargeability to tax on the invoice. Currently without this requirement the recipient, in certain cases, is unable to know at what point the right of deduction can be exercised. Issuance of an invoice Member State where the rules are applicable There is some ambiguity at present regarding in which Member State the rules on invoicing are applicable. Whilst it is generally understood that the rules on invoicing are those applicable in the Member State where the tax is due this is not expressly stated. This causes certain difficulties for businesses. A taxable person making supplies in which the tax is due in another Member State would have to meet the conditions on invoicing in the other Member States and these rules may be different to the Member State where he is established. The proposal aims to resolve the problem by creating a set of harmonised rules for Business to Business (B2B) invoices with the consequence that a taxable person issuing an invoice from where he is identified for VAT will have legal certainty that the invoice is valid throughout the EU. This will also allow the rules to be applicable in the Member State of the supplier which builds on the One Stop Scheme idea of allowing businesses to fulfil their obligations from the Member State where they are established. In particular the proposal aims to harmonise the invoice rules where there is currently divergent treatment, namely exempt supplies, time limits for issuing invoices, summary invoices, self billing and outsourcing to third parties. For Business to Consumer (B2C) supplies the applicable rules will remain as the place of taxation but with greater harmonisation and transparency for business. By allowing Member States the option to require invoices for B2C supplies, which must be applicable equally to established and non-established businesses, but restricting this option to simplified invoices only, the proposal attempts to balance the needs of Member States to control the tax, and the need to reduce administrative burdens. Transparency for business can be achieved by requiring Member States to make available on a web site detailed information regarding invoicing rules for B2C supplies. In fact the Commission proposal (COM(2004) 728 - Article 34f of the Regulation (EC) No 1798/2003)) already foresees this for the 'one stop-scheme' and so the adopted 'mini one stop-scheme' will require something similar. Contents of an invoice An invoice is generally required to be issued for VAT purposes to evidence the VAT due to be paid to the Treasury and to allow the customer to exercise a right of deduction. The importance of the invoice in cases where a right to deduct can be exercised is clearly greater than where only VAT is due from the supplier. With this in mind the proposal aims to create a two tier system of invoicing. Firstly there is a full VAT invoice which is a compulsory invoice containing an extensive set of details for B2B supplies when there is the likelihood that the customer will be exercising a right to deduction, the supplier has a right of deduction at the preceding stage or for a cross border supply. Secondly, there is the option, or in certain cases the requirement, for a simplified invoice. Full VAT invoice Regarding a full VAT invoice the current requirements in Article 226 of the VAT Directive are largely kept. There are three notable changes. The first change regards the requirement for the supplier to state on the invoice the customer's VAT identification number. This will provide greater assurance to the tax authority that the customer's VAT number on the invoice matches that in which the right to deduct is being exercised. It also ends the distinction between domestic invoices and those invoices in relation to a supply to a customer in another Member State. Furthermore, it will help to uniquely identify the customer when, as is hoped, transmission of invoices by electronic means becomes more widespread. The second change is that the date of the supply of goods or services is replaced by the date the tax becomes chargeable. In this way the recipient of the supply knows in what period he can exercise his right of deduction. The third change relates to reverse charge supplies. Here the supplier, not liable for the payment of the VAT, may omit the VAT rate and the VAT amount payable from the full invoice when the supply takes place in another Member State. In many cases where the customer is in another Member State knowledge of the VAT rate may be difficult for the supplier. Simplified VAT invoice Member States have the option to require a taxable person to issue an invoice in the case of B2C supplies. However, in these cases as there is unlikely to be a VAT deduction only a simplified invoice can be required. For B2B supplies a business has the option to issue a simplified invoice for credit notes and domestic exempt supplies that do not allow the supplier a right of deduction at the preceding stage. Also, when the invoice amount is less than EUR 200 only a simplified invoice is required. As the VAT amount that could be deducted is small, the resulting risk to Member States' budgets is similarly small. The majority of Member States have, in any case, already consulted the VAT Committee to make use of simplified invoicing for minor amounts. The details required on a simplified invoice are those items mentioned currently in Article 238 of the VAT Directive. The only addition is the requirement to include the value of the type of goods or services supplied. E-invoicing Allowed by the various options available to them, Member States have implemented the rules on e-invoicing in a divergent way. This has created a disharmonised set of e-invoicing rules that have been difficult for businesses to comply with, especially when sending cross border e-invoices. The proposal aims to end any legal barriers to e-invoicing contained in the VAT Directive by treating the transmission of an invoice, whether by paper or by electronic means, equally. Thus, reference to the fact that the e-invoice should be by advance e-signature or by EDI are removed. At the same time it is important that best practices develop so that standards, business requirements and all legal requirements converge towards a common approach. In this sense the VAT Directive can only play a part in helping to remove the obstacles that currently exist in terms of VAT legislation and here work of the Expert Group on E-invoicing will be useful. Storage of invoices The proposal sets out a common EU time period of 6 years for which invoices must be stored. This allows uniformity for the exchange of invoices between Member States and is generally in line with current storage periods in Member States. The Member State in which the rules are applicable is now clearly defined in legislation by this proposal. In the case of the supplier the applicable rules are those of the Member State from where the supplier making the supply is established for VAT. In the case of the customer the rules applicable are those of the Member State where the customer belongs. Importantly as well businesses will be allowed to convert paper invoices into electronic form for storage purposes.
Legal basis Article 93 of the EC Treaty.
Subsidiarity principle The proposal falls under the exclusive competence of the Community. The subsidiarity principle therefore does not apply.
Proportionality principle The proposal complies with the proportionality principle for the following reasons.
A Directive has been chosen as the most appropriate and simplest measure, as the current rules to be simplified, modernised and harmonised are laid down in a Directive.
The measures aim to reduce burdens on business, help SMEs and facilitate the use of e-invoicing and as such should have a positive effect overall on economic operators while leaving Member States sufficient means to inspect taxes effectively and efficiently.
Proposed instruments: Directive.
Other means would not be adequate for the following reason. The legislation being amended is a Directive and so no other legislative act would be suitable.
The proposal has no implication for the Community budget.
Simplification
The proposal aims to simplify the legislation and the administrative procedures for public authorities (EU and national), and for private parties.
The proposal aims at removing legal barriers in the internal market for VAT invoices. This proposal contributes to the simplification strategy launched by the Commission in October 2005 (COM(2005) 535) with a view to helping businesses to be more competitive. The simplified measures cover, notably, the issue of an invoice created within a set of harmonised rules valid throughout the EU, a simplified invoice in the case of B2C supplies, the equal treatment of electronic and paper invoicing, a common EU time period for the storage of invoices and the withdrawal of the Member States' option to impose conditions on self-billed invoices.
The proposal will improve the quality of data exchanged between Member States in relation to intra-Community supplies of goods.
Setting harmonised rules at EU level gives businesses the legal certainty that an invoice compliant with the rules in one Member State will be compliant in all Member States. Currently, businesses may need to comply with up to 27 different rules on invoicing.
Correlation table The Member States are required to communicate to the Commission the text of national provisions transposing the Directive as well as a correlation table between those provisions and this Directive.
E-