EUROPEAN COMMISSION Brussels, 10.2.2020 COM(2020) 47 final REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL assessing the invoicing rules of Directive 2006/112/EC on the common system of value added tax {SWD(2020) 29 final}



1.Introduction Based on Article 237 of Directive 2006/112/EC (the VAT Directive), the Commission shall present to the European Parliament and the Council an overall assessment report, based on an independent economic study, on the impact of the invoicing rules applicable from 1 January 2013 and in particular the extent to which they have effectively led to a decrease in administrative burdens for businesses. It is in this framework that the Commission carried out an evaluation of the invoicing rules. The evaluation was supported by an independent study led by the consulting group Economisti Associati and resulted in the Final Report published in February 2019. The evaluation assessed the invoicing rules of Council Directive 2010/45/EU (the Second Invoicing Directive or SID) and in particular whether they contributed to the four general objectives set initially, namely: i) the reduction of the administrative burdens on businesses ii) the reduction of VAT frauds/impact on control activities iii) the proper functioning of the Internal Market and iv) the promotion of SMEs. The evaluation followed the five evaluation criteria of the Commission’s Better Regulation Guidelines: relevance, effectiveness, efficiency, coherence and EU Added Value. 2.Transposition and implementation of the Directive To establish a starting point for the evaluation, the consultant carried out an analysis of how the Second Invoicing Directive has been transposed and implemented by the Member States. This analysis focused on whether Member States correctly transposed the Directive and measured the extent to which the national legal framework changed because of the Directive. For the sake of clarity the below summary of the analysis is divided in three thematic areas. 2.1.E-Invoicing The Directive introduced three main changes to the EU legal framework for electronic invoices (e-invoices): (i) a new definition of e-invoice; (ii) the principle of technological neutrality; and (iii) the principle of equal treatment among the paper and electronic invoices. The changes have been introduced evenly across the EU. Even when the national provisions are slightly different from the text of the Directive, there appear to be no problems of incorrect transposition. More in particular regarding the definition of an e-invoice, the vast majority of Member States (24) introduced the e-invoice definition in their national legislation mirroring the one in the Directive. In four Member States either the definition has not been introduced or is somewhat different from the one included in the VAT Directive. Regarding the principle of technological neutrality, it has been transposed uniformly and no Member State requires the use of defined e-invoicing technology. Although four Member States only accept e-invoicing solutions explicitly mentioned in the national legislation, the foreseen options are defined broadly enough to ensure taxpayers’ freedom of choice. To guarantee the principle of equal treatment legislative requirements on e-invoices beyond those that exist for paper invoices were removed in all Member States. 2.2.Invoicing issuance and content The SID introduced a number of changes in the area of invoice issuance and content. The SID amended three specific invoicing regimes: self-billing, simplified invoices and summary invoices. The SID also introduced changes to the invoicing requirements applicable to cross-border transactions in view of reducing burdens and increasing harmonisation. The main changes concern the applicable invoicing rules, time of issuance of invoices and the content of cross-border invoices. Overall, the Directive displays a very good level of transposition. The mandatory requirements of SID were all transposed in the national legislations. In addition, Member States introduced also in the national legislations changes that were optional for Member States. Finally some other changes were introduced by the Member States as additional simplifications, while not really foreseen by the Directive, but not contradicting it. It is worth mentioning that for the invoice issuance and content, the national legislation of some Member States was already in line with the SID. Consequently, the extent of the changes depends on how previous national legislation was framed. Thus the Directive had an uneven impact on the different national legal frameworks. That is why for the purpose of the assessment these provisions were prioritised based on the extent of the legal change (i.e. the number of Member States in which they caused a change to the national legal framework) and the VAT practitioners’ perception of whether they had affected companies’ behaviour. This prioritisation showed that the changes regarding the applicable jurisdiction (Article 219a of the VAT Directive), simplified invoices (Articles 220a, 226b, 238 of the VAT Directive), timing to issue invoices ( Article 222 of the VAT Directive) and self-billing (article 224 of the VAT Directive) were considered as substantive, whilst the other changes brought by the SID were rather considered of minor impact. 2.3.Other invoicing rules The SID introduced one specific change targeting SMEs, the so-called combined cash accounting for certain micro-enterprises. The analysis of the transposition of the cash accounting provision shows no discrepancies between EU rules and national legal frameworks. Other changes relate to the VAT chargeability rules for the intra-Community supply and acquisition of goods and their transposition led to a harmonised approach in the Member States on this aspect. 3.Main impacts of the Second Invoicing Directive

