Electronic Invoicing and International Standards: Where do we stand?

In 2020, VAT evasion determined a severe loss of incoming funds for EU member states, amounting to a total loss of 93 million euros. To contrast this phenomenon, the European Commission recently issued a public consultation titled “Business in Europe: Framework for Income Taxation (BEFIT)”, a proposal detailing a unified fiscal scheme aimed at standardizing eInvoicing obligations at the EU-level. As declared by Commissioner for Economy Paolo Gentiloni, the framework is very likely to be finalized soon. More specifically, the proposal aims to recover tax contributions worth around 11 billion euros over the next ten years, an impressive figure that has the potential to determine considerable shifts throughout the Union at the social, environmental, and economic level.

The project is undoubtedly an ambitious one, seeing as standards and obligations for electronic invoicing vary greatly across member States. However, the path towards a unified, EU-level fiscal policy holds too much potential to remain unexplored: from market distortions to fluctuations in national debt, fighting VAT fraud and evasion holds the power to significantly shift global trends.

By making electronic invoicing mandatory, digital transformation plays a pivotal role in combating VAT evasion and fraud and fostering more compatible eInvoicing systems. To this end, on December 8^th, 2022, the European Commission published a legislative proposal titled “VAT in the Digital Age”, a compendium of recommendations to revolutionize the legislative schemes impacting fiscal policy in the EU. The aim of the proposal is to streamline a number of administrative processes, abate a significant portion of the costs associated with said processes, and favor the sharing of information across national systems. The VAT in the Digital Age proposal hinges heavily on the introduction of a new eReporting system for electronic invoicing, the establishment of updated rules on platform economy management, and the creation of a unified VAT registration system.

Moreover, both BEFIT and VAT in the Digital Age position themselves in a broader international context introduced by the OECD’s BEPS 2.0 (Base Erosion and Profit Shifting) scheme, which witnessed the participation of over 135 OECD member countries. The objective of BEPS 2.0 is to enhance the effectiveness of national taxation systems though greater interoperability among nation States.

EInvoicing in Europe and in the Italian Landscape

Following the introduction of directive 2014/55/UE, a first step towards the standardization of electronic invoicing was achieved. However, the bulk of guidelines pertaining to the timing and specifics of EU-wide implementation have yet to be determined, specifically when it comes to business-to-business (B2b) exchanges. Moreover, parameters for the fulfillment of formal eInvocing requirements and universal guidelines on the use of transmission channels remain inconsistent, with countries that are newer to eInvoicing typically adhering to national standards as opposed to the encouraged EU parameters for invoice transmission and reception.

As for the different eInvoicing models in place, the main difficulty lies in the inability to ensure an adequate trade-off between a system that supports national fiscal authorities alongside a satisfying degree of interoperability across countries. At the European level, according to data produced by the Politecnico di Milano’s Digital B2b Observatory, a combined 16 countries have introduced legislation regulating eInvoicing for business-to-government (B2g) exchanges, both on a mandatory and voluntary basis, while 13 countries only envision B2g invoicing on a voluntary basis. Interestingly, Italy is the only EU country to have made B2b eIvoicing entirely mandatory at the national level, thus encouraging several other EU countries to begin moving in the same direction.

Despite highly centralized models guaranteeing a good level of support to competent fiscal authorities, these do not perform equally as well when it comes to interoperability standards. The Italian Centralised Exchange model, for instance, favors a high level of centralization in support of competent fiscal authorities. Conversely, Nordic countries have tended towards the adoption of models such as the Interoperability model or the Decentralised CTC, which favor higher levels of interoperability to the detriment of equally elevated standards of support for national fiscal authorities.

Final considerations

The European fiscal unification and standardization project is certainly an ambitious one and not without its share of hurdles. In addition to problems of heterogeneity across national systems, several legal-normative factors will most likely have to be reckoned with, among these the likelihood that countries such as the Netherlands, Luxemburg and Ireland might veto the legislative project for fear of losing their fiscal privileges. Reaching an agreement is of paramount importance for BEFIT, which requires unanimous endorsement for its approval.

Additionally, it will certainly not be easy to reach an agreement on the EU-wide models and standards to be introduced. In this regard, the Digital B2b Observatory proposes the adoption of a hybrid model allowing for a good balance of centralization and standardization. This choice would also favor the transition from a national standard to a single European model.

Moreover, it will become increasingly important to foster dialogue and cooperation among all actors involved in the transition towards a more unified EU fiscal dimension. To this end, the Digital B2b Observatory is in the process of launching the International Observatory on Electronic Invoicing, a project that is supported by multiple players, from institutions to businesses, and that is carried out in collaboration with the Friedrich-Alexander-Universität Nuremberg University's Department of Public and Tax Law. The newly created Observatory aims to become an independent, qualified, third-party body for the monitoring and evolution of electronic invoicing in Europe through the involvement of international providers, academics, and institutional actors. The Observatory would thus position itself as a qualified entity, able to collaborate with different stakeholders for the orientation of European and international policies.

An article by Camillo Loro, Senior Researcher at Digital B2b Observatory and Aida Cavalera, Analyst at Digital B2b Observatory.