New VAT Directive to simplify e-commerce invoicing

At the same time, the Directive will require Member States to recognise the validity of electronic invoices and allow cross-border electronic invoicing and electronic storage. The result should be a significant reduction of firms' administrative costs, in particular for SMEs and an important boost to e-commerce, currently hampered by obsolete invoicing rules.

The simplified rules should also facilitate tax authorities' efforts to fight fraud. The Council will adopt the proposal formally once the text agreed has been translated into all eleven of the EU's working languages. The Directive will have to be implemented by 1st January 2004.

The new Directive establishes:

• A list of ten mandatory general items of information that must be included on every invoice, and also defines four additional items that may be required in specific circumstances;
• Simplified arrangements for small companies and small-value invoices;
• The requirement for Member States' tax authorities to recognise the validity of electronic invoices without any notification or authorisation system, on condition that the authenticity of origin and integrity of data are guaranteed through the use of electronic signatures or Electronic Data Interchange (EDI). Electronic signatures allow someone receiving data over electronic networks to determine the origin of the data and to check that that data has not been altered. EDI is a system of secure electronic information transmission used by businesses;
• The possibility in certain circumstances of outsourcing invoicing operations to a third party or to the customer (i.e. self-billing); and
• Free choice of the place and method of storage of invoices and acceptance of electronic storage, including of storage on-line in a Member State other than the Member State in which the firm in question is located.

Current situation

The proposal was prompted by complaints to the Commission from traders. Invoices are an essential part of the VAT system since they constitute the evidence on the basis of which the purchaser can deduct VAT that has been charged to him.

The problem currently is that each Member State has different rules concerning the obligatory information to be included in invoices and the form the invoices should take in order for VAT authorities to recognise their validity.

Firms increasingly carry out taxable operations in Member States where they are not established, making those operations subject to several sets of VAT legislation. Moreover, many firms operating on an EU-wide scale have started specialising their invoicing operations, entrusting to a single branch the task of issuing invoices on behalf of all other branches established in different Member States. This centralisation of invoicing operations, which can have a clear economic rationale, is made difficult by the existence of fifteen different sets of invoicing rules.

Electronic invoicing

Electronic invoicing, which can cut invoicing costs significantly (around €0.4 for an electronic invoice against €1.4 for a paper invoice, according to the Commission), is now developing rapidly. But in some Member States, electronic invoicing is prohibited or has to be accompanied by parallel transmission of paper invoices. In others it is permitted subject to varying conditions.

At present, therefore, firms established in several Member States require special authorisations in certain countries to apply cross-border invoicing arrangements and they have to use a technology specific to each Member State for the creation, transmission and storage of the electronic invoices. They also have to cope with recording different items of information for each country, storing information for a different period in each country and sometimes even making simultaneous electronic and paper transmissions of data.