3.1.The reduction of the administrative burden The reduction of administrative burdens on businesses by the SID were triggered mainly by the following two sets of provisions: (i) e-invoicing requirements and (ii) the issuance and content of invoices, which simplified and harmonised the invoicing requirements. Regarding e-invoicing, the positive role of the SID is recognised. The SID was clearly one of the factors which stimulated the growth in the use of e-invoicing among EU businesses since 2014. Based on the study, the biggest impact of the SID on the reduction of administrative burden is due to the higher uptake of unstructured e-invoicing, because of simplifications which encouraged companies to switch from paper invoices to PDFs. The SID did not distinguish between structured and unstructured e-invoices. By not differentiating between the two e-invoice formats and enforcing the technology-neutrality principle, the Directive did not directly stimulate the use of automatically processable invoices and thus it did not lead to an increase in the uptake of structured e-invoices. Quantitatively, the Directive is estimated to have reduced administrative burdens on companies by EUR 1.04 billion over the 2014-2017 of which about EUR 920 million is to be attributed to the uptake of unstructured invoicing. The micro companies benefited the most from this impact of the SID, given that they adopted the unstructured e-invoices as they were not equipped to deal with structured e-invoicing requirements. Regarding the revision of issuance and content of invoices, the burden reduction was assessed as rather limited. The provision that had the biggest impact on administrative burden reduction was the simplified invoicing regime (in quantitative terms assessed at about EUR 38 million per year). 3.2.The impact on the Internal Market The SID provided a positive contribution to support the functioning of the internal market coming mainly from e-invoices and cross-border invoicing. Firstly, the data collected within the study demonstrates that, while in 2014 one in four intra-EU traders issued e-invoices, this number increased to three in four traders in 2018. This implies that the SID removed the problems which made cross-border e-invoicing more difficult and thus clearly contributed to the increased usage of e-invoices in cross-border transactions. Secondly, the SID introduced four further significant changes to the rules applicable to cross-border invoices: (i) the new rules on the applicable invoicing regimes (Article 219a); (ii) the uniform time limit for the issuance of invoices for intra-EU transactions (Article 222); (iii) the new rules on currency conversion (Articles 91 and 230); and (iv) the simplified content of invoices for cross-border transactions subject to reverse charge (Article 226a). Furthermore, the new rules on self-billing (Article 224) also simplified the use of this regime for cross-border transactions. These changes increased the legal certainty of the invoicing rules applicable to intra-EU transactions. The impact on the Internal Market of the other SID provisions is considered more limited since they did not affect the invoicing processes and thus passed rather unnoticed by businesses. 3.3.The role of the Directive in the promotion of SMEs Most of the measures of the SID are of a general nature applying to both large enterprises and SMEs. However, simplifying and harmonising the regulatory framework leads to reducing the administrative burdens and thus the measures have the potential to be especially beneficial for SMEs, which, due to their smaller size, usually experience more difficulties in complying with tax obligations than large companies. The SID had a positive impact on SMEs due to the more widespread use of unstructured e-invoicing. This positive impact was more significant on SMEs and micro companies than on large companies. The SMEs benefited from about 55% of the burden reduction due to the more widespread use of unstructured e-invoicing. The difference in burden reduction, which is still significant, is attributed to large companies as large firms issue a visibly higher number of invoices. The SID also amended two invoicing regimes fully or partly targeted to SMEs, namely cash accounting and simplified invoices, and thus contributed to their wider use. A number of Member States have introduced or enlarged the scope of the cash accounting regime after the changes introduced by the SID. It has been estimated that about 60,000 additional micro enterprises benefitted from the cash accounting scheme thanks to the SID. All in all, the uptake of the scheme remains still limited due to the fact that opting for the cash accounting scheme requires changes to the accountancy process which may in certain cases result in higher advisors’ fees. The overall cost savings due to the higher uptake of the cash accounting scheme generated by the SID have been estimated at EUR 33 million for the ten Member States in which changes can be attributed to the SID. The importance of cash accounting though goes far beyond the mere reduction of administrative burdens. It played a very important role for micro-companies during the economic crisis when the economic conditions deteriorated and the payments became more difficult. Regarding simplified invoices, due to the changes brought by SID, the regime has been introduced in a number of Member States while other Member States enlarged its scope. The simplified invoicing regime was assessed as having the biggest impact on administrative burden reduction from all the provisions on issuance and content of invoices (see above section 3.1). Still, the use of simplified invoices remains largely limited to specific business sectors, such as accommodation, restaurants, retail trade, petrol stations and transport services and thus the burden reduction is not substantial. 3.4.Fight against VAT fraud As a whole, the Directive was also intended to support tax control activities, eventually fostering an improvement in VAT compliance. In particular the SID amended two provisions to this end: i) the time limit for issuing invoices for intra EU transactions and ii) the rules on the VAT chargeability of intra-EU supplies and acquisitions. However, there is no evidence of any significant impact of the SID on tax control or VAT compliance. The opinions expressed by tax authorities confirm that the effects of the SID when it comes to VAT compliance are, if any, rather limited. Tax authorities and stakeholders are of the opinion that not more can be achieved by invoicing rules in the area tax control. Since the information from invoicing is not readily available to tax authorities, their focus is currently on systems assuring real-time reporting allowing better risk analysis and more targeted controls. At the same time, it is reassuring that the simplification and harmonisation of invoicing and e-invoicing requirements did not have any adverse impact on tax control activities. 4.Main shortcomings of the Directive The assessment of the invoicing rules showed one shortcoming of the SID and some emerging issues which are outlined below. 4.1.The lack of clarity on the BCAT