EXPLANATORY MEMORANDUM

Pursuant to Article 395(1) of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (hereafter 'the VAT Directive'), the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to apply special measures for derogation from the provisions of that Directive in order to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or avoidance.

By letter registered with the Commission on 31 March 2021, the Italian Republic requested authorisation to continue to derogate from Articles 218 and 232 of the VAT Directive to be able to continue imposing mandatory electronic invoicing. The present derogation expires on 31 December 2021. Further, the request asked for an extension of the scope of the derogating measure in force, granted by Council Implementing Decision (EU) 2018/593, to include taxable persons who benefit from the exemption for small enterprises referred to in Article 282 of the VAT Directive. In accordance with Article 395(2) of the VAT Directive, the Commission informed the other Member States by letter dated 10 September 2021 of the request made by the Italian Republic. By letter dated 13 September 2021 the Commission notified the Italian Republic that it had all the information necessary to consider the request.

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

Following Implementing Decision (EU) 2018/593, the Italian Republic introduced a generalised system of mandatory electronic invoicing, Sistema di Interscambio (SdI), also in accordance with the Council Recommendation of 11 July 2017 on the 2017 National Reform Programme of Italy and delivering a Council opinion on the 2017 Stability Programme of Italy.

Italy submits that the measure, aimed to combat tax fraud and evasion, to simplify tax compliance, to make tax collection more efficient and to modernise Italian production, thereby reducing administrative costs for businesses, has fully achieved its objectives.

Regarding the fight against VAT fraud and evasion, the measure has enhanced the capabilities of the tax administration, reducing the time necessary to detect and react against VAT fraud and evasion and improving the possibilities for risk analysis. Further, the measure has proved effective as a preventive measure, as it has deterred evasive and fraudulent taxpayer behaviours.

Even though it is not possible to quantify exactly how much recovery is directly attributable to the implementation of mandatory e‑invoicing, Italy has provided some estimates. According to those estimates, around EUR 2 billion could be directly attributed to the improvement in VAT compliance following the introduction of the measure in question, while around EUR 580 million of additional revenue in the collection of direct taxes could indirectly be attributed to the measure. Regarding control and enforcement, the action to identify and stop false VAT credits allowed the recovery of EUR 945 million in 2019. Furthermore, the use of electronic invoicing data for the whole of 2019 has also been essential in identifying taxable persons not meeting the requirements for the status of ‘esportatore abituale’ (over EUR 1.3 billion in false ceilings declared). Other processes are currently ongoing based on the cross-checking of electronic invoicing data with cross-border anti-fraud information sources (including the European anti-fraud network EUROFISC). It has also made possible to identify companies involved in intra-Community fraud mechanisms carried out between the last months of 2019 and 2020, based on invoicing flows for non-existent transactions amounting to around EUR 1 billion.

Regarding the simplification of tax compliance, the implementation of mandatory e-invoicing has allowed the tax authority to make available for taxpayers pre-filled purchase and sales records, the scheduling of the periodic VAT settlement, pre-filled annual VAT returns and pre-filled payment forms including the taxes to be paid, offset or claimed for refund (where priority is given to those using e‑invoicing). E‑invoicing has allowed to eliminate a number of obligations, such as the reporting of invoice data on domestic transactions, the filing of Intrastat declarations on purchases, the obligation to provide details of contracts entered into by leasing, rental and hire companies and the obligation to report transactions involving supplies of goods from the Republic of San Marino to Italy.

According to Italy, the implementation of mandatory e-invoicing has provided other benefits, as it has simplified the invoicing process, both for issuers and recipients, and has allowed the development of related services which make possible to monitor business performance in real time, including, for example, cash flow management. Further, in the context of the COVID-19 pandemic, the data from mandatory electronic invoicing has proved to be of great help in analysing the changes in the economy associated with the health crisis and in putting into place the most appropriate support measures.

The Implementing Decision (EU) 2018/593 applies until 31 December 2021, and this is why Italy has requested to continue to derogate from Articles 218 and 232 of the VAT Directive to be able to continue imposing mandatory electronic invoicing.

Moreover, the request also asks for the extension of the scope of the measure for taxable persons who benefit from the exemption for small enterprises referred to in Article 282 of the VAT Directive. Italy considers that this extension will enhance the fight against VAT fraud and evasion, as it will provide the tax authorities with a complete picture of the transactions carried out by all taxpayers. Further, tax authorities will be able to monitor that the turnover of the taxable persons benefitting from the abovementioned exemption remains under the threshold, allowing them to combat evasion connected to the access and permanence in this regime of taxpayers who violate, in substantial terms, the conditions and requirements established by law.

According to Italy, the required extension of the scope of the measure should not entail a significant administrative burden for these taxable persons. More than 10% of the taxpayers benefiting from the exemption for small enterprises referred to in Article 282 of the VAT Directive are already issuing their invoices through the SdI. Furthermore, the Italian Revenue Agency has made available to all VAT operators, free of charge, various solutions to prepare and transfer electronic invoices. These include a software package that can be installed on a computer, which can be used to prepare the electronic invoicing files even in the absence of an internet connection and to transfer such files by simply uploading them, and an application which can be installed on any mobile device to prepare and transfer electronic invoices. Moreover, the Italian Revenue Agency has also made available, free of charge, a digital storage service, which makes it possible to archive the invoicing files while ensuring compliance with the requirements of authenticity, integrity and readability of the files for 15 years.

SMEs would benefit from the elimination of the costs of printing and archiving invoices, the reduction of the risk of making mistakes in preparing invoices, and the access to a number of online services, provided by the Italian Revenue Agency, which allow taxpayers to exploit the invoicing data for the purposes of analysing the performance of their business.

Given the broad scope of the derogation and its extension to taxable persons benefitting from the exemption for small enterprises referred to in Article 282 of the VAT Directive, it is important to ensure the necessary follow-up of this measure and in particular its impact on combatting VAT fraud and evasion and on taxable persons, with special attention to SMEs. Should Italy wish to prolong the derogating measure, a report on the functioning of the measure should be provided together with the prolongation request. This report should provide the assessment of the measure concerning its effectiveness in fighting VAT fraud and evasion and in simplifying tax collection. The report should also include an evaluation of the measure on taxable persons, in particular SMEs, explaining in detail what concerns the increase of their administrative burdens and compliance costs.

It is proposed to prolong the authorisation until 31 December 2024.

•Consistency with existing policy provisions in the policy area

Article 218 of the VAT Directive puts paper and electronic invoices on equal footing by providing that Member States shall accept documents or messages on paper or in electronic form as invoices. Following Article 232 of the VAT Directive, the use of an electronic invoice shall be subject to acceptance by the recipient. The obligatory electronic invoicing as implemented by Italy indeed derogates from these two provisions.